Presenting the end of year macro observations on a "Trumpian new world order", from Eclectica's Hugh Hendry

Right Here, Right Now?

As you know, back in late 2014 we were more constructive on risk taking opportunities as Europe prepared to launch QE, finally resetting monetary policy on a necessary looser course. And by early 2015 European stock indices had rallied 30% from their October low, despite the pervasive market view that QE had passed its sell by date. But the momentum passed and the continent’s equities have performed woefully ever since, giving back their entire advance. We use the discipline of time to regulate our risk taking behaviour; our thinking was re-appraised over the summer and we were out of the position completely by October.

Chart 1: Euro Stoxx 50 vs S&P 500 – Relative Performance since January 2015

Here is what I think happened…

My team and I have grown tired of the demonisation of QE. We believe that the timely adoption of this policy in the US back in early 2009 was successful in that it staved off the very real prospect that the US economy would endure the hardship and misery of an economic depression comparable to that of the 1930s. Nevertheless the shock therapy of this radical new policy intervention had nasty side effects. Think of it as the financial equivalent of chemotherapy where the side effects of treatment can initially make the patient feel worse before allowing them to live longer. It’s just that Europe, by steadfastly refusing treatment for so long, may have irreparably weakened itself to such an extent that the side effects might end up killing the patient, in this case the EU project.

Let me explain. Our interpretation of the miserable performance of risk-adjusted equities versus sovereign bonds over the last forty years can be construed as the hijacking of the market economy by creditors. The advent of hawkish inflation targeting by central bankers was a response to the exceptional inflation of the 1970s which had bestowed an embedded inflation risk premium into the term structure of interest rates. However, the disinflationary forces of globalisation and the internet a decade later arguably meant that interest rates were set too high for the period and creditors were overcompensated. This mispricing of credit effectively established an enduring rent transfer from the debtor constituencies of the household and corporate sectors to the rentiers, which is most clearly manifest in the outperformance of government bonds over the period.

Following the crisis of 2008 the central bankers had no choice but to abolish this rent transfer, a challenge given the scope of their traditional role controlling short term rates. The advent of QE was an attempt to push the impact of monetary policy further along the curve, explicitly targeting lower 10-year rates. Many investors were and are sceptical as I believe they are largely ignorant of the policy objective: to eliminate the debilitating inflation premium embedded in real yields which was making it impossible for households and corporates to maintain spending and repay debts in the period from 2005 onwards. By driving 10-year rates close to zero the central planners hoped to re-price risk and thereby enable the debtors to keep spending whilst repaying more of their liabilities. The table below, comparing the real interest cost incurred by debtors in the economy with real GDP growth, demonstrates that this policy has succeeded: since 2010 real GDP growth in the US has exceeded the real interest cost, meaning that debtors have been able to earn enough from their economic activity over and above the cost of debt to reduce their liabilities. I wish a QE-sponsoring central banker would use this narrative to explain their policy intentions…

Regardless, the pinnacle of this policy was probably reached earlier this year when almost $11trn of sovereign 10-year money was priced at zero or negative nominal yields and the Bank of England's benchmark ten year interest rate fell to its lowest level in 322 years. This much you know. What is less commonly understood is that this summer, in the aftermath of the surprise Brexit vote, nominal US Treasury yields converged with the rest of the world.

Real 10-year treasuries reached zero but this was nothing new as they had been deeply negative back in 2013 prior to the taper tantrum. The unreported and new factor was that nominal Treasury yields converged to the lower Japanese and European levels on a currency-hedged basis. That is to say international investors, who typically hedge their foreign exchange exposure, found they could no longer achieve a yield uplift relative to their domestic bond market by buying Treasuries as the widening of cross currency basis and dollar libor rates made hedging more expensive. This was probably the point when the great multi-decade bull market in bond prices reached its climax, when the economic ascendancy of the creditor class reached its high water mark and when the shackles on global macro performance were finally released.

Chart 2: Nominal Sovereign 10yr Yield Convergence

For those fortunate to borrow at such low real rates the levy has reversed. Large businesses with solid ideas can  now borrow money at the wrong price; creditors have no choice but to transfer their wealth to the economy’s entrepreneurial and household sectors. I think this is likely to persist. The benefits of this pivot have already taken root in the US where, with the wealth transfer now running in reverse as per the table above, economic growth has been superior to the rest of the world.

Likewise it is evident in the other early adopter, the UK, which continues to defy the Brexit Armageddon naysayers. So I am beginning to think the world is healing and in 10 years' time we will look back and see that stocks have outperformed government bonds on a volatility-adjusted basis, similar to what we saw with gold versus the S&P at the turn of the century.

“I’m mad as hell, and I’m not going to take this anymore!”

The Network (1976)

However I fear this may not prove the case in Europe in 2017 owing to the afore-mentioned harmful side-effects on the political economy. In reality few debtors have been able to access this wealth transfer in the shape of cheap credit, whilst other assets re-priced higher to reflect zero yields. So the rich got much richer and ordinary folk became really annoyed, setting in motion the (thankfully) bloodless revolution of Brexit and Trump.

Trump succeeded by seizing on this discontent. He has now set out an agenda of fiscal expansion, exploiting the low rates. In other words, America has just elected a debtor president who will direct the government to borrow on behalf of his household and corporate constituencies at the rates previously only made available to the privileged few and the Fed will be pushed into a slow and predictable series of rate hikes that keeps real rates very low for years to come. Spending on infra-structure and financing substantial tax cuts is the chosen route to expand and accelerate this wealth transfer. I suspect the American patient is well positioned to recover from the political fissures brought on by QE.

The unknown factor is how the current phase of private sector tightening of monetary policy will conflict with this ambition. We have often pointed out how difficult it is for central planners to generate inflation. The problem is the colossal size of publicly traded sovereign bond markets and freely floating exchange rates; the private sector tightens monetary conditions in response to an expected pickup in inflation. Previous periods of hyperinflation many decades ago occurred owing to the absence of such constraints. The power of this automatic stabiliser can be seen when 10-year rates almost doubled during 2013’s taper tantrum, closely followed by a 25% rally in the US dollar index. I believe this pernicious repricing of credit almost certainly contributed to the US economy’s subsequent sluggish performance and the continued slide in inflation expectations. There will surely be a debate as to whether something similar might happen again. However, this time the market’s hand brake is likely to be  less effective given the imminent tax cuts, repatriation of stranded corporate cash balances from overseas and fiscal spending. In short, the US seems to have the political resolve and capacity to generate some momentum in economic growth.

Sadly the same cannot be said of Europe. The low growth and high government debt of significant European nations such as Italy requires decades of financial repression to be resolved. Instead, government bond yields have been dragged higher with global rates and, what is more, the German dogma of ‘good deflation’ seems as entrenched as ever with the first steps towards an exit from QE having just been taken as the ECB announced a reduction in the monthly asset purchases from April next year'.

And last but by no means least, there is simply no political resolve at the core of Europe to embrace a fiscal expansion to offset the dangers of this tightening on the continent’s weaker territories. The major northern countries tend to look at government budgets similar to households and favour balanced budgets; high spending policies involving more debt issuance from the core nations are simply unpopular with voters already angry about immigration and the effect of QE on the yields achieved on their savings. So I fear that Europe looks to set to flounder once more. And with Brexit, and now President Elect Trump, offering an appealing nationalistic growth alternative the fear must be that the popular vote in Europe’s busy election timetable will be galvanised into producing more shocks in the year ahead. Remember, as we discussed in our July 2016 Commentary, it was the successful precedent of an alternative economic policy following the UK’s decision to leave the gold standard in the early 1930s that led to the demise of the previous regime.

Japan is a different proposition. The Bank of Japan’s momentous decision to target zero 10-year JGB yields was itself an open admission that the private sector pricing of sovereign bond markets can  scupper the inflationary zeal of the central bankers: by front running the bureaucrats and raising bond yields at the earliest indication of inflationary pressure, the markets have successfully kept a lid on such ambitions despite huge central bank bond purchases. But in comparison with Europe, Japan is an oasis of political consensus and stability. In five short years the country’s elected leaders have removed hawkish Bank of Japan governors, wound back fiscally regressive tax hikes and now have ‘sacked’ the bond market. Their inflationary intent is now almost unencumbered.

So if Trumpian policies lead to higher inflation globally, this could be the long-awaited moment when inflation finally makes an appearance in Japan. And with nominal bonds yields held at zero, the outlet valve would be a sharply weaker yen.

In short, a European macro storm is brewing and the yen slide seems likely to persist.

Mad Policy, Mad Men or Mad Max?

"Tomorrow we wake up - I mean, I would jump out of the hotel window if this was the scenario - but we wake up and China has devalued 20%. The world is over..."

This is how I rather colourfully elected to share my thinking in an interview on RealVision back in February. My usual hyperbole aside, why was I so at odds with market fears that a renminbi devaluation was imminent?

Largely it was the severe implications of such a unilateral step. I felt aggrieved that those pursuing the logic of a large one-off devaluation were ignoring some serious and negative consequences. The big issue was political. China is officially monitored annually by the US Treasury department, on behalf of Congress, to determine whether at the prevailing rate of exchange the country is deemed to be a currency manipulator. That is to say, the US government stands constantly vigilant and ready to impose trade tariffs should it deem that China is using an under-valued exchange rate to support its exports. It is therefore inconceivable to us that an immediate and sharp devaluation from officially designated "cheap" levels would not be met, even by the liberal style of the outgoing Obama administration, by harsh new tariffs on Chinese exports making redundant most of the trading advantages from a lower renminbi. Most likely US allies such as Japan and Korea (and maybe even the ponderous Europeans) would follow suit resulting in an inevitable tit-for-tat by the Chinese who would in turn impose import tariffs on access to their lucrative domestic market and make it much more difficult for foreign businesses to operate in  China. Global trade would tank, the WTO would likely collapse and fresh waves of nationalism would sweep over the global political landscape, pulling the world economy into a deeper contraction than last seen back in late 2008 and early 2009.

Taking a step back from my incendiary comments made in February, I think it was not necessarily the magnitude of the purported devaluation that upset me so much but rather the "how" and "when" it would happen. For as we have seen this year, with the fine-tuning of the prevailing capital controls, and perhaps the officially sanctioned weakness in the renminbi versus a basket of its global trading  partners, a moderately weak yuan is proving far less contentious or dangerous to the world than the swift one-off devaluation envisaged by the markets at the turn of the year.

Perhaps the macro risk from China is less to do about leverage and more about the scale of uneconomic lending? China and the West dealt with the slack that arose from the Great Recession in different ways. China was defiantly Keynesian, over building infrastructure, whilst the West chose to scale back on capital spending. It might be argued that the West subsidised people to do nothing, leaving itself with a huge government burden, whilst China subsidised people and companies to build capacity, some of which will be used to further expand the economy and some of which won't. The optimum position is probably somewhere closer to the middle but to say that China got it more wrong than other countries seems premature. Indeed I suspect in our post-Brexit Trumpian world, we are all moving closer to the Chinese doctrine and so once more I find I have no appetite for the Chinese apocalypse narrative.

As I see it, we are in a long term cycle where Chinese GDP growth decelerates from 10% per annum to the current 6% regime and then inevitably to low single digit rates of expansion. Today, within that longer term cycle, China is approaching the end of a mini cycle of monetary and economic expansion; if anything I believe China is in the midst of shifting to a tightening bias rather than further easing. And I do not anticipate a sharp sell-off in the renminbi; a currency devaluation would be politically counterproductive, especially in light of Trump’s contentious trade posturing.

Instead I can envisage a situation where the PBOC prefers to keep the currency relatively stable. However, in a new Trumpian world with a rising US dollar, the mechanics of their supporting the renminbi will yield profitable trade opportunities. Government intervention will remove liquidity from the offshore market, whilst the incomplete capital account liberalisation prevents onshore Chinese moving their money into the offshore market at will to take advantage of higher rates, causing a shortfall of liquidity offshore. This phenomenon will only become more acute should pressure on the renminbi intensify. In such a world, a trade paying offshore CNH rates carries positively and acts as a long volatility position should market fears about China re-assert themselves.

* * *

So, to conclude, you might say that we are running a Trumpian portfolio. With the economy’s debtors finally in the ascendancy Eclectica is positioned for an anticipated mean reversion, being long the US debtor community and short the rest of the world’s creditor class. The portfolio hangs on this one narrative with three thematic risk expressions.

• In Europe we anticipate further duress in the political commitment to the European project as the success of Trump’s economic stimulus plan keeps US growth humming along leaving the continent badly exposed as a politically fractured economy without the resolve to implement successful growth strategies.
• The combination of Trumpian economics producing the long sought-after lift in inflation expectations globally and Japanese 10-year nominal yields being trapped at zero by the Bank of Japan should mean the yen continues to weaken.
• And finally, there are appealing opportunities in Chinese fixed income markets arising from the flows of liquidity between the onshore and offshore markets, trades which generate positive carry should the  status quo persist yet remain long volatility should pressure on the renminbi intensify in the face of a strengthening US dollar or slowing Chinese economy.

Long live the revolution…in Europe it will almost certainly be political!

* * *

Finally, for those asking, here is the answer:

Shariah Gold Standard Is "Revolutionary" Says Mark Mobius

One of the world's leading investors, Mark Mobius told a gold conference in Dubai that the new 'Shariah Gold Standard' is both "innovative and revolutionary" and importantly will bring "transparency" to the physical gold market which suffers from a lack of trust.

Source: Bloomberg

The executive chairman of Templeton Emerging Markets Group was speaking at the 'Gold in Islamic Finance' conference organised by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the World Gold Council and Amanie Advisors and held in Dubai last Thursday.

"This standard is a God send. We have a global standard for gold. This is innovative and revolutionary" said Mark Mobius.

Dr Mobius drew the audiences attention to the growth potential in both the emerging markets and Islamic World of 1.6 billion people and some 100 million investors.

"This Shariah gold standard is a Godsend for those Islamic households that would like to invest in gold funds"

He drew attention to the economic growth of both the UAE and China and the growing middle classes and their increasing sophistication in terms of embracing tecnnology in terms of smartphone and internet penetration.

ETFs represent 30% of all mutual funds and this is growing rapidly he said, but these ETFs pose some risk and they are 'following the crowd.'

He is monitoring the growth in gold ETF inflows, plus the 'stealth buying' being done by central banks such as Russia and China.

Gold Vs MSCI World Islamic Index (2007 to 2016) - Mobius at 'Gold in Islamic Finance' conference

Mobius emphasised the importance of the fact that the new Shariah gold standard is all about the ownership of the underlying asset - allocated physical gold coins and or bars. He noted that the payment or exchange of cash must happen at the exchange of ownership.

He emphasised there will be a credibility problem even for gold-backed ETFs. He stated that the "issue of physical gold is a big one" and that just storing gold at the NY Fed Reserve in exchange for a receipt is not prudent.

Large bullion banks act as custodians for the gold held in gold ETFs and the custodians are generally subject to supervision by the Federal Reserve Bank of New York, the Federal Deposit Insurance Corporation (FDIC) and the Bank of England.

"Just trusting the NY Fed has your gold is no longer going to be enough...
Global investors are rightly demanding more transparency around physical gold custody due to a lack of trust..." 

China issued its loudest semi-official response to Trump's suggestion that he will use the "One China" policy as a bargainining chip.

The first, and more official one, came from China's ambassador to the United States who said on Wednesday that Beijing would never bargain with Washington over issues involving its national sovereignty or territorial integrity. Ambassador Cui Tiankai, speaking to executives of top U.S. companies, said China and the United States needed to work to strengthen their relationship. "The political foundation of China-U.S. relations should not be undermined. It should be preserved," Cui said. "And basic norms of international relations should be observed, not ignored, certainly not be seen as something you can trade off," he said. "And indeed, national sovereignty and territorial integrity are not bargaining chips. Absolutely not. I hope everybody would understand that."

While he did not specifically mention Taiwan, or Trump's comments last weekend that the United States did not necessarily have to stick to its nearly four-decade policy of recognizing that Taiwan is part of "one China", it was heard loud and clear.

The second, and more worrisome warning, came from China's influential state-run tabloid, one which Beijing tends to use for populist "trial balloon" purposes, the Global Times according to which China should take the lead in deciding the island's future. In the op-ed, the authors say “it might be time for the Chinese mainland to reformulate its Taiwan policy” and that Beijing should plan to take Taiwan by force and make swift preparations for a military incursion. The article urged China to rebalance its stance towards Taiwan to "make the use of force as a main option" and carefully prepare for possible moves toward independence.

It cautioned that the chance of peaceful unification “will only slip away” if the mainland doesn’t increase pressure and that "the military status quo across the Taiwan Straits needs to be reshaped" to punish the current Taiwanese administration’s "destruction of the political status quo in cross-Straits ties."

The belligerent tone continued, urging that “once Taiwan independence forces violate the Anti-Secession Law, the Chinese mainland can in no time punish them militarily”

It warned that “the tacit understanding and hidden rules made between China and the U.S. over the Taiwan Straits can hardly be respected for long.”

Chinese officials have already used less drastic “punishments”, such as limiting the number of mainland tourists to Taiwan and hinting at curtailing investments.

As the Guardian adds, the threat of military action has loomed over Taiwan’s population since the 1950s. In the most dramatic confrontation, China fired missiles into the waters separating it from Taiwan in the run-up to the first free elections in 1996. In response, the US sailed an aircraft carrier through the strait in a show of solidarity.

In the Global Times op-ed, the authors warn that "if the Chinese mainland won't pile on more pressure over realizing reunification by using force, the chance of peaceful unification will only slip away. Independent forces on the island publicly believe that time is on their side, because Taiwan people's recognition of their Chinese identity is gradually decreasing and against such a backdrop, they can turn the tables with the help of international forces."

It concludes as belligerently as it began: "The future of Taiwan must not be shaped by the DPP and Washington, but by the Chinese mainland. It is hoped that peace in the Taiwan Straits won't be disrupted. But the Chinese mainland should display its resolution to recover Taiwan by force. Peace does not belong to cowards."

The problem is that Donald Trump most likely agrees with the final statement, which is why what until now has been only a war of words for decades, may soon heat up substanitally.

Update: according to US officials cited by Reuters, the unmanned vehicles was seized unlawfully by China.  A Reuters official also adds that "the UUV was lawfully conducting a military survey in the waters of the South China Sea," the official said. "It's a sovereign immune vessel, clearly marked in English not to be removed from the water - that it was U.S. property."

The incident, the first of its kind in recent memory, took place on Dec. 15 northwest of Subic Bay off the Philippines just as the USNS Bowditch, an oceanographic survey ship, was about to retrieve the unmanned, underwater vehicle (UUV), the official told Reuters.

The Pentagon later confirmed the incident at a news briefing. It said the drone used commercially available technology and sold for about $150,000.

The Pentagon views China's seizure seriously since it had effectively taken U.S. military property.

"It is ours, and it is clearly marked as ours and we would like it back. And we would like this not to happen again," Pentagon spokesman Jeff Davis said.

The seizure by the Chinese Navy will add to concerns about China's growing military presence and aggressive posture in the disputed South China Sea, including its militarization of maritime outposts. A U.S. think tank this week said new satellite imagery indicated China has installed weapons, including anti-aircraft and anti-missile systems, on all seven artificial islands it has built in the South China Sea.

Mira Rapp-Hooper, a senior fellow in the Asia-Pacific Security Program at the Center for a New American Security, said China would have a hard time explaining its actions. "This move, if accurately reported, is highly escalatory, and it is hard to see how Beijing will justify it legally,"Rapp-Hooper said.

* * *

The escalating, so far mostly verbal conflict with China may have just heated up following a Reuters reports that China has seized an unmanned, underwater US navy vehicle inside off international waters in the South China Sea, and that the US has issued a formal statement demanding the return of the vehicle.

According to CNN, which has a slightly different take on events, a US oceanographic vessel Thursday had its underwater drone stolen by a Chinese warship literally right in front of the eyes of the American crew.

In the latest encounter in international waters in the South China Sea region, the USNS Bowditch was sailing about 100 miles off the port at Subic Bay when the incident occurred, according to the official.

The Bowditch (T-AGS 62) is a Pathfinder class oceanographic survey ship, a third ship in the class. The USNS Bowditch is a part of a 29 ship Special Mission Ship program and operates in the South China Sea. She is named after Nathaniel Bowditch. Bowditch was engaged in surveying at Tacloban shortly after typhoon Haiyan in advance of the Navy's Operation Damayan in an area known for its shifting hazards to navigation using its multi-beam contour mapping system.

Bowditch had stopped in the water to pick up two underwater drones. At that point a Chinese naval ship that had been shadowing the Bowditch put a small boat into the water. That small boat came up alongside and the Chinese crew took one of the drones.

The US got no answer from the Chinese on the radio when it said the drone was American property, the official said cited by CNN. More details:

As they turned away, the Chinese did come up on the radio and indicated they were returning to their own operations.

 

US oceanographic research vessels are often followed in the water under the assumption they are spying. In this case, however, the drone was simply measuring ocean conditions, the official said.
The Pentagon has not officially commented on the incident.

 

Although it's unclear what the motivation was for the Chinese, the seizing of the drone comes on the heels of other provocative incidents that have happened since President-elect Donald Trump received a congratulatory call with Taiwan's President, a violation of the US's agreement with China's "One China policy". China publicly voiced their disapproval of that incident and contacted the White House at the time.

This "seizure" takes place one day after China's influential state-run tabloid, the Global Times, called for a plan to take Taiwan by force and make swift preparations for a military incursion. The article urged China to rebalance its stance towards Taiwan to "make the use of force as a main option" and carefully prepare for possible moves toward independence.

It also follows a series of warnings to the Trump administration by Chinese diplomats, in which they cautioned that China will not allow the "One China" policy to be used as a bargaining chip, something Trump hinted he was willing to do in a Fox News interview last Sunday.

Submitted by Peter Korzun via Strategic-Culture.org,

On December 16, US tanks and armor vehicles arrived in the Netherlands to be deployed in a storage depot located in the province of Limburg. The facility, the former Eygelshoven military base near Kerkrade, will be used to keep and maintain tanks, armored vehicles and heavy artillery pieces for a US armored brigade combat team. In January, the US Army in Europe is due to deploy a total of 4,000 American troops and around 2,000 military vehicles on a rotational basis to Poland, Romania, Bulgaria and the Baltic nations. NATO forces will move to the Baltic States in early spring. In an overtly provocative move, an American battalion will be stationed in Poland near the border with Kaliningrad, Russia’s Baltic enclave.

The US Army is implementing the annual defense authorization act which approved a $3.4 billion spending plan to boost NATO forces, including reopening or creating five equipment-storage sites in the Netherlands, Poland, Belgium and two locations in Germany. In September, the US Army began to assemble more Army Prepositioned Stocks (APS) for permanent storage in Europe. The additional combat equipment will give the Army the option for another heavy armored brigade. Presently, it has only two light brigades in Europe: 173rd Airborne Brigade and the 2nd Stryker Cavalry Regiment.

The US military has over 62,000 permanently assigned service members in Europe.

According to Lieutenant General Frederick Benjamin «Ben» Hodges, the US Army Commander in Europe, the prepositioned stocks would give US leaders a range of options to respond to a developing crisis. Pulling out the equipment from the Eygelshoven warehouses and putting it on a train toward a trouble spot could be a sign of American resolve that could help diffuse a crisis. The US forces plan to conduct more than 90 maneuvers with NATO allies and European partners next year, including Swift Response 17 in July to test the NATO rapid response units. The Swift Response exercise is designed to demonstrate NATO's ability to respond to a crisis «within 18 hours of notification».

The deployment breaches the Russia-NATO Founding Act (1997). By signing the document NATO pledged not to seek »additional permanent stationing of substantial ground combat forces» in the nations closer to Russia «in the current and foreseeable security environment». Signed 20 years ago, the agreement appears all but dead amid the alliance's push to beef up its military presence on its eastern flank.

The argument that the forces are being deployed on temporary basis holds no water. Every combat unit goes through rotation; each has its own operational cycle. The plans in question are nothing else but a permanent military presence of substantial forces.

There are other provocative plans to boost NATO’s presence near Russia’s borders.

NATO is pushing ahead with its military «Schengen zone» in Europe to do away with travel restrictions on the movement of NATO forces and equipment across the continent. There will be no need to ask for permissions while crossing national borders. The sovereignty of member states will be reduced to facilitate cross-continent operations.

Meanwhile, 300 US Marines are moving to their new home in Norway. They will be deployed at the Værnes military base near Trondheim to bolster the readiness of new pre-positioned tanks and weaponry stored throughout the year in underground caves. Værnes lies about 1,000 kilometres (600 miles) from the Russian-Norwegian frontier.

The October 26-27 NATO defense ministers agreed to boost the Black Sea presence. Romania and Bulgaria will host forces designed to carry out surveillance missions over the Black Sea. The UK, Canada and Poland will send aircraft to be based in the Romanian southeastern Mihail Kogalniceanu air base. Romania, Bulgaria and Turkey are also expected to come forward with a plan to increase naval and air patrols in 2017. The US supports Romania’s initiative to establish a multinational naval brigade in the region.

With the naval brigade on the agenda, Bulgaria has agreed to participate with 400 troops in the multinational brigade in Romania. The unit is intended to facilitate the deployment of reinforcements. Georgia and Ukraine will be fully involved in the plans.

Non-Black Sea NATO members cannot stay in the Black Sea more than 21 days, according to the Montreux Convention. Bulgarian, Romanian, Ukrainian and Georgian navies have limited capabilities. It brings to the fore the possibility of major NATO sea powers hand over some of their own warships to them. The ships could be reflagged under the three Black Sea members’ flags to beef up permanent naval capabilities in the theater. Lumping NATO and non-NATO ships under one operational control is a highly provocative step towards Russia.

US destroyers and cruisers visit the Black Sea from time to time to provide NATO with long range first strike capability. The Black Sea is on the way to become a region of uncontrollable arms race.

In addition, Romania already hosts a ballistic missile defense (BMD) with the plans underway to have another operational BMD system deployed on Polish soil in 2018. The Romania-based Aegis Ashore BMD system uses the Mk-41 launcher capable of firing Tomahawk long-range precision-guided missiles against land assets in violation of the INF Treaty.

These systems will be upgraded. After the nuclear agreement with Iran was reached, the US Defense Department awarded a contract to Boeing to «define a concept» for a multiple-kill vehicle or multiple-object kill vehicle (MKV). According to the plans, the vehicle is to engage multiple targets at once, including decoys. The Pentagon aims for the MKV to go online by 2020.

The US decision to increase military presence in Europe comes along with the rise of Donald Trump, who has disparaged the NATO alliance as a drain on US resources.

NATO undertakes one provocative step after another with Western media spreading around concocted stories about “Russian aggression”. The European security is greatly threatened. A spark is enough to kindle a big fire.

Russian President Vladimir Putin said Russia would take countermeasures in response to NATO expansion. He noted that he was «concerned» about what NATO is doing and put into question the bloc’s decision-making process. The president emphasized that NATO members could hardly resist the pressure of the United States.

In September, Russia came up with a proposal to reach an agreement of flight safety in the region with all military planes flying with their transponders on, emitting an identifying signal in response to other radio signals. The proposal was rejected by NATO.

It was reported in late November that Russia had deployed Bastion mobile coastal defense missiles to Kaliningrad. It is to deploy S-400 air missile defense systems and Iskander mobile short-range surface-to-surface missiles in that region.

With tensions running high, there is an urgent need to address these burning problems. With Donald Trump in office, there is a hope to address the issue of European security in a positive way.

In November, a group of European states supported Germany’s initiative to launch discussions with Russia on a new arms control agreement. German Minister Frank-Walter Steinmeier, nominated to become German president next year, called for a deal to avoid an escalation of tensions in Europe.

In 2009 the Western powers rejected Russia’s proposal to discuss a new European Security Treaty. Now reality makes them reconsider their stand. The rejection of the plans to boost the US military presence in Europe would be a sign that Europe is serious about the arms control talks. But if the US continues its plans to beef up military presence to threaten Russia, Europe will find itself plunged into an uncontrolled arms race. NATO has to make a choice.

Via GEFIRA,

In 1992, at the end of the Cold War, an American political scientist infamously proclaimed "the end of history:" liberal democracy and the capitalist system has won, the rest of the world will eventually embrace western ideas as superior to theirs because only they are able to provide peace and prosperity.

This line of reasoning has since become the West’s dogma in international relations, and so under the pretext of spreading human rights and parliamentary democracy all over the world the West perceives itself to be on a mission. For a while, it worked. Most of Eastern Europe readily embraced Western democracy and capitalism and even Russia seemed to follow.

Some intellectuals brought it to a new level: the rest of the world will have to embrace capitalism and liberal democracy voluntarily or else they will be forced to. It was the birth of neoconservatism in the United States and it would spread across the Atlantic. The Neocon vision had other implications, listed in the likewise infamous “Wolfowitz Doctrine”, and these are:

• American supremacy, which translates into active prevention of the formation and rise of any power that could challenge it;
• unilateral intervention;
•  pre-emptive action;
• undermining Russia, by taking out from its sphere of influence the former Soviet countries which had not embraced western values yet, like Ukraine;
• forcing the Muslim world to accept the Israeli state on the latter’s conditions.

By the 2000s, Neocons had taken over the Republican Party in the US and the Labour Party in the UK and could count on allies in Italy (Berlusconi) and Spain (Aznar). In the following decade, Neocon ideology spread virulently, substituting for the failed experiment of military intervention to overthrow non-cooperating governments with covert operations funding and/or arming local groups in Libya, Syria,Tunisia Egypt, Georgia, and Ukraine.
Neocon adherents took over the US state department, and their grip on it was strengthened by the appointment of Barack Obama as assistant to Victoria Nuland, Secretary of State for European affairs, wife of Robert Kagan, who is in turn a top Neocon ideologist alongside Paul Wolfowitz. They also created the narrative spread and reinforced by the mainstream media, which expose the alleged crimes of non-cooperating regimes in Syria, Russia and Libya, while ignoring the anti “democratic” behavior by friendly dictatorships such as Saudi Arabia’s kings.

The mission however never changed. What changed is the mood of Western citizens about the government changes and state-building projects of the Western leadership; as the economic and human cost grew endlessly, the Western public opinion has become fed up with interventionism around the world.

The British Labour party was the first to face the malcontents: Blairites are being ousted in favour of anti-NATO, sworn pacifist Jeremy Corbyn.

Then Donald Trump won the US election with his “America First” i.e. a policy of “non-interventionism and protectionism”, defeating Hillary’s hawkish one, publicly endorsed by Kagan and Wolfowitz; Sarkozy and Juppè were defeated in the primaries in France by Fillon, who is advocating the end of the trade war against big bad Neocon target Russia. The Neocon-backing Western establishment is facing political upheaval all over Europe and the US. These revolutions are not mere popular movements. Trump’s election is the handing over of power from one influential group to another because a part of the establishment has become fully aware of the problems Europe and the US are facing.

After a fourteen-year war on terror in Afghanistan and Iraq the bloodshed spilled over into the streets of Paris and Berlin. The killing of civilians in the streets in Europe was not supposed to happen after the eradication of Al Qaeda and the alleged elimination of its leader Osama Bin Laden. Or should we rather say European insanity is spilling over, as the European establishment is simultaneously bombing a country and importing the country’s inhabitants? What do the Western leadership expect to have on their hands? Meanwhile Russia is reemerging as a more successful international actor.

China has become a production hub, building its own financial institutions and will become more and more independent of the US and European financial systems. In 2015 China launched its alternative CIPSfor the SWIFT system, which had been for more than 30 years the center of international financial transactions.

The rapid and dramatic demographic changes cannot continue unnoticed by the establishment. The white population in the United States has decreased from 79.6 percent in 1980 to 61.9 percent in 2014. The percentage of Latino Americans has risen from 6.4 percent to 17.3 percent over the same period, while both the African American and Asian American populations have gone up. Europe is facing a multicultural quagmire and downward spiral of violence. The African and Muslim communities are hostile to Western societies and openly threatening to kill Westerners in endlessly numerous music videos posted on the internet.

The German establishment is in a complete state of denial, and the French Republican Party leaders believe they can regain control with some harsh words directed at the Muslim community on the one hand and unprecedented austerity measures dished out to the French population on the other.

In the US there are people like Richard Haas, president of the Council on Foreign Relations, who are strongly advocating a change in the Middle East policy. Haas would like to see America using its diplomatic and military power for gaining influence in South East Asia and deal with nations rather than tribes in Syria; he would also rather the US restored order at home than resolve the problems in Mosul and Fallujah in Iraq or Sirte in Libya.

The Neocon world peaked and is now crumbling at record speed. And what is the Neocons’ reaction? A failure to topple governments may have been taken into account, but the electoral defeats in the West were unexpected. In a bid that looks like a mix of anger and desperation the Neocon machine is using the US State Department and the mainstream media to mount a gigantic offensive putting the blame for its own failures on the battered Russia: so without having much evidence, neocons created a narrative that Russia has helped Donald Trump win the elections.

But of course, why stop there? Thus Neocon Blairite remnants in the UK are joining the crowd and claim that “Russian hackers caused Brexit’’.

What else? Gustav Gressel of the European Council on Foreign Relations claims that Russian secret services (rather than European open borders refugee policy) are behind the epidemic of sexual assaults committed by migrants in Germany⁷⁾ attempting to weaken Merkel’s credibility for the next year election. Whenever something doesn’t go according to plan for the Western establishment, it’s Russia’s fault. Expect to see more.

Submitted by Dave Collum via PeakProsperity,

A downloadable pdf of the full article is available here, for those who prefer to do their power-reading offline.

Background: The Author

I never would have believed it—not in a million years—but it happened: the Cubs won the World Series, and The Donald is our new president. Every December, I write a Year in Review¹ that’s first posted on Chris Martenson’s & Adam Taggart’s website Peak Prosperity² and later at Zero Hedge.³ What started as a few thoughts posted to a handful of wingnuts on Doug Noland’s Prudent Bear message board has mutated into a detailed account of the year’s events. Why write this beast? For me, it puts the seemingly disconnected events that pass through my consciousness, soon to be lost forever, into a more organized and durable form. Somebody said I should write a book. I just did. In a nutshell, this is a story of human follies and bizarre events. There are always plenty of those. Let others tell the feel-good stories.

Figure 1. Malcolm McDowell as Alex in A Clockwork Orange.

I try to identify themes that evolve. This year’s theme was obviously defined by the election, which posed a real problem. I struggled to detect the signals through the noise. Many of my favorite analysts from whom I extract wisdom and pinch cool ideas spent the year trying to convince the world that one or more of the presidential candidates was an unspeakable wretch. I was groping for a metaphor to capture our shared experiences, rummaging through Quentin Tarantino scripts and Hieronymus Bosch landscapes for inspiration. “Rise of the Deplorables” was tempting. Then it clicked. The term “clockwork orange” is a Cockney phrase indicating a bizarre incident that appears normal on the surface. The phrase was commandeered as the title of a 1971 dystopian film in which Malcolm McDowell’s character Alex is brainwashed by being forced to watch the most grisly and horrifying of spectacles (Figure 1). For us, it was the 2016 presidential election, which created a global mind-purging brain enema. The horror! The horror! (Oops. Wrong movie.)

I knew in January that by mid-November we would be unified by our collective distrust of the Leader of the Free World, who would be surrounded by a dozen chalk outlines corresponding to political corpses that nobody wished to resurrect. I have done my best to not marinate you—too much—in tales of sociopathic felons or stumpy-fingered, combed-over letches. I do, however, eventually enter the Swamp.

By way of introduction, my lack of credentials—I am an organic chemist—has not precluded cameos in the Wall Street Journal,⁴ the Guardian,⁵Russia Today,^6,7,8 a plethora of podcasts,¹ and even a couple investment conference talks. Casting any pretense of humble bragging aside, let’s just post this year’s elevator résumé and a few endorsements to talk my book.

One of the high-water marks was sharing the spotlight with Mark Cuban in a Wall Street Journal article by Ben Eisen on nouveau gold buggery:¹⁰

Podcasts in 2016 included Wall St. for Main St.,¹¹Macro Tourist Hour (BTFD.TV),¹²The Kunstlercast,¹³Five Good Questions,¹⁴FXStreet,¹⁵ and, of course, Peak Prosperity.¹⁶ Dorsey Kindler, of a small-town newspaper, the Intelligencer (Doylestown, PA), interviewed me about college in an article titled, “The New McCarthyism” and, in an ironic twist, was soon thereafter fired and his content purged.¹ An interview for the Cornell Review, a right-wing student newspaper considered a “rag” by the liberal elite, probed college life and the new activism.¹⁷ A cross-posting at Zero Hedge got the Review’s click counts soaring.¹⁸ Finally, I chatted on local radio about real estate, the bond market, Hillary, and other rapidly depreciating assets.¹⁹

Contents

Footnotes appear as superscripts with hyperlinks in the Links section. The whole beast can be downloaded as a single PDF xxhere or viewed in parts via the linked contents as follows:

Part 1

• Background: The Author
• Contents
• Sources
• On Conspiracy Theorizing
• Investing
• U.S. Economy
• Broken Markets
• Cash on the Sidelines
• Pharma Phuckups
• Gold
• Energy
• Real Estate
• Debt
• Pensions
• Inflation/Deflation
• The Bond Caldera
• ZIRP and NIRP
• War on Cash
• Banks and Bankers
• The Fed
• European Central Bankers
• Europe
• Brexit
• Refugee Crisis
• References Part 1 

Part 2

• Putin and Russia
• South America
• China
• Japan
• Middle East
• Government Folly
• Panamania
• Human Achievement
• Human Folly
• Civil Liberties
• Campus Politics
• Elections
• Rigged Primaries: RNC Division
• Rigged Primaries: DNC Division
• Bernie
• Hillary Clinton
• Trump
• Media
• Conclusion
• Books
• Acknowledgments
• References Part 2

For historical reasons, the review begins with a survey of my perennial efforts to fight the Fed. I am a fan of the Austrian business cycle theory and remain hunkered down in a cash-rich and hard-asset-laden Bunker of Doom (portfolio). The bulk of the review, however, is really not about bulls versus bears but rather human folly. The links are as comprehensive as time allows. Some are flagged as “must see,” which is true only for the most compulsive readers. The quote porn is voluminous: I like capturing people’s thoughts in their own voices while they do the intellectual heavy lifting.

I try to avoid themes covered amply in previous reviews. Some topics resolve themselves. Actually, none ever do, but they do get boring after a while. Others reappear with little warning. Owing largely to central banking largesse, the system is so displaced from equilibrium that something simply has to give, but I say that every year. We seem to remain on the cusp of a recession and the third, and hopefully final, leg of a secular bear market that began in 2000. Overt interventions have kept the walking dead walking. The bulls call the bears Chicken Littles and remind us what didn’t happen. One of my favorite gurus reminds us of a subtle linguistic distinction:

I finish with synopses of books I’ve read this year. They are not all great, but my limited bandwidth demands selectivity . They are all nonfiction (to varying degrees). I don’t have time to waste on 50 Shades of Garbage.

Sources

With some notable exceptions, the mainstream media has degenerated into a steaming heap of detritus that is so bad now that it gets its own section. A congenital infobesity has morphed into late-stage disinfobesity. Enter social media—the fever swamp—to fill the void. As we shall see, however, all is not well there either. I sift and pan, looking for shiny nuggets of content that reach the high standards of a rant. Shout-outs to bloggers would have to include Michael Krieger, Charles Hugh Smith, Peter Boockvar, Bill Fleckenstein, Doug Noland, Jesse Felder, Tony Greer, Mike Lebowitz, Mish Shedlock, Charles Hugh Smith, and Grant Williams. News consolidators and new-era media include Contra Corner,²⁰Real Vision,²¹Heatstreet,²² and Automatic Earth.²³ A carefully honed Twitter feed is a window to the world and the road to perdition. My actions speak to my enthusiasm for Chris Martenson and Adam Taggart at Peak Prosperity.²⁴ However, if you gave me one lens through which to view the world, I would have to choose Zero Hedge (or maybe LadySonya.com).

On Conspiracy Theorizing

Every year I shout out to conspiracy theorists around the world. I am not talking about abductions by almond-eyed aliens with weaponized anal probes (which really hurt, I hasten to add) but rather the simple notion that sociopathic men and women of wealth and power conspire. Folks who could get through 2016 without realizing this are imbeciles. I am talking totally blithering idiots. Markets are rigged. Government stats are cooked. Interest rates are set by fiat. Polls are skewed. E-mails are destroyed. Cover-ups abound. Everybody has an agenda. Watch this d-bag at one of the neocon think tanks—somehow so stupid as to not realize he’s being recorded—talk about how false-flag operations are commonplace.²⁵ Meanwhile, the media conspires to convince us to the contrary. The folks who really piss me off, however, are the glib intellectuals—Nassim Taleb calls them “intellectuals yet idiots” (IYIs)—who suggest that conspiracy theorists are total ret*rds.²⁶ (Saved by the asterisk, which baffles the sh*t outta me why that works.) Does it seem odd that the world’s most prominent detractor of conspiracy loons, Harvardian Cass Sunstein,²⁷ is married to neocon Samantha Power,²⁸ one of the great conspirers? It does to me, but I am susceptible to such dietrologie.

Many will try to shut down open discussions of ideas displaced from the norm by using the word “conspiracy” pejoratively. Their desire for the world to be normal is an oddly child-like cognitive dissonance. In that event, lean over and whisper in their ears, “Keep your cognitive dissonance to yourself, dickweed” while gently nudging them in the groin with your knee. Now, let’s pop a few Tic Tacs, grab a clowder, and get on with the plot, but first . . .

Investing

Read that over and over until you understand it. Changes in my 2016 portfolio were more abrupt than those from other years but still incremental. I resumed purchasing physical gold in 2015 after a decade-long hiatus. In 2016, I bought aggressively in January (the equivalent of half an annual salary) and continued incremental buying throughout the year (another half salary). My total tonnage (OK, poundage) increased by an additional 5% of my assets. My cash position shrunk by about 5% accordingly but remains my largest holding. I am in no rush to alter the cash position. For a dozen years, I have been splitting my retirement contributions into equal portions cash and natural gas equities. The latter keeps failing to attain an approximate percentage goal of 25–30% of my assets owing to market forces. My approximate positions are as follows:

The S&P, despite a late year rally incorrectly attributed to the Trump victory, appears to be running on fumes or, as the big guns say, is topping. The smart guys (hedge fund managers) continue to underperform, which means the dumb money must be overachieving (blind nuts finding squirrels). This is never a good sign.

Figure 2. Performances of GLD, SLV, XAU, XLE, XNG, and S&P.

After a few years of underperformance resulting from the oil and gold drubbing, large gains in the gold equities (60%), gold (6%), silver (15%), generalized energy equities (10%), and natural gas equities (48%) shown in Figure 2 were attenuated by the huge cash position to produce a net overall gain in net worth of 9%. This compares to the S&P 500 (+10% thanks to a hellacious late year rally) and Berkshire Hathaway (25%, wow). (Before you start brain shaming me, that same cash buffer precluded serious percentage losses during the hard-asset beatings in the preceding years.)

The most disappointing feature of the year was in the category of personal savings. I have managed net savings every year, including those that included paying for college educations. This year, however, began poorly when my gold dealer got robbed and lost my gold. My losses paled in comparison to his; he committed suicide. I discovered maintenance needs on my house that got really outta control, and a boomerang adult child ended up costing me a bit. All told, I forked over 50% of my annual salary to these unforseeables, which turned overall savings negative (–20% of my salary) and eroded a still-decent annual gain in net worth. Oh well, at least I have my health. Just kidding. I have a 4 centimeter aortic aneurysm, am pissing sand, and have mutated into Halfsquatch owing to congenital lymphedema (Figure 3). (I live-Tweeted a cystoscopy—likely a first for social media.) I have to keep moving here to finish before I pass my expiration date.

Figure 3. Sand and Stump.

In a longer-term view, large gains in total net worth (>300%) since January 1, 2000 are still fine. I remain a nervous secular precious metal bull and confident equity secular bear. I intend to put the cash to work when Tobin’s Q, price-to-GDP, price-to-book, and Shiller PE regress to and through the mean. When this will occur is anybody’s guess, especially with central bankers determined to make me pay for “fighting the Fed.” I will start buying after a 40% correction brings the S&P to fair value, keep buying as it drops below fair value, and wish I had saved my money by the secular bottom. We return to all this in Broken Markets.

Here’s what my dad taught me: you need cash at the bottom to buy up cheap assets. Few will have cash because you have to go to cash at the top, and precious few have the capacity to shake recency bias and exit positions that have performed well. Just like a toaster, your sell order has only two settings: too soon and too late. My far greater concern is that bear markets are as much about time as they are about inflation-adjusted price. The Fed is determined to burn the clock. Nobody wins if we imitate Japan’s 25-year lost decade.

U.S. Economy

Unemployment is at 4.9%—what’s not to like? Economists have even claimed the “labor market is getting tight.” I scoff. The labor participation rate shows that 38% of working-age adults are not working (Figure 4). Apparently, 33% of working-age adults are neither employed nor unemployed. Hmmm . . . even that’s a little optimistic given that only 50% of adults are employed full-time. The millennials are getting whacked by the boomers who refuse to die (sorry, retire).

Figure 4. Unemployment (left; official stats in red; Shadowstats in blue) and labor force participation rate (right).

The wealth for middle-class households has dropped 30% since 2000;²⁹ One in five kids lives in poverty,³⁰ 46 million folks are on food stamps;³¹ 20% of the families have nobody employed³² (despite the 4.9% number); and almost 50% of all 25-year-olds are living with mom and dad unable to translate that self-exploration major into a job.³³ Half of all American workers make less than $30,000 a year.³⁴ The once-industrial-juggernaut Rochester of Kodak/Xerox fame has more than 30% of residents living in poverty and another 30% living with government assistance.³⁵ Very Detroit-like but without the Aleppo motif.

You can see it in the micro if you drill down. Deindustrialization has been occurring steadily since the late 90s.³⁶ The mining industry lost more this year than it made in the last eight years.³⁷ Sales of industrial-strength trucks have been “dropping precipitously.”³⁸ Sales in general are looking very ’09-ish. Factory orders and freight shipping (Cass Freight Index) have been dropping for two years.³⁹ Catherine Mann of the OECD says that “In terms of actual trade growth, it is extremely grim.” The CEO of Caterpillar finally cashed in his chips after 45 contiguous months of dropping sales.⁴⁰ Commercial bankruptcies are up 38% year over year,⁴¹ whereas 62% of Americans have less than $1,000 in savings.⁴² It seems unlikely the consumer will be buying bulldozers and 18 wheelers in the near future.

The economy is in the weakest post-recession recovery in half a century despite protestations to the contrary by Team Obama.⁴³ The 2%-ish growth rate since ‘09 feels like a recession, especially given specious inflation adjustments to get 2%. There isn’t a wave of job cuts yet, but some signs are worrisome. Cisco Systems laid off 20% of its workforce.⁴⁴ GE cut 6,500 jobs.⁴⁵ Despite gains in non-GAAP earnings, GE’s GAAP earnings—the non-fabricated earnings—plunged.⁴⁶ Intel dumped 11% of its workforce but faked a win by dropping its assumed tax rate by 7%.⁴⁷ This tactic smacks of the same old financial engineering, but maybe it is headed for nonprofit status. One bright spot: the $15 billion vibrator industry is set to grow to $50 billion,⁴⁸ satisfying consumers in a manufacturing–service industry combo.

Speaking of stimulus, what the hell went awry? The Feds drilled the rates to zero (creating a ginormous bond bubble; vide infra) to encourage consumers to do the one thing they cannot afford to do—consume. Global central bankers have cut rates every 3 days since 2008 according to Grant Williams.⁴⁹ The central bankers dumped tens of trillions of dollars—trillions with a “t” that comes right before gazillions with a “g”—into the global economy. The answer is simple and foreshadowed above: once you blow up a credit bubble, you cannot force consumers to spend. Have ya heard people talking about pulling equity out of their houses lately? Didn’t think so. That numbnut idea proferred by the incoherent Alan Greenspan left consumers with the same houses and twice the debt while poverty-stricken old age looms large.

How could the economists have been so wrong? I have a remarkably simple theory: their models are wrong. They suffer so badly from Friedrich Hayek’s “fatal conceit” that they have become functional nitwits. That’s the best I’ve got. One could argue we have a secular economic problem. As a nation, we exploited cheap labor overseas through immigration during the 16th–20th centuries. The immigrants worked like dogs, got paid squat, and saved so furiously that it became a lot more than squat. Thomas Sowell explains this brilliantly in his writings.⁵⁰ For the last few decades, however, we exploited cheap overseas labor by exporting jobs. They too worked like dogs, got paid squat, and saved furiously. But that wealth is not here; it’s over there (pointing east). Will new and improved trade policies solve our (U.S.) problems? I don’t think so. As long as there are folks overseas willing to work harder for less, we have some correcting left to do. With that said, I am a free-trade guy and particularly like the trade agreement painstakingly crafted by Mish Shedlock:

How about some more Keynesianism? Former economist Paul Krugman, whose op-eds read like episodes of Drunk History, would say we simply haven’t done enough. (Paul: you have done more than enough.) Modern-day Keynesianism has mutated way past Maynard’s original idea into an unrecognizable metaphysical glob of thinking that boils down to the notion that government knows how to spend better than the private sector does. Is this the same government that included Anthony Weiner, Rick Santorum, and Barbara Boxer?

Here is Keynesianism I could live with. Government should spend as little as possible, but there are legitimate roles to be played. Imagine if governments at all levels would simply act like financially interested parties—as a collective, not as slovenly greedy, bribery-prone individuals—and buy necessary goods and services when they are cheap and stop buying when the private sector has bid them up. We would get maximum bang for the tax buck. It would also quite naturally achieve the much ballyhooed counter-cyclicality. But, alas, the moment they start talking “stimulus,” the pay-to-play crowd turns it into a fiasco. As my dad once said, “Never ask government to do anything they don’t have to do, because they will do a terrible job.” Words from the wise.

Broken Markets

Whomever @TheEuchre is, I think that is a provocative alternative theory of Fed motivation. Moving along, we seemed to be on the cusp of a recession last year with a number of valuation indicators pointing to a +40% correction simply to regress to the mean. In the absence of such a correction (check) and the absence of explosive growth (check), we are still looking over the precipice (check). Luminaries like Stanley Druckenmiller, George Soros, Sam Zell, and Bill Gross are calling for a zombie apocalypse at some unknowable future date. Paul Tudor Jones appears to be wrapping up in a way that smacks of Julian Robertson’s Tiger Management hedge fund liquidation in ’99. Harvard’s Martin Feldstein says asset prices are “dramatically out of line.” Credit Suisse sees analogies to the tech bubble, whereas Ned Davis Research suggests, “on a revenue basis, U.S. stocks are as expensive as they have ever been.” Chart guru Doug Short created a simple model that averages four common equity valuation techniques (Figure 5). Based on his analysis, the market is 76% overvalued compared with the average dating back to 1900. (Note: a 76% overvaluation is regressed to the mean by a 43% correction, which will be as pleasant as baptizing a cat.)

Figure 5. Doug Short composite valuation model.

At these valuations, a few shanks at the start of the year were scary, but soon the markets entered the tightest 40-day trading range (2.27%) in more than 100 years—the Horse Latitudes.⁵¹ There were a few goofy IPO crack-ups but they stayed subclinical. Even flash crashes raised only a few eyebrows. Knee-slappers elsewhere included a crash of the British pound in the forex markets in under a minute owing to Brexiteers⁵² (vide infra) and a 6.7% crash in China in less than a minute.⁵³ The misnamed Trump rally—misnamed because it began three days before the election—left some serious skid marks, elevating the market 8% in only a few weeks. This was a short squeeze in conjunction with . . . I don’t really know.

It is suggested that central banks and programmed investing have pushed a wall of money at the markets. This credit-based splooge corresponds to debts to be paid back later, but who cares? Over 10,000 mutual funds and exchange-traded funds (ETFs) are feeding off only 2,800 issues on the NYSE. There are now almost twice as many hedge funds as there are Taco Bells⁵⁴ (which won’t be growing under a Trump presidency). I get a little confused as reported outflows in both equity funds and money market funds argue the contrary. (Even these claims are confusing given that buyers necessarily match sellers; vide infra.)

Stock buybacks—in many cases leveraged stock buybacks—continue to levitate the markets. For those not paying attention, companies borrow money to buy back shares to prop up share prices, which serves the dual role of maximizing year-end bonuses and wards off balance sheet crises. Now my head hurts. Baker Hughes announced a $1.5 billion share buyback and $1 billion of debt issue. In the first half of 2016, S&P 500 companies “returned” 112% of their earnings through buybacks and dividends.⁵⁵ Returned? There is some evidence that buybacks may be subsiding. When they stop buying shares at all-time highs—“buying high”—and their investment unwinds while crushing corporate debt persists, companies will be doing “dilutive share issuance” at fire sale prices—“selling low.” For now, corporate balance sheets hold the dumb money.

There are instances of generic idiocy emblematic of deep problems. Eighty-five percent of traders on Wall Street have less than 15 years of experience. Synthetic securitizations are returning.⁵⁶ Are buyers being paid for the risk? Some have suggested that retail investors should stay away from these (and Fukushima). A managed futures fund was launched by a 17-year-old kid who may not have made it to third base yet.⁵⁷ A 28-year-old Ukrainian hacker got caught making over $30 million on insider information.⁵⁸ If he were a bank, he’d have been fined $100K. The “head” of the collapsed Visium Asset Management hedge fund killed himself by slicing his own neck.⁵⁹ Right. Platinum Partners appears to have been running a Ponzi scheme.⁶⁰ Vegan food start-up Hampton Creek used $90 million in “seed” money to buy its own products (probably seeds) to generate fake “organic growth.”⁶¹ Nintendo spiked on the release of Pokémon, which caused hoards of idiots to chase digital critters to stupid places.⁶² Even though Nintendo fessed up that their bottom line would not be improved by the craze, some of the gains have stuck as investors keep chasing those digital share prices to stupid places.

Cash on the Sidelines

In 2011, I used that quote in a different context, but it is a great articulation of the Law of Conservation of Mass.⁶³ There are a lot of memes in the investing community—pithy phrases and ideas for which tangible support is weak or nonexistent. One is the merits of “cash on the sidelines” and its kissing cousin, money “flowing” in and out of asset classes. In the late ‘90s, I tried to ascertain how much cash was generated in sell-offs and soon realized the answer was zero. Others such as Lance Roberts,⁶⁴ John Hussman,⁶⁵ Cliff Asness,⁶⁶ and Mish Shedlock⁶⁷ have dismembered putty-headed thinking underlying cash on the sidelines. However, there are pockets of holdouts (mostly on CNBC) who subscribe to the flow model. You can hear Maria saying it: “There is so much cash on the sidelines waiting to go into equities.” I am going to take one last crack at it with the aid of some graphical wizardry and grotesque oversimplification.

Here is the problem with the meme in a nutshell: If I buy, somebody must sell. It’s the Law of Conservation of Cash. If I grab a stack of Tubmans ($20 bills) and buy NFLX, the former owner of NFLX now has the Tubmans, and I have the overpriced shares. Do that all day long, and the cash on the sidelines doesn’t change; it moves around like the bathtub ring. Mutual funds insert middlemen to skim cash, but still no money is destroyed or created. Breathless claims that money is flowing in or out of mutual funds sounds important, but where in this model is cash created or destroyed? The percentage of cash, however, is a huge issue.

Let’s look at this graphically and restrict it to a simple binary model (Figure 6). Imagine there is $100 trillion in cash globally and $100 trillion of market cap in equities. Of course different investors have different allocations, but investors have collectively decided that they wish to own 50% cash and 50% equities (labeled 50:50).

Figure 6. Equity-to-cash allocations in a non-inflationary world.

In a non-inflationary banking system, the cash is static. Along comes legendary wise man John Bogle declaring equities reward risk taking, we should weight our portfolios 60:40, and the world agrees. Investors will bid up equities to higher valuations until, collectively, equities reach the 60:40 proportion for a satisfying 50% gain exclusively through expansion of the numerator. Legendary raging bull Laszlo Birinyi, guided by recency bias, convinces the world stocks are great investments and suggests 80:20 as the right allocation. Investors collectively agree, and they bid shares higher, which completes an overall 300% equity gain from the conservative days of 50:50 allocations. Now we’re rocking! We are just beginning to pull stupidity forward. Jeremy Siegel, self-appointed guru and demagogue, says you simply can’t lose, so you should be 90% stocks, and the world listens because this particular baitfish-smart analyst stays at Holiday Inns and is from Yale! The market has now lost all moorings, pushing the overall gains to 800%! Of course, now cash is trash and investors strive to be 100% in equities. Equity investors now “reach out and touch the face of God” because the prices are heading for infinity. Alas, The Bear appears before that can happen—it always does. It doesn’t have to be an axle-breaking speed bump. The proximate trigger is not important. Spooked investors drop their allocations back to 60:40 and, in the depths of despair, back to 50:50. You will then scoop up cheap equities with inverted baggies from disembowled, toe-tagged investors who need cash.

We gave the gains all back . . . or did we? During this round trip, society collectively learned to make goods and provide services much more efficiently. The same amount of effort—the same amount of cash—corresponds to a much higher standard of living. This is good deflation, the kind that James Grant describes because he reads the dusty archives from bygone eras. Most economists nowadays endorse low inflation that roughly matches productivity growth, which causes both the cash and the market cap (equities) to drift gently upward in a feel-good money illusion.⁶⁸

Don’t we need inflation for growth? Only if you believe the industrial revolution of the nineteenth and early twentieth century was disappointing. For the first half of the twentieth century, the DOW rose 1.3% nominally per annum. However, the modern banking system is most definitely inflationary. Money is created by increased leverage of all kinds—sovereign debt, consumer debt, quantitative easing (QE), and helicopter money all grow the money supply. They grow the denominator (cash) in Figure 6, which is inflation. The overarching model guiding the Fed’s policies seems to be that increasing the denominator will nonlinearly increase the numerator. As inflation lifts equities, animal spirits take hold (the Wealth Effect) and lift them even more. We will go through the four stages of bullishness: Bogle-Birinyi-Siegel-God. The gains will be illusory because real wealth is manufactured, farmed, mined, and maybe programmed. Central bankers will always do something; sitting on their hands (or thumbs) is unnatural. When the markets de-lever, however, cash leaves the system. Business and investing models demanding inflation begin to break. This is bad deflation. It is harsh, abrupt, and dreaded by central bankers, because it is largely their doing.

Pharma Phuckups

There seemed to be an epidemic of flatliners in the pharmaceutical industry requiring quarantine (its own section). The big one was Theranos, a company based on miraculously effective lab tests that turned out not to really work.⁶⁹ The company was quietly outsourcing to labs whose tests did work. When the scam was revealed, the wunderkind CEO, Elizabeth Holmes, watched her Forbes-estimated net worth drop from $4.5 billion in 2015 to “$0” in 2016.⁷⁰ The corporate digital exam would be familiar to her distant relative John Holmes.

Mylan suffered an optics problem when the disappearance of a key competitor allowed it to take a cue from pharma scoundrel Martin Shkreli⁷¹ and jack up its EpiPen price 500%,⁷² which smacked of price gouging. Mylan was protected by government intervention when Teva was denied rights to make a competing product.⁷³ Such mischief in the generic drug market is real. The feds also mandated stocking EpiPens in all schools.⁷³ A million bucks of lobbying money well spent.⁷⁴

Valeant Pharmaceuticals also reported big losses following big gains. Criminal investigations into Valeant took it 90% off its recent highs (a “tenth bagger”).⁷⁵ Meanwhile, drug giant Eli Lilly’s share price Felt the Bern in the fall when Bernie Sanders tweeted concerns about the price of insulin rising 700% in 20 years.⁷⁶ The big-cap drug scoundrels have also been accused of fabricating an ADHD epidemic and causing a global prescription drug addiction. A drum beat to restrain pain meds is getting very loud. Chronic pain patients watch with angst.

Oh, those bastards, right? Well, maybe not. I’m gonna take a crack at defending the industry. Mylan has been dead money for 20 years—zero percent return ex-dividends and ex-inflation. The same is true for Merck, Pfizer, Eli Lilly . . . I could go on. Former antimicrobial juggernauts Eli Lilly and Bristol-Myers Squibb are exiting the antibiotic market because they can’t pay the utility bills with the proceeds. You should worry.

Where are all the revenues going? Really expensive research and development. Better meds make the world a better place. The life expectancies of AIDS patients with treatment are now three years below those of their uninfected peers. Wow. New-era cancer cures are off-the-charts effective. Pharma creates wealth in the purest sense and employs millions of people. On my consulting gigs, I can see researchers diligently trying to cure major diseases. Operationally, however, big-cap pharmas have been not-for-profit organizations for investors for several decades. When you see the prices get jacked up, don’t mindlessly assume it’s to line the pockets of management or investors.

It is claimed rather convincingly that the per-unit cost of health care has not risen, but the volume has soared. My stump/bladder sand /aneurysm mentioned above burned through a lot of health care. Why is health care so cheap elsewhere? My son broke his foot while in Vietnam weeks ago. X-rays, an MRI, surgery with titanium pins, and casting: $1,000. Three days in the hospital: $30 per day. Being invited to stay with the surgeon’s family for two weeks to convalesce: priceless. For a total of about $1,600, my son flew to Vietnam, got excellent surgery, and flew home. That is the essence of the rapidly growing medical tourism industry.

How is that possible? The doctor in Vietnam is not wealthy and probably demands few material goods. Torte reform is not needed because caveat emptor reigns. There might even be some Gates Foundation money thrown in. Most important, the profoundly expensive research and development was all done in developed countries and paid for by large revenue streams.

Gold

Nailed it! That was the bottom. I expect some checks in the mail from nouveau riche gold bugs who got 60% on their XAU-tracking investments. Despite weakness of late, the case for gold is now in place: European and Chinese banking risks, negative interest rates, a war on cash, and omnipresent risks of a hot war in the borderlands of the Middle East and Europe. Estimates suggest 0.3% of investors’ assets are in gold.⁷⁷ Traditional portfolio theory recommends 5%, offering a better than 15-fold relative performance en route. (Recall that discussion of “flow” from above.)

Let’s check in on what some of the wingnuts on the fringe of society are chortling about now:

James Grant also went on to say that “gold is like a monetary tonsil,” leading some to speculate that his son, Charley (WSJ), slipped him a pot brownie. Let’s see if we can get the goofs too.

We’ll begin by blowing out a few ideas I do not subscribe to. I keep hearing from smart guys that gold is in short supply in the Comex or Shanghai gold exchange, you name it. These stories almost never play out. I am also a huge fan of Rickards and Maloney, but the saying “gold is money” and the notion that its price is actually the movement of the value of the dollar don’t work for me: prices of everything I buy follow the dollar, not gold, on the currency timescales. On long timescales, their assertion may be correct. Someday their assertion may even be correct on short timescales, but that isn’t right now.

What a year: I got as many electoral delegates as the bottom ten republican candidates combined, ate python, and own as much gold as the Central Bank of Canada. Per the Bank of Canada, it finished selling off all of its gold,⁷⁸ probably to ensure that the U.S. didn’t attack. You think I jest? A WikiLeaked e-mail by Sid Blumenthal to Hillary Clinton revealed that France whacked Libya to make sure North Africa distanced itself from a gold dinar currency.^79,80 Germany supposedly has half of its requested gold repatriated from the U.S. and France,⁸¹ which could be bullish or bearish on the half-full/half-empty logic. Venezuela repatriated 100 tons of gold a few years ago and was squeezed to sell it all back in the heat of a currency crisis.⁸² The Dutch depatriated their gold this year after repatriating it not long ago.⁸³ The reasons are unclear. Alexei Ulyukayev, first deputy chairman of Russia’s central bank, assured us Russia will continue to buy gold (Figure 7), presumably as a defense against interventions from inside the beltway. Of course, the Fed is silent on the “metal whose name shall never be spoken.”

Figure 7. Russian gold reserves.

In a shockingly quiet year given how much gold moved to the upside before the post-election monkey hammering, we probably should finish with some generic goofiness. On a few occasions, gold took the beatings that are familiar—huge futures dumps in the illiquid wee hours of the morning when no price-sensitive investor would ever consider selling. It dropped $30 in seconds late on the day before Thanksgiving when nobody was paying much attention. Another hammering came from a $2.25 billion sale⁸⁴ and another $1.5 billion sale,⁸⁵ both of which occurred in under 1 minute. Nanex concluded that the algo “gold spoofer” was at play,⁸⁶ but the 2016 poundings were transitory and toothless compared with their brethren in 2011–2015. Trouble in the ETF market was revealed when BlackRock was overwhelmed by GLD buying.⁸⁷ It was forced to create more shares in February than it had in a decade. I retain previously stated convictions that GLD is a scam—fractional-reserve gold banking. Deutsche Bank was overwhelmed by requests for physical gold.⁸⁸ It tried to shake the hook by demanding that such a request must be made at a participating bank.⁸⁹ Deutsche Bank, the location of the request, is not a participating bank? I imagine it doesn’t have the gold, consistent with its troubles outlined below. A Swedish precious metal vault got its payment mechanism terminated without explanation.⁹⁰

We can’t close without talking about gold’s kissing cousin—silver. The silver market gets its share of muggings and sustained bashings, at times spanning several weeks. The silver sellers didn’t get full traction either, however, bringing silver off a 50% gain but leaving it up 15% year to date. Silver market treachery got some attention. The London Silver Fix—truth in advertising—at times deviated markedly from the spot price,⁹¹ causing consternation among those attempting to fix the price. Deutsche Bank agreed to settle litigation over allegations it illegally conspired with Scotiabank and HSBC Holdings to fix silver prices at the expense of investors.⁹² A class action suit against Scotiabank suggested that the conspiracy spanned 15 years.⁹³ JPM was cleared of silver manipulation in three lawsuits—all dismissed with prejudice, an altogether different form of “fix.”⁹⁴ The only remaining question is why they are stockpiling huge stashes of physical silver.⁹⁵

I’m as sanguine as ever holding large precious metal positions. Gold bugs are reminded, however, of what a big victory will feel like:

Energy

You could almost hear the bell ringing on that one. The price of oil promptly went on a 50% rip to the upside. Generally, however, energy was boring (to me) this year, but I keep investing in it. Of course, lower energy prices were hailed as great tax breaks for the consumer, ignoring those who say the economy drives commodity prices not vice versa. Like every other market, however, has been totally financialized. The supply/demand market got replaced with a casino-based futures market, and we know that casinos are trouble. Then there’s that whole petrodollar thingie wherein our alliances in the Middle East keep the dollar at reserve currency status and allow us to sell debt. It also seems to be the proximate cause for bombing vast numbers of Arab countries, but I’m ahead of myself.

A few corporation-specific problems gurgled to the surface. Chesapeake Energy got indicted for energy market manipulation, prompting the CEO to off himself in a one-car accident.⁹⁶ He probably never realized it was a self-driving car (wink). Petrobras canned 11,700 workers.⁹⁷ Norway’s sovereign wealth fund started tapping principle because Statoil got crushed.⁹⁸ Statoil says it will pay a dividend . . . by issuing new shares.⁹⁹ Maybe it should hire more petroleum engineers and fewer financial engineers. The world’s biggest developer (SunEdison) of the world’s most expensive energy (clean energy) had accrued $12 billion in debt after a two-year asset-buying binge. Liquidation revealed a complex web of Ponzi financing.¹⁰⁰

Here’s a funny little nugget for intellectually molesting people at cocktail parties: Edward Longshanks outlawed the burning of coal in 1306 because of pollution. Apparently, Hillary was not the first to try to put a few coal miners out of jobs. Coal is truly hated, and the industry is getting annihilated by the switch to natural gas, which is getting annihilated by fracking-based oversupply.¹⁰¹ The mega-miner Arch Coal got oxidized in the energy rout, ironically leaving little residue.¹⁰² It’s probably time to invest in coal miners once the market’s beta corrects. (That’s code for a market-wide sell-off.) All of my ideas are contingent on a prefacing market drop in the throes of a recession. One will come like night follows day, and then the merits of cash will be unambiguous.

Energy companies getting whacked wouldn’t be so bad if it weren’t for the debt. Life insurers have huge energy-based junk bond exposure.¹⁰³ Of course, the banks will allow them to hang on to greater risk by not calling in their chits rather than face reality. Zero Hedge reported that the Dallas Fed was telling banks not to push bankruptcy on energy companies.¹⁰⁴ Denial by the Dallas Fed confirmed the story.¹⁰⁵ (Thou doth protest too much.) Wells Fargo is committed to $72 billion if oil companies draw down their lines of credit,¹⁰⁶ and that is just the beginning of its problems (vide infra). Wells Fargo, Bank of America, and JPM all have spiking numbers of bad energy-sector loans.¹⁰⁷

I keep investing in energy, providing my own little Wall of Money to elevate the markets. In 20 years, I’ll know if it’s a smart move. A subset of this plan includes Russia, Iran, coal, and even uranium. Y’all can keep the new-fangled green energy; it’s too political for my tastes.

Real Estate

Thank God the real estate bust is over. That got outta hand fast, but we’ve learned our lesson (sigh.) Of course, it’s not over, and we learned nothing durably. Stupidity doesn’t just rhyme; it repeats. I must confess that I’m unsure how they cleaned up the ’09 bust. Where did the massive inventory go? Some did the full cycle (ashes to ashes). I suspect that many former foreclosures are rentals (Figure 8). Although single-family rentals are a lousy business and represent a dangerous shadow inventory, soaring rental rates may actually make them profitable in the medium term. The authorities also didn’t really clean up the financial mess. Fannie Mae and Freddie Mac—the two toxic government sponsored enterprises (GSEs) that nearly destroyed us in ’09—are being considered for bailouts again.¹⁰⁸ What? Didn’t we drive wooden stakes through their hearts? No. They got placed in the government protection program under the pseudonym Karen Anne Quinlan living on Maiden Lane.

Figure 8. Renter-occupied versus owned houses.

Some bubbles didn’t even burst in ’09. Vancouver real estate went bonkers with the influx of Chinese money. The cost of a single-family home in Vancouver surged a record 39% to $1.2 million by midsummer. Mansions were being bought and abandoned (Figure 9). Shacks (tear downs) were selling for millions. Thomas Davidoff, erudite professor  at the University of British Columbia, noted, “These prices are getting pretty freaking nuts.”

Figure 9. Abandoned $17.5 mansion,¹⁰⁹ $7.2 million mansion for sale,¹¹⁰ and $2.4 million starter home in Vancouver.

People were getting rich buying Vancouver houses, but I’ve seen this plot before and know the ending. With everybody on the same side of the boat (boot), it would soon be listing starboard. Is that a blow-off top in Figure 10? Not really. The authorities aggressively scuttled it with a 15% housing tax¹¹¹ to “cool off the market” (real estate’s version of the ice bucket challenge.) Sales dropped 96% year over year while prices dropped 20% in the blink of an eye.¹¹² Where’d the buyers go? Toronto!¹¹³ I suspect Vancouver will retrace a decade (or more) of gains.

Figure 10. Vancouver real estate prices 1977–2016. Blue is “detached” in so many ways.

Legendary real estate analyst Mark Hanson sees a few frothy domestic markets, too (Figure 11).¹¹⁴ Bloomberg reports that $0 down, 30-year, adjustable-rate, jumbo mortgages are being given to youngsters in Silicon Valley, all backed by stock options.¹¹⁵ The San Francisco Federal Credit Union calls the program POPPY, or Proud Ownership Purchase Program for You because, as Zero Hedge notes, “Steaming Pile of Shit” lacks panache.¹¹⁶ Alan Cohen, former Ithacan and current Florida county planner, told me the Florida real estate bubble was back and bloated. A $95 million tear down in Palm Beach was the sound of a bell ringing.¹¹⁷ Prices of luxury condo sales in Miami have been cut in half.¹¹⁸ A busting golf course bubble is causing problems in Florida and other sand states because the courses are embedded in neighborhoods.¹¹⁹ Smacks of time-share-like legal problems. Some may also recall that a Florida real estate bust prefaced the ’29 collapse.¹²⁰ Even in New York City the market is softening, as is its bedroom community, Greenwich, CT.¹¹⁷ And $100 million condos are showing evidence of being overpriced.¹¹⁸ Whocouldanode. Aspen witnessed the largest drop—a double-black diamond “freefall”—in years.¹¹⁹

You want some entertainment? Check out this critique of the architectural wizardry behind the ever-popular MacMansion.¹²⁰

Figure 11. Domestic real estate markets.

According to Christie’s International Real Estate, $100 million homes were piling up by mid-year.¹²¹ It appears that the UK market (especially London) may finally be softening or, as they say at Bloomberg, “tanking.”¹²² The largest property fund had to stop redemptions.¹²³ Ironically, they’ll have to sell assets, which I’m sure won’t help the market as the virtuous cycle turns vicious. Prime properties have also dropped in Paris, Singapore, Moscow, and Dubai.¹²⁴ Some say the global high-end market has completely stalled.¹²⁵ Australia seems to remain in a bubble.¹²⁶

You know the picnic is over for the commercial markets when the seven-story office building in Figure 12 gets stale on the market.¹²⁷ The real estate bears have taken notice. (That was inexcusable.)

Debt

Federal debt has climbed 8% annually since 2000,¹²⁸ but who cares because we have the reserve currency, can print the garbage at will, and are assured by the highest authorities that inflation is good and high inflation is even better. Meanwhile, friend and market maven Grant Williams has created a masterpiece of analysis of our debt problems.¹²⁹ In the absence of a deflationary collapse, debt is reconciled to the downside at a geologic pace; it almost never happens. (Supposedly the Brits did it in the mid-nineteenth century.¹³⁰) The problem is exacerbated by an inherently inflationary banking system that requires monotonically rising debt to survive. Where do you think the interest paid on savings comes from (when there is interest, that is)? Despite the current calm—possibly the eye of the storm—there are newsworthy events in the world of debt.

The consumer is stretched by having no savings and gobs of debt—huge net debt (Figure 13). An estimated 35% of Americans have debt that is more than 180 days past due.¹³¹ They are now buying used cars with 125% loans,¹³² presumably to cover the negative equity from their previous loan and help pay for repairs. The used car market is priced poorly owing to the overdeveloped credit machine created to sell the trade-ins from rentals.

Figure 13. Consumer debt (credit).

One of the most oppressive of all debts, high-interest credit card debt, now exceeds $16,000 per household.¹³³ The $2500 per annum interest payments are a death spiral for the average consumer earning less than $30,000 per year. The collective tab is nearing $1 trillion.¹³⁴ Larry Summers blames the high debt-to-income ratio for the stagnant consumer.¹³⁵ He may be missing the superimposed realization that they have no pension either (vide infra).

Non-dischargeable student loans continue to climb, now exceeding $1.3 trillion (Figure 14). Can anybody picture the millennials paying this off? A comprehensive White House report lays out the stark details.¹³⁶ Student debt has grown linearly since ’09—suspiciously linearly. In fact, I don’t trust linearities like that:

I suspect that the federal government is using student loans as a monetary policy tool to methodically jam money into the system not unlike its bond-buying spree in which Andy Husar was instructed to buy $8 billion a day, every day, without fail. Curiously, the White House (metonymically speaking) thinks “student debt helps, not harms, the U.S. economy.” That idea reflects the IQ expected of a house.

Figure 14. Just student loans or monetary policy?

There are rumors of arrests of student debtors—Operation Anaconda.¹³⁷ It sounds like Dickensian debtors’ prisons if true. I think it more likely that we are slowly heading toward some form of debt jubilee. It will be highly politicized and unfairly distributed. Hints of one come in the form of disability relief for almost 400,000 students who are said to be disabled but unable to prove it.¹³⁸ If, however, ADHD or a damaged frontal cortex that allows one to spend $200,000 on an unmarketable education is a disability, 400,000 is an underestimate. Hillary publically promised to give free tuition to students while privately getting caught on a hot mic referring to the millennials’ hopes of free education as “delusional.”¹³⁹ This point is now moot.

Corporate debt continues to give me fits as companies blow up their balance sheets to buy back shares and pay dividends. This is not self-extinguishing debt. You hear about corporate cash on balance sheets from the media. That cash is stored in metaphorical crocks, because the story is bogus. The top 1% of companies has 50% of the net cash on the balance sheets. (Kinda sounds like the wealth disparity pitch all over again, eh?) Apple, Microsoft, Google, Cisco, and Oracle account for 30% of it. The journalists squealing about “cash to be put to work” often fail to look at the net cash (cash minus debt). Total debt on the balance sheets doubled from $2.5 trillion in 2007 to over $5 trillion by early 2016 (Figure 15). That’s 7% per annum according to the 72 rule (interest rate x doubling time ? 72). Meanwhile the cash on the balance sheet rose by a paltry $600 billion. I get lost in the big numbers, but that is a $2 trillion rise in net debt. They’ve got to keep growing it, however, to buy back shares if they wish to prevent their share prices from collapsing.

Figure 15. Corporate debt.

Isn’t debt a zero-sum game? We owe it to ourselves? In a sense, yes. But when all this debt comes due, we will discover that our shiftless counterparty (us) doesn’t have any money. All that money you think you’ve saved is owed to the millions of people comprising “ourselves.” How much do we owe ourselves? Unfunded liabilities come to a total of $2 million per viable taxpayer ($200 trillion total). You know what you are owed, but do you know how much you owe to the rest of us? Got gold?

Pensions

Everybody passes pickles over the social security trust fund when, in fact, it doesn’t exist and never did. It is a mathematical certainty that we will default on our obligations, but it will occur in some way invisible to most people, probably via cost of living adjustments that fail to track inflation, means testing, and just printing money. I signed my wife up for social security early (62) on a bet that they would renege somehow. She didn’t earn much; I did. What started as a small payment turned miniscule. Here is her statement:

Really? $411 per month was whittled down to $63 per month? The part I cut off was the final clause that said, “Don’t spend it all in one place, bitch.”

The risk is in the substrata of the pension system in which bankruptcy and insolvency are smash-mouth realities. I didn’t mention state debt in the previous section because much of it is hiding as unfunded obligations to pensioners. Paying state and municipal employees with pension promises was such an easy way to compensate people without raising the money. Enter reality: public pensions are now $3 trillion in the hole.¹⁴⁰ How long would it take to make up $3 trillion? Noooo problem! Simply pay off a million dollars a day for 8,200 years (assuming 0% interest.) Some examples are in order. Oregon’s public employee retirement system has a $21 billion unfunded liability (6 years of payouts), and it’s growing as returns of 2% somehow fall short of assumed returns of 7.7%.¹⁴¹ Those assumed 7–8% returns have never been accurate over the long term when adjusted for inflation, fees, and taxes. Connecticut, Kentucky, and Hawaii have similar problems.¹⁴² Illinois is the gold standard of insolvency. The Illinois Teachers Retirement System is only 40% funded and currently assumes annual returns of 7.5%.¹⁴³ How did this happen? For starters, the employees are the best compensated in the Union, including free health care for life.¹⁴⁴ Wrap your brain around that: they work for 20–30 years and get free health care for up to 50–60 more years? Meanwhile, state labor unions are asking for raises out of “fairness.”

As you drill down, you find bloodbaths pretty much everywhere in municipalities. Chicago’s pensions in aggregate are 20–30% funded depending on whom you ask.¹⁴⁵ Pending legislation, however, will allow the insolvent state of Illinois to bail out the insolvent city of Chicago.¹⁴⁶

Isn’t there something you can do? Even if we get serious about savings among, say, the boomers, many are way past their fail-safe points. You can hear the barn door slam. At least those with defined benefit pensions are safe because they are protected by contractual obligations. Legal schmegal: there is no god-damned money! Pension cuts are just beginning but could accelerate. The Teamsters’ Central States Pension Fund is looking to cut 400,000 pensions by 55% or go flat broke—zero dollars—by 2026.¹⁴⁷ Recent rulings preventing pension cuts are, in my opinion, the courts simply stating that it is illegal to avoid bankruptcy through selective nonpayments. Bankruptcy is about distributing remaining assets in a fair and equitable way to all creditors when there is not enough to go around.

There is evidence of an old-school-style run on pensions: workers are retiring in serious numbers to remove their assets from faltering pension programs. I hear rumors of University of Illinois faculty moving to other institutions—five to Georgia Tech alone—to remove their pensions at full value from the Illinois system while it’s still possible. Dallas police and firefighters are leaving the job to grab their full pensions from a dwindling stash.¹⁴⁸ It turns out there was also a bit of a Ponzi scheme going on, which caused the mayor to propose a 130% increase in property tax.¹⁴⁹ I don’t see a reelection in your future, Mr. Mayor. As seasoned public servants, they might be able to move to Austin or Houston. There is now evidence the withdrawals in Dallas are being shut down.¹⁵⁰ I could even imagine claw backs of the rolled-out funds.

At the personal level, self-directed defined contribution plans paint a clockwork orange big time. Gundlach says the 40–50 crowd is “broke.” Well he exaggerated: the average American household has $2,500 saved, and the average couple consisting of two 45-year-olds has $5,000.¹⁵¹ Technically speaking, they are not broke, but they are totally screwed. Across all working-age families, more than 50% have no savings whatsoever,¹⁵² which is one way to render low returns moot. The 55- to 60-year-olds are positioned closer to the pearly gates but have median retirement nest eggs of $17,000.¹⁵³ Assuming a couple eats six cans of dog food per day (2 × 3) and they have no other bills, the couple will run out of money in 11 years (which, on the bright side, will seem like eternity). The top 10% have less than $300K.¹⁵⁴ The numbers could be skewed to the optimistic side: 20% of all eligible 401(k) participants have loans outstanding against their 401(k) accounts.¹⁵⁵ This practice is so egregious that some companies are offering alternative payday loans to their employees, albeit with elevated interest rates, of course.¹⁵⁶ I remember reading about company towns in West Virginia coal country paying their employees in company scrip. The practice was outlawed.

Of course, I’ve just described a potpourri of anecdotes in the U.S. Maybe it’s better in other countries. Right off our coast we have the tropical paradise of Puerto Rico, which is so up to its ass in debt that creditors essentially own the island.¹⁵⁷

What about Europe? There’s where it gets fugly. The markets in pretty much everything that is bought and sold are at nosebleed valuations. There is little or no room left for gains through changes in valuation. Interest rates on bonds are miniscule, even negative (vide infra.) You won’t make anything on those bonds, but you could lose enormous principle when—not if—interest rates normalize after a 40-year downward march. There is some evidence that the reversal has now started. Equity markets also have a mean regression in their future despite what the proponents of the mathematically sophisticated Greater Fool Theory espouse. If the markets correct—they always do—you can adjust all those numbers I just cited by an arithmetically simple factor of 0.5. Could an industrial revolution save us? The most stupendous industrial revolution in history—the U.S. juggernaut in the twentieth century—returned an inflation-adjusted 4–5% including dividends using the Dow index as a proxy. Unfortunately, I do not believe those returns are corrected for management fees and taxes. I’m thinking 3% is optimistic. I’m thinking Illinois and the rest of the world are still toast.

Inflation/Deflation

The central bankers and macroeconomists all want inflation. There are media pundits who buy into this metaphysical notion that inflation is good (no offense to the metaphysicists). Dispelling the notion that this quest for inflation is just hyperbole calls for some quotes to capture pundit sentiment:

They may believe that by generating small positive inflation levels that seem to accompany strong economic growth, they will somehow create that growth. More likely, they fear no inflation in an inherently inflationary credit-based banking system. If central bankers furiously debase their currencies with an inflationary tailwind and deflation appears nonetheless, then somebody screwed up (them). I buy this latter thesis. Of course, the measure of inflation has been debated ad nauseam in the context of stats rendered dubious by hedonic adjustments, substitutions, unvarnished fraud, and adjustments based on reading goat entrails. I discussed these frauds years ago.¹⁵⁸ Inflation is certainly not 2% but some number much higher if one is measuring what Joe Six-pack is shelling out to exist.¹⁵⁹ (Anticipating squeals about MIT’s Billion Price Project, I discussed it in last year’s review: I think it’s bogus.)

The fear of deflation is fear of asset deflation. With huge leverage in the system, a collapse in asset prices becomes insolvency and cardiac arrest. The problem is that the Fed’s inflation policies are the root cause of the deflationary risk. To me, the existential risk is hyperinflation, which is in full bloom in Venezuela¹⁶⁰ and germinating in Nigeria.¹⁶¹ Closer to home (for Americans), rents have been soaring—13.2% per year in Boston since 2010, for example.¹⁶² Health plans are rising double digits per year, looking to jump more than 15% next year.¹⁶³ College tuition is on a headline-making inflationary trajectory of 6% per annum above the rate of the admittedly dubious inflation rate.

The Bond Caldera

Sounds a little ominous. He also notes that “global yields are the lowest in 500 years of recorded history.” Alas, there are other bond doomsters. Paul Singer says “the bond market is broken . . . the biggest bubble in the world . . . never-before seen asymmetry between potential further reward and risk.” Former punk rocker and newly crowned Bond King Jeff Gundlach now moves the markets with his pronouncements. Jeff wails that the current market for 10-year treasuries is the worst opportunity in its long history. He calls it “mass psychosis . . . not guided by the markets.” With a little math wizardry that only a bond king could muster, Jeff says, “a 1% increase in the rates would result in up to $2.4 trillion of losses.”¹⁶⁴ I’m not sure investors hiding in the safe haven of bonds are quite ready for those losses. They’re betting that rates will never rise 1%. As I type, that is proving to be wrong—possibly dead wrong.

At some point, this party has (had) to end. In 2014, James Grant of the legendary Interest Rate Observer described three bond bulls in America during the past 150 years—“1865–1900, 1920–1946, and 1981 to the present.” The first two did indeed end, and probably unexpectedly given how long they lasted and investors’ willingness to extrapolate to infinity. The third will end too. The bond market is like the Atlantic conveyor that must keep moving currents around the Atlantic Ocean.¹⁶⁵ When the conveyor sputters, we get an ice age. When the bond market sputters, we will get the credit market analogue of an ice age.

What’s different this time—a dangerous choice of words—is that the highly financialized markets are not only huge but also highly correlated. The correlation reaches way beyond the conventional debt markets into the shadow debt markets and the $1 quadrillion derivatives market—a quadrillion dollars of the most screwed-up, leveraged investments based on blind faith and confidence the world has ever witnessed. No problemo, say the optimists. We will “net” those puppies. Netting is when you round up investments on each side of the bet and simply cancel them out (like from either side of an equal sign.)¹⁶⁶ Ya gotta wonder which genius is going to net $1 quadrillion dollars of derivatives in the midst of a raging inferno. It didn’t work in ’09, and it won’t work the next time, especially in a market so large Avogadro might wince.

How crazy has the bond market become? The French sold 50-year bonds.¹⁶⁷ Ireland sold its first so-called century bond less than three years after it exited an international bailout program.¹⁶⁸ Spanish 10-year interest rates are below those of the U.S., prompting James Grant to suggest “a return to the glory of Rome.” The Eurowankers (European bankers) are monetizing debt by buying corporate bonds to jam money into (1) a system that doesn’t need any more, and (2) the pockets of cronies who always demand more. Shockingly, the cronies front-ran the purchase program by buying existing corporate debt¹⁶⁹ and creating new types of corporate debt, all for a tidy profit . . . for now. Taking a cue from the U.S. postal service, Japan is offering “forever bonds”: you get interest—a low 1% interest at that—but you never get paid back your principle.¹⁷⁰ The idea that inflation will never rear its ugly head seems presumptuous, even preposterous. It would be safer loaning money to your adult children, who will never pay you back either. You know to the penny your return on that investment.

Alas, as is often the case, CNBC isn’t even right on what would be a truism in any other era. I could go on talking about ridiculously low yields, but now we get “the rest of the story.”

ZIRP and NIRP

On April 1, 2006, an article appeared endorsing zero-coupon perpetual bonds.¹⁷¹ You give somebody your money, and they pay you no interest and you don’t get your money back. Irate readers forced this hooligan to “politely point out to them the date of publication” (April 1st). Did you know the word gullible is not in the dictionary?

Unbeknownst to the author, the article wasn’t satire; it was foreshadowing. There is no endeavor in which men and women of enormous intellectual power have shown total disregard for higher-order reasoning than monetary policy. We are talking “early onset” something. I am not an economist, but my pinhead meter is pegging the needle. Let’s hop right over ZIRP (zero interest rate policy) because it is so 2014 and head right into NIRP (negative interest rate policy). NIRP is where you pay people to lend them money. (Check the date: it’s December, not April.) You heard that right: you give them money, and they give you back less.

Capitalism progressed for 5,000 years without interest rates ever stumbling on the negative sign (which, by the way, was invented by the Arabs more than a millennium ago). You can no longer simply say that bonds are at multi-century highs; it is mathematically impossible to bid rates on normal bonds into negative territory. It takes a special kind of monetary fascism to create negative rates.

Japan is at the vanguard. Eight days after Hiruhiko Kuroda, head of the Bank of Japan (BoJ), announced he was not considering negative interest rates, he jammed rates negative.¹⁷² That was like a knuckleball from the famous pitcher Hiroki Kuroda. Nearly 80% of Japanese and German government bonds are now offering negative yields (whatever “yield” now means).¹⁷³ Fifty-year Swiss debt has gone negative.¹⁷⁴ Early this year, negative yielding global sovereign debt surpassed $10 trillion “for the first time.”¹⁷⁵ Really? For the first time? Sovereign debt first dipped below zero only two years ago. An estimated $16 trillion (30%) of sovereign debt is now under the auspices of NIRP (Figure 17).¹⁷⁶ Over a half-trillion dollars of corporate debt is also at negative rates.¹⁷⁷ Reaching for yield in corporate debt markets always seemed risky, but that’s nuts. By now it could be $1 trillion. I’ve lost track. NIRP has infected the consumer debt market: Denmark and Belgium are offering negative interest rate mortgages.¹⁷⁸ (I just soiled my thong.) By the way, you folks with big credit card debt will likely have to wait for relief; your rates are pegged above 20%. Maybe you’ll get some helicopter money.

Figure 17. Negative yielding debt with a subliminal flare.

These Masters of the Universe, economists and bankers extraordinaire, and their enthusiastic supporters of modern-day monetary theory certainly didn’t leap into the NIRP abyss casually. Let’s listen to the justification in their own voices. While reading, rank their comments as (1) pragmatic resignation, (2) dubious, or (3) delusional rants of the clinically insane:

So these paternalistic libertarians are doing it for the children. What’s the problem? Let’s start with savings. There is no income left in fixed income. All those unresilient consumers are getting zip on what money they have. The low rates are designed to get them to spend their paltry savings. Peachy. A USA Today headline read, “How to break Americans of shortsighted saving habits.” Let’s start by giving them a return on their savings, for Pete’s sake. Giving them negative returns, however, in a twisted way is forcing them to save like their parents. Maybe I’ve misunderstood the headline. Maybe it’s excoriating the public for their growing addiction to saving, causing the wholly ludicrous and intellectually impoverished Paradox of Thrift.¹⁷⁹

This naturally leads back to the inflation/deflation debate. The inflation that the Fed desires comes, at least in part, from inherently inflationary fractional reserve banking in which interest rates demand net dollars to increase. Negative rates, by contrast, are inherently deflationary. Every year the banking system has less. This doesn’t seem that hard to grasp.

Low and negative rates are destroying pension management, insurance, and even banking industries. When your business model is to take in money, make decent returns, pay out a little less, and skim off the difference, then negative, zero, or even low interest rates are deadly. The model fails. This doesn’t seem hard to grasp either.

Finally, low interest rates actually hurt the economy by keeping the weak alive, preventing the much needed creative destruction. Unviable companies on the life support of loose credit cannibalize serious businesses measurably, sometimes even fatally. You must cull the herd of the sick and weak.

The big credibility problem is that I’m just a chemist “identifying” as a pundit going toe-to-toe with some serious paid-to-play central bankers and their groupies. To rectify that, let’s listen to some critics of NIRP with gravitas in their own words:

What’s the end game? My best guess is that the system blows up and a lot of bankers find themselves seriously upside down . . . like Mussolini. The silent bank run is already happening. In a free market, NIRP is precluded by cash and hard assets. NIRP in Japan caused a run on safes for hoarding cash.¹⁸⁰ A headline announced, “German Savers Lose Faith in Banks, Stash Cash at Home.”¹⁸¹ I was told by a high-level source that one of the world’s largest insurers was renting vaults to store physical currencies. Commerzbank was considering hoarding billions to avoid European Central Bank (ECB) charges.¹⁸² Mark Gilbert of Bloomberg notes that storing $100 million as stacks of bills would basically take a vault the size of a large closet.¹⁸³ See the theme? The financial intermediaries are storing hard cash. Alas, our central banker overlords won’t stand for it.

War on Cash

You ever notice the War on Anything never works? Whether it be drugs, terror, poverty, Christmas, hunger, you name it, it becomes an interminable, profoundly costly adventure. Now we have the War on Cash. OK, millennials, listen up. You might like paying for everything with your Swiss Army phones. There are rumors you can even swipe G-strings on pole dancers with your phones, which means you’ve totally lost the plotline. If we go to cashless, you won’t have the scratch needed to buy a cell phone before long. These globalists wish to remove your right to an important civil liberty—to hold and spend wealth outside the view of the government and beyond the control of the banks.

The global elite want to eliminate cash so that they can inflict monetary policy without restraint. As Rogoff says, cash gums up the system. When the former secretary of the treasury, Larry Summers, starts supporting the elimination of cash because it will “combat criminal activity . . . for the interests of ordinary citizens” you should sit up and pay attention. He says we “are essentially on a fairly dangerous battlefield with very little ammunition.” He is not talking about the War on Crime but rather efforts to fight the market forces attempting to curb the global banking cartel. Ex-Fedhead Kocherlakota tried to get coy using reverse psychology on free marketeers by arguing that “governments issuing cash . . . is hardly a free market.” As the story goes, the libertarians should support a cashless society by letting currencies compete in the marketplace.¹⁸⁴ Very clever, Yankee dog! Of course, he forgot to mention that the government would then shut competitors down like they did to Bernard von NotHaus, who got his assets seized and went to prison for offering such competition. Satoshi Nakamoto, Bitcoin founder, is on the lam.¹⁸⁵ Your arguments are specious, NK.

Ken Rogoff carried the standard in the War on Cash this year by hawking his new book, The Curse of Cash. He tirelessly tried to make the case for a cashless, bank-rich society, arguing that “paper currency facilitates racketeering, extortion, drug and human trafficking, the corruption of public officials not to mention terrorism.” He argues that “cash is not used in ordinary retail transactions.” Really? What do stores put in the cash registers, coupons (which are going digital)? To say he supports the termination of cash is not quite fair: he endorses using only low denominations such as $10 bills, which buy you a pack of cigarettes (maybe). Don’t spend it all in one place. On noticing that hundreds of commenters in a Wall Street Journal editorial¹⁸⁶ showered him with suggestions on how to render him testicle free, I suggested in a brief e-mail that people are clearly stating that the idiosyncrasies of cash are a small price to pay for personal freedom. He, in turn, suggested I read his book. Not likely. There was pushback, however. Jim Grant used his sharp wit to get Ken halfway to eunuch status.¹⁸⁷

When the globalists left Davos,¹⁸⁸ the War on Cash seemed to accelerate almost overnight:

• Deutsche Bank CEO John Cryan predicted that cash won’t exist in 10 years.
• Norway’s biggest bank, DNB, called for an end to cash.
• Bloomberg published an article titled “Bring On the Cashless Future.”
• A Financial Times op-ed titled “The Benefits of Scrapping Cash” advocated the elimination of physical money.
• Harvardian and ex-Harvard president Peter Sands wrote a paper titled “Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes” in which he waxed on about fighting wars—wars on crime, drugs, and terror.
• Mario Draghi, head of the ECB, phased out the €500 note—30% of the physical euro notes in circulation: “We want to make changes. But rest assured that we are determined not to make seigniorage a comfort for criminals.”
• The New York Times called for the termination of high-denomination notes.

Again, all of this was within a month of the shrimpfest at Davos. You and your banking buddies are the criminals and seem quite uncomfortable with cash. If you really care about crime, shut down HSBC:

With physical cash curtailed, JPM estimates the ECB could ultimately bring interest rates as low as negative 4.5%.¹⁸⁹ (Two decimal point precision: nice.) Phasing out the $100 bill would eliminate 78% of all U.S. currency in circulation.¹⁸⁹ Hasbro announced that the game Monopoly will replace cash with special bank cards (special drawing rights?) in which players buy and sell with handheld devices. More recently, Prime Minister Narendra Modi of India withdrew all high-denomination bills essentially overnight.¹⁹⁰ The results were predictable for a society in which cash really is king: the system shut down. Nearly instantaneously, India’s trucking industry—millions of trucks—were parked on the roadside: out of cash means out of gas.¹⁹¹ As I type, the chaos continues.

There are, thankfully, influential supporters of cash. Bundesbank board member Carl-Ludwig Thiele warned that the attempt to abolish and criminalize cash is out of line with freedom.¹⁹² Bundesbank president Jens Weidmann said it would be “disastrous” if people started to believe cash would be abolished: “We don’t want someone to be able to track digitally what we buy, eat and drink, what books we read and what movies we watch.”¹⁹³ Austrian economist Frank Shostak, by no means influential because Austrians are considered to be insane, reminds us that “abolishing cash to permit the central banks to lower interest rates into deeper negative territory will lead to the destruction of the market economy and promote massive economic impoverishment.”¹⁹⁴

Maximum mirth came when Jason Cummins, chief U.S. economist and head of research at hedge fund Brevan Howard, stood up at a meeting littered with devout globalists and denounced the War on Cash and quest for inflation as stemming from the “Frankenstein lab of monetary policy.”¹⁹⁵ Jason went on a rant: “You are not going to have independent central bankers in the next 10 years if you keep on this path. The economy has rolled over and died in an environment when financial conditions have never been easier. . . . People aren’t consuming, businesses aren’t investing, they aren’t buying houses even with a 3.5% mortgage rate. . . . The maestro culture created by Greenspan has been one of the worst features of central banking. . . . My biggest worry is that the public will conclude that . . . capitalism is just socialism for the rich.” Oops. Too late, dude.

Arguments about the insecurity of cash seem specious when you look at how the digital world has fared lately. The thriving sovereign state of Bangladesh was raided for a cool $100 million by a series of unauthorized withdrawals using the global SWIFT check-clearing system.¹⁹⁶ One could imagine that third-world safeguards against such a heist might be lax, but the hackers removed the booty from the New York Federal Reserve. A Fed spokesperson offered the official response: “Sorry. Our bad.” Apparently, the Fed has been hacked more than 50 times since 2015. Gottfried Leibbrandt, the CEO of SWIFT, has expressed grave concern about the threat hackers pose to the banking system.¹⁹⁷ Ya think?

On a more micro scale, six of my colleagues got their paychecks phished. They were tricked into signing into their financial home page. With the passwords in hand, the Nigerian princes rerouted their direct-deposited paychecks. Food stamp computers went down for over a week in June.¹⁹⁸ An Ecuadorean bank got clipped for $12 million, blaming Wells Fargo for not plugging a leak.¹⁹⁹ It’s probably in the Clinton Foundation. The risks of cash in society seem to pale in comparison with the risks of digits in the banking system.

The termination of cash is all some dystopian futuristic abstraction that won’t come to pass, right? No. Brits are complaining that they are being stopped from withdrawing amounts ranging from £5,000 to £10,000: “When we presented them with the withdrawal slip, they declined to give us the money because we could not provide them with a satisfactory explanation for what the money was for. They wanted a letter from the person involved.”²⁰⁰ The phrase, “give me my goddamned money before I jump the counter and beat the crap out of you” comes to mind. Better yet, say it’s for Zika medication and start coughing. The €500 note did indeed get abolished.²⁰¹ Angela Merkel put caps on bank withdrawals. ²⁰² I heard from a friend that Wells Fargo was obstinate about a large money transfer. (We return to Wells Fargo’s disasters in the banking section.) Some restaurants are refusing cash.²⁰³ What does “all debts public and private” mean?

Nightmare scenarios in a cashless society include: (1) negative interest rates of any magnitude; (2) civil asset forfeiture (but I repeat myself); (3) bank bail-ins; (4) getting booted from or locked out of the system—by mistake or otherwise; (5) sovereigns getting booted from the SWIFT check-clearing system (just ask Pootin); (6) outlawing gold (again); and (6) hackers! We could see a black market based on S&H Green Stamps.

Banks and Bankers

The banking system was not fixed in ‘09. The putrid wound was stitched up without disinfectant by a cabal of bankers and regulators, all agreeing that the system had to retain its current form. The assets of the 10 largest banks—greater than $20 trillion—grew 13% per year in the last 10 years. This is not my idea of mitigating systemic risk. Now we are near the top of an aging business cycle where bad loans start unwinding and bad ideas begin to die. Gangrene is beginning to show. Collateralized debt is picking up because the uncollateralized refuse starts piling up like during a NYC garbage strike.²⁰⁴ Collateralized loan obligations—the dreaded CLOs—are starting to liquidate.²⁰⁵ Banks are rebuilding teams for debt restructurings.²⁰⁶ As noted above, the Dallas Fed is attempting to extend and pretend energy loans.²⁰⁷ Does this kind of crackpottery ever work? Citigroup failed—as in big fat F-like failed—its stress tests.²⁰⁸ Those were the Kaplan practice tests. Many banks will fail when the real stress test arrives. Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, thinks we will unwind banks in an orderly process.²⁰⁹ Of course he does, and of course I don’t.

Although huge problems could be triggered by a default almost anywhere in the system—an internal hedge fund or even an unusual presidential election—the disaster will be global. The first raging inferno is most likely to burn in Europe and will undoubtedly include Deutsche Bank (DB). DB was the most putrid of the ’09 wounds; it never really healed. In 2014, it was forced to raise additional capital by selling stock at a 30% discount. But why?²¹⁰ This year DB sold $1.5 billion in debt at junk rates (admittedly a paltry 4.25% in this era).²¹¹ German Finance Minister Wolfgang Schäuble said he has “no concerns about Deutsche Bank,”²¹² which means they are in deep trouble. By early 2016, the scheisse was hitting the lüfter. In March, DB was again told to grow its capital base.²¹³ In April, DB settled its LIBOR manipulation suit ($2.1 billion in fines) along with its silver manipulation charge.²¹⁴ By May, one of the two CEOs—one CEO too many—decided to spend time with his family and the other was given emergency authority for “crisis” management. Soon both CEOs had become stay-at-home dads.²¹⁵

A missed debt payment by Greece in June suggested a full default,²¹⁶ which correlated with the S&P lowering DB’s bond rating to “junk-lite” (three notches above “junk”).²¹⁷ DB refused to deliver physical gold to customers (shades of MF Global),²¹⁸ and later in the fall settled a gold-rigging suit.²¹⁹Business Insider suggested that DB “is coming unglued,” which is a pathetic euphemism for defaulting on interest payments.²²⁰ Bond downgrades often foreshadow more downgrades. Twenty percent of DB’s workforce was sent home to family.²²¹ A few weeks after the EU slapped Apple with a $14 billion surcharge for “back taxes,”²²² the U.S. slapped DB with a $14 billion fine for doing what banks do.²²³ Seems oddly coincidental. A $14 billion fine may also seem quaint in a world of trillions (and now quadrillions) but not with a market cap of $17 billion. Rumors that the fine was markedly reduced proved to be hedge fund hijinks.²²⁴ A putative Qatarian bailout was also profitable fiction.²²⁵ John Mack of Morgan Stanley suggested all is hunky-dory because DB will be propped up by the Fatherland.

The problem in a nutshell is that DB has a nosebleed 26× leverage according to Hussman. It has $70 trillion in notional derivatives looking for safety netting. If it starts triggering credit default swaps (CDSs), it’ll be like a kangaroo in a minefield, and CDSs began spiking in September.²²⁶ Rumors of cash restrictions and defaulting contingent convertible (CoCo) bonds abound.²²⁷ Raoul Pal of Real Vision says CoCo bonds are the crisis.²²⁸ They turn into equity near the strike price, which then drives equity prices down and destroys the bank . . . like the doomsday machine in Doctor Strangelove.²²⁹

The Italians are in a world of pain. Italy’s third largest bank, Monte Paschi, failed in 2012,²³⁰ but it got worse this year.²³¹ Worse than failing? Trading was halted on it after falling only 7%.²³² Italy banned short selling, which is the last refuge of interventionists before the inevitable failure.²³³ Italy’s major banks are bleeding losses and have been sold off more than 50% this year. George Friedman, founder of Stratfor, tells us that the Italian banks have been buying crap loans from Europe since the crisis and are heading for bail-ins (vide infra).²³⁴ He goes on to say that a U.S. recession could trigger systemic failure and ensuing nationalism. Italy cannot inject government funds into its banking system until it has first forced a trauma-inducing “bail-in” at any bank getting aid. A €5 billion bailout fund created in Italy this year took over Veneto Banca after a €1 billion capital increase failed to get bids.²³⁵ The idea was to channel private sector money into rescuing the banks. Wanna bet the private philanthropists laundered public money? As I put this document to bed, a big vote in Italy essentially to leave the EU may have just nuked the Italian bond market.²³⁶

The Swiss National Bank (SNB) says UBS and Credit Suisse will have to raise more than 10 billion Swiss francs in capital.²³⁷ A loss in a single quarter at Credit Suisse wiped out years of profit.²³⁸ Spain’s Banco Popular, looking for €2.5 billion in capital, offered low interest loans provided to . . . wait for it . . . purchase the bank’s newly issued shares.²³⁹ The €29 billion Bremen Landesbank is teetering on failure, dropping 50% market cap in a heartbeat.²⁴⁰ Needless to say, investors owning European bank ETFs are experiencing Dresden-like firestorms.

On this side of the pond, we have issues, but they don’t seem systemic yet. Citigroup, the U.S.’s largest derivatives holder, bought $2.1 trillion of notional credit derivatives from DB and Credit Suisse.²⁴¹ I guess Citi has been designated a “bad bank” (drew the short straw) kinda like Santander in ’09. Its failed stress test caused authorities to rhetorically ask, “Why not give them the mine tailings?” Goldman, a bank since ’09, settled for a $5.1 billion payment for dubious deeds with no guilt, no jail time, and probably low payments after tax credits.²⁴² Settling was a prescient call if the alternative was to wait and bribe President Clinton.

JPM underwrote an equity offering for Weatherford International—sporting the great stock symbol WTF—to help raise money from investors to pay back debt to JPM.²⁴³ No conflict there, eh? I think that is called “catfishing”. Banks appear to be doing this in large numbers. We found out that JPM knew about Bernie Madoff’s Ponzi scheme for 20 years.²⁴⁴ That’s like driving the getaway car. Bruno Iksil, the London Whale, broke silence by claiming he was a patsy.²⁴⁵ No, really? JPM announced a share buyback one month after Jamie Dimon bought 500,000 shares to catch the gain.²⁴⁶ A letter from the Fed seems to suggest that JPM could destroy the U.S. in the event of another financial crisis.²⁴⁷ Thank God that’ll never happen again.

The award for Biggest Scandal goes to Wells Fargo, the pride and joy of the Orifice of Omaha. Wells Fargo employees secretly created millions of unauthorized bank and credit card accounts beginning in 2011.²⁴⁸ Funds from customers’ existing accounts were moved to the newly created accounts without knowledge or consent. Customers were not happy with the overdraft fees. Even CNN expressed awareness and shock. As usual, the $185 million fine doesn’t begin to address the problem,²⁵⁰ especially given that the prosecutors, happy to absolve the executives of wrongdoing, were overheard muttering “fine by me.” Wells Fargo employees terminated for not reaching their fraud quotas are suing for $2.6 billion.²⁵¹ For the second time, my colleague Robert Hockett has prompted me to post a quote:

What I haven’t been able to figure out is whether duplicated charges for campaign donations to Hillary that funneled through Wells Fargo are somehow connected.²⁵² Even when the duped Hillary supporters discovered their $25 donations were being replicated without consent, they couldn’t seem to stop them.²⁵³

Of course, these scandals pale in comparison to Wells Fargo’s scandal for laundering drug money for which it was fined in 2014. If Wells Fargo were taken behind the Eccles Building and shot, it would be . . . fine by me.

The Federal Reserve

Kashkari is a questionable Fed governor but was great in The Mummy (Figure 18). The Fed governors have noticed that healthy economies often cause inflation. In what seems like an utterly simplistic failure to understand causality and correlation, they have concluded that causing inflation will make the economy healthy. That’s like warming a corpse to 98.6 degrees (maybe even a few tenths warmer) to bring it to life. Hey guys: try jolting it with electricity while rubbing your palms together and cackling. I’m sure it will work.

Figure 18. Neel Kashkari.

Many economists, especially Fed economists, have transitioned from trying to understand the economy—a daunting task indeed—to being self-appointed economic overlords in charge of controlling the economy. This Hayekian fatal conceit has required some serious fibbing and self-delusions, which include endorsing:

(1) adjustable-rate mortgages when rates were at record lows;

(2) equity withdrawal from one’s house to spend on lattes;

(3) pulling consumption forward, flipping off the future;

(4) protecting bad businesses with ultra-loose credit;

(5) bailing out other sovereign states;

(6) dropping interest rates—bleeding the patient—to elicit spending;

(7) printing money to pay off debt;

(8) changing perception—the wealth effect—to change reality;

(9) printing our way to prosperity;

(10) falling prices (deflation) as bad;

(11) helicopter money as not entirely insane;

(12) no prison time for thefts in excess of $1 billion.

You guys don’t control the economy any more than your children steer shopping carts disguised as race cars. As Art Linkletter would say, Fed governors can say the darnedest things. From the mouths of boobs:

They like to intervene, but no self-respecting central bankers would take it upon themselves to intervene in the equity markets. The majority of central bankers, however, certainly would. The Fed professes to have resisted the siren call of buying private assets, but unlike Jason (of Argonaut fame), the Fed is unrestrained to any mast. It intervenes indirectly by flooding money into the system on an industrial scale during market stress. As bearish Matt King of Citigroup says, “we are fighting all CBs, not just the Fed.” The head Ewoc, citing the work of leading economists—sheesh—appears to be planning to go to the Dark Side to buy equities. Entering a wormhole—an event horizon—into the NIRP nebula is dangerous. Yellen estimates that “overcoming the effects of the zero lower bound during a severe recession would require about $4 trillion in asset purchases.”

That is some serious neofeudal thinking. The poor are saddled with a heap of underpriced assets? Multiple Fed governors have discussed unconventional methods that include NIRP, more QE, and a variety of tricks that are well documented at xHamster.com. Helicopter money—a construct of Milton Friedman—involves making everybody richer by just handing over money directly via metaphorical helicopter drops. (Pause for chuckling to subside.) Loretta Mester of the Cleveland Fed said that it “would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative.” You’ve been accommodative enough, Ms. Mester.

The Fed has managed to pull off one rate hike in 10 years, prompting Steve Liesman to pronounce, “I think the first rate hike cycle is over” (face in palm). What are they waiting for? There are two impediments. First, they are “data dependent,” which is a euphemism for a highly reactionary policy that responds to every sneeze and sniffle of the U.S. or global economy as well as events that have nothing to do with economics. They tapped the brakes on rate-hiking plans with Brexit as well as after a “plunge in stock prices” in March, when Punxsutawney Phil died in February (“distortions you can only see after the fact”—Phil’s shadow), and after “the market reaction to April FOMC minutes,” which “convinced the committee to do nothing after all.” Jerome Powell at Jackson Hole (A-Holes at the J-Hole) urged, “We should be on a program of gradual rate increases. We can afford to be patient.”

Yellen noted that the “best policy now is greater gradualism.” Bloomberg announced that “Federal Reserve officials signaled a slower pace of rate increases.” One 25-basis point hike in 10 years—2.5 basis points per year—and they need greater gradualism? These guys are the Ents in Lord of the Rings. They hear the Ghost of Christmas Past (1938), when the Fed popped an equity bubble it created owing to seriously dubious attempts to pull us from the Great Depression² and scrooged the economy. The countdown-clock LEDs are flashing, and these folks won’t know whether to cut the red wire or blue wire. “Not a problem: we’ll just wait for more data.”

The second impediment to Fed movement is its detractors. Clean the snot off your screen and stay with me here. The Fed has been so ridiculed that it will do anything to avoid a cacophony of I told you so’s. They look at Greenspan and think, “I don’t want to be stuck with that clown’s legacy.” Who are these detractors who question The Great Oz’s too-low-for-too-long policies demanding they “Put ‘em up”! Put ‘em up!? The Joe Sixpacks of finance like Rick Santelli suggest the Fed buying stocks will “completely and utterly and in every possible way destroy value in the marketplace.” Albert Edwards of SocGen notes that “these central bankers will destroy the enfeebled world economy.” There are some, however, on the Fed’s own team questioning their sanity:

Until the next crisis, they are working the Shake Weights and brandishing Fleshlights in their fortress made of sofa cushions. In the interim, from within their lair, they came up with the fabulous idea of launching a Facebook page,²⁵⁴ which promptly got eviscerated.²⁵⁵ The American Banker proclaimed “this PR attempt was such a debacle.”²⁵⁶ Nobody thought to #askJPM? I am sure their newest, remarkably simple trick for energizing the economy will work . . .

NB-That “. . .” thingie, by the way, is called a semaphorism, which suggests you have even more to say but…

European Central Bankers

There have been almost 700 rate reductions globally since the Lehman failure.²⁵⁷ Maybe another 700 will finally bring it home, but the skeptics say no. I collected 15 pages of notes on European central bankers, and I realized that they were 80% scorn from detractors.

Central bankers-turned-metaphysicists proffer models and theories that cannot be refuted because they all include provisions for interventions until they work. Period. Foreign central banks have bought most of the U.S. treasuries to inflate this bond caldera.²⁵⁸ They are printing money ex nihilo (out of nothing), but it doesn’t stop there. Walls of money with no organic demand keep dying companies alive to parasitize viable companies. Wealth creators, the folks we should be focusing on, have no idea how to use the credit. Money velocity has plummeted because the oceans of liquidity are not moving. Mervyn King, the Baron of Lothbury and former governor of the Bank of England, calls the short-term gains at the cost of long-term pain the “paradox of policy.” Paradoxes never obstruct metaphysicists peddling their bullshit.

Super Mario Draghi, head of the European Central Bank and ringleader of the Eurowankers, banged out $90 billion a month—$1 trillion a year—in bond-buying QE.²⁵⁹ Mario went full monetaristic BDSM by announcing a corporate bond-buying program. It’s not hard to imagine that politically connected megacorporations are megabenefactors. Before a single bond was purchased, corporate bond prices soared (yields dropped) as speculators Hoovered up the extant supply.²⁶⁰ The banks helped them create new offerings to sell to Mario.²⁶¹ With a dollop of delusion, one might justify a little blue-chip QE, but Mario went straight to the junk bond market—steamy piles of Eurodregs.²⁶² Mario has even bought bonds directly from the companies—private placements.²⁶³ I’m sure Friends of Mario did quite well.

Bank of England took a culinary approach—threw in the “kitchen sink”—by cutting rates to a record low 0.25%, boosting QE, and announcing corporate bond purchases.²⁶⁴ Not to be outdone, SNB began printing money and buying U.S. equities.²⁶⁵ Think about that one: it created counterfeit money to buy U.S. corporations. Oddly enough, SNB is a GSE like Fannie Mae and Freddie Mac in that a minority ownership trades as shares publically.²⁶⁶ Because it’s pushing up shares of the stocks it’s buying (shades of Janus during the tech bubble), the shares of SNB are up as well . . . for now.

Helicopter money refers to the giving of money to the populace and has been expanded to include direct debt monetization. Somehow it is viewed as different from the monetary napalm described above, but I can’t see it. Regardless, Deutsche Bank predicts the choppers will be fired up in the next recession and then waxes optimistically.²⁶⁷ These trial balloons are all designed to soften our brains to the point of acceptance. The head of Riksbank has discussed it.²⁶⁸ Bernanke has discussed it in the context of “perpetual bonds” (no maturity date). I suspect even normal bonds will fail to reach their maturity date . . . the hard way. Helicopter money marks the end of the road to perdition. How pundits talk about it without calling “bullshit” is beyond me. Bank of England economists advocate for central banks to issue their own digital currency.²⁶⁹ Ummm . . . I think they already have.

Europe

George Friedman, the founder of Stratfor, is the Stephen King of geopolitics. In his latest thriller Flashpoints (see “Books”), he describes Europe as an eclectic mix of sovereign states—tribes if you will—separated by volatile borderlands. Borderlands are like the bars in Star Wars movies. The singular goal of Europe since World War II has been to not massacre each other again. The Tribes of Europe have a long history of warfare and long memories. In lieu of a durable unification, we get conflagration.

Current problems emanate from sagging economies. Unemployment in the Club Med southern region is soaring. Attempts to solve this problem with monetary policy have created €1 in GDP growth for every €18 of QE.²⁷⁰ That’s what you get trying to print your way to prosperity. Skirmishes between sovereigns and the companies of their opponents are now common, putting megacorporations like Apple, Volkswagen, and Deutsche Bank in the crosshairs. Walls are going up across Europe whether European Unionists like it or not.

The president of the European Commission, Jean-Claude Juncker, has decided to teach European youth the principles of integration Brussels-style.²⁷¹ It will mobilize unemployed youngsters to volunteer for civic projects across the continent: “Youngsters would also be drafted to help police the migrant crisis.” I’m guessing they’ll be given “brown shirts” to wear.

France’s far-right National Front party leader and strong poller for the 2017 presidential election, Marine Le Pen, said “I believe that the European Union is in the process of collapsing on itself for one simple reason. The two pillars on which it’s founded—Schengen and the euro—are in the process of crumbling.” She went on to say Hillary would be a disaster, but the Yanks solved that problem for her. A few pissed-off French protested against new anti-worker laws that are designed to protect and enrich the wealthy elite at the expense of ordinary people.²⁷² Here is a picture of them singing “Kumbaya” (in French, of course):

Christine Lagarde, head of the International Monetary Fund (IMF), is facing charges in France for embezzlement and a £315 million kickback to a buddy.²⁷³ She could get a decade in prison. Maybe France is cleaning out the Augean stables, but it sounds hauntingly similar to the execution-style exit of the previous IMF head, Dominique Strauss-Kahn, on a rape charge.²⁷⁴ Old-school Russians are familiar with this form of transfer of power.

Greece never seems to get a reach around by its more powerful partners in Europe. This year, a WikiLeaked plan of the Troika to elicit a Greek credit crisis left the Greeks feeling violated.²⁷⁵ There are rumors of a wealth tax to solve the problems, but the country has little tradition of tax collection.²⁷⁶ Historically, it has been a lot easier to borrow what’s needed. Greece is usually in default and perpetually in ruins.

The Swiss had a referendum to vote themselves richer. Why didn’t I think of that? In any event, they wanted guaranteed income sans work—up to $90K per year for a family of four.²⁷⁷ Sounds like a Karl Marx–Robin Hood–Paul Krugman combo platter. Amazingly, they voted it down.

Of course, Germany is always at the center of any European event. The year started off edgy when authorities suggested citizens stockpile food and water “in case of an attack or catastrophe.”²⁷⁸ The authorities muttered a few things about “bringing back nationwide conscription in times of crisis to . . . defend NATO’s external borders.”²⁷⁹ I betcha sauerkraut has quite the shelf life. Volkswagen got a serious dose of Fahrvergnügen by cheating on its emissions test.²⁸⁰ Of course, no other manufacturer did this, said nobody.

You thought I forgot about Brexit and the refugee crisis? Sheesh. These get their own sections.

Brexit

The British exit from the European Union—the omnipresent Brexit—may either prove to be a historically profound event or illustrate that events are rarely profound. Brexit seems so logical. The Limeys had one foot out the door by not signing onto the euro currency regime in the first place. Hundreds of CEOs argued sovereignty has is merits.²⁸¹ As the vote approached, European banks were circling the drain, and a refugee crisis that does look profound (vide infra) had caused unusual immigration patterns in Great Britain. Why the hell wouldn’t you grab the first lifeboat? Demographics had a familiar ring: country folk wanted to leave, whereas the so-called “remains” were largely in the cities. John Authers of the Financial Times described it as “the breakdown in trust . . . a revolt of the masses . . . one in which those who have shaped policies over the past twenty years are more remote from reality than the ordinary men and women at whom they like to sneer.” Populism is used by establishment thinkers to describe people they do not understand.

The prophets of doom denounced Brexit as the end of the civilized world. According to George Soros, “If Britain leaves, it could unleash a general exodus, and the disintegration of the European Union will become practically unavoidable.” Of course, George is a globalist hankerin’ to shape the world.²⁸² European Council President Donald Tusk feared that “Brexit could be the beginning of the destruction of not only the EU but also of western political civilization in its entirety.” Sounds bad.

Most global elites seemed confident, but the thumb screws were being cranked on the Brits. The French threatened to empty “The Jungle” (refugee camps) into Britain (wrapped in Ebola blankets).²⁸³ President Obama noted with respect to trade that “the UK is going to be in the back of the queue” and that a UK/U.S. trade agreement is “not going to happen anytime soon . . . not because we don’t have a special relationship.”²⁸⁴ Very special. Next time the U.S. wants a partner to bomb Middle Eastern countries for no apparent reason, I’m not sure the Brits will be so willing. Also, whaddaya bet President Trump has other plans? Jean-Claude Juncker promised, “I’m sure the deserters will not be welcomed with open arms”.²⁸⁵ I bet he can spell douche without using Google.

On the night of the vote, British elites watched at the headquarters of the European Commission with a Clintonesque cautious optimism. Also in a Clintonesque fashion, the mood changed, and the tears started. The hooligans voted Brexit! Google reported a post-vote spike in UK-based searches for “What happens if we leave the E.U.?” as well as “What is the E.U.?” Seemed a little late for that.²⁸⁶

The financial consequences were immediate and titanic. European bank shares got clubbed 24% in two days. RBS and Barclays dropped 37% and 34%, respectively.²⁸⁷ Two trillion dollars got wiped off global equity markets.²⁸⁸ The vote occurred at the start of a 45-day quiet period in which companies were not allowed to manipulate their share prices with buybacks.²⁸⁹ The pound got clobbered—pounded even—11% to a 30-year low.²⁹⁰ Now I’m confused: doesn’t modern Bad News/Good News (BNGN) economic theory say that destroying your currency will stimulate your economy? Bank of England Governor Mark Carney lowered capital requirements (lowered the cash buffer) to keep credit flowing, ironically at the precise moment a bank might need a cash buffer.²⁹¹ Various central banks stood ready to unleash ungodly sums of money to constrain the free market from true price discovery.²⁹²

Within a few days, the first bank keeled over.²⁹³ A few property funds collapsed within a week.²⁹⁴ In the spirit of never letting a crisis go to waste, Italy announced a €40 billion rescue of its financial system as Italian bank shares collapsed.²⁹⁵ There were also calls for a moratorium of so-called bail-in rules and bondholder write-downs. Bail-ins and write-downs are fine, but only in the abstract.

Longer-term effects are not predictable. Many are apoplectic. I am not convinced. In the shorter term, walls of money from central banks have generated hellacious equity rallies that are commonplace when bankers get nervous. The architects of Brexit, Nigel Farage and Boris Johnson, bailed on the whole game, writing “former politician” on their résumés.²⁹⁶  Nigel is rumored to have muttered, “We broke the eggs; you make the omelet.” He is also looking at U.S. real estate. Author Stephen King is rumored not to know the ending of a novel until he gets to it. Sounds like Brexit.

I was amazed that Brexit happened; the people outvoted the elites. But then I had a passing thought: maybe the authorities did want Brexit but needed an excuse—a patsy. The younger generation wishing to remain accused the old guard for selfishly ignoring the future.²⁹⁷ I think the old coots might disagree.

Refugee Crisis

I find the refugee crisis in Europe to be paradoxical on so many levels. Most European countries are nations of immigrants. In historical battles of “us” versus “them,” their ancestors were, at one point, “them.” But that was then, and this is now. The crisis appears to be a true existential risk for many institutions within the European Union. The magnitude is breathtaking. German authorities estimate that up to 3.6 million refugees will enter Germania by 2020.²⁹⁸ Handfuls (thousands) have been positioned for deportation, but even that is on hold.²⁹⁹ The solutions often seem morally or politically untenable. There are no simple or safe paths forward. Of course, this too shall pass—everything does—but sometimes living through historical events sucks. One pithy Norwegian referred to this clash of cultures as “Odin versus Allah.”³⁰⁰ The notion of a Norwegian Crusade was unthinkable.

It is hard to assess the magnitude of the violence—the media is known to overstate such things—but the images of refugees assaulting Europeans and the entropy at the street level are vivid.³⁰¹ A hotel bell captain described his horror: “These people that we welcomed just three months ago with teddy bears and water bottles . . . started shooting at the cathedral dome and started shooting at police.” New Year’s Eve attacks in Cologne by thousands of “Northern Africans” are believed to have been organized non-spontaneously.³⁰² Immigrants razed a hotel that had been converted to an asylum center because they “didn’t get a wake-up call for Ramadan.”³⁰³ A compendium of assaults tied to the recent wave of immigrants gives you a feeling for what Europe may be confronting.³⁰⁴

As usual, authorities offered calming voices. “Islamist terror in Germany wasn’t imported with refugees,” assured Angela Merkel. She has taken on the politically challenging task of supporting the process:

As you might expect, the pushback has been equally determined. French citizens blockaded Calais, demanding the demolition of the migrant Jungle camp.³⁰⁵ Germany ran out of pepper spray after a 600% increase in sales,³⁰⁶ although it is unclear how well Mace works in a mob. Rampaging teen refugees in Sweden were met by angry Swedish men.³⁰⁷ That probably left an impression as the Swedes tapped their inner Vikings.

Of course, the next step is nationalism. The Schengen area—the 26 European countries that have abolished border controls—is said to be at risk as border checkpoints to curb refugee movements are being put into place. Walls go up; goods and services cease to move seamlessly. French far-right leader Marine Le Pen promised an Islamic crackdown and a “Frexit” referendum as she launched her bid to be president.³⁰⁸ Hungarian voters rejected Brussels’ quota of refugees but failed to meet the 50% quorum.³⁰⁹ I’m not sure the refugees will be met with teddy bears this time. Horst Seehofer, Bavaria’s prime minister, suggested the refugee problem “is too big. . . . [A] solution thus far [is] unsatisfactory. Restrictions on immigration are a condition for security in this country.” The Greeks, still upset that the IMF plotted an existential “credit event”, is “tasked with one of the most complex and legally dubious international border policing missions in modern history.” It’s looking for some debt relief to play along.³¹⁰

The economic failures are difficult to assess but acute in some countries. Recall that the 200,000 Goths swarming across the Danube did not sack Rome; they overwhelmed it. Northern Europe is getting seriously whacked. Muslims are roughly 5% of Belgium’s population yet consume 40–60% of its welfare budget.³¹¹ The 92% male refugees (some 20- and 30-somethings claiming to be children)³¹² in Sweden are an enormous financial hardship. Sweden’s tourism industry has been crushed as hotels have been converted to refugee hostiles (errata: hostels).³¹³ Of course, cottage industries designed to pick up the government giveaways are flourishing.³¹⁴ Merkel is taking heat for encouraging German companies to hire refugees.³¹⁵ Germany took 1.5 billion euros—1,000 per refugee—from the public health care fund (10 billion euros in total) for refugee assistance.³¹⁶

What about the U.S.? Can’t we relieve some of the pressure? We are, as many like to say, a nation of immigrants. This is another paradox for me. I have openly blamed U.S. foreign policy for causing this problem. Our Crusades in the Middle East are destabilizing. However, and this is a very big however, immigrants of yore came here looking to embrace the American dream. The idea of bringing angry 20-something men we just bombed the crap out of strikes me as demanding an extra layer or two of checks and balances at the border. Of course, I’m sure our new president has strong opinions on immigration and even a few tweets up his sleeve:

I was just messin’ with ya. Those were excerpts from Bill Clinton’s 1995 State of the Union Address.³¹⁷

Unbeknownst to many, we are already accepting Syrian refugees piecemeal. A local Ithaca diocese has agreed to sponsor 50 in Ithaca alone.³¹⁸ The question I still find myself asking is blunt, even a bit raw: if this doesn’t work out well—if, for example, the lovely walking mall in downtown Ithaca becomes a no-go zone like those in Sweden—will that diocese fix the problem? Recall the woman who adopted a Russian orphan—undoubtedly one whose biochemically induced sociopathy would glow on an fMRI scan—and sent him back to Russia? Her name was Mud.

Putin and Russia

“Today, the danger of some sort of a nuclear catastrophe is greater than it was during the Cold War and most people are blissfully unaware of this danger.”

~William Perry, former secretary of defense

“You people . . . do not feel a sense of the impending danger. This is what worries me. How do you not understand that the world is being pulled in an irreversible direction? . . . I don’t know how to get through to you anymore.”

~Vladimir Putin

Russia is the huge topic ignored by most. A potential Russian/American conflict presents significant risk of a New Cold War and potentially a hot war. This markedly shaped my view of the U.S. elections, with eye toward Russian-American relations under Clinton and Trump. I viewed Trump’s agnosticism toward Putin—what the left might call cozying up to him—as a strong positive. When the Cold War archives were pried open after the collapse of the Soviet Union, we found that Russia was perennially responding to us, not provoking.³¹⁹ History may be repeating. A media that is bought and paid for by the “deep state” is telling us the Ruskies are bad. I am deeply troubled by the relentless hawkish rhetoric coming from Washington.

Pat Buchanan describes Putin as “a nationalist who looks out for Russia first.”³²⁰ Putin also gets along with Netanyahu,³²¹ which flies in the face of rhetoric about Putin’s pro-Arab stances. When asked by Fareed Zakaria whether there would be another cold war, Putin destroyed him in a must-watch video.³²² A Putin interview with a panel of journalists left me similarly impressed that he understands risks in the Middle East that the American public hasn’t a clue about.³²³ George Friedman, however, thinks Putin has serious internal political problems:³²⁴“I suspect that Putin will survive until the end of his elected term. But fear makes politics unpredictable, and geopolitical analysis doesn’t work on the thinking of worried men drinking vodka to calm their nerves.”

“We never poke our noses into others’ affairs, and we really don’t like it when people try to poke their nose into ours. The Americans need to get to the bottom of what these e-mails are themselves and find out what it’s all about.”

~Dmitry Peskov, Kremlin spokesman

We’ll probably never know what role Russian hackers played this year, but it is interesting that in midsummer they were rumored to have hacked the Democratic National Committee (DNC), ⁵²⁵ which promptly denied it. The eventual onslaught of WikiLeaks forced a change in tactics from denial to hang everything on Putin and his love child, Donald Trump.³²⁶ Stephen Cohen, Russian studies expert at Princeton, calls bullshit on CNN’s assertions that Russian hacking is about Putin wanting to start a new cold war in cahoots with Trump. I’m inclined to side with anybody who calls CNN a shill.

Hurling flaming balls of rhetoric at the Russians is dangerous, and the election didn’t help. James Clapper, director of national intelligence, was “somewhat taken aback by the hyperventilation” on the hacks and wasn’t even convinced the hackers were Russian.³²⁷ Impartial observers argued that Crimea became a political football for the Clintons with a U.S.-initiated overthrow of a democratically elected president in 2014.¹ Crimean citizens voted to legally reunite with Russia on March 18.³²⁸

“We know perfectly well that candidates in the heat of a pre-election struggle say one thing, but that later, when under the weight of responsibility, their rhetoric becomes more balanced.”

~Dmitry Peskov

“[G]rave accusations [are] . . . fabricated by those who are now serving an obvious political order in Washington, continuing to whip up unprecedented anti-Russian hysteria. . . . Unfortunately, we see less and less common sense in the actions of Washington and Paris.”

~Sergei Ryabkov, Russian deputy foreign minister, on hacking

Evidence of the New Cold War is everywhere. The news network RT got its accounts blocked in the UK,³²⁹ causing an RT spokesperson to declare on Twitter, “Long live freedom of speech!” The hot war is heating up, too. Russian jets have been buzzing U.S. naval ships.³³⁰ The U.S. and NATO conducted the “largest war games in Eastern Europe since the end of the Cold War” that included 31,000 troops (lots of Americans) and thousands of combat vehicles from 24 nations.³³¹ Meanwhile, China and Russia are doing joint military exercises in the South China Sea.³³²

“We’re not concerned about the safety of U.S. vessels in the region as long as interactions with the Chinese remain safe and professional, which has been the case in most cases.”

~Josh Earnest, White House spokesman

We haven’t exactly been voices of reason. A cease-fire in Syria was broken by U.S. bombing, prompting Russia to call for a UN Security Council meeting.³³³ Obama considered an unprecedented cyberattack against Russia in retaliation for alleged Russian interference in the American presidential election.³³⁴ U.S. Secretary of State John Kerry said that Russia and Syria should face a war crimes investigation for their attacks on Syrian civilians.³³⁵ The hypocrisy is killing me (and them). There is even evidence that the Germans are preparing to go to war against Russia.³³⁶ Alexei Pushkov, head of the Foreign Affairs Committee of the Russian State Duma, tweeted “The decision of the German government declaring Russia to be an enemy shows Merkel’s subservience to the Obama administration.”³³⁷ Is the next war going to be brought to you on Twitter?

As I am putting this annual survey to bed, I am hearing shrill screams about all of our intelligence agencies now agreeing that the Russian hackers are a problem. I don’t believe them. It’s not about faith in the Russians but a lack of faith in U.S. propaganda with a decidedly domestic agenda.

South America

“Thanks Hugo Chavez for showing that the poor matter and wealth can be shared. He made massive contributions to Venezuela and a very wide world.”

~Jeremy Corbyn (@jeremycorbyn), leader of Britain’s Labor Party on 5/3/13

.@jeremycorbyn Thanks to Chavez we don’t have electricity, water, food, even toilet paper.

Guillermo Amador (@modulor)

What a difference three years and a brain stem make. Let’s do a quick trip south of the border to remind us we face first-world problems. Venezuela is in total collapse, suffering hyperinflation at 500% per annum and projected by the IMF to hit 1600% next year.³³⁸ Like clockwork (orange), there were food shortages (starvation) and even condom shortages (insert tasteless joke here.) People get grumpy when pushed to the edge; sexual deprivation and unwanted kids are past the edge. A Venezuelan mob beat and burned a $5 thief to death . . . although he might not have actually stolen anything.³³⁹ Venezuelan clocks were moved forward by 30 minutes to save power and alleviate an electricity crisis.³⁴⁰ That’s the solution? Daylight savings time? Ya also gotta wonder what role John Perkins-like jackals played in this one.

Argentina is the bond fiasco capital of the world. Singer and company are still trying to get paid for their Argentinian bonds,³⁴¹ which are still being ring-fenced by whomever is tasked with ring fencing bonds. Meanwhile, a new Argentine bond issuance was announced.³⁴² Private buyers should be subjected to mandatory head CT scans and, if necessary, euthanasia. (Bankers are exempted because they always get bailed out.) The demand for the $15 billion offering was strong. What is that definition of insanity again about repeating something over and over? Never mind.

Brazil has been hobbled by the energy crisis. Petrobras dropped 11,700 workers.³⁴³ Being South American, they are, almost by definition, hobbled by debt, too. As Bill Gross said, “No country over time can issue debt at 6–7% real interest rates with negative growth. It is a death sentence.” Brazil auto sales plummeted 31% in January. Another BRIC added to the Global Wall of Worry. And, of course, the Zika virus showed up. The effects on fetuses are horrendous, reminding me of the 1932 movie Freaks. This one is moving around the globe. I sweated bullets over Ebola, only to find out the secret is hydration and bed rest. I’ll do a wait-and-see.

Of course, Brazil was the site of the 2016 Summer Olympics. Any economist knows how much wealth is created for the host country: none. They are total money pits. I return to them below.

China

“We are in a down cycle that will end with crisis and calamity. China in today’s cycle is what U.S. housing was during the financial crisis in 2008.”

~Felix Zulauf, president of Zulauf Asset Management

China has enjoyed a half century of explosive growth, not unlike the U.S. from 1870–1930 and Japan from 1945–1989, but now it suffers from Osgood–Schlatter disease—its joints are beginning to ache—and it seems unlikely to be only economic growing pains. China’s imports have been dropping for 18 months.³⁴⁴ Its exports are dropping double digits as the debt-laden, stagnating global economy ceases to be a consumer of any resort. Richard Duncan provides stunning stats on China’s impending hard landing.³⁴⁵ Reduced consumption is crushing Ferrari sales (and they have leaves in their swimming pools). China is planning for 1.8 million unemployed workers, but that’s only 0.2% of the population. A serious downturn would involve many more. Its current economic model of development for the sake of employment—Potemkin Villages—is burning through its foreign reserves. China’s credit-fueled expansion was exemplified by a 27-story high-rise building completed in 2015 and demolished in 2016 because it was “left unused for too long.”³⁴⁶ Bastiat’s broken-window fallacy has been operating on a grand scale.

“We are at the atrophy level in China.”

~Kyle Bass, Hayman Capital

Of course, credit-based booms stress and eventually break banking systems, and it’s always entertaining to get Kyle Bass’s take on disasters before they occur. Kyle says the $3 trillion corporate bond market is “freezing up. . . . [W]e’re starting to see the beginning of the Chinese machine literally break down.” He estimates that a 10% loss in bank assets would cost China $3.5 trillion.³⁴⁷ Some fund managers predict a $500 billion bank bailout. Bass sees $10 trillion (and dead people). Money has been steadily laundered out of China. The China Banking Regulatory Commission is trying not to cut off troubled companies by “evergreening” bad loans—extending their duration to infinity, which is a long time.

“If I don’t issue more loans, then my salary isn’t enough to repay the mortgage and car loan. It’s not difficult to issue more loans, but lets say in a year’s time when the loan is due, if the borrower defaults, then I won’t just see a pay cut, I’ll be fired and still be responsible for loan recovery.”

~Chinese loan officer

Plunging commodity prices and highly levered corporations struggling to make interest payments are causing business failures and defaults.³⁴⁸ Nonperforming loans are up to 20%.³⁴⁹ Evergreening doesn’t stop this part. The housing bubble finally popped. China forex reserves (as noted last year) are depleting unsustainably.³⁵⁰ So much for forex superpower status. Contrary to popular opinion, high forex reserves correlate with crisis (U.S. in 1929 and Japan 1989). Additional risks include debt equaling 300% of GDP.³⁵¹ Everything is big in China.

Equities (the SSE) are 40% off all-time highs aided by a feeble dead panda bounce. Its draconian 2015 measures—arresting sellers to arrest the selling—have worked for now,³⁵² but bodies are starting to surface. A Madoff-like fraud in China caused angst.³⁵³ A 7% 30-minute flash crash-ette was saved by state-sponsored buyers. The sell-off was blamed on ???, which loosely translates “fat fingers.”³⁵⁴ Andy Xie, fired from Morgan Stanley for his candor,³⁵⁵ sees a ’29-style crash in China’s future:³⁵⁶“The government is allowing speculation by providing cheap financing . . . terrified of a crash. So it keeps pumping cash into the economy. It is difficult to see how China can avoid a crisis.” It took 50 years, but another emerging market has become an emergent market.

Geopolitical risks have been growing for years. China dumped low-cost steel, killing global steel industries.³⁵⁷ India cranked up production to protect debt-laden domestic steelmakers.³⁵⁸ The U.S. imposed a 256% tariff on Chinese steel imports, 522% on cold-rolled steel used in automobiles.³⁵⁹ Let the trade wars begin, but they often mutate into conventional wars. China is rumored to have hacked the Federal Deposit Insurance Corporation: “Nothin’ here.”³⁶⁰ Team Obama had a diplomatic bar fight with Chinese officials on the tarmac in China. Team Obama got dissed, big time.³⁶¹ Obama was then called a “son of a bitch” by the president of the Philippines³⁶² and decided to grab his ball(s) and come home a little early.

I wish I understood “special drawing rights.” They appear to be supranational fiat currencies that are every bit as dubious as other fiat currencies, yet they pose risk to the dollar’s reserve currency status. China authorized a lender to issue a pile of these puppies. “Major financial institutions and other international institutions also intend to issue SDR-denominated bonds on the Chinese inter-bank market.” Why is this important? Simple: we bomb countries that try to dethrone King Dollar.

And if all that weren’t enough, there are potential range wars ahead owing to water rights.³⁶³ Asia’s 10 major rivers provide water to more than a fifth of the world’s population. The lack of clear rules to regulate shared water sources could cause problems.

Japan

“When central banks have bought up all the world’s stocks and bonds, and transferred all the wealth into the pockets of the 1%, the confusion will finally end.”

~Zero Hedge

Japan is, for the second year in a row, not that interesting. Of course, I should care. As Bill Gross says, Japan is “the world’s largest aging demographic petri dish,” and demographics will drive markets and economies in coming decades. Japan’s labor participation rate is dropping just like ours but is more centered on an aging population.²⁶⁴ According to Tim Price, “Japan has been the dress rehearsal; the rest of the world will be the main event.” Japan is also at the vanguard of monetary policy, intervening in virtually all markets at unimaginable levels.

“Bank of Japan Risk: Running Out of Bonds to Buy”

~Wall Street Journal headline

BoJ redirected its focus from expanding the money supply to controlling interest rates, which smacks of desperation to some (and a crock to others). The effects of its interventions are breathtaking. The yields of 40-year government bonds reached 0.3% last I looked, and the 10-year bond went negative. BoJ underwrote government bonds and converted them into zero-coupon perpetual bonds in the secondary market.³⁶⁵ These are bonds that pay nothing and last forever. Gillian Tett reminded us that Japan tried this crap in the ‘30s. How’d that work out? Oh, right. The bear market ended badly in 1945.

There is hope. A Bloomberg headline suggested that the rates were “nearing levels too low for BoJ comfort.” Nobody told the head of BoJ, apparently:

“[A] reduction in the level of monetary policy accommodation . . . will not be considered. There aren’t any such things as a quantitative limit or anything, any numbers we can’t overcome.”

~Hiroki Kuroda, governor and head monopsonist at the Bank of Japan

Well what the hell are they gonna buy, ETFs? Exactly. Japan’s $1.1 trillion government pension fund is being used to push the Nikkei higher.³⁶⁶

“BoJ is nationalizing the stock market.”

~Nicholas Smith, CLSA’s Japan strategist

“The BoJ is basically declaring that Japan will need to fix its long-term problems by 2018, or risk becoming a failed nation.”

~Takuji Okubo, chief economist at Japan Macro Advisors

Yasuhide Yajima, chief economist at NLI Research Institute, suggests even greater boldness: “What’s certain is that Kuroda has to do something extreme or unthinkable if he wants to surprise.”³⁶⁷ Apparently, the crap they’ve been doing isn’t officially unthinkable or extreme. Ya had me at negative rates.

What does any of this have to do with rejuvenating an economy, and how is it working? Nothing and not well. Japan has been stagnant for 25 years and counting (Figure 19). Can you imagine your portfolio dropping for 25 years? Occasionally the Nikkei seems to show a pulse—the corpse twitches a bit—but then it falls back. I was watching the 15K line in the sand this year, waiting for it to break. Miraculously, the Wall of Money appeared at 15K to bump it back up. Go figure. It’s time to get bold, Kuroda-san. Do something really extreme.

Figure 19. Nikkei.

A little bookkeeping is in order before leaving the island. Fukushima is still a disaster. Mutations are starting to appear in flora and fauna.³⁶⁸ Massive storage tanks continue to be filled. It turns out the tanks were not up to spec to store radioactive water, so they’re decaying and leaking.³⁶⁹ Attempts to form an ice dam failed.³⁷⁰ Seemed harebrained anyway. The Tokyo aquifer is still at risk. The day I am typing this rough draft, the Ring of Fire is alive with earthquakes. Sounds like a sci-fi thriller to me. Armageddon 2.0.

Middle East

“I think this is a very hard choice, but we think the price was worth it.”

~Madeleine Albright in 1996 on 500,000 dead children in the Iraq War³⁷¹

It is possible that the authorities and private-sector intelligence gurus like George Friedman understand the Middle East. One Sunday morning I got an hour-long tutorial from Nassim Taleb. He seemed to understand it, but it flew right over my head like a drone. I asked a former Trident submarine captain with time in the Pentagon what was behind our Syrian policy, and he professed “not a clue.” Eight years ago, we elected a liberal democrat who won a Nobel Peace Prize prenatally. I was sure he would have a more humble Middle East policy than Bush Jr., but then he bombed the hell out of half the countries in the Middle East and caused what I think will prove to be a historically important refugee crisis in Europe. (Bombings, by the way, are now euphemistically called “kinetic scenarios.”) Maybe our current president will unify the whole region and call it Trumpistan. I just hope he lays low.

“We never saw a secular Arab regime that we didn’t want to overthrow.”

~Peter Ford, UK ambassador in Syria, 2003–2006

One could argue that the Middle East and the West will never share common values. At great risk of becoming a shot messenger, I offer the results of a global Pew Foundation poll—the gold standard of polls:³⁷²

Figure 20. Pew Foundation poll.

Those numbers prompted Ian Bremmer, president of Eurasia Group, to tweet, “Islam has a problem.” The King of Jordan on 60 Minutes assured us that only 2% of the world’s Muslims are radical jihadists. Two percent of 1.8 billion is 36 million. I feel much better now. Leaving aside whose worldview is right, maybe we should stay in our respective regions until we find a little more common ground. That means we must leave them alone to fight among themselves. A study at Brown University (for what it’s worth) claims that our Middle East adventures since 9/11 have cost us $5 trillion,³⁷³ which accounts for a large percentage of our national debt accrued over that same period. The indirect costs are incalculable. Millions have died either directly or owing to the unrest and instability. I am compelled to look at a few low-water marks in this gigantic real and metaphorical desert.

“For us to control all the air space in Syria would require for us to go to war against Syria and Russia. That’s a pretty fundamental decision that certainly I’m not gonna make.”

~General Joseph Dunford, testifying to the Senate

I’ve written before about our 10-year effort to overthrow Assad.³⁷⁴ We have failed, producing a complete wasteland. Footage of Damascus and Aleppo (or, as Gary Johnson calls it, Whatsaleppo) shows mind-boggling carnage.³⁷⁵ Martha Raddatz, in a Republican presidential debate, had the temerity to ask, “What if Aleppo falls?” Martha: it’s a total pile of rubble; it’s gone (Figure 21). The absurdity of our foreign policy is exemplified by reports that “CIA-armed militias are shooting at Pentagon-armed ones in Syria.”³⁷⁶ Fifty State Department officials urged military strikes against Assad for persistent cease-fire violations.³⁷⁷ We are going to bomb them because we are in their country bombing them and they are fighting back? We should never forget, however, the massive casualties we’ve taken at the hands of the Syrians. Which ones? I’m still working on that.

Figure 21. Aleppo, Syria.

“It’s a bad strategy, it’s the wrong strategy, and maybe I would tell the president that he would be better served to find somebody who believes in it, whoever that idiot may be.”

~General Anthony Zinni and former head of U.S. Central Command on Obama’s ISIS policy

Turkey is a key borderland, the gateway between Europe and the Middle East. It got a little more exciting when the populace rose up against bad-boy Prime Minister Erdogan in a palace coup. But soon it started smelling of the CIA, and the Turkey coop quickly became the Bay of Goats. Erdogan was never at risk; he used this false flag (or at least pathetic effort)³⁷⁸ to scrub out the riffraff in his country (teachers).³⁷⁹ The tally could exceed a hundred thousand. When a German comic mocked Erdogan, the crazy Turk demanded retribution under a German law that prohibits “offending foreign heads of state or members of government.”³⁸⁰ The Germans complied,³⁸¹ which immediately triggered a retaliatory “Erdogan Offensive Poetry Competition.”³⁸²

What is Erdogan’s leverage? Millions of Syrian refugees are camped at the Turkish border waiting for Erdogan to open the floodgates. He reiterated his threat in late November. He has the cowbell.

I suspect you can’t understand the U.S./Iran nuke deal without top security clearance. The White House got caught airlifting $1.7 billion—pallets of cold cash—to ensure the deal went through.³⁸³ They also got caught hitting the Buy-Now button on a couple of captives for $400 million (free shipping)—enough to ensure that more captives will be taken. Oddly enough, I think Iran is an interesting place to invest (when sanctions preventing it are dropped) owing to a >90% literacy rate.³⁸⁴ I sense that U.S. dollars—fully documented dollars—may be allowed into Iran soon. On the fateful Friday that everyone was grousing about Trump’s “grab the pussy” fiasco, Obama quietly eased sanctions on Iran.³⁸⁵

Saudi Arabia never changes (SNAFU). On New Year’s Day, they chopped the heads off 47 men, including a prominent Shia cleric.³⁸⁶ The Saudi head-slicers recently got a seat on the UN Human Rights Council. The Saudis also got three demerits for violating children’s rights—their right to live—in Yemen. A little retribution could “be headed” their way, as the Senate passed a bill and overrode the veto to release secret files showing Saudi involvement in 9/11.³⁸⁷ For years, there was no direct evidence of Saudi involvement . . . unless, of course, you include the fact that the friggin’ terrorists flying the planes were Saudis. The first lawsuit by a 9/11 widow was filed days later.³⁸⁸ The concern—a significant concern—is that millions of recipients of our wrath will sue us for killing people. That could keep folks at The Hague busy for a while.

Good news: Pakistan passed a law against honor killings after a famous Pakistani woman was killed by her brother for dishonoring her family.³⁸⁹ The bad news is that it was legal until this year.

Government Folly

“In a state where corruption abounds, laws must be very numerous.”

~Tacitus

Some libertarians think any government is bad. Human beings have been offered the option of having governing bodies and appear to have chosen government every time. The issues pertain to the size and scope of government. An insider instrumental in the post-9/11 bailouts of insurance companies and airlines described in a Davy Crockett-esque way the dangers of publically funded compensations.³⁹⁰ Peter Dale Scott’s treatises on the deep state are worthy and scholarly descriptions of the notion that underneath the veneer of democracies lie forces that shape history but not always for the good.³⁹¹ Mike Lofgren spoke about the deep state with Bill Moyers.³⁹² Occasionally a window opens, and we get a glimpse of the deep state before it closes. Video footage from inside SOFEX, the world’s largest trade show for military gear, shows bad guys from bad places shopping for the firepower needed to become really lethal bad guys.³⁹³

In a year dominated by WikiLeaks and fiascos of a higher order, events occurred that seem minor in comparison but still make you sit up and say, “WTF?” Here are a few.

• The Obama administration told New Balance to shut up about the Trans-Pacific Partnership trade agreement in return for lucrative shoe contracts . . . and then got stiffed.³⁹⁴ A New Balance spokesman suggested “the chances of the Department of Defense buying shoes that are made in the USA are slim to none.”
• An aide to Boston Mayor Marty Walsh withheld permits from organizers of a music festival to force them to use of union stagehands, which is a federal crime.³⁹⁵
• The supreme Allied commander in Europe gets $600K per year as “senior veteran’s advisor” to the company and penny stock Grilled Cheese Truck, Inc. (NASDAQ:GRLD).³⁹⁶ Its pulled-pork sandwich is popular.
• The CIA’s inspector general accidentally deleted the only copy of a 6,700-page classified Senate report on interrogation techniques.³⁹⁷ Stating the obvious, Eddie Snowden said, “when the CIA destroys something, it’s never a mistake.” I think he meant “by mistake.”
• Six billion dollars in cash—bundles of printed bills—have disappeared from the State Department in recent years.³⁹⁸ This is the best argument for a cashless society and why it may not happen.
• A congressman’s Yahoo screen viewed on TV showed his porn tabs. Critics decried, “nobody uses Yahoo.”³⁹⁹
• A congressman—I missed his name—on The O’Reilly’s Factor actually thought the Germans bombed Pearl Harbor. Graduated from Belushi–Trump University.
• Philadelphia lawmakers want to add a soda tax of 1.5 cents per ounce.⁴⁰⁰ Revenues will be used for projects that employ union laborers. Is that a federal crime, too?
• A person-to-person loan company called “Hard Lending Club” is backed by John Mack, Larry Summers, Mary Meeker, and others.⁴⁰¹ This smells of government folly.
• A lawsuit alleges that Obama’s top aides quietly claimed the power to spend $178 billion over the next decade to reimburse health insurers and bribe them to participate in the Affordable Care Act.⁴⁰² Not a problem: it will soon mutate into something unrecognizable called TrumpCare.
• The Obama administration and the UN announced a global police force to fight “extremism” in the U.S.⁴⁰³ They better up their budget if that becomes common knowledge.
• Obama snuck in his 300^th round of golf as president long before he became a lame duck (hook) with free time.⁴⁰⁴ Appallingly, he’s still a duffer.
• An impoverished congresswoman built a multimillion-dollar nest egg from day-trading on insider information while serving her term, which is legal.⁴⁰⁵
• Congresswoman Nancy Pelosi’s husband made some serious money on the ramp-up of SunEdison, buying with impeccable timing before a big acquisition.⁴⁰⁶
• A federal court found that the IRS is still targeting tea partyers.⁴⁰⁷ I’m suspecting our new POTUS has some issues with the IRS.
• Recall the congressman suspected of killing Chandra Levy until police caught the real killer? The case fell apart.⁴⁰⁸
• Among 2,000 pages of new rules are minimum and maximum diameters of potatoes that are sold in Colorado.⁴⁰⁹ It’s creating angst among salt potato enthusiasts, which are great if you’re stoned.
• The NSA got hacked.⁴¹⁰ Snowden thinks it’s a message from the Ruskies.⁴¹¹
• Reuters says the Army made $6.5 trillion in accounting adjustments in one year to balance its books.⁴¹² It couldn’t find receipts and invoices—billions of them.
• There are 10 million more workers in government than in manufacturing.⁴¹³
• Boehner cashed in his chips, taking the revolving door to a lobbying firm.⁴¹⁴
• The White House spent $1.5 billion for public relations.⁴¹⁵
• I’ve noticed that radio is all public service announcements (seat belts, car seats, stroke detection, etc.) Who is paying?
• Thousands of price gouging complaints were made after Hurricane Matthew. The folly part of this story is that price gouging is a government construct anathema to free markets. If you want plywood (or flood insurance), buy it before the storm. It’s expensive to be shortsighted and stupid.⁴¹⁶
• Obama warned us to prepare for emergencies.⁴¹⁷ What do they know? One theory is that there is a coronal hole in the sun. I think he knew one of the two candidates would win the election.

And for some quotes that rock . . .

“When I saw corruption, I was forced to find truth on my own.”

~Barry White

“The duty of youth is to challenge corruption.”

~Kurt Cobain

“The government is so out of control. It is so bloated and infested with fraud and deceit and corruption and abuse of power.”

~Ted Nugent

Panamania

“A Key Similarity Between Snowden Leak and Panama Papers: Scandal Is What’s Been Legalized”

~Glenn Greenwald, The Intercept

Well before the pre-election deluge from WikiLeaks, we had the publication of the Panama Papers—Panamania.⁴¹⁸ On April 3, somebody leaked 40 years of data from a Panamanian law firm, Mossack Fonseca, that specializes (specialized) in offshore bank accounts and money laundering.⁴¹⁹ Some suspected the Ruskies, while others suspected the Americans.⁴²⁰ It is oddly coincidental that HSBC CEO Stuart Gulliver and Chairman Douglas Flint got grilled by Congress on Mossack Fonseca money laundering schemes a month before release of the Panama Papers.⁴²¹ Hillary Clinton supported legislation in 2008 that fostered Panamanian money laundering.⁴²² Why?

The papers showed hundreds of thousands of people, including plenty of politicians, stashing cash offshore.⁴²³ HSBC and Credit Suisse, two egregiously lawless banks, led mega-banks in hiding clients via Panama.⁴²⁴ The Clintons and the Trumps showed up on the guest list of 18,000 account holders domiciled at the same address.⁴²⁵ The prime minister of Iceland resigned the day the Panama Papers were released.⁴²⁶ Undoubtedly, more resignations went unnoted. The Naval War College’s Thomas Barnett once said (paraphrased), “I read stuff in the NY Times that I’ve known for five years.” Nothing should surprise us, not even the connection made between the Clintons and the Kremlin revealed by Panamania.⁴²⁷ And, of course, this sordid affair is already forgotten.

Human Achievement

Every year, oddities capture my attention but don’t fit neatly into any category. Seems a shame to waste them. Before hitting the loopy stuff, let’s look at a few positives with a sports theme.

The high points of the 2016 Summer Olympics in Brazil (from the Yankee perspective) were Michael Phelps winning his 300^th Olympic medal (OK, 28^th).⁴²⁸ The Baltimore Ravens stopped a preseason game so that fans and players could watch him race.⁴²⁹ The women’s gymnastic team was referred to by Slate as “the indomitable, world-destroying, medal-hoovering Team USA.”⁴³⁰ Speaking of hardened gymnasts, 41-year-old Oksana Chusovitina (nicknamed Grandma) deserves a solid-gold participation trophy.⁴³¹ Britain’s Mo Farah fell in the 10,000 meter and still won gold (his second).⁴³² Those Brits might sound like wusses, but that was true grit. Skeet shooter Kim Rhode became the first athlete to win a medal in six consecutive Summer Olympic Games.

The Cubs won the World Series after 108 years. Mohammad Ali threw his final punch, but not without us understanding the totality of his greatness both in and out of the ring. It took me a better part of my lifetime to comprehend this. And then there was the 12-year old kid who got to play in the inaugural round of a new golf course with Tiger Woods. The kid aced the first hole.⁴³³

Human Folly

Of course, the Olympics had its darker moments but far fewer than many expected in a bankrupt country. CNN never published a story about skeet shooter Rhode’s historic 6 contiguous olympics with medals. Reporters, however, hounded her that she “must deal with the reality of mass shooting.”⁴³⁴ What a bunch of dorks. A guy with a broken leg got dropped off the gurney for all to see. Everybody knows the diving pool turned green.⁴³⁵ It was said to be safe, despite the “smell of farts.”⁴³⁶ The chemical explanation finally agreed upon was, in my humble opinion, total nonsense. A kayaker was rumored to have hit a submerged sofa on the Olympic kayak course. It is also rumored to have been a rumor, but everybody bought it (or so they say).⁴³⁷ A judo bronze medalist was arrested after “losing a fight” with a receptionist at his hotel.⁴³⁸ She was a very tough receptionist. Of course, Ryan Lochte lost millions in endorsements by pretending to lose a fight (get robbed) and then later being shown to suffer from terminal douchebaggery.⁴³⁹

“Places where what can go wrong will go wrong, had gone wrong, and yet in the end, had delivered me in one piece with a deepening situational awareness (though not a perfect science) of available cautions within the design in chaos.”

~Sean Penn (or Thomas Friedman)

One of Hollywood’s brightest bulbs, Sean Penn, interviewed drug kingpin El Chapo, estimated to have murdered more than 100,000 people.⁴⁴⁰ The interview led to El Chapo’s arrest and a scramble to put Sean’s life insurance policy into a risk pool.

Now let’s look into the shallowest end of the gene pool, which is teeming with lower carbon-based life forms:

• A movie about Michael Jackson has cast Joseph Fiennes—a white guy.⁴⁴¹
• Ernie Els seven-putted from 3 feet at the first hole of the Masters.⁴⁴² Mickelson lost a ton betting he could make it in five.
• Mega drought continues to ravage California and the Southwest,⁴⁴³ leading some to speculate that high-density developments in deserts are ill-advised.
• Lake Mead hit its lowest level in history, dropping a dozen feet per year.⁴⁴⁴ Soon it will be renamed Lake Mud.
• For four hours during a debate, more people were searching online for info on our future leaders than for porn. USA! USA!⁴⁴⁵
• Anthony Weiner sexted a 15-year-old that he would “bust that tight pussy so hard and so often that you would be limp for a week.”⁴⁴⁶ With the help of Donald Trump, “pussy” is now common usage, leading some to speculate the “C-word” is not far behind.
• LinkNYC removed web browsing from Wi-Fi kiosks after an epidemic of porn and masturbation.⁴⁴⁷ Anthony Weiner declined comment.
• “Neighbors 2” hired consultants to ensure the plot would not offend women.⁴⁴⁸
• Bob Dylan won the Nobel Prize in Literature.⁴⁴⁹ Hillary is rumored to be rigging the Grammy voting for best swan song.
• A gold dildo was sold for $15,000.⁴⁵⁰ The price reflected the high mileage.
• An app turns your smartphone into a vibrator.⁴⁵¹ Careful: it sends your habits back to the company.
• Annaliese Nielsen berated a Lyft driver over a dashboard hula girl bobblehead as a “cultural appropriation” from the “continent of Hawaii.”⁴⁵² It went viral, Annaliese turns out to be a madam, and she is now busted.⁴⁵³
• Joey Chestnut regained the Nathan’s Famous Hot Dog Eating Contest title, downing 70 hot dogs and buns in 10 minutes.⁴⁵⁴
• KFC introduced sunscreen that smells like fried chicken.⁴⁵⁵
• A mother waterboarded her 13-year old son.⁴⁵⁶ Apparently time-outs weren’t working.
• Antonin Scalia was discovered dead in bed with a pillow over his head and unwrinkled clothes.⁴⁵⁷ No autopsy was performed.
• Steve Harvey crowned the wrong Miss Universe.⁴⁵⁸ Awkward. Her forced smile won her an Academy Award.
• CBS News says Caitlyn Jenner is rumored to be considering de-transitioning.⁴⁵⁹ I resisted thinking it was a stunt.
• Liberals expressed outrage over a story that the Trump boys killed a triceratops.⁴⁶⁰
• Rage disorder has been linked to a parasite in cat feces.⁴⁶¹ All these years we have been going catshit, not batshit.
• A Swedish soccer player was kicked out of a game for “provocatively farting.”⁴⁶² The perpetrator who pulled his finger was fined with no admission of guilt.
• Measles brought in by an inmate at a federal immigration detention center is spreading through the anti-vaxxer community.⁴⁶³
• A U.S. man has publicly condemned the actions of his mother, who married his sister after a previous relationship with his brother was annulled.⁴⁶⁴
• A girl got investigated for counterfeiting because she used a $2 bill in the school cafeteria to buy lunch.⁴⁶⁵
• The Brits were allowed to pick the name for a new research vessel, but authorities ruled that Boaty McBoatface would not be used despite the landslide victory.⁴⁶⁶
• The Flint water supply became toxic because a municipal bean counter decided to save “$80 to $100 a day” on the treatment.⁴⁶⁷ A woman leading the drive to sue the Michigan government was shot and killed in her home (died of lead poisoning).⁴⁶⁸

NFL quarterback Colin Kaepernick was brought behind the woodshed when he “took a knee” for the national anthem.⁴⁶⁹ The perfect alibi is that he is a vegan⁴⁷⁰ with a job that demands protein—lots of protein—and has some form of induced dementia. Despite predictable public outcry, some consequences were unforeseeable. Veterans began Tweeting his right to protest. I’m not sure his for-profit employer would agree. This public form of protest developed meme status. He won my heart with an explanation that the left-leaning media largely ignored:

“You have Hillary, who has called black teens or black kids super predators. You have Donald Trump, who is openly racist. We have a presidential candidate who has deleted e-mails and done things illegally. That doesn’t make sense to me. If that was any other person, you’d be in prison. So what is this country really standing for?”

~Colin Kaepernick, speaking truth

Civil Liberties

“Tyranny derives from the oligarchy’s mistrust of the people; hence they deprive them of arms, ill-treat the lower class, and keep them from residing in the capital. These are common to oligarchy and tyranny.”

~Aristotle

“I am not for the death penalty. . . . Illegally shoot the son of a bitch.”

~Bob Beckel, liberal commentator, on Julian Assange

“WikiLeaks is Getting Scarier Than the NSA”

~Time magazine headline, missing the irony of why WikiLeaks exists

I got lit up on the civil liberties issue a few years ago watching a kid go to prison on what I believe was a fabricated he said/she said conviction. I tried to help, speaking with family members, the accused, and even a friend who is a prison counselor, but I achieved nothing in the end. I continue to speak out against breaches in civil rights out of a primal need. In this section, I look at the generic stuff and save the breaches stemming from politics and militant political correctness for later. It is my strongest conviction, however, that the heckler’s veto by small numbers, what Taleb calls “minority rule,” risks our civil liberties, as does the majority remaining cowardly silent.⁴⁷¹ For the record, I am not a huge fan of guns, but I get the heebie-jeebies when constitutionally granted rights come under fire.

We begin with a stream-of-consciousness collection of random breaches of civil liberties. Some inspire disgust, whereas others just make you think:

• The United States Preventive Services Task Force wants mandatory depression screening for everybody to create a database.⁴⁷² Why? To ensure anyone labeled “mentally ill” can’t own firearms.
• A teacher who desecrated the American flag inside a North Carolina classroom wants the student who photographed him to be punished.⁴⁷³
• A proposed Kentucky law demands users of Viagra and other wood-hardeners to get spousal permission and “make a sworn statement with his hand on a Bible that he will only use a prescription for erectile dysfunction when having sexual relations with his current spouse.”⁴⁷⁴
• The FBI used Cellebrite to hack an iPhone. It was hoping to force Apple to give up data to set precedent.⁴⁷⁵
• Criminals are now being paid not to commit crimes.⁴⁷⁶ Destitute taxpayers are being forced into lives of crime.
• The use of echo parentheses—(((echo)))—refers to Coincidence Detector, a Google Chrome extension that was being used by white supremacists to track Jews . . . until it turned into a meme on social media.⁴⁷⁷
• San Francisco requires all sign-based advertising of sugary drinks to warn people that drinking such beverages causes obesity, diabetes, and tooth decay.⁴⁷⁸ First they come for your Pepsi, and they will not stop until they reach for your pork rinds.
• Here is a list (by state) of where it is legal to record phone calls.⁴⁷⁹ My advice: apologize later.
• One million people petitioned to boot a judge who gave the Stanford swimmer/rapist a light sentence: right or wrong, is crowd-sourced sentencing where we are headed?⁴⁸⁰
• Trapped drivers and truckers in Charlotte, North Carolina, plead with 911 operators for help as mobs looted backs of trucks. Blogger Glenn Reynolds got serious grief from his university and Twitter for advising to “run them down.”⁴⁸¹ That’s wrong, of course; you should leave the vehicle and give free hugs.
• A Bundy-Ranch-like militia standoff at an Oregon wildlife refuge got really weird when the matronly host of Democracy Now, Amy Goodman, was arrested and charged with inciting riots.⁴⁸² Apparently, 20 years of airtime, a camera crew, and actually reporting on a story does not make you a journalist, according to local authorities.
• The Department of Justice’s Operation Chokepoint shuts off the bank accounts of businesses such as gun dealers and check cashers because they are deemed to be immoral.⁴⁸³ Our new POTUS may have an opinion on that, too.
• That same Department of Justice says firing immigrant workers with expired papers is discrimination (and immoral).⁴⁸⁴
• Social workers were called on a woman whose kids played in the backyard while she did dishes.⁴⁸⁵
• A woman got sent to court without pants, three days without hygiene products, and a 75-day sentence requested for a first-time shoplift. Judge was PO’d at her treatment.⁴⁸⁶
• According to Albany Chief of Police, kids under 16 should be supervised.⁴⁸⁷

If you follow a few of the legal beagles, you’ll find that the courts deliver up occasional surprises. I’m sure there are other sides to the stories, and some leave me ambivalent, but . . .

• Recording police on your camera is not a First Amendment right.⁴⁸⁸
• A judge ordered a defendant to be tased in court.⁴⁸⁹
• Bribery has been declared free speech (and, no, this is not about Hillary).⁴⁹⁰
• The Supreme Court ruled medical marijuana can stay illegal.⁴⁹¹
• The First Amendment does not protect your job from dumb tweets.⁴⁹² (Oh, shit: I’ll be right back!)
• The Supreme Court ruled that police can seize evidence from an unconstitutional search provided the suspect has one or more outstanding arrest warrants.⁴⁹³
• The Massachusetts attorneys general subpoenaed Alex Epstein, a climate change denier at the Center for Industrial Progress, prompting Epstein (likely not on the advice of counsel) to respond: “Fuck off, fascists.”⁴⁹⁴
• A federal ban on the sale of guns to medical marijuana cardholders does not violate the Second Amendment, prompting thousands to say, “Wait! What? Hold my goddamned beer.”⁴⁹⁵

Every year I take a serious swipe at the police for unnecessary violence against the populace. I continue to do so but have had a minor epiphany, however, realizing that they are (1) undertrained, and (2) put in unusually stressful situations far too often. I’ll get to that, but let’s look at the bad stuff first.

Civil asset forfeiture has been a hot topic for me;¹ there are only a few things to say this year that have not been said already. The Atlantic Monthly reminded us that when your belongings, including your wallets, are entered as any kind of evidence, you are unlikely to see them again. They quote one lawyer who said, “If our clients were doing what the police are doing, it’d be called robbery.” The police now have wireless mechanisms to swipe cards in your wallet and retrieve assets ranging from Starbucks gift cards to bank debit cards.⁴⁹⁶ We learned that the government stole more assets from citizens than the property stolen by every thief and felon combined ($4.5 billion).⁴⁹⁷ Let’s say that again for the casual browsers:

“The government stole so much private property from its citizens that the total amount exceeded the value of all property stolen by every thief and felon in America combined.”

~Simon Black, blogger

Simon says (argh) the cops now watch for evidence of future travel deemed suspicious.⁴⁹⁸ Oh, come on: That’s Minority Report, starring Tom Cruise. California authorities opposed legalized pot because it will cut off federal support for the hapless war on drugs and cut way back on civil asset forfeitures.⁴⁹⁹ (Actually, the latter is incorrect because they don’t need to charge you with a crime to seize your assets . . . seriously . . . no snark.)⁵⁰⁰

“If you can prove that you have a legitimate reason to have that money, it will be given back to you. And we’ve done that in the past.”

~Oklahoma Highway Patrol Lieutenant John Vincent

We had the usual seemingly senseless cop-on-citizen violence. A therapist helping an autistic guy got surrounded by police, laid on the ground, put his hands up, explained he was an unarmed therapist, and then got shot.⁵⁰¹ Police killed a couple on a date . . . while they slept in a car.⁵⁰² A video showed a guy getting shot in his car for what appears to be no reason.⁵⁰³ The cop was obviously very jumpy (maybe a rookie).

It’s not just guys. Three years ago, a woman at the U.S. border got a total cavity search, including a vagina-sniffing dog (quite the rarity—I’ve got two), X-ray, and CT scan. All came up total goose egg.⁵⁰⁴ She refused to sign a retroactive permission slip and got billed $5,000 for her “exam.” The $475,000 settlement covered incidentals. A disabled woman was beaten bloody by federal agents—actually, TSA guys—during an airport security screening while on her way to undergo treatment for a debilitating and behavior-altering brain tumor.⁵⁰⁵ A drug-addled chemist—another rarity—admitted to being totally “baked” every day for eight years (including on acid) while processing forensic evidence for judicial authorities.⁵⁰⁶ Appeals are pending.

“Only in a police state is the job of a policeman easy.”

~Orson Welles

Now for the other side of the story. Cops in Dallas, Philadelphia, Fort Worth, Texas, and elsewhere were getting shot by snipers this year. I predicted it in previous reviews, but it is not good. The cops who died weren’t culpable for any of the sins of others. It’s worth a gander at what cops face on patrol. Korryn Gaines was pulled over and apparently ended up dead.⁵⁰⁷ The backstory is that she opposed the police’s repeated and quite civil overtures for a half hour. She died during a fatal standoff at her house. She was looking for a fight the whole way, and she got one. A Chicago officer was beaten nearly to death out of fear to use her gun.⁵⁰⁸ Riots broke out over the shooting of a Keith Lamoat Scott in Charlotte, North Carolina.⁵⁰⁹ Video shows he had a gun. Arrest records from the riot show that the instigators were 70% out-of-towners (shipped in by buses.)⁵¹⁰

Alton Sterling was shot while in a tussle with cops on the ground. Video footage was unclear as to what happened.⁵¹¹ Public outcry and violence ensued. What did surface was a picture of Alton with his 8-year-old son (Figure 22). You’ve got to wonder if the cop brandishing his weapon knew Alton was dangerous. Here is some incredibly raw video showing the violence that cops face on a daily basis.⁵¹²

Figure 22. Alton Sterling and son (unconfirmed by Snopes).⁵¹³

A close friend of my family—a straight-A high school student with a drug problem—ended up in prison, which piqued my interest in the prison–industrial complex. One in four prisoners worldwide are housed in U.S. prisons.⁵¹⁴ The prison population rose 1600% beginning in 1990.⁵¹⁵ The female prison population has risen over 800%, of which more than 60% have juvenile children in the outside world (but not for long, perhaps).⁵¹⁶ More than 50% of juvenile facilities are for-profit. I was a big fan of privatization movements, but when providers are private and the payers are the government, graft flourishes. Private probation companies have proliferated, too.⁵¹⁷

When you get out of prison, you have paid your debt to society, but you have other debts to pay—legal financial obligations (LFOs)—including prison debts and pricey halfway houses.⁵¹⁸ A substance-abusing Jersey man got 36 months in prison and racked up $35,000 in debt to the state.⁵¹⁹ Meanwhile, his résumé isn’t a fast track to riches, especially since a driver’s license is out of the question. If you don’t pay, you go back to prison. Sounds all very Dickensian to me. There are horrific tales of traffic violations that turn into losing battles with the prison system.⁵²⁰ Curiously, private prisons are being phased out.⁵²¹ It may turn into yet another lobbyist employment program. We shall see.

Campus Politics

“It is your responsibility as educators to listen to student voices. We have spoken. We are speaking. Pay attention.”

~Yale student to an administrator

“We’ve sold them a bill of goods about how they should be treated.”

~Traevena Byrd, general counsel at Towson University

College is a period of werewolf-like changes. Students enter as teenagers and leave as adults. It is a period of great intellectual growth, questioning social norms, developing a sense of self, getting wasted, having sex, and having more sex. None of that is new. My generation grew our hair, gobbled drugs, protested the Vietnam War, and wore bell-bottoms. Every generation suffers from an epidemic of dead grandparents around exam time.⁵²² That said, it seems to be getting just a little weird of late.

There is a small but increasingly vocal gaggle of activists that is raising holy hell on college campuses. The rules of behavior are in flux; free speech is anything but free. The risk of committing a pronoun faux pas is huge, and the punishment severe. Maybe this is just the same old craziness in new garb, but there are cringeworthy aspects. I see a much larger geopolitical power play, masterminded and fueled by the ultraleft (alt-left), that has commandeered the machinery of government. Obama’s Department of Education is at the vanguard, pushing their “Dear Colleague” letters (vide infra). Faculty political leanings have shifted severely left in recent years.⁵²³ The politcally  are now completely muzzled. College presidents walk on eggshells;⁵²⁴ the lead activists—the social justice warriors (SJWs) to some and the more pejorative “snowflakes” to others—have been described as “addicted to indignation.”

“There is a kind of creeping totalitarianism in terms of what kind of ideas are acceptable and are debatable on college campuses. . . . I worry very much that if our leading academic institutions become places that prize comfort over truth. . . . a great deal will be lost.”

~Larry Summers

I highly recommend a lecture by Professor Jon Haidt describing how destructive victimhood is to its participants.⁵²⁵ For those pining for more basal entertainment, Triumph, the Insult Comic Dog at the University of New Hampshire may be more to your liking.⁵²⁶ Meanwhile, I take refuge in bulleted lists to convey the absurdities that many boomers will find largely unfamiliar to their own experiences in college but are actually the products of their own rearing practices. When everybody is a winner, nobody learns how to lose. Did boomers hurt their children by overprotecting them? I think so. Let’s see what has been wrought.

• Johns Hopkins students claim letter grades for freshman will cause a mental health crisis.⁵²⁷
• A CUNY professor was accused of sexual harassment because his syllabus contained a 10% effort grade, the assumption being that “effort” was code for sexual favors.⁵²⁸
• The Cornell student assembly pushed for race-based elections of representatives.⁵²⁹
• A transgender speaker at Brown University canceled a visit owing to opposition by a leftist group because she was invited by the Jewish students of Hillel.⁵³⁰
• An African-themed dinner at Cambridge brought on pestilence and plague because it was deemed to be “cultural appropriation.”⁵³¹
• A white student drew ire for “appropriating” black culture by having dreadlocks.⁵³²
• Protesters at St. Catherine University—97% women—denounced its “toxic rape culture.”⁵³³
• Students at universities across the country complained about chalk messages supporting Trump, causing “chalkenings” to reach meme status.⁵³⁴
• Student activists at Brown University complained of emotional stress and poor grades after months of protesting and blame the school for insisting that they complete their coursework.⁵³⁵
• A peace vigil honoring the victims of the Orlando terror attack degenerated into a verbal brawl between mourners and Black Lives Matter activists at the University of Missouri.⁵³⁶
• Madeleine Albright was protested as a speaker at Scripps College because she’s a white feminist.⁵³⁷
• University of Oregon students demanded removal of the Martin Luther King Jr. quote, “I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character” because it wasn’t inclusive enough.⁵³⁸
• Students at University of Iowa viewed a controversial sculpture as a “threat,” apparently suffering from Ghostbuster Trauma Syndrome (GTS).⁵³⁹
• Tulane students filed a complaint against a fraternity that posted a sign that said “Make America Great.”⁵⁴⁰
• Lebanon Valley College students demanded the school change the name of “Lynch Memorial Hall.”⁵⁴¹ Professor Richard Titball at University of Exeter had no comment.
• UC Berkeley wanted to rename Barrows Hall after Black Panther member Assata Shakur, who was convicted for the murder of a New Jersey state trooper and multiple other felonies.⁵⁴² I think Boaty McBoatface Hall would be better.
• Amherst students called for a speech code that would have sanctioned students for making an “All Lives Matter” poster.⁵⁴³
• A Dartmouth fraternity tradition of holding a “Phiesta” on Cinco de Mayo was canceled because the made-up word was deemed “cultural appropriation” and “a seriously phucked up idea.”⁵⁴⁴
• Christine Lagarde, head of the IMF, bailed on a speech at Smith College owing to Facebook protests against her.⁵⁴³
• The N.Y. Federation of College Republicans revoked recognition of the Cornell chapter after it endorsed libertarian Gary Johnson.⁵⁴⁵ High ranking sources—I have them—say they were getting death threats because of Trump.
• Colorado college students claimed that teaching students about healthy lifestyles was tantamount to “body shaming” and “body privilege.”⁵⁴⁶ That’s phat!
• A poll showed that more than 50% of students nationwide support campus speech codes.⁵⁴⁷
• Activists want athletes to play for whichever team they identify with according to gender. Meanwhile, women on steroids get disqualified.⁵⁴⁸ Rumors of East German female athletes⁵⁴⁹ coming out of retirement are unconfirmed.
• Students at one school called for a police investigation over a Post-it with words “Get over it, pussies” inscribed on it. (I’m surprised Post-its, bearing several deeply embedded subliminal messages, are allowed on campus.)
• The Vagina Monologues, the legendary feminist monolog, was canceled at Mount Holyoke because it was deemed offensive to “women without vaginas.”⁵⁵⁰
• A student was kicked out of college for “lung-shaming a smoker.” OK. I lied. You get to piss all over smokers on college campuses.
• Young Harvardians expressed their outrage over the low return on their schools endowment…sowing the first seeds of mediocrity and evils of inbreeding.⁵⁵¹

“Discriminatory policies of gender dichotomized bathrooms need to end. . . . [W]e wish to erode and subvert the gender binary.”

~Vassar activist on same-sex bathrooms

“Protest what is truly egregious, not what qualifies as simply real life.”

~John McWhorter, Columbia University professor

Students are raising hell, but that’s their job. What’s the problem? In short, the problem lies with adults: they are failing to bring voices of reason (as I see it, at least). Problems appear in many ways. At the lowest level, they are what one might call goofy stuff with little or no lasting effects, but some are oppressive. In many instances, adults needed to bring some judgment and gravitas but failed. You are entering the no-spine zone:

• The University of Houston’s student government vice president must undergo mandatory diversity training for tweeting “Forget #BlackLivesMatter; more like AllLivesMatter.”⁵⁵²
• More than half of America’s colleges and universities now have restrictive speech codes.⁵⁵³
• Springtime—the commencement-speech time of year—is now dubbed “disinvitation season.”⁵⁵⁴
• Students filing a sexual harassment grievance can now ask for extra time on tests because they are impaired. (I refuse to name the school.)
• Professors across the country gave students safe spaces after the trauma of the presidential elections. Cry-ins and coloring sessions are a few examples.⁵⁵⁵
• Schools across the country are providing rules for microaggressions, which include phrases like, “I love your shoes” that emphasize appearance over substance.⁵⁵⁶
• The president of Northwestern University says that anyone who opposes “trigger warnings” or dismisses those who oppose safe spaces an “idiot” and a “lunatic.”⁵⁵⁷ Excuse me, President Hypocrite, but aren’t those microaggressions?
• Three students at the University of Wisconsin–Platteville wearing “three blind mice” Halloween costumes were punished because the costumes were deemed offensive . . . to the blind . . . who can’t see them . . . and probably couldn’t care less.⁵⁵⁸
• Maryland University (Towson) had a lecture titled “White People are a Plague to the Planet.”⁵⁵⁹
• A professor at the University of Wisconsin–Milwaukee is calling for the complete “abolition of whiteness.”⁵⁶⁰
• Barry University banned its golf team from using a Trump golf course to practice.⁵⁶¹
• The president of Emory University said students are scared and “in pain” after someone wrote “Trump 2016” in chalk on campus during the primaries.⁵⁶²
• Skidmore College banned the phrase “Make America Great Again.”⁵⁶³ (Problem solved.)
• Princeton published a guide to political correctness.⁵⁶⁴
• A recent Knight Foundation survey of students nationwide found that 63% favor schools banning costumes and half believe that news reporting on campus protests should be prohibited.⁵⁶⁵
• A University of Northern Colorado campaign, #LanguageMatters, warned students against offensive language like “crazy,” “poor college student,” and “hey, guys.”⁵⁶⁶ (I once was admonished by some rabid moms for using “ladies” and was told to use “guys.”)
• Administrators at the University of Northern Colorado post signs around campus warning against “offensive” speech and have a “bias response team” that takes swift action against transgressions.⁵⁶⁷

“It appears University of Northern Colorado leadership has decided that so-called tolerance and diversity is justification for intolerance and intimidation.”

~Senator John Cooke, University of North Carolina graduate and member of the Senate Judiciary Committee

“I’m hoping we’ll get a little respite while we get our act together about how we are going to handle this better in the future.”

~Kay Norton, president at the University of Northern Colorado

The student demands listed above suggest academic damage might be close behind. In some cases, the damage is real and careers destroyed because cowardly adults fail to say “no” or “stop” or even “go back to the library.”

• A DePaul president stepped down under pressure because he let Milo Yiannopoulos speak on campus.⁵⁶⁸
• The University of Iowa announced it will now offer a degree in social justice, which is fine provided nobody pays >$100,000 to get one.⁵⁶⁹
• Seattle University caved to student activists and put a dean on administrative leave because the liberal arts curriculum focused too much on classical Western history and philosophy.⁵⁷⁰
• The two Yale profs in the middle of the epic shitstorm over Halloween costumes resigned from their duties as live-in faculty in student housing.⁵⁷¹ More video shows what happened.⁵⁷²
• An Asian female gender studies professor at Dartmouth was denied tenure, and protests ensued.⁵⁷³ Careful here, Dartmouth: you could cross the academic Rubicon and start crowd-sourcing your tenure decisions. (Point of interest: Dartmouth College was the first institution in the country to be declared by the Supreme Court to have constitutional rights normally granted only to citizens.⁵⁷⁴)
• SUNY Binghamton has a “StopWhitePeople2K16” course focusing on how to deal with white privilege.⁵⁷⁵
• Wayne State is swapping the math requirement with a diversity requirement.⁵⁷⁶
• Barnard College is replacing a language requirement with a course called How to Think (a guide to political correctness).⁵⁷⁷
• Pomona College’s faculty voted to change the criteria for tenure to specifically require candidates to be “attentive to diversity in the student body.”⁵⁷⁸
• Cal Tech will allow students to take either quantum mechanics or statistical thermodynamics to be more inclusive. (Sorry, I made that one up.)

“It’s a bizarre experience to watch a documentary that expects the viewer to root for a bunch of accused rapists.”

~Christina Cauterucci, Slate, on the Duke University lacrosse case about falsely accused rapists

Title IX, the brainchild of the Obama Department of Education, at the outset had the admirable goal of protecting students (mostly women) from violence on campuses.⁵⁷⁹ Colleges receive “Dear Colleague” letters, which are thinly veiled threats to ensure they are punishing misbehaving young men, and they scare the bejesus out of legal counsels and administrators alike.⁵⁸⁰ The activism is occurring with increasing zeal, demanding social norms and actions that have shaken administrations to their foundations. It seems to stem from a study reporting that 20% of women experience sexual assault.⁵⁸¹ The Department of Justice says 0.6%.⁵⁸² My math says that the disagreement is outside the error bars.

Misbehaving covers the gamut from sexual attacks worthy of leg irons to a much more gray area covering dubious actions. The legality of “Dear Colleague” letters is working through the courts,⁵⁸³ but for the time being, we find underqualified academics adjudicating cases with highly variable understandings of due process and what constitutes a punishable offense. Some college administrators reach deep to try to find the truth, whereas others bring social agendas or act out of fear of looking too timid. The mess-ups undermine the intent and occasionally destroy lives. Would you want Christina Cauterucci adjudicating your son’s case? Suicides of the accused are rumored to be nontrivial. I’ve written about it before; here are a few more low-water marks.

• An Auburn University student got cleared in court, but the school had already booted him.⁵⁸⁴
• A female student admitted to lying about an Auburn football player, but he got kicked off the team for good measure.⁵⁸⁵ When in doubt . . .
• A guy falsely accused of rape killed himself, then his mom killed herself.⁵⁸⁶
• A Yale student was expelled when his girlfriend’s roommate, a year later, asserted that their sex was not consensual. The putative victim and attacker both vehemently denied it. He got expelled.⁵⁸⁷
• An accused student who was suspended for sexual assault settled out of court when the accuser admitted she “may have stretched the truth” because she was “pissed off” when she realized he’s "just another douchey frat dude.”⁵⁸⁸ And what happened to her?
• A double amputee at Augustana University was accused of rape. The cops said no way within 24 hours. The school kicked him out.⁵⁸⁹ There must be something more to this story.
• Due process suits are piling up and settlements out of court are plummeting.⁵⁹⁰
• A Title IX official resigned after being accused of sexual assault, which could be both true and ironic.⁵⁹¹
• A black Roanoke College student was acquitted of raping a white student by a jury in 25 minutes as well as by an on-campus tribunal, but activists demanded removal from campus.⁵⁹²
• UC San Diego was discovered to have routinely hidden the identity of witnesses from those accused of wrongdoing to render the defenses of the accused more challenging.⁵⁹³
• University of Texas guidelines on sexual assault cases were found to explicitly eliminate (rather than underscore or resolve) contradictions and inconsistencies.⁵⁹⁴
• A USC couple dated for months. A paper trail of text messages showed that she was going to falsely accuse him of rape. On a call that was not disconnected, the investigator and Title IX person were documented referring to the accused as a “motherfucker.”⁵⁹⁵
• And in the youth division, a dozen teenage girls charged a boy with sexual assault. Appears to be a case of “dog piling”.⁵⁹⁶ Text messages show they schemed to get him.⁵⁹⁷ What do you do with those dozen girls on a rocky road to what is probably a normal adulthood?

“America’s universities are in the grip of a dangerous presume-guilt-and-rush-to-judgment culture.”

~George Will, conservative columnist

“Some say government must be involved in this issue in order to ensure that private businesses do not violate individual rights. Those who make this claim are accepting the idea that rights are no more than a gift from the government that can be revoked at the will and whim of legislators and bureaucrats.”

~Ron Paul

Books about the epidemic of political correctness are being written as I type. Some might be, paradoxically, bestsellers and very unpopular. In the extreme, you have characters like Milo Yiannopoulos, a British gay provocateur with an odd mix of refined rhetorical skills and social graces that would make Trump blush.⁵⁹⁸ In the category of “way over the top,” one university president noted that “This is hard for you because you think of the students as cuddly bunnies, but you can’t. You just have to drown the bunnies . . . put a Glock to their heads.”⁵⁹⁹ I’m not sure he was cut out for that job anyway. Whereas some administrators display an odd mix of fear and bad judgment, others stand boldly for free speech. When students protested the Trump chalkening, Emory University President James Wagner chalked the words, “Emory stands for free expression!” The University of Chicago tells freshman not to expect safe spaces and trigger-free existences.⁶⁰⁰ A “Take Back Dartmouth” petition got 1,300 signatures in three days.⁶⁰¹ We will find the requisite happy medium where the rights of everybody are protected.

“There is clearly an element of irrationality in political correctness. It is a form of censorship without a censor; we impose it on ourselves. Yet, it keeps us away from the reasoned discussion of social issues which everybody can see are important, consequential, and desperately in need of wide-ranging analysis.”

~Howard Schwartz, professor emeritus of Oakland University

This section wins the award for the most edgy. I comment further on this point in the conclusion.

Elections

We started this gigantic November Madness Bracket with 100–200 million eligible candidates for the presidency and, through a grueling process, whittled it down to just over a dozen truly uninspired choices. It was obvious to anybody with half a brain that it would become a rematch of the Battle of the Dynasties, Bush versus Clinton—that is, until the unexpected collapse of the House of Bush. Nonetheless, we managed to identify two candidates that unified the nation in the common belief that we could really be screwed. Of course, you could vote for Gary Johnson with his catchy “Feel the Johnson” slogan or Jill Stein hugging a spotted-owl-infested tree with one hand and fund-raising with the other, but that seemed pointless for most. We’re told that a vote for a third party is a vote for somebody who won’t win to justify voting for a loser.

“My advice to both candidates is basically the same, with different punctuation: 1) Don’t choke, Hillary; and 2) Don’t choke Hillary.”

~@DaveedGR

Through a colossal waste of brain cells, millions of Americans sought the Holy Grail—identifying the lesser of two evils. The question seemed to boil down to how we define morality: is it about a candidate who seemed capable of repudiating all social norms (see Andrew Dice Clay) and a penchant for absurd behavior or is it about a particularly unlikeable one with a wanton disregard for the law? We all know the outcome, but the path was gruesome. With unusual reservations, I offer a few thoughts on the Electoral Borg that devoured 2016.

“And how many more of these stinking double-downer sideshows will we have to go through before we can get . . . a chance to vote for something, instead of always being faced with that old familiar choice between the lesser of two evils?”

~Hunter S. Thompson, 1972, who died without an answer

The next two sections consider the role of rigged primaries. Rigging is not quite the right term. We the People have this quaint notion that the primaries are part of the Great Democratic Experiment, but that is not even remotely true. The two parties are not-for-profit organizations—let’s just leave it at tax-exempt at least—playing a gigantic game of capture the flag. Primaries are about the parties handing us candidates of their choosing, unfettered by any constitutional mandate for fairness. As political pundit Samantha Bee said astutely, “They can pick a candidate with a Ouija board.” Even after a contentious Nevada Democratic primary, a judge ruled that Samantha Bee was right: the parties can do anything they damn well please.⁶⁰² Their only restraint is to ensure that John Doe and Jane Roe believe that this professional wrestling match is real, a critical prerequisite to retaining wealth and power. Despite having a deep bench of players, the Republican National Committee (RNC) fielded a remarkably weak team. That’s a good place to start.

“Now it’s just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors, and U.S. senators and Congress members.”

~Former President Jimmy Carter, 2016

Rigged Primaries: RNC Division

“Congratulations to the Republican party and its nomination process; it’s all going great. Keep it up.”

~President Barack Obama at the White House Correspondents Association dinner

The #neverTrump campaign was launched in the first primary debate when Megyn Kelly asked him what it would take to make him drop out. Seems a little off in retrospect. I return to that in the section on Trump. We also learned in the first debate that “excuse me” is debate speak for “shut the hell up because I am talking, and you are an insignificant twit.”

“His poll numbers tanked—that’s why he is on the end.”

~Donald Trump on John Kasich

Week after week, the media regaled one of the dozen right wingnuts as lurching into the lead—trial balloons that all burst. Trump knocked off Little Marco, Low Ebb Jeb (my name, actually), Ugly Carly, and the rest of the dirty dozen like it was a game of Whack-A-Mole. Ben Carson begged somebody to attack him in the debates. Ben: They thought you were dozing. It’s also hard to take a guy seriously whose answers included, “The fruit salad of their life is what I would look at.” Jeb was wobbling but went down for the count the day he was at a rally, delivered what should have been a punchy phrase, and felt compelled to say, “Please clap.” Jeb will not be back. Cruz and Kasich colluded to knock off Trump, a marriage of necessity that was annulled within 24 hours.⁶⁰³ Eventually the party and the media put all its eggs in the Cruz basket.

“As a moral question it is straightforward. The mission of any responsible Republican should be to block a Trump nomination and election.”

~Washington Post

Cruz was by no means the perfect candidate. By all reckoning, nobody liked him. His college roommate wrote screeds about the wretch.⁶⁰⁴ He had a half dozen sex scandals, baffling all in light of his total lack of sex appeal.⁶⁰⁵ His stances were extreme: in opposition to the use of dildos (ironically), he noted that “There is no substantive due process right to stimulate one’s genitals for nonmedical purposes,” which prompted a campaign to legalize medical masturbation. He was rumored to have appeared on Maury in drag (and was rather ugly . . . not to face-shame him.)⁶⁰⁶ He was rumored to be Canadian,⁶⁰⁷ nearly causing an international incident. A poll showed that 38% of the population of Florida thought he was the Zodiac Killer.⁶⁰⁸ Trump was ruthless with him, however, noting that not one senator endorsed him because they didn’t like him. The Donald went on to say that “If I can’t beat [Hillary], you’re going to get killed.” It was probably right at this moment that the RNC wondered why it didn’t back Rand Paul.

Trump began the morning of the Kansas primary with a “double-digit lead” over Cruz according to a prominent polling group⁶⁰⁹ and then lost to Cruz by “double digits.” Huh? Trump was polling at a 12% lead heading into Oklahoma ⁶¹⁰ and lost that one too. (His campaign spelling it Oaklahoma didn’t help,⁶¹¹ even though few noticed). Cruz threw an air ball in the Indiana Hoosier Dome by drawing attention to the height of the “basketball ring.”⁶¹² Tennessee started screwing around with the number of at-large delegates to help him.⁶¹³ The Wall Street Journal noted that Cruz would end up with more delegates from Louisiana than Trump despite Trump’s win, prompting a few choice tweets.⁶¹⁴ Colorado and Wyoming said “screw it,” cancelled the non-binding straw polls, and gave all their votes to Cruz, prompting a full-blown tweet storm.⁶¹⁵ The State of Washington gave Cruz 40 of 41 delegates weeks after Cruz dropped out.⁶¹⁶ Rick Santorum managed to win Iowa—forgot about him, didn’t ya—prompting the San Francisco Fed to tweet, “Rick Santorum didn’t win . . . anything that matters. Iowa is . . . Iowa,”⁶¹⁷ which then prompted a quick deletion and an apology.

“Trump may be a rat, but I have no desire to copulate with him.”

~Ted Cruz

None of this mattered. Trump took ’em down like a gangster. Cruz finally quit the same day Trump accused his father, Rafael Cruz, of assassinating JFK. Did Cruz quit by using the insanity defense? More on that below. After Trump won the nomination, one of my colleagues referred to his “incompetent tactics.” Um . . . didn’t he just win the nomination against insurmountable odds?

Rigged Primaries: DNC Division

“Unpledged delegates exist really to make sure that party leaders and elected officials don’t have to be in a position where they are running against grassroots activists.”

~Debbie Wasserman Schultz, chair of the DNC (at the time)⁶¹⁸

The Democratic primary was produced by Quentin Tarantino and filmed using authentic Russian dash cams. Early in the game, a notoriously effective Latin American election rigger—the big leagues of election rigging—said he had signed with an undisclosed team.⁶¹⁹ My money is on Team Clinton. Volumes have been and will continue to be written on the transparently crooked Democratic primaries. Anything and everything involving chicanery that seemed vaguely criminal at the time eventually was confirmed by WikiLeaks—a treasure trove documenting despicable behavior that became so voluminous we all stopped paying attention.

Let’s flesh out Debbie Whatshername Schultz’s quote with some additional clarification:

“The Democratic Party benefits from the current system of unpledged delegates to the National Convention by virtue of rules that allow members of the House and Senate to be seated as a delegate without the burdensome necessity of competing against constituents for the honor of representing the state during the nominating process. . . . We passed a resolution in our caucus that we would vehemently oppose any change in the superdelegate system because members of the CBC might want to participate in the Democratic convention as delegates, but if we would have to run for the delegate slot at the county level or state level or district level, we would be running against our constituents, and we’re not going to do that.”

~Debbie Wasserman Schultz, former chair of the DNC⁶²⁰

Leaked memos showed that Debbie rigged the primaries for Hillary. After getting booed off the stage at the Democratic National Convention,⁶²¹ Debbie stepped down as the DNC chair. As a free agent, she was immediately picked up by Team Clinton, having already co-chaired Hillary’s 2008 campaign. Then she became a casualty of the collapse of the Clinton Dynasty. Fear not—Debbie is still a congresswoman from Florida and will be kept plenty busy crowdsourcing her retirement domestically using Wells Fargo and Panamanian banks. As we all know, Debbie was replaced by Donna Brazile, an A-team election rigging workhorse or, as Hillary called her, a “brain-dead buffalo” (vide infra).

The ruse began when Hillary took half the delegates from New Hampshire despite getting her ass kicked in the actual vote. The so-called “super delegates”—a collection of politicians, lobbyists, and big donors constituting 20% of the total—essentially all went to Hillary. The media stopped reporting on them because the ruse was becoming too transparent for comfort.⁶²²

Soros’s cronies were said to be deeply embedded in the Utah primaries.⁶²³ Hillary stole the Arizona primary using fairly standard tactics: (a) long lines favored Hillary because the early voters were older women supporting her; (b) limited polling access was provided in Hillary’s weaker districts; and (c) with lines around the block that, ironically, looked like a Trump rally, her media cronies announced victory based on 1% of the vote, which helped to shrink the lines.⁶²⁴ Michael Krieger summarized the shenanigans in the New York Democratic primary involving various forms of voter suppression.⁶²⁵ A video of the Nevada primary showed pandemonium as verbal votes were obviously going to Bernie and yet were declared to be going to Hillary.⁶²⁶ The chairwoman, dazed and confused, carried out her role with yeoman resolve.

“This was not supposed to be a democratic process.”

~Chris Wicker, vice chair of the Nevada convention

Hillary won six precincts in Iowa by six consecutive coin tosses.⁶²⁷ Leaving aside why a primary has coin tosses, what were the odds? One in 64: try to keep up. It just wasn’t Bernie’s day. One surreal video shows overcounting in an Iowa precinct when the vote counters repeatedly called out, “Are there any more Clinton voters?” and, miraculously, more hands would shoot up each time.⁶²⁸ Angry Bernie supporters were told to “take it up with the election commission.” Hillary declared Iowa a victory and escaped by helicopter under sniper fire.

The Big Rig was the California primary. It was clear that Hillary was well ahead of Bernie nationally, but California looked like it could be Bernie’s, which would cause a critical loss in momentum for the Clintonostra. The day before the primary, the Associated Press (AP) announced that Hillary had won the nomination.⁶²⁹ As DNC confetti flew and Wellesley College fired off an exceedingly well-produced and very well-presented speech from Hillary’s college days,⁶³⁰ the Sanders camp’s Feeling the Bern was really more akin to an STD. Even mainstream media outlets found the AP report to be astonishingly unprofessional. Only John Harwood defended it, noting that “the Associated Press is not rigged.” WikiLeaks showed that John was in on the rig.⁶³¹

In my opinion, the story that got missed was that the premature announcement was not made to bias the primary the next day. It’s not even obvious which team would become more fired up to get to the polls. The announcement was a cover story to hide massive vote rigging. I was as positive as can be without a shred of data. I tweeted that day that the AP announcement was a decoy:

Of course, Hillary won by a landslide the next day, and nobody asked why an estimated 20–30% of Bernie voters simply disappeared.

“The DNC is rigged.”

~Donald Trump (@realDonaldTrump)

“Presenting your favorite conspiracy theorist . . . the Republican nominee for President.”

~Debbie Wasserman Shultz (@DWStweets), head DNC conspirator

“The democratic leadership used its power to prevent a fair and democratic process from taking place.”

~Bernie Sanders, nouveau conspiracy theorist

Eventually WikiLeaks showed the underbelly of the DNC. Mark Paustenbach, the DNC’s national press secretary, described in detail how they would use anti-Semitism to Do the Jew.⁶³² There are nice compilations of damning DNC emails.⁶³³

“The Democratic Party got exactly the ending it deserved.”

~Glenn Greenwald, founder of The Intercept (@theintercept)

Bernie

“We’ve got the bright new face of the Democratic Party, Bernie Sanders.”

~Barack Obama at the White House Correspondents Association dinner

A 75-year-old Brooklyn Jew—a self-professed socialist—proved to be the purest, most endearing candidate of the 2016 elections. He could have won it all running a clean campaign. Leaks showed that Bernie agreed to lay off Hillary’s bank speech transcripts⁶³⁴ and not mention her massive and completely disreputable wealth accumulation.⁶³⁵ But then he hit the Clinton Political Machine, run by folks with what Peggy Noonan referred to as “the soul of an East German border guard.” E-mail leaks told the story: Bernie was a team player, and Hillary and the DNC carried out a political execution. They overtly persecuted him without a sense of remorse or irony.

“Bernie Sanders, to me, is almost more stunning than some of what’s going on in the Republican side. How is that happening, why is that happening?” 

~Steve Schwartzman, billionaire

Bernie was never supposed to win anything. He was a sparring partner, a prop for fake Democratic debates. The angry public, however, had different plans for Bernie. They wanted an outsider. Jill Stein offered for Bernie to take over her ticket to run as an independent,⁶³⁶ but Bernie played for the team. Insiders say his wife begged him not to endorse Hillary.⁶³⁷ I’m not sure it mattered; voters feeling the Bern may not have rallied behind Hillary after she finished ravaging his carcass. Your politics suck, Bernie, but you are an honest and heroic figure—a socialist people could like. I joined you as you teared up at the national convention. You became a rock star and you don’t have to be president. Mazel tov.

“And when you watch these Republican debates you know why we need to invest in mental health.”

~Bernie Sanders

Hillary Clinton

“[S]he has lied so many times, about so many things, that most Americans no longer believe a word she says—even if she’s telling the truth.”

~Marc A. Thiessen, Washington Post

“You know that Donald Trump is an unstable imbecile. But this knowledge doesn’t oblige you to discover new qualities in the bottomlessly cynical, power-mad grifter Hillary Clinton.”

~Michael Brendan Dougherty, This Week

In the olden days, Supreme Court nominee Douglas Ginsberg was disqualified because he smoked pot in college.⁶³⁸ Gary Hart became unelectable because of a photograph showing a little monkey business with a blonde.⁶³⁹ Howard Dean yelled too loud at a rally.⁶⁴⁰ Edmund Muskie bailed after breaking down (weeping) from total exhaustion on the campaign trail.⁶⁴¹ Dig long and hard enough and you eventually find the bottom of the barrel. The Clintons are a family of revenants, showing us that career-ending screw-ups are quaint notions.⁶⁴² That said, the Clintons created a top-heavy edifice of fibs, lies, inconsistencies, and hypocrisies.⁶⁴³ The Clinton Bubble had to pop. They desperately tried to push the reckoning day past the elections, hoping for an Obama pardon if needed. Indeed, the bubble was popped not by the FBI, a vast right-wing conspiracy, the alt-right, Congressional investigators, election hackers, WikiLeakers, fake news, poor handlers, or a the beast with a bad comb-over. It was the Clintons themselves.

“Everything HRC touches she kind of screws up with hubris.”

~Colin Powell, leaked e-mail

I have an indigestible 62 single-spaced pages of notes, quotes, and links on the Clintons destined for recycling. The plotline can be followed through compilations of Clintonobilia focusing on Hillary’s lying, cackling, coughing, falling, fainting, hectoring, perjuring, deleting, stealing, pandering, dying, and even assassinating plastered across Youtube.^644,645,646

“Americans of all political persuasions are coming to the sad realization that our first lady—a woman of undoubted talents who was a role model for many in her generation—is a congenital liar.”

~William Safire, 1996

Some voted for Hillary out of fear of Trump. I get that. Others desperately wanted to see a female president. I view that as misguided but still get it. (Did y’all support Sarah Palin for VP?) There are those, however, who think Hillary is a good person and great for the country. I can’t fathom that one. All year long the media played Marco Polo trying to find Hillary and get her in front of a microphone to answer a few questions. Some suspected the DNC was playing a Breakfast at Bernie’s scam on us, ironic title and all. Others started scanning milk cartons and post offices for her image. Even supporters were calling for a shot clock on press conferences. With the press AWOL and the Republicans ambivalent about whom to support, it took the likes of Guccifer, DCLeaks, Julian Assange, and, yes, maybe even the Russians to provide answers to pressing questions.

“We’ll have a press conference when we want to have a press conference.”

~Joel Benenson, senior Clinton strategist

I took my best shot at Hillary and her foundation last year,¹ so the details emerging this year did not shock me and, on some level, are unworthy of repeating. The volume of the skeletons coming out of the closet, however, was so staggering that we were soon plunged into a vat of lidocaine. I can’t do more than a cursory overview of Hillary’s Wild Ride, but here goes. Buckle up.

“Hillary can change her issue positions as frequently and as totally as she changes her hairstyle. She can flip on the Keystone Pipeline and flop on the Trans-Pacific trade deal. But she cannot go back and delete her lies, evasions, half-truths, and distortions.”

~Dick Morris, former head strategist for Bill Clinton

Let’s start with a physical checkup. We’re all dying—nobody gets outta this one alive—but Hillary appeared to have a commanding lead.^647,648 Over 70% of the surgeons in the Association of American Physicians and Surgeons surveyed called Hillary’s health problems “serious.”⁶⁴⁹ The coughing fits were frequent and protracted.⁶⁵⁰ The collapse at the 9/11 memorial service was clearly serious,⁶⁵¹ and nobody bought the pneumonia story pitched by media cronies.⁶⁵¹ The footage of her spitting phlegm into a glass of water was,⁶⁵³ in my opinion, spitting out a cough drop. She took a dive into an airplane that could easily have been just a stumble,⁶⁵⁴ but stairs were not her friends all year. My theory is that she needed a Kaine—vice-presidential nominee Tim Kaine, who was so oddly non-left wing (pro-life, for example)⁶⁵⁵ that the republicans could support him to defeat Trump if Hillary faltered physically.

Figure 22. Hillary helping Secret Service agents up stairs and without her goggles.

A putative seizure caught on film was said to be real by many doctors,⁶⁵⁶ but I’m dubious. That said, an undenied blood clot in her head attributed to a fall at home (but rumored to stem from a plane crash in Iran)⁶⁵⁷ was real. Neurologists identified the beer goggles with gratings as needed to solve that lazy eye problem.⁶⁵⁸ When Dr. Drew Pinsky was interviewed on talk radio to dismiss these concerns as conspiracy theory, he shocked everybody by saying she looked “brain damaged” and was getting barbaric treatment (medical, that is.)⁶⁵⁹ The next week, CNN canceled Dr. Pinsky’s weekly gig to allow him time to pursue other interests . . . like finding another gig.⁶⁶⁰ He was not the only CNN reporter released to the wild for breaking from the script.

The plotlines wouldn’t die when she gave a couple of post-collapse press conferences looking to be on horse tranquilizers in one⁶⁶¹ and crystal meth in another.⁶⁶²“Why aren’t I 50 points ahead?” she exclaimed with a crazed look in her eye (the good eye). Bill slipped up and admitted she spent months recovering from the clot.⁶⁶³ He seems to be doddering to me, prompting the alt-right to hurl epithets about late-stage syphilis (of which many have considerable experience).

Figure 23. Beer goggles with gratings.

“The Clinton Foundation is, by all accounts, a big force for good in the world.”

~Paul “Don’t Ever Change” Krugman

Sure, Paul. After signing a memorandum of understanding with the Obama administration promising not to rape and pillage the world with her foundation, Hillary welched on that promise almost immediately.⁶⁶⁴ Calling the Clinton Foundation a conflict of interest is like calling Jeffrey Dahmer a glutton. I see no evidence that legal actions against the foundation are off the table during the Trump administration, so we may learn a lot more before it’s over. Peter Schweizer delineated profound conflicts in Clinton Cash that are said to have been used as a road map by the FBI.⁶⁶⁵ Charles Ortel picked up the baton in a series of detailed reports.^666,667 He claims the quoted numbers backing the foundation are low by multiple decimal points, running upwards of $100 billion.

“Do I have a problem when a sitting secretary of state and a foundation run by her husband collect many, many dollars from foreign governments—governments which are dictatorships? Yeah, I do have a problem with that. Yeah, I do.”

~Bernie Sanders on CNN

Here are just a handful of the problems that surfaced owing to a tsunami of leaks. Many of these were known, but they offer a glimpse of the foundation’s modus operandi.

• One hundred eighty-one Clinton Foundation donors simultaneously lobbied the State Department.⁶⁶⁸
• Hillary put a Wall Street trader on the federal board that regulates nuclear weapons because of a big donation to the Clinton Foundation.⁶⁶⁹
• The Crown Prince of Bahrain got access to the secretary of state after pledging $32 million to the Clinton Global Initiative.⁶⁷⁰
• The State Department showed favoritism to FOB (Friends of Bill) in its $10 billion Haiti fund.⁶⁷¹
• Hillary supported a $29 billion military arms deal with Saudi Arabia but only after the Saudis donated $10 million to the Clinton Foundation. Boeing tossed in another $900K.⁶⁷²
• Australia and Norway ceased donations in the millions the week after Hillary lost the election. What about the children?⁶⁷³
• Bill Clinton was an honorary chairman of Laureate Education. The Clinton State Department provided $55.2 million in grants to Laureate; Bill collected $16.5 million in fees.⁶⁷⁴

There are hundreds of such examples. Critics argue there is no evidence of quid pro quo. Yeah? Money changed hands—proof enough.⁶⁷⁵ Intrepid reporters and investigators have a treasure trove of e-mails for building a case against the Clintons (but probably won’t) and Clinton Foundation (possibly will). I imagine many books will be written detailing the sordid plotlines. There is one e-mail, however, that is the Rosetta Stone to the corruption. After throwing a fit about Chelsea sticking her nose into foundation business where it shouldn’t oughtta be,⁶⁷⁶ Doug Band, president of consulting firm Teneo and foundation operative, wrote a 13-page screed describing how he redirected tens of millions of foundation donations to Bill’s personal coffers.^677,678 Marcia Clark could win this prosecution.

E-mailgate was a total mess. The evidence that Hillary breached national security laws was overwhelming.⁶⁷⁹ The investigation started out looking authentic: 147 FBI agents chasing down leads.⁶⁸⁰ Head of the FBI, James Comey, seemed like a stand-up guy, having been confirmed with a 97:1 vote of confidence from the Senate. Who didn’t vote for him? Rand Paul.⁶⁸¹ Maybe Rand remembered Comey’s background at Bridgewater Associates⁶⁸² or that Comey was involved in the Clinton Whitewater investigation 20 years back that came up with nothing. In the theater of the absurd, Comey squared off against Clinton Whitewater lawyer Loretta Lynch.⁶⁸³ It was clear, however, that the public was only partially engaged, but Hillary was methodically digging a very deep hole with specious protestations.

The FBI was ready to make the call about prosecution that, ironically, was not theirs to make, when Attorney General Loretta Lynch and Bill Clinton by chance ran into each other on a tarmac, which was witnessed only by chance. They were just two old snakes on a plane chatting about grandchildren.⁶⁸⁴ Soon thereafter, Comey stood in front of the world and delineated Hillary’s transgressions in lurid detail.⁶⁸⁵ It was as though he had collected her disclaimers—I’m confident he did—and then nuked every single one of them. Hillary was toast. He gets to the climax and—convictus interruptus—a political dirty Sanchez. He announced there was nothing whatsoever to prosecute and scampered off the stage (under sniper fire). A couple days later, he testified to Congress confirming how much Hillary had lied, providing plenty of treasons to indict.

Here was my initial take on it. Comey took the bullet for Lynch. Lynch is required by law not to prosecute long shots. Is there anybody who thinks Lynch could get a 12:0 vote out of a jury against what would likely be a sitting president years later? They had to let her walk, but before doing so, Comey convicted her in the Court of Popular Opinion. In return, the Republicans attacked the decision but passed on every opportunity to attack Comey.

But then it got weird. Rumors of a coup d’état within the FBI rank and file came via leaks. They pointed to obstructionism by Comey and Lynch the whole way.^686,687 The DoJ let key witness Cheryl Mills serve as Hillary’s lawyer, which allowed her to avoid being deposed.⁶⁸⁸They allowed Team Clinton to destroy evidence.⁶⁸⁹ That sent Hillary on a frozen rope straight to Pennsylvania Avenue! Yeee-haawwww!

“How does it feel for a much younger, younger generation, you will be their first white president?”

~Zack Galifianakis to Hillary on “Between Two Ferns”

But then it got really weird. An altogether independent investigation of Anthony Weiner’s sex offense blew 650,000 of Huma Abedin’s e-mails into the public eye. I suspect that Huma backed them up on the horned toad’s computer as a life insurance policy; she knew how Clintons dealt with threats. Comey announced the Hunt for Hillary was back on. They finally had her. A week later, in yet another Roseanne Roseannadanna moment, Comey said, “Never mind.” Hillary was stumbling toward Pennsylvania Avenue with only two days before the election.  At this point, Comey was probably planning quality time with his family.

I cannot skip the darkest part of the Clinton mystique—the Clinton body count. Rumors of dead enemies have dogged the Clintons for years. It’s not just Vince Foster.⁶⁹⁰ Almost 50 people are on an admittedly generous list of victims.⁶⁹¹ (I’m guessing the Carter body count is less impressive.) I don’t know if any of the stories are true, but they are disturbing. At one point this year, five people who were explicitly dangerous to the Clinton campaign died in only six weeks.⁶⁹² The most notable was Seth Rich, shot to death with no motive identified on the morning he was to testify against the Clintons.⁶⁹³ WikiLeaks confirmed he was a DNC insider who had turned.⁶⁹⁴ Assange offered a reward for more information on Seth’s death.⁶⁹⁵ Ironically, a cat burglar was chased off the Ecuadorian embassy in the wee hours.⁶⁹⁶ It’s not hard to imagine what (or whom) he was looking for.

What astonished me watching Hillary weave and bob to avoid problems of her own creation was the totality of her hypocrisy. Of course, the web has a long memory, so it didn’t take long to recall that Hillary was actively pushing the birther story in ’08⁶⁹⁷ as well as the Obama-in-a-turban photo.⁶⁹⁸ Few know that Bill and Hillary, to their credit, used the “Make America Great” slogan years before Trump.⁶⁹⁹ Her heroic efforts to summon federal aid for earthquake-ravaged Haiti was eventually shown to be a slovenly grab of lucrative contracts by friends of Bill and Hillary, who then proceeded to do almost nothing for the Haitians.⁷⁰⁰ The Clinton Foundation had boots on the ground in Haiti again after the hurricane, going door-to-door soliciting donations of any size (please laugh). The family’s speaking fees fetched them a cool $200 million net worth as civil servants in what was undeniably a pay-to-play scam of monumental proportions.

Hillary’s profound hypocrisy is most easily conveyed, however, by letting her speak for herself:

“A man with this much contempt and disrespect for women has no business becoming president.”

~Hillary Clinton

“Every survivor of sexual assault deserves to be heard, believed, and supported.”

~Hillary Clinton

“Go fuck yourself.”

~Hillary to her secret service agent in response to “Good morning.”

“What we have here is pretty much what I have been saying throughout this whole year, and that is that I never sent or received anything that was marked classified.”

~Hillary Clinton

“You stare at the wall like a brain-dead buffalo while letting fucking Lauer get away with this betrayal? Get the fuck to work janitoring this mess: do I make myself clear?”

~Hillary Clinton to Donna Brazile

“You wanted it, didn’t you?”

~Young Hillary Clinton to a now-sterile 12-year-old rape and beating victim on the witness stand (after exiting the coma)

“But if everybody’s watching, you know, all of the backroom discussions and the deals . . . you need both a public and a private position.”

~Hillary Clinton, on the Goldman tapes

“I have a lot of experience dealing with men who sometimes get off the reservation.”

~Hillary Clinton

“It is one of the most important challenges the next president is going to face.”

~Hillary Clinton on cybersecurity

“The real key to cybersecurity rests with you. Complying with department computing policies and being alert to potential threats will help protect all of us.”

~Hillary Clinton to her staff

“This is a man who says . . . women don’t deserve equal pay unless they do as good a job as men.”

~Hillary Clinton, first presidential debate

“I want the Iranians to know that, if I’m president, we will attack Iran.”

~Hillary Clinton

“I’ve been the most transparent public official in modern times.”

~Hillary Clinton

“I often feel like there’s the Hillary standard and then there’s the standard for everybody else.”

~Hillary Clinton

“We are going to write fairer rules for the middle class, and we are going to raise taxes for the middle class.”

~Hillary Clinton, probably just garbling her words owing to brain trauma

“Name one thing anybody has influenced me on.”

~Hillary Clinton

“The company you keep says a lot about you.”

~Hillary Clinton

“We did not lose a single American in that action.”

~ Hillary Clinton on Libya

“I do not believe that they did anything that they believed was in any way inappropriate.”

~Hillary Clinton, supporting those who sent e-mails to her insecure server

“There’s just a deep desire to believe that we can have free college. . . . I don’t want to overpromise. I don’t want to tell people things that I know we cannot do.”

~Hillary Clinton, on a Goldman Sachs video after publically promising free college

“As the FBI said, everything that I’ve said publicly has been consistent and truthful with what I’ve told them.”

~Hillary Clinton

“Can’t we just drone this guy?”

~Hillary Clinton on Julian Assange

“Anyone not willing to accept the result of an election is a danger to democracy.”

~Hillary Clinton

Besides what appears to me to be a lifetime of criminal behavior befitting that of a clinical sociopath, what were Hillary’s biggest mistakes? I view three as truly colossal screw-ups by an otherwise coldly calculating political veteran.

(1) Hillary called approximately 25% of the voters (half of Trump’s supporters) a “basket of deplorables.” You attack the candidate but never the voters. What was so egregious was that she turned them into nouns. They were not deplorable but rather deplorables. You could actually hear her minions after the fact trying to reverse that grammatical subtlety. The noun form was dehumanizing. Hillary was dehumanizing. 

(2) Hillary feigned interest in the environment—her first loyalty remains to her—supporting green energy as preferable to coal. Her enormous mistake was that she told the most downtrodden working class in America—coal miners—that she was going to put them out of work. It revealed a lack of compassion—a monumental political blunder.

(3) She and her team rigged the polls and controlled the media. The control was absolute, because the media (even Fox News) had turned on Trump. The blunder was that she then believed the media reports and the polls showing she was winning. Team Clinton lied to itself on a grand scale. Meanwhile, she slowly but ever so steadily lost the millennials, the Bernie supporters, and even minorities in significant numbers. I return to the minority shift in the next section. It’s important.

Figure 24. Poll showing Clinton lead on November 7^th.

Before closing, I must mention Huma and the Weiner, which refers not to a sitcom but to Huma Abedin and her sex-crazed husband and former politician Anthony Weiner. I am confident that Huma’s moral bar is at the wrong level.⁷⁰¹ The scandals about her 10-year stint as the associate editor of the Journal of Muslim Minority Affairs are innuendo but remain disquieting.⁷⁰² Maybe JMMA is just the Saudi comeback to Cosmo, but maybe not. The e-mail leaks from the DNC and ultimately from the Weiner clearly showed that Huma played a key and dubious role in what I believe will prove to be the largest scandal

Figure 25. Caption contest.

of them all, the Clinton Foundation. The close affiliation with Hillary Clinton is condemning. But here is the impressive part: Huma’s role as Hillary’s chief of staff—a role that demanded dealing with unimaginable pressures daily—tells me that she must be working at the highest possible level of competence. Huma has gravitas. Somebody will hire her and get their money’s worth, even if there is a little interim time spent in public housing—orange is the new black—or in a witness protection program.

Trump

“This year represents a paroxysm in the political system that is rejecting the attempts to control the election from the halls of power. . . . They might find a way to take Trump down, but he’s not going down easy.”

~David Collum, BTFDtv, January 2016

The media and two parties beat Trump unceasingly. Even the Hillary-hating ultra-right power brokers Bill Kristol, George Will, and Mitt Romney supported Hillary. Ruth Bader Ginsberg, breaking federal law precluding a sitting Supreme Court justice from making political statements, noted, “I can’t imagine what the country would be with Donald Trump as our president. . . . He is a faker.” The Donald fired back, “Her mind is shot. She should resign.” They could both be correct. Conservative pundit Andrew Sullivan referred to a Trump presidency as an “extinction-level event.”⁷⁰³ Ex-CIA head Michael Hayden suggested the troops would not follow his orders, which sounds very Roman. Of course, Wall Street veterans like Buffett and Paulson hated him because he might not even be for sale, let alone have bargain-basement price tag of $200,000 and a Buy-Now button at Amazon.

“If trump wins the election I am moving out of the country goodbye America hello Hawaii”

~@BasedPaco

We just witnessed a victory that was every bit as improbable as the 1980 U.S. hockey team winning the gold in Lake Placid (albeit lacking the universal appeal . . . except, ironically, from the Russians). How did this happen?

I’m not going to pile on. I am trying to avoid being one of the billions who underestimated the man. Admittedly, Trump has a huge error bar tattooed on his ass, and I could be doing some serious mea culpas in the future. Some may be irritated if not appalled that I am writing past his obvious flaws this year and looking at his achievements; next year there will be some serious hard data to work with. I am, however, optimistic that he is in this for real and that there is a chance—possibly a long shot, mind you—that he will be transformational. The single best source of upbeat analysis of Trump came from cartoonist Scott Adams of Dilbert fame. He opened with a snarky endorsement of Hillary noting, “I’ve decided to endorse Hillary Clinton for President, for my personal safety.”⁷⁰⁴ Later blogs, however, supported The Donald and dissected his tactics. While most heard Trump babbling simple, mind-numbing platitudes, Adams witnessed somebody using classic linguistic ploys to win—as you might expect from a guy who wrote The Art of the Deal and has been closing deals for his entire life. I was reminded of sections of the classic book Influence, in which Robert Cialdini describes how we are influenced by others.

“It turns out that Trump’s base personality is “winning.” Everything else he does is designed to get that result.”

~Scott Adams (@ScottAdamsSays)

At the outset, a meeting of the Clintons and Trump before he threw his hat in the ring convinced me Trump was a stalking horse for Hillary—a decoy to disrupt the Republican nominating process. National Review suggested he might be a “Manchurian candidate.”⁷⁰⁵ Maybe this was true, or maybe, just maybe, he was setting Hillary up for The Sting. No matter, soon he smelled blood like Bruce the Shark in Finding Nemo, and the hunt for the presidency was on.

Megyn Kelly opened the debates asking Trump what it would take to get him to drop out. Was he below the minimum standard that was obviously quite low, or had he already scared the establishment? My wild-ass theory is that he and Megyn choreographed a highly visible Battle Royale to advance both of their goals: The Kelly/Trump fight was staged. Cui bono? Both. Trump is now president and Megyn is looking at a $20 million annual salary. That would be classic Trump. From there, he proceeded to emasculate and then defeat a bevy of losers in the Republican debates. He then set his sights on Hillary.

Trump was so totally unconventional. He spent little on campaign ads, instead relentlessly baiting the media into reporting anything he said. He would tweet 140 characters, and the media would write volumes and talk about it incessantly. He called a press conference under a false pretense and then presented them with whatever he had on his mind. They called it getting “rickrolled,” and it got huge coverage.⁷⁰⁶ While Hillary was a mediaphobe, Trump was a mediaphile. While Hillary ducked press conferences, Trump held over a dozen, taking all questions and answering them with highly quotable zingers.⁷⁰⁷

His penchant for throwing out wild-eyed conspiracy theories had his opponents and the media apoplectic. The funny part is that despite protestations to the contrary, his exaggerated and hyperbolic assertions always had shards of truth. His accusation that Obama and Hillary played a role in creating ISIS is considered common knowledge by many.⁷⁰⁸ He accused a Mexican-American judge of bias. If you read the analyses, Trump was a nutty racist bigot. If you actually watch the video,⁷⁰⁹ however, you see a well-presented assertion (whether true or false) that his plan to build The Wall was compromising the judge’s impartiality. Ironically, several judges, including former Attorney General Alberto Gonzalez, jumped to Trump’s defense.⁷¹⁰ It was said that “Trump’s prediction of a ‘massive recession’ puzzles economists.”⁷¹¹‘Nuff said by me on that one.

“Just getting nasty with Hillary won’t work. You really have to get people to look hard at her character.”

~Trump (way before the first debate)

Trump resurrected the Vince Foster death as “very fishy,” which again brought the media into a frenzy over a long since “debunked” conspiracy theory.⁷¹¹ Vince’s death was indeed profoundly fishy,⁷¹² as was the Clintons’ behavior after his death. How about that loopy claim that Ted Cruz’s father, Rafael, assassinated JFK? The media declared that one beyond the pale. Curiously, that rumor has been working the back channels for years.⁷¹³ Rafael was a politically active Cuban national at the right time and place. A video shows Oswald and another man handing out pamphlets.⁷¹⁴ The other man is said to be Rafael. I can’t tell, but Trump’s claim was not completely out of thin air, and a frustrated Lyin’ Ted quit the day Trump made the accusation.

“That would be impossible.”

~George Bush Sr. on Trump’s offer to be his VP

Trump’s rallies were spectacles. There was serious violence. After getting pelted with eggs by anti-Trump forces,⁷¹⁵ a blonde Trump fan suggested, “Maybe I egged them on.” This is a surprisingly witty comeback for a subhuman, alt-right Trump supporter.⁷¹⁶ One rally was canceled owing to the violence.⁷¹⁷ In others, cars were tipped over.⁷¹⁸ Shockingly, this all got hung on Trump by the media, somehow not noticing that the Trump supporters were boisterous but largely nonviolent. Oh, right: it was his rhetoric.

“Figure out how to extract yourself and your car or truck from an angry mob before you confront the problem. Your options are limited, and time will be short.”

~Me channeling Reginald Denny

What was suspected and eventually confirmed by a combination of WikiLeaks and an undercover video by Project Veritas was that the violence was orchestrated and paid for by the DNC.⁷¹⁹ The guy who admitted on camera to doing it, Robert Creamer, also happened to have visited the White House 340 times, including more than 40 trips to see President Obama.⁷²⁰ Robert may do some serious jail time before the next administration is done with him. The DNC, by contrast, came out unscathed, albeit totally discredited. Euthanasia seems appropriate to me. Give the egg lady a bat and 10 minutes with Creamer and you might get some justice.

The other noteworthy feature of the rallies was that they were huge. While Hillary was having fake rallies with hundreds, The Donald was filling arenas with lines stretching for blocks. The rallies were this era’s Woodstock. While the crowd chanted “lock her up” and “drain the swamp,” the master showman would use phrases like, “It’s just me up here. Just you and me.” He hammered foreigners, but he gave nothing but big hugs to Americans. It was declared racist, Islamophobic, xenophobic, and bigoted, but many Americans liked the general message.

“No one ever went broke underestimating the intelligence of the American public.”

~P. T. Barnum

Trump’s truly momentous scam was classic Trump and nobody noticed: he threw the first debate against Hillary. What? He threw the friggin’ debate? Pundits breathlessly reported on the day of the long-awaited political event that “insiders” were saying he “wasn’t ready.” Don’t be so gullible, dudes: real insiders tell you only what they want you to hear. In the debate, he looked terrible. Hillary landed body blow after body blow on his support for the Iraq war (which was oddly ambiguous⁷²¹) and his tax returns, and he didn’t even throw a real punch. How did he let himself get caught on the ropes so badly? The media declared the election was over. Trump was incompetent and unpresidential. (The two are not the same.)

Here’s your homework assignment: List Hillary’s 15 biggest scandals—The Donald had them committed to memory—and then go back and watch Debate I. How many did Trump attack her on? None. Nada. Zero. There were some minor slip-ups, but he left those skeletons securely in the closet. Why? When I pointed that out to friends, they would declare he was simply that stupid.

Tweeter @JPCompson and I, in a series of private messages, saw it as a classic rope-a-dope. In round I, he took her best shots without returning her volley. He was saving himself for Debates II and III, because once you’ve attacked her, it becomes unusable old news. We were positive he would knock her out in Debate II. Unfortunately, “grab them by the pussy” appeared the week before this debate, so we’ll never know what his original plan was: now he had to knock her out. Meanwhile, Hillary thought she would spend the evening having her way with this ball-gagged, pussy-grabbing sexual predator. Indeed, Trump spent the first five minutes of Debate II defending his groin against an assault, looking for metaphorical and literal castration, and then he destroyed her. She was dazed and confused the remainder of the night. He even managed to play a seemingly losing hand on abortion by describing Hillary as a baby killer. He hung late-stage, third-trimester abortions around Hillary’s neck by the umbilical cords. You’d swear Hillary actually ran an abortion clinic. There was one exchange, however, that took top billing in the Debate Hall of Fame:

Hillary: “You know it is just awfully good that someone with the temperament of Donald Trump is not in charge of the law in this country.”

Trump: “Because you’d be in jail.”

But wait a minute there, Sparky. Didn’t the widely (universally) cited CNN poll show she won 51% to 39%. Yes, it did, but the polls were as fabricated as the election coverage, which was also ultimately outed by WikiLeaks. I knew Trump won big using my own lying eyes and by a simple survey. I searched “who won” on Twitter—a nonpartisan Boolean search covering the entire political spectrum without bias. In 27 spot polls, he destroyed her in many and, most important, he beat her in 25 of the 27 polls. Meanwhile, the voters kept getting told by all the major news outlets that Hillary won.

From the outset, Anne Coulter defiantly declared that Donald Trump would be the next president.⁷²² People laughed at her like she was Peter Schiff declaring there was a huge real estate bubble. Right-wing pundit Sean Hannity stepped into the right-wing buzz saw to give him fair treatment. It was hard to find them, but Trump supporters in prominent places slowly crawled out of their safe spaces. Eventually Gingrich and Giuliani jumped into the fray. Wall Streeters Peter Thiel and Jeff Gundlach lent support. A month before the election, I sat at a table with a dozen highly educated, affluent friends from college and was shocked to discover 100% supporting Trump. This is inconsistent with the storyline about his base being wife-beating, alt-right sexual predators. Closet Trump supporters were coming out of their closets.

“No, I would not vote for Hillary Clinton . . . and Trump is not the typical detached, corrupt, greedy, globalist U.S. president we’ve become so accustomed to. This is precisely what his supporters are picking up on and why they love him.”

~Jim Webb, Democratic presidential hopeful

The weirdest subplot of them all is still off most radars and may never fully take form: minorities seemed to move toward Trump. Mind you, it was just a flicker, but The Donald courted them as the democrats lethargically assumed they would lose zero votes from the minority community from here to eternity. Trump, of course, had given plenty of reasons for Hispanics to dislike him, but black Americans were visibly showing support.⁷²³ Blacks for Trump rallies were appearing:⁷²⁴ I don’t remember Blacks for Mitt. Ice Cube articulated Trump’s appeal, falling short of endorsing him.⁷²⁵ Dave Chapelle, before his legendary post-election SNL appearance⁷²⁵ seemed intriqued with Trump.⁷²⁶ Shaquille O’Neal, Mike Tyson, 50 Cent, Sean Diddy Combs, and other prominent blacks openly supported Trump.⁷²⁷ Football legend Jim Brown said Trump “is going to be for all the people.”⁷²⁸ Malik Obama, Barack’s brother, supported Trump.⁷²⁹ Quanell X, the head of the New Black Panther Party, told us to ignore the package and listen to the message.⁷³⁰ Quanell X’s message was simple: we have given the Democrats our love for a half a century, and what do we have to show for it? The head of Blacks for Bernie, undoubtedly still smarting from the abuse Bernie took from Team Clinton, threw his support for Trump.⁷³¹

Is it possible that, much the way Southern Democrats morphed into Southern Republicans (for admittedly different reasons), black Democrats are shifting their allegiance? Some of the post-election stats hint at this, but one can find many more stating the opposite. It would, however, be a sea change of unimaginable political consequence. A lot will depend on the next four years.

“You’re living in poverty, your schools are no good, you have no jobs, 58 percent of your youth is unemployed. What the hell do you have to lose?”

~Donald Trump to African Americans

Media

“The mainstream media bet the farm on Hillary Clinton, confident that their dismissal of every skeptical inquiry as a ‘conspiracy’ would guarantee her victory. It now appears they have lost their bet.”

~Charles Hugh Smith, OfTwoMinds

Let me be clear to the mainstream media as a collective: you guys suck. I’m talking really suck. A Gallup poll showing your credibility dropping to single digits—below the percentages who believe in Sasquatch—says I am not alone in my disdain.⁷³² I know some great reporters; painting everybody with a big brush is not fair, but I would slather most of the news organizations with tar, throw some feathers on them, and wait for Chapter 7 liquidation. One side of my brain says, go ahead. Define your media niches. If it destroys your brands, that was a business decision. You will be replaced by an honest (digital) product that people demand. The other lobe worries that Big Money will just keep buying up or, if necessary, sabotaging new media. As fledgling outlets emerge (think Huffington Post), they get swallowed by the Borg Collective. Is this really free press? Are there analogues of Woodward and Bernstein? We desperately do not need whores and gigalos groping people in power simply to gain access. It’s showtime: risk your access or risk your role in a democratic society.

I’m sure this problem is bipartisan, but fear of Trump and agenda-driven support for Hillary caused a political lopsidedness. Emblematically, the winner of the election didn’t get a single endorsement—not a one—from the top 100 media outlets.⁷³³ Maybe Hillary should have batted 0 for 100 as well. WikiLeaks showed that hundreds of reporters were in cahoots—had their noses right up the butts of Team Clinton to a shocking degree.⁷³⁴

“We couldn’t help [Hillary] any more than we have.”

~ Chris Cuomo, CNN correspondent

First off, quit donating to campaigns and crime syndicates masquerading as nonprofit foundations. Time Inc. was a big Hillary donor.⁷³⁵ Politico reported—thank you, Politico—that NBC Universal, News Corporation, Turner Broadcasting, and Thomson Reuters are among the many media organizations that donated to the Clinton Foundation.⁷³⁶

The network that took the absolute worst beating this year was CNN—the Clinton News Network. Time Warner, owner of CNN, was Hillary’s seventh largest donor.⁷³⁷ At the microscopic level, you could see it. CNN reporters criticizing Hillary would be cut off mid-broadcast.⁷³⁸ You also should probably stop firing reporters for content that you find inconsistent with your endorsed candidate’s views.⁷³⁹ You let Team Clinton feed you questions for interviews,⁷⁴⁰ and you fed them questions for the debates:⁷⁴¹you rigged the debates.

Thank God for the wild free-speech zone offered by social media, where everything and anything can be said. In one 24-hour period, I chatted with the former president of Microsoft, countless journalists and hedgies, a vice president of the St. Louis Fed, and one of Bill Clinton’s rape victims. (Wouldn't want to skip the Oxford comma in that sentence.) I taught Juanita Broaddrick how to “pin” a Tweet, and she pinned a zinger:

There were some funny mishaps. Rumsfeld hit Twitter endorsing a flat tax, but it quickly turned into a war crime Tweet-A-Thon.⁷⁴² TayTweets, an artificial intelligence (AI) program designed by Microsoft to interact with people on Twitter, was pulled when it began spewing anti-semitic hate speech and pro-Donald Trump campaign slogans.⁷⁴³ It has the AI guys and the AI debate on the DEFCON scale. As noted above, the NY Fed thought exposing itself to the Fever Swamp was a swell idea. Shoulda listened to Geraldo when he advised not to tweet late at night shirtless.

“[I]t takes a special kind of asshole to actually get banned from Twitter.”

~New York magazine

A decidedly unfunny covert war is being fought against the openness of it all. The major tech companies are beginning to sift through content and decide what is right or wrong. I reiterate, I support the right of these companies to destroy themselves, but I think something much more sinister is going on. Facebook, Google, and Twitter all showed a distinct bias against right-leaning content. Polarizing figures were getting banned and their content blocked.⁷⁴⁴ Facebook deleted highly popular pro-Trump pages in social media’s variant of the Night of the Long Knives.⁷⁴⁵ YouTube blocked some content providers at the cash register—prevented ad revenue—when the content didn’t fit its definition of what’s right and wrong.⁷⁴⁶ The techies profess to be saving us from being subjected to hurtful ideas. Although this year was anti-right-wing bias, I suspect it’s a less partisan content control bias. It’s wrapped in a protective cloak with an anti-terrorism or anti-hate-speech logo, but it’s about suppressing free speech.

A few random flesh wounds and head shots to and from the media are summarized as Bad Bullets:

• The New York Times dropped superdelegates from its tabulations to protect the DNC.⁷⁴⁷
• The AP announced Hillary’s victory in the Democratic primaries before it was hers and specifically timed the announcement to influence the impact of the California primary (vide supra).
• An Obama aide was hired and fired by NBC/MSNBC on the same day when it was discovered that she was helping him get his Supreme Court nominee through the system.⁷⁴⁸ Nice stick save.
• Chuck Johnson, right-wing investigative reporter, was the first to be banned from Twitter and warned Breitbart tech analyst Milo Yiannopolous he would be banned.⁷⁴⁹
• Milo Yiannopoulus was first unverified (which is just weird) and then banned from Twitter for what was clearly polarizing content that would be constitutionally protected in a public setting.⁷⁵⁰
• Twitter CEO Jack Dorsey claims Twitter censors nothing.⁷⁵¹
• An ex-CIA guy who had been on Fox News for years turned out to be a total fake, getting him 33 months in prison.⁷⁵² What happened to the other fakes?
• A former Zero Hedge employee outed marginally concealed ZeroHedge founders in Bloomberg and then discovered the hard way that he’d left a paper trail of his personal misdeeds a mile long.⁷⁵³
• CNN reported that 200 million people died from 65 million surgeries.⁷⁵⁴
• Michael Savage’s radio show got blacked out in a number of cities when he started talking about Hillary’s health.⁷⁵⁵
• Headline: Game Developer Mark Kern Banned On Twitter For Saying Radical Mosques Should Be Surveilled—even though they are being surveilled. We all are.⁷⁵⁶
• Scott Adams got “shadow banned” on Twitter, which meant that, unbeknownst to him, his tweets weren’t showing up.⁷⁵⁷
• Roger Ailes of Fox News got accused of “grabbing the pussy” of aspiring female journalists, generating a digital exam of his own genitalia.⁷⁵⁸
• Michael Isikoff unsuccessfully called for the unedited Juanita Broaddrick interview, including the deleted part wherein she hammered Hillary.⁷⁵⁹
• Christina Hoff Sommers was silenced on YouTube for anti-feminist views.⁷⁶⁰
• RBS shut down the banking functions of RT, backing down eventually but showing a totalitarian side.⁷⁶¹ The irony is palpable.
• The Economist tweeted, “Donald Trump must be stopped before it’s too late,” showing that it’s not only their coverage of economics that is dubious.⁷⁶²
• When Trump pulled into the lead, Reuters changed its polling methods.⁷⁶³
• Lester Holt was so bad in the first debate he got nicknamed “The Third Debater.”⁷⁶⁴
• Martha Raddatz “lost her shit” and started arguing in a debate . . . and then cried when Hillary lost.⁷⁶⁵
• Searches for the “Clinton AP story” gave results limited to stories from left-wing publications discrediting the story.⁷⁶⁶ (I checked; it was true when reported.)
• Chris Wallace shined.

Pamela Geller, after some boots and bans owing to what was deemed anti-Islamic content, has filed a joint lawsuit against Attorney General Loretta Lynch and tech giants Facebook, Twitter, and YouTube for “unlawful discrimination based upon their religious and political beliefs and views.”^767,768

“The Watts case involved a young man who claimed that if he was drafted and made to carry a rifle, then ‘the first man I want to get in my sights is L. B. J.’ The Court found seemingly violent ‘hyperbole’ is constitutionally protected.”

~Glenn Reynolds (@Instapundit), about a bygone era

Conclusion

And in a flash, it was over—the election, the year, a clockwork orange. Newsweek released the results in a commemorative issue just a wee bit too early. Time waited and got it right. The gravity and despair on the left was often captured by images of Hillary supporters crying, but the most poignant image might have been that of John Podesta walking into the arena the night of the election. He was to announce that the dreams of a Clinton presidency—of the first female president—were dashed and that their candidate would not be coming out that night. John’s burden is palpable. Despite my disdain for the Clinton political machine and even his role, I can feel his pain. Another oddly moving experience for me was listening to Kate McKinnon in her role as Hillary Clinton on Saturday Night Live singing “Hallelujah.”⁷⁴⁸

Trump was not a cause but rather an effect. For me the wildly uplifting nonpartisan message is that we threw the bums out. The voters took the wretched candidates offered by the two political parties and said, “No. We will be choosing our own president this time, warts and all.” The risk to the elites is that the movement is global. Britain and Italy voting to leave the EU is the same plot.⁷⁴⁹

“Trump’s election is going to be the biggest fuck you ever recorded in human history, and it will feel good.”

~Michael Moore

One might ask whether transformative change really required someone as extreme as Donald Trump? My answer is a resounding yes. No other candidate could challenge the system so profoundly and defeat it. To shake a rotten system to its foundations truly required an unprecedented performance. I encourage you to hold your doomsday prophecies for some data.

“You can’t always get what you want. But you just might find you get what you need.”

~Rolling Stones

Amazingly, nobody can see past February. Even Trump supporters are watching quizzically. I am guardedly optimistic that Trump is more cunning and calculating than his political foes realize. The post-election press conference in which he denounced the press as liars and scoundrels was, like Trump, paradoxical. On the one hand, it was seriously ham-fisted. On the other, many are lying scoundrels. We have the right to a free press, which is slipping through our fingers because the press forgot to do the job that is so important in a functioning democracy. Without a strong First Amendment, the populace will naturally turn to its backup—the Second Amendment.

I am confident that Trump plays to win. Trump the candidate will not be the same competitor as President Trump because the task is different. The Carrier jobs move, calls to Taiwan, and Stinger missiles shot at Boeing are consistent with a simple message from the pre-POTUS: he is not going to take any guff. Of course, there will be some yuge missteps. Some say his political appointees are a disaster. I submit that they are not so nuts if his goal is to shrink the footprint of government.

I don’t worry about Trump as much as I worry about the abrogation of free speech. From my vantage point, the alt-left seems more dangerous than the alt-right because the former is charging at our right to free speech with venomous aggression. Recent moves to censor and eliminate “fake news” are not just political footballs. They are attacking the most fundamental right of our democracy—the right to free speech. Give that up and you give up everything. I can ignore Nazis, communists, cultists, and fringe elements of almost all kinds provided they come as a consequence of free speech. Aristotle said that an educated person—actually, he said educated man—can entertain an idea without endorsing it. We should be careful not to give up the right to entertain all ideas.

I have a solid record as a college professor. I get good teaching reviews in courses, have not been rejected on a federal grant since 1987, publish in the best journals, have served as the associate editor of a prominent scientific journal for 20 years, and have held administrative positions of some importance for 15 years. I have helped coach two sports at the collegiate level, advised a number of clubs, and fallen on my sword in more ways than I can say in public (including one right now). Nonetheless, writing this review poses unknowable risk. In the midst of a very left-leaning faculty discussion, I got a text from a high-ranking administrator that stated succinctly, “Dave: you need to speak up.” I did not say a word. That was a small moment of shame—a microshame.

I am reminded of the universal maxim “this too shall pass.” Randy Pausch’s wife once said that when you start obsessing just say to yourself, “this is not helping.” Mark Twain or Will Rogers suggested that “Worry is the interest you pay on a debt you may not owe.” And lest we forget, there are always more elections to worry about:

Books

“Books serve to show a man that those original thoughts of his aren’t very new after all.”

~Abraham Lincoln

Every year I attempt to attenuate the growth of my 35-page wish list on Amazon by reading a handful of books, but I am losing the fight. I choose carefully owing to limited bandwidth. The books end up being an eclectic mix with one unbroken theme: they all profess to be nonfiction. I am not spending good money without attaining personal growth loosely referred to as knowledge. Novels just don’t cut it for me. Here is my 2016 reading list for what it’s worth.

Destiny and Power: The American Odyssey of George Herbert Walker Bush by Jon Meacham

This book is the amazingly uplifting story of a humble, very sensitive, family-oriented guy who lived a very moral existence. The occasional mishaps hurt him deeply. He created wealth, not (just) inherited it. His loss in the second term stemmed, in part, from ambivalence about whether he really wanted it. You get some minor but telling views about his opinion of the Clintons and absolute respect and loyalty to Reagan. The book seemed a little too supportive of GW’s presidency (through the fuzzy eyes of a proud father.) Overall, I finished with a substantially amplified opinion of GHWB.

The Kennedy Men: 1903–1963 by Laurence Leamer

This book is an oddly imbalanced mix of the Kennedy men including Joe Sr., Joe Jr., John, Robert, and Teddy. The description of the kids in childhood was all about Joe Jr. and John. Bobby gets short shrift. That said, Bobby is depicted as a total hothead. Teddy is an afterthought. There is quite a bit on the womanizing but not so much that it risks being just salacious garbage. I enjoyed the book, but the imbalances and dubious organization made it less than it could have been.

Moonwalking with Einstein: The Art and Science of Remembering Everything by Joshua Foer

Foer describes the odd world of memory experts—the guys who learn how to memorize vast quantities of often worthless information in very short order. (Homer is a great example of one of the original memory junkies.) What makes the story interesting is that Foer taught himself how to do it and excelled. I had seen Foer speak and was captivated by the idea. I gotta confess that (a) the book did not move along fast enough for my tastes, and (b) I didn’t finish it. It conveyed the ideas, but I was not getting to the question of how. It may just have been my impatience. The two-star reviews at Amazon (checked after writing this review) confirm that others had similar problems, although the overall rating is high.

Malcolm X: A Life of Reinvention by Manning Marable

Manning tells the transformational tale of Malcolm X. In some odd way, this book is a follow-up to the original Alex Haley version. In Marable’s version, Haley is actually part of the plot. It is a story of redemption. A young man—a caricature of sorts—heading to nowhere but a life of crime and prison becomes one of a transformational characters of the twentieth century. While Martin Luther King Jr. was rallying the rural South, Malcolm was more militantly rocking the cities. The role of Islam (the Nation of Islam) in his metamorphosis is profound and compelling. I would’ve loved to see what he’d have done had he lived his full life. The only downside is that the book, like so many historical treatises, is filled with characters that, despite some memorable ones (Mohammad Ali, Louis Farrakhan), are simply not of interest to the general readership. You can’t live with ‘em but ya can’t live without ‘em.

The Catholic Church: A History by William Cook

I’m a huge fan of The Teaching Company’s audio series: college-level, trimester-length courses on interesting subjects taught by talented lecturers. This course was exactly what I had hoped for—a historical rather than religious look at the role of the Catholic Church in society through the years. The origins and early history in the ancient era was the best part. The more modern periods were of far less interest to me. The course is not about God or Christ but rather about the institution we call the Church (capital C).

The New Case for Gold by James Rickards

Jim is an occasional acquaintance and frequent e-quaintance with a common interest in gold as a means of wealth preservation. His book is an easy read that will be enjoyed by gold fans but is really more important for neophytes interested in wrapping their brains around gold. I have only one disagreement: I do not buy the notion that gold is money and that its price represents the price of the dollar denominated in gold. The prices of goods and services denominated in dollars are, in the short term, stable. By contrast, goods and services priced in gold vary daily with the price of gold. By this standard, gold is not yet money. It is, however, a store of wealth in the long term.

Why We Make Mistakes: How We Look Without Seeing, Forget Things in Seconds, and Are All Pretty Sure We Are Way Above Average by Joseph T. Hallinan

This book is one of many, many neuropsychology books on biases. It’s sort of Gladwellian. I’m not sure I can recall what was in it, nor can I recall why I read yet another. I remember it being enjoyable, but I can lip-synch this genre now.

Flashpoints by George Friedman

As the former CEO and founder of Stratfor, George is on the front lines of the geopolitical world. He describes Europe as a series of regions (tribes) with long memories surrounded by “borderlands” that reminds one of the bar in Star Wars—huge opportunities for a brawl. The tribalism has lead to huge numbers of wars and will continue to do so. George doesn’t see a conflagration but would be even more shocked if we avoided a generic shitstorm. He does not spend a lot of time on the recent immigrants, but I bet he would have if the book had been written a year later.

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe by Greg Ip

Greg does a credible job of describing the ages old maxim that stability breeds instability in financial markets. He draws ample analogies to excessive risks that appear with overly aggressive fire prevention, financial intermediation, and car safety. There was some dry discussion of the financial crisis (blah, blah, blah . . . like I need more of that). Unfortunately, he gives the Fed a pass for the most part, ignoring its role and simply pointing out why it did what it did. I would recommend passing on this book.

Rome and the Barbarians by Kenneth Harl

This audiobook is another Teaching Company trimester-length collegiate course in audio. These courses are, almost without fail, exceptional. Harl does a great job of describing in a relatively chronological order the expansion of the Roman Empire and the various “barbarians” confronted along the way. I enjoyed it immensely.

The Professor and the Madman: A Tale of Murder, Insanity, and the Making of the Oxford English Dictionary by Simon Winchester

I’ve always wondered how one would ever create a monumental body of work like the World Book Encyclopedia in this era . . . and along came WikiLeaks. You crowdsource it! But what about the past? The story of the creation of the Oxford English Dictionary with in excess of a million entries is actually quite similar: it was crowdsourced using thousands of people globally over a 70-year period. The great historical storyteller Simon Winchester describes the creation of the monumental, first-of-a-kind compilation of words and definitions. The plot within the plot is the specific role of a crazy bastard in a sanitarium. For 20 of those years, he contributed profoundly, yet nobody knew he was completely nuts. (He requested and received zinc-plated floors to keep demons from climbing up through the floorboards at night and having sex with him.) It’s an entertaining tale, although in a bit of irony, one could get the basic story by simply going to Wikipedia.

Crisis of Character: A White House Secret Service Officer Discloses His Firsthand Experience with Hillary, Bill, and How They Operate by Gary J. Byrne

Gary Byrne was a Secret Service agent charged with protecting the Clintons for eight years. To the dismay of millions of alt-righters, he was very good at his job. Of course, if you hadn’t figured it out by now, I read this book simply because I find Hillary to be a deplorable human being with no socially redeeming qualities. Unfortunately, the book was disappointing. He hammers Hillary but very nondescriptly. At its release, I’d hoped Hillary would “feel the Byrne.” Little did I know that she would deflect much, much worse. Bill Clinton takes a beating as Gary describes relentless examples of bimbo-banging in the Oval Office and the icky cleanup after the fact. He describes testifying to Congress under oath, during which he was precluded from telling the truth (and we don’t get that part either). Monica comes off as a stalker-level groupie. It’s also disconnected, with a lot of chapters about the author’s life away from the Clintons.

Prosper!: How to Prepare for the Future and Create a World Worth Inheriting by Chris Martenson and Adam Taggart

I’ve watched most of Chris Martenson’s metamorphosis into town crier about disaster coming our way. I tuned into Crash Course when the sections were still incomplete. It was great. This book is about the transition from panic to relative tranquility that comes through preparing oneself for coming adversity. It’s about prepping, but it transcends the apocalyptic version and provides a more measured version in which you simply organize your life for a sustainable existence that is not reliant on fragile support systems that could give way to serious problems. (Only two days before my typing the first draft of this review, the Internet experienced a significant denial-of-service hack attack.)

America’s Bank: The Epic Struggle to Create the Federal Reserve by Roger Lowenstein

Roger is best known for his description of the Long-Term Capital Management collapse in When Genius Failed. Presenting a polar opposite view of The Creature from Jekyll Island, Lowenstein describes the creation of the Federal Reserve in the most favorable light possible. It is absolutely clear that Roger is a big Fed fan and thinks its detractors are idiots or, even worse, conspiracy theorists. After the insults, I found the book to be an enlightening read in which the author convinced me of the problems of the fragmented banking industry of the nineteenth century and the merits of a collective approach (a cabal if you wish). If only the Fed could be a more humble institution unfettered by the Hayekian fatal conceit.

Origins of Great Ancient Civilizations by Kenneth W. Harl

In yet another Teaching Company trimester-length course, Kenneth Harl describes a number of ancient civilizations. I love this stuff even though I have trouble remembering any of it for more than a few weeks after listening.

Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough and John Helyar

The authors describe the pandemonium that results when hot money chases overvalued assets driven by testosterone-infested money guys (KKR). The story dates to the 1980s—in the wake of disco, to place it in context. I found it interesting, but the magnitude seems quaint in light of the modern-day barbarians. Still, it was an enjoyable read, albeit non-technical.

“Read the best books first, or you may not have a chance to read them at all.”

~Henry David Thoreau

Acknowledgments

This manuscript sits on the shoulders of diligent individuals providing fresh content as well as invaluable sifting through extant content. We all crowdsource news now. There are individuals who make my personal pursuits to understand the world very special. Of course, Adam Taggart and Chris Martenson deserve hearty thanks for allowing me to provide content as well as giving a healthy dose of their own. Zero Hedge, supposedly one of the primary sources of “fake news” according to the alt-left and the elites, provides content that is remarkably useful given its putative total lack of authenticity. Guys I interacted with this year include some regulars as well as some newcomers. Although their exchanges are not always voluminous, they generously include me in their sphere. They include Stephen Roach, Nassim Taleb, Mark Gilbert, Grant Williams, Michael Krieger, Benn Steil, Steve Hanke, Sean Corrigan, Catherine Austin Fitts, Jack Barnes, Jim Kunstler, Dale Pinkert, Jacob Taylor, Dorsey Kindler, Sam Kitterman, John Rubino, Dorsey Kindler, Susan Lustick, David Einhorn, Tony Deden, Steve Ellis, and the boys at Zero Hedge. Twitter is an amazing source of anything you want. With great hesitation, I mention a few of the people I follow, recognizing that many will be left off. In many cases, the connection is almost illogically strong given that I’ve never met them and don’t always know their names or backgrounds:

@RudyHavenstein

@TheLimerickKing (Robert Frost?)

@dandolfa (David Andolfatto)

@nntaleb (Nassim Taleb)

@Scouseview (Mark Gilbert)

@EmanuelDerman

@RaoulGMI (Raoul Pal)

@mikehalen

@DowdEdward

@CGrantWSJ (Charley Grant)

@BrendanEich

@JPCompson

@jamessaft

@scott_segal

@cgarrett101 (Cynthia Garrett)

?@JoshCrumb

@stevesi (Steve Sinofsky)

@tkinder (Terry Kinder)

@iuubob (Bob Lehmann)

@TFMkts (Peter Tchir)

@timfprice

@reinman_mt

@rcwhalen (Chris Whalen)

@JoelHeyman

@AutomaticEarth

@ddobell

@StockCats

@MarketWeight

@DividendMaster

@Smaulgld

@BamaTrader

@chigrl

@GreenMonsterah

@BennSteil

@ollieblog

@cate_long

@pkedrosky

@cabaum1 (Caroline Baum)

@azizonomics (John Aziz)

@Stevephenni (Steve Henningsen)

@credittrader (Tim Backshall)

@vexmark (Mark Constantine)

@JamesGRickards (Jim Rickards)

@PopescuCo (Dan Popescu)

@nanexllc (Eric Hunsader)

@addictiondocMD (Howard Wetsman)

Two days ago, we reported that heading into Christmas, countless "mall brawls" had broken out across America's as last minute holiday shoppers were filmed fighting with each other in shopping malls in New Jersey, Alabama, Georgia and other states for those last minute "holiday cheer" purchases. The videos made for for a very Unmerry Christmas.

Now, in the spirit of holiday symmetry, following the one day lull on Christmas Day, the brawls returned on the day after Christmas, with fights, disturbances and false reports of gunfire causing chaotic scenes and shutting down several malls across the United States on Monday, as shoppers scrambled for the best deals in the typically busy post-Christmas shopping day.

The first calls from the The Mills at Jersey Gardens came in just after nightfall Monday. Witnesses said they thought they had heard shots fired. That, along with a fight, led to what Elizabeth police Officer Greg Jones described as a "chaotic panic and everybody running all at once."  Eight to 10 people suffered minor injuries during a melee in the food court at the Jersey Gardens malls the mayor there said on Twitter.

Panic followed when someone shouted "gun," after a chair hit the ground, causing a loud noise in the mall's food court, Elizabeth Mayor Chris Bollwage tweeted.

The incident led to a SWAT team with riot shields and body armor raiding the mall, while shoppers either ran or hid in stores. No weapons were found and no-one was arrested.

Photos and video clips posted on social media showed heavily armed police officers responding to the incident as shoppers raced to exits and alarms rang out inside the mall.

Similar disturbances unfolded across the United States on Monday at malls that were packed with shoppers returning gifts, using gift cards they received over the holiday weekend or simply searching for clearance deals. Many involved calls of shots being fired and youths fighting. It was unclear if the incidents were connected.

As Reuters reports, a large fight between teenagers broke out in the food court at the Cross Creek Mall in Fayetteville, North Carolina. Police fielded several unconfirmed reports of shots fired, said a Facebook post by the Fayetteville Police Department, which also said the mall was evacuated.

The Cross Creek Mall in Fayetteville, North Carolina, was evacuated as police arrived
to break up the fight. Claims were made that shots were fired.

"Once people start running in that area or chairs are getting knocked over, tables, that sort of thing, that echoes and it could resemble the sound of a gunshot to a lot of people," he said.

Ref Cross Creek Mall. Reported shots fired. Unconfirmed. No shooting victims or property damage. Mall made the decision to evacuate, not PD

— Fayetteville Police (@FayettevillePD) December 26, 2016

The Hulen Mall in Fort Worth, Texas, was on lockdown, Fort Worth police said on Twitter. The CBS website there reported that police said officers responded to reports of gunshots but arrived to find that several fights had broken out involving 100-150 people. There were no injuries, police said.  Fort Worth Police spokeswoman Tamara Velle said officers initially responded to reported gunfire inside the mall. After breaking up the fights, officers stopped by each store to let people leave while the lockdown remained in effect, KTVT reported.

hulen mall wild for this one lmao pic.twitter.com/4rD4ZO5h1H

— cyn ???? (@CyNinja) December 27, 2016

At least one fight shut down the Fox Valley Mall in Aurora, Illinois, late on Monday, and police were called to quell the disturbance, the Chicago Daily Herald reported, citing managers of businesses in the building.

Online videos showed uniformed personnel directing mall patrons out of the building and customers fleeing down an escalator. Police and mall management could not be reached for comment.

Hundreds of people (left) were in the vicinity of a food court brawl (right) in the
Fox Valley Mall in Aurora, Illinois. Seven juveniles were arrested in the fight

In Memphis, Tennessee, seven people were arrested after incidents at two malls, CNN affiliate WMCA reported. Police said a group started a disturbance in the Wolfchase Galleria food court and started running, which prompted some customers to call 911, according to Fox 13.

Cops at Wolfchase Mall in Memphis removed both adults and juveniles.

An officer leaves Oak Court Mall in Memphis, Tennesse where police were called
after a fight broke out and reports were made of shots being fired.

Then a crowd gathered outside Oak Court Mall, about 10 miles west, and
started a disturbance, WMCA said. Both malls were cleared and closed
early for the night.

Visitors to Oak Creek Mall linger in the parking lot outside as police patrol the area

The Town Center Aurora in Aurora, Colorado, was also closed early after multiple skirmishes were reported inside the mall, the Aurora Police Department said on Twitter.

Teens were tackled by cops at the Aurora Mall in Colorado. There were several
large fights 'involving juveniles', cops said

Aurora PD spokesman Sgt. Chris Amsler said about 100 people had gathered in the food court before the brawls broke out -- prompting the Colorado mall to close early on Monday afternoon. "(It) kind of morphed into this large disturbance," Amsler said.

When off-duty police officers working as security guards tried to break up a fight, people circled the officers, who called for backup, Amsler said. As police officers on duty arrived, fights broke out throughout the mall, at a movie theater and at a nearby park-and-ride lot, he said. He estimated 500 people were involved. Authorities arrested five people, all juveniles, and recovered no weapons, he said. One person assaulted at the park-and-ride lot suffered "significant" injuries and was taken to a hospital, Amsler said.

The mall is closing early this evening due to a disturbance. No immediate threats exist. We will open tomorrow at 10 a.m.

— Town Center Aurora (@TCAurora) December 27, 2016

In Monroeville, Pennsylvania, seven people were arrested after incidents at two malls, CNN affiliate WMCA reported. Police said a group started a disturbance in the Wolfchase Galleria food court and started running, which prompted some customers to call 911, WMCA said. Then a crowd gathered outside Oak Court Mall, about 10 miles west, and started a disturbance, WMCA said. Both malls were cleared and closed early for the night.

Shots were reported in both incidents, but police said they found no evidence of gunfire, WMCA said. No injuries were reported, CNN affiliate WATN said.

Police put the Arizona Mills mall in Tempe, Arizona, on lockdown after reports of shots fired inside the shopping center. Two people, including a juvenile, were arrested after two fights broke out at the mall, an ABC affiliate reported.

In Beechwood, Ohio, a juvenile was arrested for hitting a police officer after police used pepper spray to break up a fight that started about 6:30pm near a food court. Crowds were seen falling over themselves in a stampede towards the exits at the Beechwood Place mall, which went into lockdown as police investigated. Officers initially responded to the scene for a report of shots fired. Police later confirmed that there were no gunshots.

Shoppers rush into a wild stampede at the Beechwood Place Mall after a fight broke
out and someone shouted - incorrectly, police said - that a gun had been drawn

Fire officials say a man and a police officer were exposed to the pepper spray and received medical treatment. No one else was injured. John Boyd, the 19-year-old who was hit with pepper spray, described the sensation to Cleveland.com.  'My face burned... it went into my skin,' Boyd said. 'My whole body burned.' It wasn't clear what caused the fight, but police told USA Today that the incident had apparently been 'loosely organized on social media'.

Finally, a fight at The Shoppes at Buckland Hills mall in Manchester, Connecticut, led to the mall being evacuated around 5:30pm, according to police. Video shows boys throwing swift jabs at one another while other youths crowd around to watch.

'Up to ten' teenagers were involved in the fights, according to police. One police officer was assaulted while trying to break up one of the first fights, authorities said, but didn't seek medical attention.

Crowds peered through glass as boys threw punches at one another in The Shoppes
at Buckland Hills mall in Manchester, CT. Several boys were arrested

There were several hundred teens in the mall when the fights broke out, and several were arrested, Manchester police Captain Chris Davis said on Twitter. There were no weapons involved and no sign that the fight was gang related, police said.  It's not known whether the rash of incidents across the country were coordinated in any way, or were just coincidental.

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Overnight Media Digest

WSJ

- President-elect Donald Trump said Sprint Corp will move thousands of jobs back to the U.S. - a development he suggested was triggered by the "spirit and the hope" surrounding his election. http://on.wsj.com/2isEUbW

- Takata Corp is nearing a settlement with federal prosecutors to resolve allegations of criminal wrongdoing in the Japanese automotive supplier's handling of rupture-prone air bags linked to numerous deaths and injuries, said people familiar with the discussions, with an agreement expected early next year. http://on.wsj.com/2isAfGU

- Ford Motor Co's dealer group emailed an advertisement Tuesday to prospective buyers in the U.S. urging them to purchase a work truck, large sport-utility vehicle or van before the end of the year to take advantage of potentially substantial tax breaks. Citing the Internal Revenue Service's Section 179 deduction, which was recently retooled and made permanent, Ford suggests customers "could get a big tax break for your business."http://on.wsj.com/2isOoUz

- Surging online orders and last-minute shoppers helped retailers make up for a slow start to the holiday-shopping season, fueling hopes that higher wages, the rising stock market, and lower food and gas prices prompted Americans to spend more. http://on.wsj.com/2isBgPd

- High-end handbag and apparel maker Kate Spade & Co is exploring a sale of the company, according to people familiar with the matter, after coming under pressure from an activist shareholder. http://on.wsj.com/2isxoOt

- Brazilian state-run oil company Petróleo Brasileiro SA said it agreed to sell certain noncore business assets for $587 million, amid its efforts to raise cash and reduce debts. http://on.wsj.com/2isyNo5

- Health-care diagnostics company Alere Inc is taking steps to get Medicare billing privileges reinstated for its Arriva Medical LLC diabetes unit, challenging the actions of the Centers for Medicare and Medicaid Services. http://on.wsj.com/2isCHgI

FT

Former Bundesbank president and one of the architects of the European single currency, Hans Tietmeyer, died at the age of 85. President of the Bundesbank from 1993 to 1999, Tietmeyer had a critical role in preparations for European monetary union and the establishment of the European Central Bank.

European industrial equipment supplier Loxam SAS raised its offer for Britain's Lavendon Group Plc on Wednesday to 442 million pounds ($540.57 million), or 260 pence per Lavendon share.

British online clothes retailer Boohoo.com Plc said it would buy certain intellectual property assets from Nasty Gal Inc, a U.S.-based retailer that filed for bankruptcy last month, for $20 million.

Lloyds Banking Group Plc is planning to set up a subsidiary in Germany or the Netherlands if the UK leaves EU without retaining access to its single market, according to two people familiar with the matter.

NYT

- U.S. Secretary of State John Kerry accused Prime Minister Benjamin Netanyahu of Israel on Wednesday of thwarting peace in the Middle East. http://nyti.ms/2isFXsE

- Even before Kerry issued his scathing critique of Israeli policies on Wednesday, President-elect Donald Trump essentially told Netanyahu to ignore it. http://nyti.ms/2hPqJgg

- Actress Debbie Reynolds died Wednesday aged 84, a day after the death of her daughter, the actress Carrie Fisher. http://nyti.ms/2hPtCxT

- With threats like cord cutting and declining television viewership, 2016 was not a lucrative year for cable television giants like TBS, Discovery, Univision and ESPN. http://nyti.ms/2igklQo

- In a move that promises to raise new questions about electronic privacy, detectives investigating a murder in Arkansas are seeking access to audio that may have been recorded on an Amazon Echo electronic personal assistant. http://nyti.ms/2ijEQhz

- Hans Tietmeyer, the central banker who led Germany's transition from the deutsche mark to the euro despite reservations about a single European currency, died on Tuesday aged 85. http://nyti.ms/2iGWQiw

- The president and chief executive of Dentsu, one of the world's largest advertising firms, said he would resign to take responsibility for the death of an employee, as well as the larger problem of dangerously long work hours at the agency that has been laid bare in its wake. Matsuri Takahashi, a young employee at Dentsu told friends on Twitter of enduring harassment and grueling long hours on the job, in the months before she jumped to her death from a company dormitory last Christmas. http://nyti.ms/2hPwHxL

Canada

THE GLOBE AND MAIL

** Pacific NorthWest LNG is looking at lower-cost options as it mulls whether to spend billions of dollars to build a liquefied natural gas terminal in British Columbia amid a global glut of LNG. https://tgam.ca/2iI1UXR

** Little more than a month before the Super Bowl, Bell Media is launching an appeal of new rules to allow U.S. television commercials to run on Canadian airwaves during the big game, adding a fresh legal challenge to a recent chorus of lobbying and public relations efforts to change the policy. https://tgam.ca/2iI5mC3

** British Columbians are deeply concerned about the overdose crisis and want to see improved access to addiction treatment - but, faced with an unprecedented number of drug deaths in the province, they're also willing to consider more radical options such as the legalization of hard drugs. https://tgam.ca/2iHXNuO

NATIONAL POST

** Aboriginal leaders in northwestern British Columbia cautiously welcomed reports that Malaysia's state-owned oil company Petronas is considering changes to its $27 billion Pacific Northwest LNG project near Prince Rupert to alleviate environmental concerns. http://bit.ly/2iI7NEA

** A tiny Vancouver-based mining company, MGX Minerals Inc , is betting Alberta's energy sector could benefit from the rise of electric vehicles by harvesting its oilfield wastewater for lithium carbonate, which is used to make batteries for electric vehicles. http://bit.ly/2iI5jWA

** British Columbia Member of Parliament Peter Julian is registered as the first and only contestant in the New Democratic Party leadership race, but even he hasn't committed to run. Julian registered on Dec. 21, according to Elections Canada's website, and is accepting donations from supporters. http://bit.ly/2iHZhFo

Britain

The Times

* Ministers are preparing to tackle overpriced electric car charging amid fears that it can cost as much to run a green vehicle as a conventional diesel. Rules will be introduced early next year to make roadside pricing for electricity more "consistent and transparent", so that motorists are not driven away from buying environmentally friendly cars. http://bit.ly/2hOGp3p

* Whitehall is investigating the nuclear regulator after the Times revealed that several serious accidents had been dismissed as posing no safety risk. http://bit.ly/2hpTShp

The Guardian

* 36 child asylum seekers who previously lived in the Calais refugee camp have issued a legal challenge to the home secretary. They claim Amber Rudd acted unlawfully in the way she handled their applications. Of the 36, 28 have had their applications refused, while another eight are awaiting decisions from the Home Office. http://bit.ly/2ifruAq

* Online fashion retailer Boohoo.com Plc is lining up to buy the rights to the Nasty Gal fashion label after the U.S. internet business fell into bankruptcy last month. http://bit.ly/2htQbKz

The Telegraph

* The bid battle for cherry-picker supplier Lavendon Group Plc stepped up again on Wednesday with European industrial equipment supplier Loxam SAS raising its offer for the UK business. http://bit.ly/2is63vC

* Prime Minister Theresa May will put plans to pull out of the European Court of Human Rights at the heart of her campaign for the 2020 general election campaign, after ministers conceded that reform plans have been delayed by Brexit. http://bit.ly/2hq5pNs

Sky News

* Britain's ambassador to the United States, Kim Darroch, has attempted to mend fences with Donald Trump after the President-elect backed Nigel Farage for the job. http://bit.ly/2hxAeol

* New research reveals the government has misled the public by claiming it provided "new money" for social care, according to Labour's Andy Burnham. The former health secretary, who is now Labour candidate for mayor of Greater Manchester, claims one in three councils is facing cuts in government funding next year. http://bit.ly/2ifzzVF

The Independent

* Former cabinet minister Michael Gove has stoked Brexit anger after arguing that the discredited claim that leaving the European Union would mean 350 million pounds-a-week ($428 million-a-week) more for the NHS is still trustworthy. http://ind.pn/2iiZM8B

 This article by David Haggithwas first published on the Great Recession Blog: 

President Obama’s UN declaration that Israeli settlements are illegal says this duck isn’t lame. It was not the finale of Obama’s closing months as president but the prologue to years ahead, pushing his legacy to where it can be carried out at the UN. Congressional leaders say Obama is already plotting further action on Israel before he leaves office, according to the Washington Free Beacon.

The Simon Wiesenthal Center put Obama’s refusal to veto the UN resolution at top of its annual list of anti-Semitic acts. One has to acknowledge, regardless of his or her position about Israeli settlements, that Obama is choosing to create an unusual whirlwind of controversy as he leaves office. The resolution (#2334) states that Israel’s settlement activity “has no legal validity and constitutes a flagrant violation under international law,” and calls for an end to all construction beyond the boundaries that existed in 1967 prior to the Six Day War.

Rightly or wrongly, he is certainly kicking the hornets’ nest inside the White House as he heads out the door. It is highly unusual for an outgoing president to initiate a major upheaval in diplomatic relations that runs directly opposed to the direction the incoming president has already said he will take. Trump had insisted that Obama not move the US in this direction. So, the wild ride of the 2016 presidential campaign has become even wilder after the campaign.

Secretary of State John Kerry kicked the controversy with Israel up a notch with his own speech when he said,

 

If the choice is one state … Israel can either be Jewish or democratic…. It cannot be both, and it won’t ever really be at peace. (The Washington Examiner)

 

In defending the Obama administration against critics of its UN move, Kerry also said,

 

Critics “failed to recognize that this friend, the United States of America, has done more to support Israel than any other country. This friend that has blocked countless efforts to delegitimize Israel, cannot be true to our own values, or even the stated democratic values of Israel and we cannot properly protect and defend Israel if we allow a viable two-state solution to be destroyed before our own eyes.”

 

And then he took the battle even higher when he said,

 

Washington could not “protect or defend” the country should Tel Aviv continue to balk at two-state peace plans with Palestinians. His comments drew swift and sharp rebuke from Israeli Prime Minister Benjamin Netanyahu, who chided Mr. Kerry by saying Israelis did “not need to be lectured” about peace by the outgoing administration, while President-elect Donald Trump weighed in even before the speech was given with a strong support for Mr. Netanyahu and Israel, and vowing his incoming administration would take a sharply different approach. It was an … extraordinarily public division between two longtime allies, one that could have lasting and incalculable consequences for the Israeli-Palestinian conflict and Washington’s traditional role as an honest broker and the main outside power in the Middle East peace process. (The Washington Times)

 

President Obama divides and conquers

 

Senator Chuck Schumer (D-NY) says he fears Obama’s actions have emboldened extremists on both ends. While Netanyahu is digging back by withdrawing diplomatic relations with nations that approved the resolution and by withdrawing UN funding, and Palestinians are pushing forward with moves to force a two-state solution, Obama’s move has initiated a diplomatic international war. The US congress, with some bipartisan support, has indicated it could cut off all UN funding in retaliation against the UN. Trump has indicated the same thing. While UN members that cut off funding lose their voting privileges, the United States is the UN’s biggest supporter, so cutting off UN funding will have serious implications at the UN if it happens.

Congress could also choose to expel diplomats of nations that backed the resolution from the US, as Israel did, which may include stripping Palestinians of diplomatic privileges. Congress may also be more supportive of Trump’s initiative to move the US embassy in Israel from Tel Aviv to Jerusalem.

 

“The disgraceful anti-Israel resolution passed by the UNSC was apparently only the opening salvo in the Obama administration’s final assault on Israel,” Sen. Ted Cruz (R., Texas) told the Free Beacon…. “President Obama … should remember that the United States Congress reconvenes on January 3rd, and under the Constitution we control the taxpayer funds they would use for their anti-Israel initiatives…,” Cruz said, expressing his desire to work with the incoming Trump administration to reset the U.S. relationship with Israel.

 

The Free Beacon, quoted above, also reported that one congressional member has said,

 

Members on both sides of the aisle are furious, so our response will be swift and forceful…. With a Trump administration in place, any nation that seeks to delegitimize the Jewish state will need to answer to the United States.

 

So, a powerful conflict between the US and the UN with fighting terms such as we have not seen before is likely on. Trump will find he has a congress that is largely ready to push back, while Trump’s statements of unequivocal support for Israel and pressure on Palestinians have been clear. However, Obama may have greatly widened a split in Democrats, which traditionally have been as pro-Israel as Republicans. Even liberals like Ted Kennedy were solidly on Israel’s side at every juncture.

 

Our alliance with Israel is an alliance based on common democratic ideals and mutual benefit. We must never barter the freedom and future of Israel for a barrel of oil — or foolishly try to align the Arab world with us, no matter what cost. (Ted Kennedy)

 

The congressional divide began to materialize when Netanyahu, in the opinion of many (to the delight of Republicans and disdain of Democrats) poked the Democratic president in the eye by sidestepping him in a unique move to take his Iranian petition directly to congress. Until Netanyahu’s highly unusual move, Israel had worked long and hard to stay out of US politics in order to do all it could to maintain bipartisan support for Israel; and this is why. Netanyahu was strongly criticized at home by many who feared the risk would lead to something like this.

As a result of Netanyahu’s agreement to accept Speaker Boehner’s speech invitation, sixty Democrats, including presidential candidate Bernie Sanders, VP candidate Tim Kaine, and likely future presidential candidate Elizabeth Warren boycotted that congressional meeting. Senior senator Sen. Patrick Leahy from Bernie’s home state, called Netanyahu’s speech a “tawdry and high-handed stunt.” Charlie Rangel, who was was a Democratic representative from New York at the time, tweeted, “Bibi: If you have a problem with our POTUS’s foreign policy meet me at AIPAC but not on the House floor.”

Netanyahu and Obama both denied that this incident had damaged their relationship and Israel’s bipartisan support in the US, but anyone could plainly see from their body language the icy barrier that had frosted its way between the two from that point forward. Now Obama has tapped the ice wedge a little deeper, knowing full well that Democrats in congress wish to oppose Trump wherever they can anyway.

This may be a divide-and-conquer move that will further imperil the once fully bipartisan congressional support Israel has long enjoyed. Many in Israel who worried that Netanyahu had poisoned relations with the president by that move now say this appears to be payback time … to the extent that the White House has had to formally deny that it is.

As for Trump, he tweeted, “Stay strong Israel. January 20th is fast approaching!”

The Israeli ambassador to the US responded to Trump’s various statements of support by saying that Israel…

 

was very heartened that President-Elect Trump was against this move at the UN Security Council — that he wants to work closely with Israel moving forward to strengthen this alliance….. I do not think there will be daylight between the US and Israel, and we look forward to having that conversation and seeing what we can do to reverse this resolution. (Fox News)

 

Once Trump is president, backing Israel 100% is one campaign pledge he is likely to keep. Notes, the Washington Examiner,

 

White evangelicals, who supply about a third of the Republican vote in presidential elections, are more than twice as likely than Jews to believe God gave Israel to the Jewish people. Only Orthodox Jews are slightly more likely to believe this.

 

Many liberal Jewish organizations, on the other hand, side with Obama, believing the only way for Israel to move forward at this juncture is to negotiate a two-state solution with the Palestinians. One thing is certain, cracks are deepening all over the American political landscape regarding support for Israel and how it is best shown, but Christian conservatives would like to quickly repair the growing divisions in Israel’s best interest:

 

“Our hope at Faith and Freedom Coalition is that reasonable Democrats like Sens. Menendez, Schumer, Manchin, Casey and others will reject these feckless flailings of an expired political regime on its way out of office,” said Tim Head, executive director of a pro-Israel Christian conservative group. “These latest antics at the U.N. are little more than the waning afterglow of a setting foreign policy agenda that soon will be corrected and discarded. But it will take a unified effort by Republicans and Democrats alike to rehabilitate the global reputation of the United States.” (The Washington Examiner)

 

That may prove to be a bit naive or wishful at best because Netanyahu’s approach already badly grated on Democrats, and Netanyahu has only become even more outspoken against the Democratic president in the aftermath of this UN resolution. (As Schumer said, positions are becoming more extreme on both sides.)

 

Netanyahu’s Obamabattle

 

Netanyahu claims Israel will present solid proof to the new Trump administration after the inauguration that the Obama administration took a very active role in forming the new UN Security Council resolution. Pushing the issue defiantly, Israeli Prime Minister Benjamin Netanyahu says,

 

We have no doubt that the Obama administration initiated it, stood behind it, coordinated its versions and insisted upon its passage.

 

Israel claims it has “ironclad” information from Arab sources about the Obama administration’s overt efforts to push this agenda in the UN. Reports in a couple of Middle Eastern newspapers seem to corroborate Netanyahu’s claims, according to the Times of Israel:

 

An Egyptian paper published what it claims are the transcripts of meetings between top US and Palestinian officials that, if true, would corroborate Israeli accusations that the Obama administration was behind last week’s UN Security Council resolution condemning Israeli settlements. At the same time, a report in an Israeli daily Tuesday night pointed to Britain helping draft the resolution and high drama in the hours leading up to the vote, as Jerusalem tried to convince New Zealand to bury the Security Council measure. In a meeting in early December with top Palestinian negotiator Saeb Erekat, US Secretary of State John Kerry told the Palestinians that the US was prepared to cooperate with the Palestinians at the Security council, Israel’s Channel 1 TV said, quoting the Egyptian Al-Youm Al-Sabea newspaper. Also present at the meeting according to the report were US National Security Adviser Susan Rice, and Majed Faraj, director of the Palestinian Authority’s General Intelligence Service. White House national security council spokesman Ned Price on Wednesday told the Times of Israel that no such meeting took place. “The ‘transcript’ is a total fabrication,” he said…. Israel fears that Kerry, who is slated to give a speech Wednesday on the subject, will then lay out his comprehensive vision for two-state solution at a Paris peace conference planned for January.

 

An article in the Israeli Daily Ha’aretz, however states that…

 

Britain Pulled the Strings and Netanyahu Warned New Zealand It Was Declaring War: A call from Netanyahu to Putin triggered a real drama at the UN HQ just one hour before the vote.

 

And a more recent Times of Israel report states,

 

UK officials have stepped up in recent days to say the resolution was theirs, not the White House’s. The Jewish Chronicle quoted an unnamed senior British political source Thursday saying that by the time the text reached the 15-member body, it was “in effect a British resolution.” A day earlier, The Guardian reported Britain “played a key behind-the-scenes role” in ensuring the resolution passed. Another British source told the Chronicle that the “yes” vote for the resolution was part of UK Prime Minister Theresa May’s new strategy toward Israel, according to which the Jewish state’s friends have to take a stand against settlements to garner favor with the Palestinians.

 

In response, Netanyahu has cancelled a meeting he had scheduled with Theresa May — a move which the British called in their usual understated way, “disappointing.”

As Netanyahu waits for the Trump administration to take the reins in the US before he divulges his own information about the Obama administration, he is taking the battle to other nations. One alternative Israeli news site has given an extensive but unconfirmed report that states Vice President Biden called Ukrainian President Petro Poroshenko to put diplomatic pressure on Ukraine to vote in the security counsel for the resolution. Biden’s office acknowledges the phone call but denies that anything was said about the UN resolution.

Netanyahu tried to push back ahead of the resolution with his own ineffective calls to Ukraine. The Ukrainian vote has set Ukrainian relations with Israel reeling. Ukraine has a large Jewish population. Even its new prime minister, Volodymyr Groysman, is Jewish, but his first official state visit with Israel next week was just cancelled by Israel in retaliation for Ukraine’s vote.

To retaliate domestically, Netanyahu has ramped up settlement approvals in the territories, threatening thousands of new homes in east Jerusalem.

If Israel is right that Obama intentionally rammed this resolution through the UN in his twilight days as president, Obama has effectively stripped Trump of any ability to reverse this action. Reversing it would require getting China, Russia and others on the Security Council who have long wanted something like this to withhold their own Security Council veto on any measure put forward by the US to rescind the resolution. There is almost zero chance of getting Russia AND China to backpedal on this. Obama has effectively eliminated any possibility for Trump to repair the situation to Israel’s liking.

 

Is Obama preparing to become Secretary General of the UN?

 

These sudden moves in the final month of a lame-duck presidency are the most extraordinary all-out rush to get new diplomacy solidly in place before the president-elect gets into office that I’ve ever seen. There would be no point in doing any of this unless Obama believes he can rapidly accomplish something irreversible.

 

An Israeli spokesman warned that last week’s anti-Israel U.N. resolution may be only the beginning. David Keyes, spokesman for Prime Minister Benjamin Netanyahu, said his government is concerned that the Obama administration is scrambling to put its stamp on Israeli foreign policy before President-elect Donald Trump takes office…. We actually believe this may be the first of another series of pushes before the Obama administration leaves office…. Mr. Netanyahu fears that Secretary of State John Kerry may seek a Security Council resolution to enshrine the administration’s vision for an Israeli-Palestinian accord before Mr. Trump takes office. (The Washington Times)

 

On January 15th, seventy nations will converge in Paris to discuss the Israeli-Palestinian conflict. Kerry will be there, and there is no question that his seventy-minute speech this week set the table for his plans at that summit.

According to France’s i24News,

 

Kerry would propose the recognition of a Palestinian state based on the 1967 borders, and after land exchanges that would allow about 80% of the Jewish residents of the settlements to remain under Israeli sovereignty. The Palestinians will have to recognize Israel as a Jewish state, and Israel will have to recognize the Palestinian state and its capital, East Jerusalem. Kerry is expected to submit this proposal next month, just before the change of administration.

 

Certainly sounds like an all-out last-minute press to establish solid facts on the ground before Trump can do anything about them. The Guardian reports,

 

White House races to save Middle East peace process before Trump takes office:… The parameters outlined by Kerry are expected to draw international endorsement at a meeting of foreign ministers on 15 January, just five days before Trump moves into the White House. The meeting is supposed to reinforce a strategy of isolating Netanyahu…. The Israeli government is reportedly fearful that any guidelines agreed in Paris would be turned into another UN resolution before Trump’s inauguration, and it has ratcheted up its rhetoric, presenting itself as the victim of an international conspiracy…. Meanwhile, Israel’s defence minister, Avigdor Lieberman, portrayed the Paris conference as a new “Dreyfus trial”, referring to an outburst of French antisemitism more than a century ago, and urged French Jews to move to Israel…. Aaron David Miller, a former US negotiator on the Middle East and now a scholar at the Wilson Centre thinktank, said Obama’s 11th-hour attempt at legacy building on the Israeli-Palestinian issue could trigger a backlash. “It risks the incoming administration walking away from whatever has transpired in December and early January, and not just walking away from [but] sending unmistakable signals to the Israelis that it would support and favour acts on the ground that go beyond what we’ve seen,” Miller said. “The odds that Netanyahu will now press and Trump will respond positively to a move to push the embassy from Tel Aviv to Jerusalem, I think have gone up.” He said that if the highly emotive issue of Jerusalem’s status became the focal point of Israeli-Palestinian friction once more, “then I think the prospects for a serious, significant confrontation are high….” Amir Oren, a liberal Israeli commentator, argued that the UN resolution could save the government from itself by bringing closer an end to settlement construction. “Santa Obama delivered a wonderful Christmas present to Israel when the United States opted not to veto Friday’s United Nations security council vote condemning settlement policy,” he wrote in Haaretz. “The passage of the resolution won’t result in the immediate dismantling of any West Bank settlements, but the world is beginning to come to the rescue and try to save Israel from itself.”

 

Indeed, it appears to be a move in the direction of the world helping Israel save itself (whether it turns out to be “helpful” or not), and I don’t think Obama is just going to throw that on the world stage and then walk away, feeling his legacy is complete. I think he’s putting it there now, while he can, so that he can take it up in the global theater when he is out of office.

The Egyptian article alluded to above — denied by the Obama admin. — quotes Kerry as saying he could present his ideas for a final-status solution if the Palestinians pledge they will support the proposed framework.  Obviously he hasn’t got much time to present them officially to other nations for action outside of this one January 15th meeting.

While a move by Obama to gain the Secretary General position at the UN would be a major blow to Angelina Jolie’s aspirations, I think there is evidence Obama is moving in that direction now that he has no hope of any political power as high as he has become used to.

Given how Obama’s trans-Pacific trade pact set to strip the US of sovereignty by handing many trade regulatory powers to the UN, I believe Obama was already using his final months of the presidency to diminish US presidential powers and increase UN powers in order to prepare the way for a move to becoming UN Secretary General. The same can be seen in his negotiations to diminish US control over environmental regulations, putting regulatory power more in the hands of the UN. He needed to diminish US powers while he could in order to create a more powerful international position for himself in the future with less interference from the US.

Obama has made it clear that resolving the Israeli-Palestinian conflict is a major legacy item for him. With his days now too short in the presidency to accomplish much, he needs to push power to the UN if he is to continue working on that legacy issue. By getting this resolution passed through the Security Council now, Obama reduced some of Trump’s veto power over what the UN can impose on Israel in the future. The resolution, for example, strengthens the UN General Assembly’s ability to place sanctions on Israel that don’t need to go through the security council and are, therefore, are not something Trump would be able to veto. They also give the UN a firm basis for taking Israel to international court at the Hague if any further settlement activity continues.

Since Trump will try to reverse all of this, Obama must think he will be in a position at the UN to catch the ball he is now passing in order to keep running it forward. If nothing else, this action will ingratiate him at the UN, making his friends there feel he has finally earned that Nobel Peace Prize he received for getting elected in 2008.

 

Other twilight maneuvers by Obama

 

The Washington Post has announced,

 

The Obama administration is close to announcing a series of measures to punish Russia for its interference in the 2016 presidential election, including economic sanctions and diplomatic censure, according to U.S. officials… The administration is finalizing the details, which also are expected to include covert action that will probably involve cyber-operations.

 

Apparently, Obama intends to start a cyberwar with Russia before Trump gets in office in order to establish more facts on the ground that move Russian relations away from Trump’s stated aims before he even gets started:

 

Administration officials would also like to make it difficult for President-elect Donald Trump to roll back any action they take.

 

Does that mean “do enough damage to the Russians that they have to retaliate in a mutual cyberwar before Trump takes office?” Start a war and leave it for the other guy to finish? That is from the fake-news-hating, Obama-loving, liberal Post, not the conservative Washington Times.

 

Besides his actions with Israel and the UN and the upcoming Paris meeting about Israel, Obama has by executive order locked out major areas of the Arctic for oil drilling in a move that is seen as likely irreversible by Trump because of how congress long ago wrote up the law that allows this executive action. (It would take an act of congress to override the president’s move to designate these lands as perpetually off the table for oil drilling.)

 

The Obama administration has dismantled the legal framework Trump could have used for vetting Muslim immigrants. (Not sure how easily Trump can reinstate that or put something better in its place.)

 

Presidents like to save their most controversial pardons for their last day in office. Will Obama offer Hillary Clinton a pardon that exempts her from prosecution for any crimes committed prior to the date of the pardon? The precedent for pardoning someone before they are even formally charged with a crime was established by President Gerald Ford when he pardoned Nixon, as his first act in office, before Nixon was even impeached or taken to trial.

Could that be why Trump is backpedaling now on his pledge to put “crooked Hillary” in jail? Is he hoping that, by appearing he won’t go after Hillary, Obama will not pardon her, an action that implicitly says Hillary did something wrong and that Hillary might have to accept in order for it to be effective. Obama may prefer not to pardon if Trump appears to prefer not to prosecute because a pardon would be regarded by many as tacit admission that there was some kind of wrong-doing to pardon her from.

 

Trump, of course, is all atwitter about Obama’s end-of-term efforts to cut off his options:

 

Doing my best to disregard the many inflammatory President O statements an

Submitted by Federico Pieraccini via Strategic-Culture.org,

The two previous articles have focused on the various geopolitical theories, their translations into modern concepts, and practical actions that the United States has taken in recent decades to aspire to global dominance. This segment will describe how Iran, China and Russia have over the years adopted a variety of economic and military actions to repel the continual assault on their sovereignty by the West; in particular, how the American drive for global hegemony has actually accelerated the end of the 'unipolar moment' thanks to the emergence of a multipolar world.

From the moment the Berlin Wall fell, the United States saw a unique opportunity to pursue the goal of being the sole global hegemon. With the end of the Soviet Union, Washington could undoubtedly aspire to planetary domination paying little heed to the threat of competition and especially of any consequences. America found herself the one and only global superpower, faced with the prospect of extending cultural and economic model around the planet, where necessary by military means.

Over the past 25 years there have been numerous examples demonstrating how Washington has had little hesitation in bombing nations reluctant to kowtow to Western wishes. In other examples, an economic battering ram, based on predatory capitalism and financial speculation, has literally destroyed sovereign nations, further enriching the US and European financial elite in the process.

Alliances to Resist

In the course of the last two decades, the relationship between the three major powers of the Heartland, the heart of the Earth, changed radically.

Iran, Russia and China have fully understood that union and cooperation are the only means for mutual reinforcement. The need to fight a common problem, represented by a growing American influence in domestic affairs, has forced Tehran, Beijing and Moscow to resolve their differences and embrace a unified strategy in the common interest of defending their sovereignty.

Events such as the war in Syria, the bombing of Libya, the overthrowing of the democratic order in Ukraine, sanctions against Iran, and the direct pressure applied to Beijing in the South China Sea, have accelerated integration among nations that in the early 1990s had very little in common.

Economic Integration

Analyzing US economic power it is clear that supranational organizations like the World Trade Organization, International Monetary Fund and the World Bank guarantee Washington’s role as the economic leader. The pillars that support the centrality of the United States in the world economy can be attributed to the monetary policy of the Fed and the function of the dollar as a global reserve currency.

The Fed has unlimited ability to print money to finance further economic power of the private and public sector as well as to pay the bill due for very costly wars. The US dollar plays a central role as the global reserve currency as well as being used as currency for trade. This virtually obliges each central bank to own reserves in US currency, continuing to perpetuate the importance of Washington in the global economic system.

The introduction of the yuan into the international basket of the IMF, global agreements for the Asian Infrastructure Investment Bank (AIIB), and Beijing’s protests against its treatment by the World Trade Organization (WTO) are all alarm bells for American strategists who see the role of the American currency eroding. In Russia, the central bank decided not to accumulate dollar reserves, favoring instead foreign currency like the Indian rupee and the Chinese yuan. The rating agencies - western financial-oligarchy tools -have diminishing credibility, having become means to manipulate markets to favor specific US interests. Chinese and Russian independent rating agencies are further confirmation of Beijing and Moscow’s strategy to undermine America’s role in western economics.

De-dollarization is occurring and proceeding rapidly, especially in areas of mutual business interest. In what is becoming increasingly routine, nations are dealing in commodities by negotiating in currencies other than the dollar. The benefit is twofold: a reduction in the role of the dollar in their sovereign affairs, and an increase in synergies between allied nations. Iran and India exchanged oil in rupees, and China and Russia trade in yuan.

Another advantage enjoyed by the United States, intrinsically linked to the banking private sector, is the political pressure that Americans can apply through financial and banking institutions. The most striking example is seen in the exclusion of Iran from the SWIFT international system of payments, as well as the extension of sanctions, including the freezing of Tehran's assets (about 150 billion US dollars) in foreign bank deposits. While the US is trying to crack down on independent economic initiatives, nations like Iran, Russia and China are increasing their synergies. During the period of sanctions against Iran, the Russian Federation has traded with the Islamic Republic in primary commodities. China has supported Iran with the export of oil purchased in yuan. More generally, Moscow has proposed the creation of an alternative banking system to the SWIFT system.

Private Banks, central banks, ratings agencies and supranational organizations depend in large part on the role played by the dollar and the Fed. The first goal of Iran, Russia and China is of course to make these international bodies less influential. Economic multipolarity is the first as well as the most incisive way to expand the free choice before each nation to pursue its own interests, thereby retaining its national sovereignty.

This fictitious and corrupt financial system led to the financial crisis of 2008. Tools to accumulate wealth by the elite, artificially maintaining a zombie system (turbo capitalism) have served to cause havoc in the private and public sectors, such as with the collapse of Lehman Brothers or the crisis in the Asian markets in the late 1990s.

The need for Russia, China and Iran to find an alternative economic system is also necessary to secure vital aspects of the domestic economy. The stock-market crash in China, the depreciation of the ruble in Russia, and the illegal sanctions imposed on Iran have played a profound role in concentrating the minds of Moscow, Tehran and Beijing. Ignoring the problem borne of the centrality of the dollar would have only increased the influence and role of Washington. Finding points of convergence instead of being divided was an absolute must and not an option.

A perfect example, explaining the failed American economic approach, can be seen in recent years with the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), two commercial agreements that were supposed to seal the economic trade supremacy of the US. The growing economic alternatives proposed by the union of intent between Russia, China and Iran has enabled smaller nations to reject the US proposals to seek better trade deals elsewhere. In this sense, the Free Trade Area of ??the Asia Pacific (FTAAP) proposed by Beijing is increasingly appreciated in Asia as an alternative to the TPP.

In the same way, the Eurasian Union (EAEU) and the Commonwealth of Independent States (CIS) have always been key components for Moscow. The function these institutions play was noticeably accelerated following the coup in Ukraine and the resulting need for Russia to turn east in search of new business partners. Finally, Iran, chosen by Beijing as the crossroad of land and sea transit, is a prime example of integration between powers geographically distant but with great intentions to integrate vital structures of commerce.

The Chinese model of development, called Silk Road 2.0, poses a serious threat to American global hegemonic processes. The goal for Beijing is to reach full integration between the countries of the Heartland and Rimland, utilizing the concept of sea power and land power. With an investment of 1,000 billion US dollars over ten years, China itself becomes a link between the west, represented by Europe; the east, represented by China itself; the north, with the Eurasian economic space; the south, with India; Southeast Asia; the Persian Gulf and Middle East. The hope is that economic cooperation will lead to the resolution of discrepancies and strategic differences between countries thanks to trade agreements that are beneficiary to all sides.

The role of Washington continues to be that of destruction rather than construction. Instead of playing the role of a global superpower that is interested in business and trade with other nations, the United States continues to consider any foreign decision in matters of integration, finance, economy and development to lie within its exclusive domain. The primary purpose of the United States is simply to exploit every economic and cultural instrument available to prevent cohesion and coexistence between nations. The military component is usually the trump card, historically used to impose this vision on the rest of the world. In recent years, thanks to de-dollarization and military integration, nations like Iran, Russia and China are less subject to Washington's unilateral decisions.

Military deterrence

Accompanying the important economic integration is strong military-strategic cooperation, which is much less publicized. Events such as the Middle East wars, the coup in Ukraine, and the pressure exerted in the South China Sea have forced Tehran, Moscow and Beijing to conclude that the United States represents an existential threat.

In each of the above scenarios, China, Russia and Iran have had to make decisions by weighing the pros and cons of an opposition to the American model. The Ukraine coup d’état brought NATO to the borders of the Russian Federation, representing an existential threat to the Russia, threatening as it does its nuclear deterrent. In the Middle East, the destruction of Iraq, Libya and Syria has obliged Tehran to react against the alliance formed between Saudi Arabia, Turkey and the United States. In China, the constant pressure on South China Sea poses a serious problem in case of a trade blockade during a conflict. In all these scenarios, American imperialism has created existential threats. It is for this reason natural that cooperation and technological development, even in the military area, have received a major boost in recent years.

In the event of an American attack on Russia, China and Iran, it is important to focus on what weapon systems would be used and how the attacked nations could respond.

Maritime Strategy and Deterrence

Certainly, US naval force place a serious question mark over the defense capabilities of nations like Russia, China and Iran, which strongly depend on transit via sea routes. Let us take, for example, Russia and the Arctic transit route, of great interest not only for defense purposes but also being a quick passage for transit goods. The Black Sea for these reasons has received special attention from the United States due to its strategic location. In any case, the responses have been proportional to the threat.

Iran has significantly developed maritime capabilities in the Persian Gulf, often closely marking ships of the US Navy located in the area for the purposes of ??deterrence. China's strategy has been even more refined, with the use of dozens, if not hundreds, of fishing boats and ships of the Coast Guard to ensure safety and strengthen the naval presence in the South and East China Sea. This is all without forgetting the maritime strategy outlined by the PLA Navy to become a regional naval power over the next few years. Similar strategic decisions have been taken by the navy of the Russian Federation. In addition to having taken over ship production as in Soviet times, it has opted for the development of ships that cost less but nevertheless boast equivalent weapons systems to the Americans carrier groups.

Iran, China and Russia make efficiency and cost containment a tactic to balance the growing aggressiveness of the Americans and the attendant cost of such a military strategy.

The fundamental difference between the naval approach of these countries in contrast to that of the US is paramount. Washington needs to use its naval power for offensive purposes, whereas Tehran, Moscow and Beijing need naval power exclusively for defensive purposes.

In this sense, among the greatest weapons these three recalcitrant countries possess are anti-ship, anti-aircraft and anti-ballistic systems. To put things simply, it is enough to note that Russian weapons systems such as the S-300 and S-400 air-defense systems (the S-500 will be operational in 2017) are now being adopted by China and Iran with variations developed locally. Increasingly we are witnessing an open transfer of technology to continue the work of denying (A2/AD) physical and cyberspace freedom to the United States. Stealth aircraft, carrier strike groups, ICBMs and cruise missiles are experiencing a difficult time in such an environment, finding themselves opposed by the formidable defense systems the Russians, Iranians and Chinese are presenting. The cost of an anti-ship missile fired from the Chinese coast is considerably lower than the tens of billions of dollars needed to build an aircraft carrier. This paradigm of cost and efficiency is what has shaped the military spending of China, Russia and Iran. Going toe to toe with the United States without being forced to close a huge military gap is the only viable way to achieve immediate tangible benefits of deterrence and thereby block American expansionist ambitions.

A clear example of where the Americans have encountered military opposition at an advanced level has been in Syria. The systems deployed by Iran and Russia to protect the Syrian government presented the Americans with the prospect of facing heavy losses in the event of an attack on Damascus. The same also holds for the anti-Iranian rhetoric of certain American politicians and Israeli leaders. The only reason why Syria and Iran remain sovereign nations is because of the military cost that an invasion or bombing would have brought to their invaders. This is the essence of deterrence. Of course, this argument only takes into partial account the nuclear aspect that this author has extensively discussed in a previous article.

The Union of the nations of the Heartland and Rimland will make the United States irrelevant

The future for the most important area of ??the planet is already sealed. The overall integration of Beijing, Moscow and Tehran provides the necessary antibodies to foreign aggression in military and economic form. De-dollarization, coupled with an infrastructure roadmap such as the Chinese Silk Road 2.0 and the maritime trade route, offer important opportunities for developing nations that occupy the geographical space between Portugal and China. Dozens of nations have all it takes to integrate for mutually beneficial gains without having to worry too much about American threats. The economic alternative offered from Beijing provides a fairly wide safety net for resisting American assaults in the same way that the military umbrella offered by these three military powers, such as with the the SCO for example, serves to guarantee the necessary independence and strategic autonomy. More and more nations are clearly rejecting American interference, favoring instead a dialogue with Beijing, Moscow and Tehran. Duterte in the Philippines is just the latest example of this trend.

The multipolar future has gradually reduced the role of the United States in the world, primarily in reaction to her aggression seeking to achieve global domination. The constant quest for planetary hegemony has pushed nations who were initially western partners to reassess their role in the international order, passing slowly but progressively into the opposite camp to that of Washington.

The consequences of this process have sealed the destiny of the United States, not only as a response to her quest for supremacy but also because of her efforts to maintain her role as the sole global superpower. As noted in previous articles, during the Cold War the aim for Washington was to prevent the formation of a union between the nations of the Heartland, who could then exclude the US from the most important area of ??the globe. With the fall of the Iron Curtain, sights were set on an improbable quest to conquer the Heartland nations with the intent of dominating the whole world. The consequences of this miscalculation have led the United States to being relegated to the role of mere observer, watching the unions and integrations occurring that will revolutionize the Eurasian zone and the planet over the next 50 years. The desperate search to extend Washington's unipolar moment has paradoxically accelerated the rise of a multipolar world.

In the next and final article, I will throw a light on what is likely to be a change in the American approach to foreign policy. Keeping in mind the first two articles that examined the approach by land theorized by MacKinder as opposed to the Maritime Mahan, we will try and outline how Trump intends to adopt a containment approach to the Rimland, limiting the damage to the US caused by a complete integration between nations such as Russia, China, Iran and India.

Submitted by Howard Kunstler via Kunstler.com,

“There is no other endeavor in which men and women of enormous intellectual power have shown total disregard for higher-order reasoning than monetary policy.

-David Collum

American Notes

Apart from all the ill-feeling about the election, one constant ‘out there’ since November 8 is the Ayn Randian rapture that infects the money scene. Wall Street and big business believe that the country has passed through a magic portal into a new age of heroic businessmen-warriors (Trump, Rex T, Mnuchin, Wilbur Ross, et. al.) who will go forth creating untold wealth from super-savvy deal-making that un-does all the self-defeating malarkey of the detested Deep State technocratic regulation regime of recent years. The main signs in the sky, they say, are the virile near-penetration of the Dow Jones 20,000-point maidenhead and the rocket ride of Ole King Dollar to supremacy of the global currency-space.

I hate to pound sleet on this manic parade, but, to put it gently, mob psychology is outrunning both experience and reality. Let’s offer a few hypotheses regarding this supposed coming Trumptopian nirvana.

The current narrative weaves an expectation that manufacturing industry will return to the USA complete with all the 1962-vintage societal benefits of great-paying blue collar jobs, plus an orgy of infrastructure-building. I think both ideas are flawed, even allowing for good intentions. For one thing, most of the factories are either standing in ruin or scraped off the landscape. So, it’s not like we’re going to reactivate some mothballed sleeping giant of productive capacity. New state-of-the-art factories would require an Everest of private capital investment that is simply impossible to manifest in a system that is already leveraged up to its eyeballs. Even if we tried to accomplish it via some kind of main force government central planning and financing — going full-Soviet — there is no conceivable way to raise (borrow) the “money” without altogether destroying the value of our money (inflation), and the banking system with it.

If by some magic any new industrial capacity were built, much of the work in it would be performed by robotics, not brawny men in blue shirts, and certainly not at the equivalent of the old United Auto Workers $35-an-hour assembly line wage. We have not faced the fact that the manufacturing fiesta based on fossil fuels was a one-time thing due to special historical circumstances and will not be repeated. The future of manufacturing in America is frighteningly modest. We’ll actually be lucky if we can make a few vital necessities by means of hydro-electric or direct water power, and that will be about the extent of it. Some of you may recognize this as the World Made By Hand scenario. I’ll stick by that.

Similarly for “infrastructure” spending touted by the forces of Trump as the coming panacea for economic malaise. I suspect most people assume this means a trillion-dollar stimulus spend on highways and their accessories. Well, that also assumes that we expect another fifty years of Happy Motoring and suburban living. Fuggeddabowdit. We’re in the twilight of motoring anyway you cut it, despite all the chatter about electric cars and “driverless” cars. We won’t have the electric capacity to switch over the Happy Motoring fleet from gasoline. The oil industry itself is already headed for collapse on its sinking energy-return-on-investment. And our problems with money and debt are so severe that the motoring paradigm is more prone to fail on the basis of car loan scarcity and unworthy borrowers before the fueling issues even kick in. Every year, fewer Americans can afford to buy any kind of car — the way they’re used to buying them, on installment loans. The industry has gone the limit to help them — seven-year loans for used cars! — but they have no more room to maneuver. The car financing system is broken. Bear in mind the original suburbanization of America back in the 20^th century — along with its accessory automobiles — must be regarded as the greatest misallocation of resources in the history of the world. So, a rebuild of all this stuff would represent more and possibly even greater malinvestment. We could have applied our post-WW2 treasure to building beautiful walkable towns and cities with some capacity for adaptive re-use, but we blew it in order to enjoy life in a one-time demolition derby. Life is tragic. Societies make poor choices sometimes, and then there are consequences.

We also might have been in better shape now if, beginning twenty years ago, we began a major rebuild of our railway infrastructure. But we blew that off, too, and shortly it will be very difficult to get around this geographically large country by any mechanical means. It may be too late now to do anything about that for the financing reasons already touched on — and which I will elaborate on next. The bottom line is that President Donald Trump will be overwhelmed by a sea of financial troubles from the very get-go, and here’s why.

Designated Bag-Holder

The American people have been punked by their own government and their central bank, the Federal Reserve, for years and the jig is now up. In 2017 both will lose their authority and legitimacy, a very grave matter for the survival of this republic.

Insiders surely have seen this coming for a long time. The people running this so-called Deep State of overblown and overgrown institutions probably acted at first with the good intentions of keeping the national lifestyle afloat. But in the end (now approaching) they stooped to too much duplicity and deceit in the desperate attempt to not just preserve the system, but to protect their own reputations and personal perquisites. And now there ought to be some question with the election of 2016 that they have engineered all of this system fragility to blow up on Mr. Trump’s watch, so they can blame him for it. It was going to blow up anyway. But had Hillary Clinton won the election, at least the right gang would have had to take the blame — the people in charge for the past twenty years. Instead, Donald Trump has been elected Designated Bag-Holder.

About That “Big Fat Ugly Bubble” and its Consequences

Part 1: History Lesson

The USA ran out of growth capacity around the turn of the millennium because we ran out of affordable energy to run our techno-industrial economy. It was hard to see this with seemingly plenty of oil available. And, of course, the computer tech fiesta was blossoming, but for all that glitzy stuff to attract dwindling real capital, other old stuff had to go, and did go, and when all was said and done the computers did not generate much wealth or social value. In fact, the diminishing returns and blowback of computer tech were arguably more damaging than beneficial to society and its economy. Look at where the middle class is today. Computer tech gave the magical appearance of growth while actually undermining it.

By affordable energy I mean energy with a greater-than 30-to-one energy-return-on-investment, which is the ratio you need for the kind of life we lead. That’s what the now-ridiculed Peak Oil story was really about: not running out of oil, but not getting enough bang for our bucks pulling the remaining oil out of the earth to maintain our standard of living. I’ll return to this issue in more detail later. But that was what provoked America’s 21^st century economic malaise. Everything we’ve done in finance since then has been an attempt to compensate for our fundamental problem with debt — borrowing from the future to maintain our current (unaffordable) standard of living. Our debt has grown ever larger and faster each year, and our methods for managing it have become more desperate and dishonest as that occurred.

The culprit at the center is America’s central bank, the Federal Reserve, which is actually not a government agency as it seems, but a consortium of the nation’s biggest private banks, lately known as Too-Big-To-Fail. The Fed was created in 1913, when the complexities of capital finance were multiplying in step with the complexities of industrial production, which, remember, was a new and evolving phenomenon of human history. Mankind had no prior experience with industrialism. We discovered toward the end of the 19^th century — decades of unprecedented industrial growth — that the system’s dynamic produced booms accompanied by very destructive busts. The operations of banking usually outran the cycles of trade, industry, and war that were coloring evolving Modernity. So the Fed was created to smooth out these cycles. It had two basic mandates for this: acting as the lender of last resort between banks during financial panics so that some money would always be available in an emergency; and stabilizing the money supply and prices in the system. The Fed failed spectacularly to smooth out the cycles of boom and bust and to maintain the value of the dollar over time.

Sixteen years after the Fed’s creation, America entered its worst economic downturn ever, the Great Depression, which was only mitigated by the colossal abnormality of World War Two. America emerged from that episode as the last industrial society standing amid everyone else’s smoldering ruins. That gave us an extraordinary advantage in world trade lasting roughly thirty years. That high tide of the era of seeming “normality” — the 1950s and 60s, which the Trumpian-minded might recall as “great” — started unraveling in the 1970s, which was not coincidentally the moment of America’s all-time oil production peak.

In 1977, the Fed was given a third mission of promoting maximum employment with a trick-bag of tools for manipulating the money supply and credit creation that have proven to be fatally mischievous. This new task elevated Fed officials, and especially its chairperson, to the status of viziers — magicians using occult mathematical models and formulas — to cast spells capable of controlling the macro economy the way wizards are thought to control external reality. Their pretenses seemed to work for reasons unrelated to the spells they were learning to cast.

It is still largely unrecognized that America recovered from the financial disorder of the 1970s not because of the charms of “Reaganomics” but for the simple reason that the last giant finds of oil with greater than 30-to-one energy-return-on-investment came on line in the 1980s: Alaska’s North Slope, Britain and Norway’s North Sea fields, and Siberia. That allowed the USA and the West generally to extend the techno-industrial fiesta another twenty years. As that bounty tapered down around the year 2000, the system wobbled again and the viziers of the Fed ramped up their magical operations, led by the Grand Vizier (or “Maestro”) Alan Greenspan, who worked the control rods of interest rates as though the financial system were a great nuclear powered pipe organ that could be revved up and tamped down by a wondrous Fed control panel. This period of Fed spell-casting was characterized by ever more systemically complex finance, growing systemic fragility, pervasive institutionalized accounting fraud, and ever-greater bubbles and busts. Deregulation, especially the 1998 repeal of the Glass-Steagall Act of 1932, sealed America’s financial fate.

Debt was the meat-and-potatoes of the Fed’s wizardry, but the “secret sauce” of Fed magic was fraud, in the form of market interventions, manipulations, regulatory negligence, and just plain systematic lying about the numbers that defined the economy. It amounted to nationalized financial racketeering. Under the consecutive Grand Vizierships of Greenspan and Ben Bernanke, control fraud (using official authority to cover up misconduct) was perfected by banking executives, eventuating in the mortgage securities fiasco of 2008, which took down the housing market and the economy. (That housing market, by the way, was made up mainly of suburban houses, the sine qua non of the greatest misallocation of resources in the history of the world.)

Of course, nobody paid a criminal penalty for any of this misconduct besides the maverick Ponzi artist Bernie Madoff, and a few other small fish. The regulators looked the other way, on orders from their bosses. Unlike the earlier Savings and Loan bank crisis of the late 1980s, none of the leading bank officer perps went to jail. The damage of the 2008 crash was epic and never repaired, only papered over with more debt, more deceit, and more racketeering.

The supposed remedy, the Dodd-Frank Act of 2010, was a cover for continued pervasive fraud and the institutional “capture” of government by the banking industry and its handmaidens, really a fascist melding of banking and government, a swindle machine in which anything goes and nothing matters. The frauds have only been rechanneled since 2008 into college loans, car loans, corporate stock buyback monkey business, currency arbitrage shenanigans, private equity asset-stripping, and the gigantic black box of derivatives trading.

Part 2: 2017, the Year of Living Anxiously

Under Bernanke’s successor, UC-Berkeley Professor Janet Yellen, the emphasis in Fed policy has been an elaborate game of “data-dependent” foot-dragging — a lot of talk with no action — with the data itself largely fraudulent, especially the easily gamed employment and GDP numbers that supposedly determine the rise or fall of interest rate policy. In short, the racketeering continues while the authorities quail in the face of accumulated and now inescapable debt quandaries ever more certain to end in systemic collapse.

Get this: the Fed is completely full of shit. It is terrified of the conditions it has set up and it has no idea what to do next. The “data” that it claims to be so dependent on is arrantly fake. The government’s official unemployment number at Christmas 2016 was 4.6 percent. It’s a compound lie. The 4.6 percent does not include the 95 million people out of the workforce, most of them able-bodied, who have simply run through their unemployment benefits and given up looking for work. Nor does it figure in the fact that roughly 90 percent of the new jobs created are part time jobs, many of them held by people working several jobs (because they have to, to pay the bills). Nor does it detail the quality of the jobs created (minimum wage shit jobs.)

That 4.6 unemployment figure is the main pillar of the Fed’s “data.” They interpret it as meaning the economy is roaring and has their full confidence. They‘re lying about that, of course. They have been touting “the recovery” (from the crash of 2008) continually and heralding a program of “normalizing” interest rates upward for two years. In 2015 they didn’t do anything until the very last Fed meeting of the year when they raised the Fed Funds rate 25 basis point (that’s a measly one-quarter of a percent). They raised, they said, because they were “confident” about the economy. No, that’s not why. They did it because they talked about it all year without doing anything and their credibility was on the line. They also promised four rate hikes altogether in 2016, which they then failed to carry out.

After that December 2015 rate hike, the stock markets tanked 10 percent. By springtime, the markets appeared to be bouncing back, so the Fed started talking about more rate hikes again. They talked it up all year without acting, an impressive act of fakery. The surprise Brexit vote gave them the heebie jeebies. They laid low. Meanwhile, the US election season was on. The Fed denies this, but they did not raise interest rates for eleven months in 2016 solely because they wanted to make the Democratic administration look good heading into the November vote, and they knew the economy was fragile. Once Hillary was nominated they were determined to usher her into the White House on a high tide of fake good economic news.

When she lost the election the stock markets surprised everyone by entering a super-bubblicious Trumpxuberance rally. There is a narrative for that too in the media chatter and it is simpleminded nonsense based on the sheer hope that Trumponomics will be great for business. More on that below.

Roaring stock markets were a secondary pillar of the Fed’s economic world-view. The post-election 2000 point upsurge in the Dow, along with the historically low 4.6 unemployment number, gave the Fed the opportunity on December 15 to do the same thing they did the previous year: cover their asses and preserve some credibility by hiking the Fed Funds rate one-quarter percent. You’d think if they were really confident in the economy — especially given the year–end rally — they would venture to raise by half a percent or more. They are not confident. They are lying with their fingers crossed.

The Fed Funds rate is one thing. As it happens, the Fed does not directly control the interest rates on US treasury bonds, and they have been rising shockingly through the second half of 2016. The crucial ten-year treasury rate has gone up a hundred percent since the summer. Because bond values move inversely to bond rates, the price of treasuries has tanked, inducing trillions of dollars in losses to bond-holders around the world. The bond market is many times larger than the stock markets. Bonds have been in a bull market since the early 1980s and that bull rolled over in mid-2016. A bear market is now on, meaning bond-holders are dumping their bonds. China and Saudi Arabia are among the leading dumpers of US Treasuries because they need the money for one reason or another. They will dump more in 2017 because both countries are in deep economic trouble. Too many bond sellers and not enough buyers in the market drive interest rates up. Rates have a lot room to move up, since they started at near-zero. Accordingly, their value has a long way to fall.

Bonds, of course, represent debt. Total US debt has doubled under President Obama from around ten trillion to twenty trillion dollars (as it doubled under Bush Two from five to ten trillion dollars). The reason, as stated above, is that we don’t produce enough to cover the cost of our national way of life, so we have to borrow continually at ever-greater volume. Every year, the Treasury has to pay interest on all that debt. It’s a lot of money. This year, with interest rates starting out at historically unprecedented lows (not seen ever in recorded history), the Treasury paid over a quarter-trillion dollars in interest. By the way, the government borrows money to make these interest payments too. An interest rate rise of one percent, would drive the annual US debt higher by $190 billion. As the late, great Senator Everett Dirkson (R-Ill) once pungently remarked: “…a billion here, a billion there, sooner or later you’re talking about real money.”

A sharply rising interest rate on the ten-year Treasury bond will thunder through the system. A lot of other basic interest costs are keyed to the ten-year bond rate, especially home mortgages, apartment rentals (landlords hold mortgages), and car payments. When the ten year bond rate goes up, so do mortgage payments. When mortgage rates go up, house prices go down, because fewer people are in a position to buy a house at higher mortgage rates, and rents go up (more competition among people who can’t buy a house). Zero Interest Rate Policy (ZIRP), in force for ten years, has driven house prices back to stratospheric levels. They are now primed to fall, perhaps severely, leaving many homeowners “underwater,” with houses worth way less on the market than the amount of mortgage left to pay off. The re-financing market is dead. Housing starts were already down by a stunning 19 percent in November. Automobile sales are rolling over. Manufacturing and retail sales numbers are down at year end. What’s up: stocks, stocks, stocks.

Yet investors did not execute the usual end-of-year profit-taking in the expectation that Trump would lower the capital gains tax in 2017, so why sell now? You can wait until January 3, 2017 to sell, and then not have to pay tax on your profits until April of 2018. Will investors start dumping in the first trading days of 2017? I think so. And will that selling beget a stampede for the exits? And what will happen if the interest rate on the ten-year bond hits three percent? (It doesn’t have far to go). Or maybe even four percent? What happens is the stock markets go down in the first quarter of 2017. My forecast is 20 percent down on the S & P. That will only be a preview of coming attractions once Trump gets his mitts on the levers of power. A still bigger crash ahead later in the year!

Why Trump Can’t Pull a Reagan

When Reagan came into office in 1981, inflation was raging largely because of the effects of the oil crises of 1973 and 1979, which had produced the “stagflation” that confounded the reigning economists’ models (they knew nothing about the relationship between energy dynamics and capital formation). The Fed Funds rate was almost 20 percent in 1981. It had a lot of room to move down. The national debt was less than one trillion (Reagan eventually ran it up to $2.8 trillion). Reagan was able to endure a sharp recession early in his first term — and voodoo economics got him through all the rest of his tenure, with both inflation and interest “normalizing” — as mentioned earlier, he enjoyed the bonanza of the last great non-OPEC oil discoveries coming on-line during his two terms, which ramped up economic activity and growth.

Today, the US is in a box and Trump comes on the scene with nowhere to move. Too much debt can only be managed if interest rates are kept low. Everybody and his mother around the world is dumping US Treasuries. With a bear market in bonds on, the Fed as buyer of last resort will have to sop up whatever comes on the market to keep the interest rate from rising above three percent on the ten-year, and even that may not prevent it. Trump’s vaunted infrastructure stimulus plan will be impossible to carry out without the Fed monetizing the necessary debt. So stimulus implies bigger deficits, which means more bonded debt that nobody wants to buy. The result will be inflation and accordingly further upward pressure on interest rates. Higher interest rates, in turn, will negatively impact economic activity, lowering tax revenue, inducing larger fiscal imbalances and greater instability.

Trump may never even get the stimulus he seeks. The Republican controlled-congress has vowed not to increase the national debt. How can Trump fulfill his pledge to cut taxes and bring on stimulus without hugely increasing the debt? If there is war over spending between Trump and Congress, Congress is likely to win, since they control the fiscal purse strings. Of course, Donald Trump cannot abide not winning. Hostilities between them may become permanent early in Trump’s term and bring on even more dangerous paralysis of governance.

Also early in 2017, the Fed will abandon its “dot plot” talk about further interest rate hikes. They may also surrender their credibility in the process. The system can’t take the strain of three interest rate rises in 2017. It may be that Janet Yellen has raised the Fed Funds rate a total of one-half a percent in two years solely to be able to lower them again when the real economy finally tanks under that strain of incessant central bank chicanery. By the second quarter of 2017, following a 20 percent stock dump, the Fed will start making noises about Quantitative Easing 4 (QE), or they will cook up some other program that accomplishes the same thing under a new cockamamie label. More QE (or something like it) will drive the dollar back down and gold back up. The housing market will be in the toilet and the rest of the economy will follow it down the drain. By the end of Trump’s first year in office, there will another, greater, dump in the stock markets after the initial 20 percent drop in the first quarter. America will be great again, all right: we’ll be entering a depression greater than the Great Depression of the 1930s.

Desperate Measures

One of the other big and dark trends of the past year has been the move of governments around the world — and among the economist / necromancers who advise them — to ban cash from the scene in order to herd all citizens into a digital banking system that will allow the authorities to track all financial transactions and suck every possible cent of taxes into national coffers. It would also be an opportunity for the bank-and government cabal to impose negative interest rates (NIRP) on bank accounts so that money herded into the digital system could be surreptitiously “taxed” by charging account holders just for being there (against their will). It’s a little hard to see how that might happen just now in a broad rising rate environment, but it would be the natural accompaniment to banning cash — and renewed aggressive QE (QE forever!) might do the trick.

Harvard economist Kenneth Rogoff literally wrote the book on this (The Curse of Cash; Princeton University Press, 2016), a mendacious argument that cash money merely enables drug dealers and terrorists to operate and has no useful place otherwise in a regular economy. Rogoff appeared to be angling for the Treasury slot in Hillary’s cabinet, and would have fit in perfectly with this totalitarian assault on the public’s financial liberty — but, as we know, Hillary didn’t make it.

Efforts to eliminate cash are already underway around the world. The EU officially discontinued the €500 note from circulation. Ken Rogoff’s Harvard colleague, Larry Summers, was calling for abolition of the $100 bill a year ago. Sweden is successfully herding its people out of fiat krona. India’s Prime Minister Narendra Modi pulled a fast one in November by banning the 1000 and 500 rupee note (worth respectively $14 and $7), and threw India’s economy into a epileptic seizure. The idea was to discipline tax evaders who operate in a cash economy. The catch was that more than 85 percent of India’s economy operates on a cash basis among people too poor to have bank accounts and credit cards — including millions of truck drivers and ordinary laborers. Naturally, the Indian economy froze. Nobody could get paid. Food rotted in stalled trucks. ATM withdrawals were limited to a few day’s walking-around-money. Citizens could not even exchange their 1000 and 500 rupee notes at the banks without going through onerous time-consuming bureaucratic rigmarole, including fingerprinting and the submission of tax records. The process caused discouraging long queues to form at the banks, and was probably designed to discourage the exchange of the 1000 and 500 rupee notes altogether and instead just retire them from circulation — which means a lot of poor people lost the minimal cash savings they had.

It’s hard to see the US government banning cash as clumsily as India did, but they have other ways to herd the multitudes into the black box of all-digital banking. Financial author James Rickards calls this the “Ice-Nine” program, in reference to the isotope of water in Kurt Vonnegut’s sci-fi novel Cat’s Cradle that freezes the world in a horrifying chain reaction. Rickards’ Ice-Nine financial nightmare would include features like freezing bank accounts, bail-ins (confiscation of accounts), limits on ATM withdrawals, and the “gating” of investment funds. Ice-Nine would be invoked in a banking emergency — say, a derivatives “accident” that took out some Too-Big-Too-Fail giant, or really anything that triggered the extreme fault lines in the ultra-fragile system that the world’s money elites have cobbled together to keep the garbage barge of global finance from sinking. In his recent book, The Road to Ruin, Rickards reminds readers that the emergency act signed by Bush Two after 9/11 has remained in effect under Obama, so that America is “just one phone call away from martial law.”

Another method for depriving citizens of their financial liberty would be for the government to declare that retirement accounts had to contain a set percentage of US Treasury paper — once again herding people into a financial corral against their will — in order to prop up the value of bonds and tamp down interest rates. David McAlvany (his excellent podcast here) makes the interesting point that if herding the public into the digital financial corral was a key ingredient to “making America great again,” who could object? — because now you’d be opposing American greatness! Trump inherited a much bigger problem than Barack Obama did in 2009. Obama still had enough soft-soap left in the machine to blow more bubbles. Trump arrives on the scene with the machine out of bubble-blowing mojo. He’ll be overwhelmed by financial disorder in 2017 and then the nation’s focus will turn to a tumultuous political scene

Wild in the Streets

The public is just plain pissed off, and remains pissed off after the Trump Victory. Their anger has been fermenting for decades as their economic prospects dwindled and they began to understand how it all worked against them. The battered middle class might have gotten a temporary thrill from the election, but an awful lot of them are still out of work, or working at the humiliating shit-jobs that replaced their old lost jobs in the old real stuff economy. Worse is coming their way in 2017. Theirs is a true existential crisis.

Even under the most favorable circumstances, a stimulus program would not likely get out of congress until much later in 2017, and I personally doubt that it will get through at all. The so-far-fortunate retirees plugged into pensions represent another potential trouble spot. Pension funds are going bust all over the country from the incapacity to stay solvent in a near-ZIRP environment. In 2016, fissures started to show in places like the Dallas Police and Firemen’s Pension fund, when pensioners’ redemptions were shut down. There are pension funds all over the country floundering from the same conditions, since the Fed took the “fix” out of “fixed income.” In the absence of decent “yield,” the pension funds have been herded into risky stock markets, and if those markets blow up, the pension funds are going to blow with them… and then the pensioners’ lives are going to blow up… and then maybe civil order dissolves around the country.

That may be the moment when President Trump and his militarily-weighted cabinet appointees opt for martial law. What a goddamned mess that will be. There is no civilized country on earth with as many small arms per capita than the USA, and despite the fearsome appearance of militarized police forces, you cannot overstate how much deadly mischief a small number of pissed-off people can make with automatic rifles, rocket-propelled-grenades, Semtex plastic explosive, and other fun stuff. It could morph easily to a literal war on bankers and Wall Street in particular, especially if Ice-Nine goes into effect. Bear in mind that a lot of veterans of the endless Middle East wars belong to this suffering economic class, and they actually have some training in the warrior arts.

Their political counterparts in the Democrat / Prog coastal elite, hardcore Hillary, PC-and-unicorn crowd are moving through their post-election Kubler-Ross Transect-of-Grief from denial to anger too. So both sides are quite pissed off and primed for conflict. The Left will certainly do everything possible to oppose Trump and try to make him look bad, whether it’s in the public interest to do so or not. They will throw every monkey-wrench possible into the machinery of governance, up to and including the (mostly Democratic Party weighted) Federal Reserve hierarchy, whose interest rate “dot plot” could be truly a plot to exact revenge on Trump. Of course, that would blow up in their faces since proportionately the coastal elites own much more stock than the Trumpenlumpenprole red-staters, and they could be wiped out in a significant market crash triggered by rising interest rates. But that’s the thing about political rage: it’s the opposite of rational.

There’s no sign that the Democrat / Progs have recognized that their poisonous identity politics played a significant role in their electoral defeat. They will not abandon that endeavor in 2017. They will double-down on it. And as that happens, the Democratic Party will go the way of the Whigs in 1856 — with a whimper, not a bang. God knows who or what will replace them as a credible opposition to Trumpist crypto-Republicanism, although Trump himself stands a good chance of leading that party to oblivion, too, if my forecast of a big financial blow-up comes to pass.

The Red Guard-like action on campus may continue, though it’s hard to imagine the “Snowflakes” besting their infantile hijinks of 2016. What they are demonstrating now is that coercive identity politics is just a new form of leisure-time recreation on campus, like Ultimate Frisbee and the beer blasts of old! Have fun wrecking faculty careers and basking in the Facebook feed! A few still-sane people of all political persuasions are sick of their censorious attacks, reckless persecutions, and insults to reality — such as the mandatory “white privilege” trainings and gender identity personal pronoun crusades. I predict that there will be a revolt among the university trustees and boards of directors against college presidents and deans who pander to the Maoist hysteria, as the damage to higher education and intellectual freedom more generally finally manifests in dropping enrollments and the loss of public funding.

There is every sign that black and white racial conflict will grow worse in the year ahead. The week after Christmas 2016 saw an impressive number of shopping mall mass melees of black teens all over the country. For years, the media went along with the hyperbolic story that innocent black men were being killed by police for no reason — when the overwhelming majority of those cases involved victims brandishing guns or grossly misbehaving in some way liable to get themselves in trouble. Victimology still rules in America. It’s a psychological defense mechanism to relieve the Dem / Prog’s shame and anxiety with the outcome of the long civil rights campaign — namely, black family disintegration, educational failure, and a shocking rate of black-on-black murder. A subsidiary grievance industry, lately led by Black Lives Matter, fans the flames of vengeance against the universal villain, Whitey, whose “privilege” keeps other people down (except, notice, immigrants from China, Korea, Vietnam, India, and other places where Whitey is absent.)

So, now Left and Right are both equally pissed off. It also means you have two adversarial groups who might give themselves permission to turn violent to justify their grievances. If the financial markets tank and the economy freefalls, it is easy to imagine the potential for violent conflict between the Dem / Progs with their Black Lives matter proxies against the Trumpista lumpenproles. It would be a terrible tragic distraction from the business of repairing the common weal, the economy, and the common culture — but so was the Civil War

The Oil Quandary

The reports of Peak Oil’s death are exaggerated, to borrow a gag from Mr. Twain. It’s just been playing out in ways that many of us didn’t quite anticipate and it is still at the heart of our economic predicament — which is that you can’t rationalize an annual debt growth rate of 8 percent if your actual economic growth rate is under 4 percent (paraphrasing Chris Martenson at Peak Prosperity.com).

We haven’t run out of oil, but we have run out of oil that is rationally economical to pull out of the ground. The so-called “shale oil miracle” extended the oil age a few years by debt-financed legerdemain. Yes, we drove US oil production way up, almost back up to the 1970 peak production level around 10 million barrels-a-day (b/d). The trouble was that the companies producing it didn’t make a red cent in the process. They just ran up a huge amount of debt to pursue the shale project. The pursuit was on wholeheartedly beginning around 2006, because 1) the Peak Oil story was scaring folks, including folks in the oil industry, and 2) the market price of crude oil soared after 2004 and shale looked like a possibly winning venture — especially since conventional exploration in recent years was turning up almost nothing of significance.

From 2004 the price of oil skyrocketed from around $40-a-barrel until 2008, when it reached a high point of about $140-a-barrel. Then, of course, the price crashed catastrophically for a year, along with Wall Street and the economy. But, by then, the fracking industry was all ramped up in the Bakken fields of North Dakota and the Eagle Ford range of Texas. Plus the industry was learning some additional new fracking tricks to goose more oil out of the “tight” rock. So they were full of confidence, despite the price crash. Then, in 2009 the oil price turned sharply upward again — with central bank ZIRP and QE and other maneuvers to prop up the economy with more debt at lower interest rates. And the price of oil just climbed and climbed again back into the $110-plus range in 2011, and lingered there until 2015, when it crashed again.

Of course, most of the producers weren’t making any money even at the $110-a-barrel, but they expected improved technology to mitigate that eventually. In the meantime, they just produced too much shale oil and the market was flooded and OPEC got into the act and pumped all-out trying to crash the price further to put the US shale producers out of business, and then nobody made a red cent fracking for shale oil. So, you can see there was a pattern.

The pattern nicely describes the dynamic advanced by Joseph Tainter in his seminal work, The Collapse of Complex Societies: namely that over-investments in complexity lead to diminishing returns. That is, as you keep making your systems extra-hyper-complex, you get less value back for doing it, until you get to the point where there’s no benefit whatsoever, and then the system implodes. And that is exactly what has happened with oil and the economy that was engineered to run on it, and the financial system that evolved to manage the wealth it used to produce.

A few other things happened the past few years on the oil scene. The American oil companies bowed out of Arctic drilling. The Canadian Tar Sands went bust. The overthrow of Muammar Gaddafi choked off Libyan production, which was offset by Iran coming back onto the international market, which was offset by political mischief in Nigeria that choked off production, which was offset by increased Iraqi production, which was offset by the collapse of Venezuela. Most of the world’s oil producers had entered decline anyhow.

Don’t be fooled. The low prices at the gasoline pumps only mean that US oil companies are going broke fast, as are American “consumers.” There’s a basic equation I’ve repeated a few times on this blog: oil over $75-a-barrel destroys industrial economies; oil under $75-a-barrel destroys oil companies. That’s were things stand when the energy return on investment falls to 5-to-1, as is the case with shale oil. Steve St. Angelo over at the SRSRocco Report makes the excellent point that it takes at least 30-to-1 energy return on investment to maintain plain vanilla modern life. Anything below that and parts of the economy have to be sacrificed. Trucking, air travel, commuting, theme park vacations, your job…. It’s just another way of describing the pernicious effects of the diminishing returns of over-investments in complexity.

In the fall of 2016, OPEC members tried again to agree on an oil production output limit, as they have done many time before. Each time, they all managed to cheat in order to sell greater volumes of oil and make more short-term money — a classic Tragedy of the Commons story. Consequently, the price of oil went up to about $53-a-barrel by Christmas 2016. Don’t expect that to last. Unless, of course, there is a geopolitical event somewhere out on the oil scene, most likely in the Middle East, though Venezuela’s economy is approaching total collapse. The forecast here is for oil prices to follow the stock markets down in the first quarter of 2017. A lot of junk bonds in the oil space will default as a result, leading to a general crisis in shale oil investment.

Vagrant Thoughts on Geopolitics

As I write just before New Year’s Eve, President Obama is trying to start World War Three with Russia as a parting gift to the voting public. I’m among the skeptics who think that the “Russia Hacks Election story” is a ruse to divert the public’s attention from the stupendous failure of the Democratic Party to win, as expected. Rather, Wikileaks should get the Pulitzer Prize for revealing so much about the nefarious workings of the Clinton Foundation and the Democratic National Committee.

Regular readers know I didn’t vote for Trump, that I heaped considerable abuse on him in the campaign commentaries. But I didn’t take any comfort in the nostrum about being “better off with the Devil you know (Hillary) than the one you don’t know (Trump).” Both candidates were awful, and the condition of the country is pretty awful as we turn the corner onto 2017. Readers also know from these commentaries and from my books that I expect we will have to make big changes in our living arrangements up ahead as the techno-industrial fiesta winds down. I won’t reiterate the particulars here, but 2017 is the hinge year for that. The strains on global finance are so spectacular that something’s got give. President Trump is sure to be overwhelmed by epic dislocations in markets, currencies, debt, and misguided central bank efforts to hold back the tides of a necessary re-set — a re-set which will see a lot of wealth vanish and a lot of pain inflicted on the losers of wealth, including whole societies.

We have three major European elections to look forward to in 2017: The Netherlands and France in the Spring, and Germany in the fall. Geert Wilders (a member of the Trump Big Hair Club), is virulently against the “Islamisation” of his country. He has campaigned previously to leave the European Union and for the return to the old guilder currency. Should the right-wing Marine LePen win in France, the EU experiment will likely end — she has made express promises to take France out of the EU. Angela Merkel has made herself impressively unpopular by opening the gates to a flood of immigrants fleeing the breakdown zones of the Middle East and Africa. And then, because of the Schengen Agreement (free passage across EU borders), the immigrants were unleashed on the rest of Europe.

Those of us paying attention may have easily lost count of the terror atrocities carried out across Europe by Islamic fanatics. Charlie Hebdo, Bataclan, the Bastille Day truck attack in Nice, the Brussels airport, the Berlin Christmas Market were only the most recent and spectacular. For years, individuals have been stabbed, had their heads cut off, throats cut, been blown up, machine-gunned. Take a look at this comprehensive list going back to 2001. You may be astonished. In that light, it’s pretty hard to keep waving the “diversity” banner, and I sense that Europe has had enough of it. One big question is whether the new European right-wing leaders will actually move as far as mass deportations. I rather think they will.

The UK “Brexit” vote was surprise all right. (I hit a white-tailed deer on the Maine Turnpike at 70mph that June morning, uccchhh, and lived to tell about it.) Now there’s a fair chance that Parliament will find a way to wiggle out of Brexit. Noises are also emanating out of Brussels to the effect that the EU could loosen up some of their rules — e.g. the Schengen Agreement — to induce Britain to stay in the EU. But there are so many other fissures and fragilities in that system that the Brexit may not matter anymore. The European banking system is melting down and there is absolutely no way to rescue it on the macro EU scale. Italy was heading for a banking crackup before Christmas. Deutsche Bank has been whirling around the drain for a couple of years. When the US markets and banks shudder in 2017, Europe will get the vapors. Hence, I’ll forecast breakup of the EU by this time next year.

We’ve come to the pass where “all that is solid melts into air,” in the poetic phrase of old Karl Marx. Marx was referring to the “specter” of communism that loomed over burgeoning industrial society of the mid-19^th century, and indeed it turned into quite a world struggle through the century that followed. But now communism is down for the count and we begin to see what is truly melting into air: Modernity itself, this colossal, hulking, grinding, machine of destruction that threatens the global eco-system, and all its sub-systems including the human realms of money and politics.

The idea that Modernity itself might go down is inconceivable to those in thrall to the Religion of Progress, which declares that the world (and life in it) only gets better and better every year. This would appear demonstrably untrue, just in the visible damage to the landscape and the living things that struggle to dwell there. The most obvious problem with Modernity has been human population overshoot. The truth is, we’re not going to do a darn thing about it. There won’t be any policy or protocol, despite the good intentions of the groups inveighing against it. It will just go on… until it can’t, to paraphrase the late Herb Stein. Of course, people still have sex under conditions of hardship, so the population may plateau for a while until we are well into the long emergency. But the usual suspects of starvation, disease, and war are all still out there, doing their thing, and will only ramp up their operations.

The reason the Middle East and North Africa are melting down most conspicuously is because they are geographically among the places least well endowed for supporting the swollen populations they acquired over the past two hundred years. Iraq, Syria, the whole Arabian peninsula. Egypt, Libya, et. al. are all deserts artificially supported by the perquisites of Modernity: cheap energy, fertilizers made from that, irrigation,  money derived from it, and continuing life-support subsidies from even wealthier modern nations outside the region. In recent years that life-support has flipped into deadly violence imposed from both within and without, as homegrown Sunni ad Shiite vie for supremacy and their puppeteers in the First World rush in with bombers, rockets, and small arms to “help.”

Iraq and Libya were already goners in 2016. They’ll never be politically stable again in the modern sense. Egypt is still headed down the drain despite the grip of General al-Sisi and his army. In all these places the “youth bulge” has no prospects for earning a living or supporting a family. The young men, especially, put their energy into Jihad, revolution, and civil war because there’s nothing else to do. Making war may be thrilling, but it won’t lead to a better future because those benefits of Modernity are running out and there’s nothing to replace them.

Syria is the current goner-du-jour. Whatever it ends up being, either under Assad or someone else, it will not be stable the way it was. The USA ended up arming and funding the Sunni Salafist “bad guys” there because they opposed Shiite Iran and its regional proxy Hezbollah plus Assad. Russia eventually came in on that side on the theory that another failed state is not in the world’s interests. President Obama blinked after he drew his infamous “line in the sand” years ago and now America is too spooked to act directly. In fact, the Russians and Assad have the best chance of restoring a semblance of order, but America’s support for the “moderate” Salafists will necessarily keep undermining that. In the meantime, all this activity has sparked a demographic emergency as refugees flee the country for Europe and elsewhere, creating greater tensions where they land. Trump could stop the flow of US arms to our favored maniacs in Syria. He may see the practical benefit of letting Russia be the policeman on the beat there, and maybe he can sort out the underlying competing interest between the Russian-sponsored gas pipeline proposed to cross Syria and the American-sponsored one — a dynamic underlying all the mayhem there — and make some kind of “deal.” Or maybe he’ll just fuck it up even more.

The situation will grow increasingly acute in Saudi Arabia, where population growth outstrips the ability of oil production to pay for it. Their old “elephant” oil fields are aging out and they know quite well that they cannot depend on oil wealth many decades ahead. The trouble is, they have no realistic replacement for it, despite noises about creating other industries. The truth is, the country was cursed by its oil. It grew its population too much too fast in one of the most inhospitable corners of the globe, and it will take only a modest decline in oil income to destabilize the place altogether. To buffer that, Saudi leaders plan an IPO for shares in Saudi Aramaco — which was originally composed of American and western oil companies nationalized decades ago. That may get them a few hundred billion or so in walking-around money that won’t last very long considering that just about everybody in the nation is on the dole.

The big news in that corner of the world last year was the collapse of Yemen, which occupies a big slab on Saudi Arabia’s southern border. That poor-ass country is the latest Middle East basket-case and Saudi military operations there continue to date, using airplanes and weapons supplied by Uncle Sam — just another case of feeding Jihadist wrath.

Make no mistake — as our Presidents like to say — all these countries are heading back to the Middle Ages economically, maybe even further beyond. Their culture is still basically medieval. The main point is that Modernity inflated them and now Modernity is over and they’re either going to pop or deflate. One wild card for now is what effect climate change may have in ME/NA. If the trend is hotter, than that’s not good news for a region so poorly watered and so hot that air conditioning is mandatory for the pampered urban elites. Last one out, please turn off the lights.

Then there’s Turkey, for decades known as “the sick man of Europe.” Now, of course, it can’t even get into Europe, the EU, that is, and it’s probably too late to sweat that anyway. Back when it was “sick” it was quiet at least. You barely heard a peep from the fucker through the entire cold war and beyond. But now that the countries on its border are breaking down, things have understandably livened up in Turkey. It was, until World War One, the very seat of the Islamic Caliphate, and it controlled much of the territory now occupied by the nations creatively carved out of the Sykes-Picot Agreement. Turkey is still a power in the region, with a lot of well-watered, habitable territory and a GDP half the size of Italy’s, though shrinking. Its current president, Recep Tayyip Erdogan, has shown twinges of megalomania in recent years, no doubt in fear of the radical Islam epidemic so close at hand. Lately, Kurdish extremists have been planting bombs around the country, too. Turkey has a lot to be paranoid about and Erdogan wants to change the constitution so he can act the strongman without a wimpy, pain-in-the-ass parliament weighing him down. He endured a coup last summer and came out of with consolidated power. But he’s capable of making another bonehead move like shooting down a Russian jet (2015). Meanwhile, Turkey’s currency is collapsing. The population is over 80 million. In the event of serious political upheaval, how many of them will try to flee to Europe?

Russia? It’s apparently stable. We hear no end of complaints about “Putin the Thug,” but in this time of altered reality and disinformation fog, it’s honestly impossible to tell what the fuck the score is. Has he bumped off some journalists? So they say. But, not to get to baroque about it, consider the impressive trail of dead bodies said to be left in the wake of Bill and Hillary. That story was so toxic that Google squashed searches for it during the election campaign. Putin seems to me, at worst, a competent and capable Czar, in a country that likes to be ruled by them. That’s their prerogative. He’s hugely popular, anyway, and it’s one of the unsung miracles of recent times that Russia transitioned out of the fiasco of communism into a pretty much normal modern society, with shopping, movies, tourism travel, and everything. The Russian people may look back at these decades as a golden age. They’ve been punished by Western sanctions for a few years now, but it has prompted them to promote their own version of a SWIFT Code for international banking transactions, and their own counterpart to the EU, the Eurasian Customs Union, and to manufacture some products of their own (import replacement).

Personally, I think the meme of “Russian aggression” is not born out by actual recent geopolitical reality. They are castigated constantly for wanting to march back into the Baltic States, Ukraine, and other former Soviet territories. Ukraine was made a basket case with direct American assistance. (Remember Deputy Secretary of State Victoria Nuland: “Fuck the EU!”) Ukraine was rendered an instant failed state. As far as I could tell, the last thing Russia wanted was to take on Ukraine as an economic dependent. Same for the Baltic States. They need to subsidize these places like they need a hole in the head. Russia’s 2015 annexation of the Crimea was a special case, since it had been part of Russia one way or another for most of the past 200 years, except for the period after Khrushchev gifted it to his homeboys in Ukraine around 1957. Anyway, the Crimea was the site of Russia’s only warm-water naval ports. They’d rented it from Ukraine before the US pranged the country. The Crimean inhabitants voted to join Russia (why do we assume that was not sincere?).

Finally, as renowned Russologist Stephen Cohen has said, wouldn’t it make sense for the US and Russia to drop all this antagonism nonsense and make common cause against the real threat of our time: Islamic Jihad? How many Westerners has Russia killed or harmed the past twenty years compared to the forces of Jihad? The tensions in Syria are admittedly complex, but why are we making them worse while Russia attempts to stabilize the joint? Perhaps The Donald can start there….

As I write, Mr. Putin just announced that his country would not take any reciprocal action against American diplomats in retribution for Mr. Obama’s fugue of punishments meted out last week for the still-unproven “Russia Hacks Election” story. Personally, I’m content to wait three weeks and see if relations improve after Mr. Obama departs the Oval Office.

Finally, there’s China. I’m among those who believe China is running the most farkakta banking system on God’s green earth. We should not be surprised if it implodes in 2017, and does so pretty badly, in a way that might shake the foundations of the entire banking system. On that note, I confess that I have run out of forecast mojo for the year, and anyway this bulletin in long enough. If you’ve gotten this far, I commend and admire you hugely for your remarkable patience. Have a happy 2017 everybody, and don’t let our Trumpadelic president get you down.

Following another day of upbeat economic data, with growing signs that inflation on both sides of the Atlantic is accelerating, investors rediscovered their faith in the Trumpflation rally, pushing global stocks and US equity futures higher, fuelling a second day of 2017 equity gains ahead of today's release of the Fed's December minutes.

The dollar slumped and the euro moved further above $1.04 after data showed French consumer confidence hit its highest for nine years and businesses across the euro zone ended 2016 by ramping up activity at the fastest pace for five-and-a-half years. This followed similarly upbeat reports this week on U.S., UK, Chinese and Japanese business activity.

“The year has started with a stream of good macro stories which has justified a risk on position with investors,” Andrew Milligan, head of global strategy at Standard Life Investments told Bloomberg. He favors stocks and bonds of developed countries poised to benefit from a reflating U.S. economy that will boost the dollar over emerging markets.

The Eurozone composite Purchasing Managers’ Index climbed to 54.4 in December from 53.9 in November, IHS Markit said on Wednesday. That’s the highest in 67 months and above a Dec. 15 estimate. Strength in both the manufacturing and service sectors was due in part to a weaker euro, London-based Markit said in a statement. Economic expansion was signaled across the “big-four” nations, with Spain leading the way, followed closely by Germany.

Figures also showed that euro zone December inflation hit its highest since September 2013, which helped support a rise in oil, commodity prices and bond yields. Consumer prices rose 1.1% from a year earlier, following a 0.6% gain in November, according to Eurostat on Wednesday. That’s above a median forecast of 1 percent in a Bloomberg survey of economists. Core inflation, which excludes volatile items such as energy and food, increased to 0.9 percent last month.

The data follow the ECB’s decision to prolong quantitative easing to guarantee a sustained pickup in inflation in a year that could see economies hit by political uncertainty. Surprisingly strong accelerations of headline rates in Germany and Spain, mainly driven by a surge in the cost of oil, may strengthen the central bank’s focus on weakness in underlying price pressures as it assesses policy in coming months.

The unexpectedly strong acceleration in both regional and national inflation rates follows a 12.6 percent surge in Brent crude last month. ECB President Mario Draghi said in December that price growth remained weak, even as Executive Board member Benoit Coeure told Boersen-Zeitung last week that inflation could face upside risks. Bundesbank President Jens Weidmann, one of the ECB’s most hawkish officials, has argued in favor of a swift unwinding of stimulus once price growth allows, while Ifo President Clemens Fuest said in an interview published Tuesday the central bank may want to consider ending asset purchases as early as March.

"This latest data could mark the beginning of the end to ECB's bond-buying program and expansive monetary policy as it edges closer to their inflation target of two percent," Xtrade's Chief Market Analyst, Paul Sirani, said.

Looking at global stocks, the MSCI All-Country World Index rose for a second day to trade 0.3 percent higher, and its index of major Asian shares excluding Japan rose for a seventh consecutive day, gaining 0.3%.

In Europe, The Stoxx Europe 600 Index was little changed, dragged down by declines on retailers. One of the biggest movers on major European bourses was UK retailer Next. Its shares fell as much as 14 percent after cutting its annual profit forecast and forecasting a difficult year ahead. The stock has lost nearly 40 percent over the past year.

Japan’s Topix index and Nikkei 225 Stock Average both gained at least 2.4 percent, the best first day of trading since 2013.

U.S. futures pointed to a higher opening of between 0.1 percent and 0.2 percent on Wall Street, priming the Dow Jones for another test of the 20,000-point mark.

In currencies, the potential for further U.S. rate hikes this year ensured profit-taking on the dollar's run on Tuesday was limited to just 0.15 percent against a basket of currencies. The dollar's strength in Asian trading helped Japan's exporter-heavy stock market rally toward its biggest daily increase for almost two months.

The euro rose 0.3 percent to $1.0435, and the dollar gave up earlier gains against the yen to trade little changed at 117.75 yen. Euro zone inflation expectations are moving closer to the European Central Bank's target of just below 2 percent, offering some welcome relief to ECB policymakers who for years have struggled to lift growth and inflation.

In rates, U.S. Treasury notes due in 2026 edged lower, with the yield rising one basis point to 2.457 percent.  German and UK yields were flat at 0.26 percent and 1.32 percent, respectively. Germany's 10-year yield had hit a two-week high of 0.29 percent on Tuesday. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies declined one basis point to 69 basis points. A gauge of swaps on high-yield companies fell two basis points to 280 basis points, the lowest since July 2015.

Investors will now turn their attention to the minutes of the Federal Reserve's policy meeting last month when it raised rates.

"What is important is the Fed's view on inflation, especially after the (strong) ISM manufacturing survey data yesterday," said Naeem Aslam, analyst at Think Markets. "Improvement in input prices is going to have an impact on final products which would, in turn, move the scale on inflation, upon which the Fed can no longer be reticent," he said.

Market Snapshot

• S&P 500 futures up 0.2% to 2256
• Stoxx 600 down less than 0.1% to 366
• FTSE 100 down less than 0.1% to 7177
• DAX down 0.1% to 11572
• German 10Yr yield up less than 1bp to 0.27%
• Italian 10Yr yield down 2bps to 1.85%
• Spanish 10Yr yield down 1bp to 1.41%
• S&P GSCI Index up 0.4% to 392.2
• MSCI Asia Pacific up 1.3% to 137
• Nikkei 225 up 2.5% to 19594
• Hang Seng down less than 0.1% to 22134
• Shanghai Composite up 0.7% to 3159
• S&P/ASX 200 up less than 0.1% to 5736
• US 10-yr yield up 1bp to 2.46%
• Dollar Index down 0.19% to 103.01
• WTI Crude futures up 0.7% to $52.71
• Brent Futures up 0.7% to $55.85
• Gold spot up 0.6% to $1,165
• Silver spot up 0.7% to $16.40

Top Global News

• Ford, Toyota Form Telematics Bloc to Stymie Google and Apple: Mazda, PSA, Fuji and Suzuki join to ensure connectivity choice
• J&J Judge Slashes $1 Billion Verdict Over Pinnacle Hip Implants: Judge found punitive-damage award was constitutionally flawed
• Tesla Deliveries Miss Forecasts Again on Production Delays: Model S maker cites production challenges related to Autopilot
• Bloomberg’s Winning Economic Forecasters Lay Out 2017 Calls: Most-accurate predictors of inflation, unemployment and growth explain their outlook for this year
• Trump Tariff on GM Would Violate NAFTA. That May Not Stop Him: U.S. trade deal with Mexico and Canada forbids tariffsQualcomm’s Newest Smartphone Chip Aimed at PC Breakthrough: Snapdragon 835 will enable thinner handset with larger battery
• Blackstone Said to Near Deal to Buy Sesac: WSJ reports company in advanced talks to buy Sesac, citing unidentified people familiar.
  Trump Says His Briefing on ‘So-Called’ Russia Hacking Is Delayed
• China Said to Consider Options to Back Yuan, Curb Outflows
• Qualcomm’s Newest Smartphone Chip Aimed at PC Breakthrough
• Nikkei’s Financial Times Buys GIS Planning to Expand Services
• Manhattan Home Prices Fall as Sellers Concede to Slowing Market

In Asia, equity markets traded mostly positive following gains on Wall Street, where strong data underpinned sentiment despite a slump in oil markets. Nikkei 225 (+2.5%) outperformed with gains of over 2.0% as the index played catch-up to yesterday's advances on return from holiday with JPY weakness also benefiting exporters. Furthermore, the index also benefited from firm domestic manufacturing PMI data and rhetoric from PM Abe that he will continue to make the economy a priority and there will be no snap election. ASX 200 (+0.1%) stalled at 19-month highs, with weakness in real estate capping gains in the index. Shanghai Comp. (+0.8%) and Hang Seng (-0.1%) traded indecisive with cautiousness seen after another weak liquidity operation by the PBoC which effectively drained CNY 140bIn in liquidity today, while HSBC shares outperformed after the bank increased its 3-month CNH deposit rate in Hong Kong to 2.85%. 10yr JGBs traded lower despite a JPY 1.12tIn bond buying operation by BoJ as participants sought riskier assets on return to the market, while the yield curve steepened amid underperformance in the super-long end.

Top Asian News

• China Said to Consider Options to Back Yuan, Curb Outflows: Authorites may order state-owned firms to sell dollars
• India Sets Date for Polls Seen as Referendum on Modi’s Note Ban: Country’s most populous state heads to polls from Feb. 11
• KFC’s Return to Malaysian Bourse Heralds Rebound in Deal Volumes: Fundraising from Malaysian IPOs is poised to rebound from the lowest in 16 years
• Tencent Shares Losing $35 Billion Shows Depth of China Gloom: Technology giant has tumbled 13% from September record
• Indonesia Temporarily Suspends All Military Ties With Australia: Move threatens to undermine improved relations between sides

European bourses have failed to remain afloat despite the spate of better than expected Eurozone PMI readings support by Germany and France. While the FTSE 100 continues to hover around record highs, however the index has been dragged lower by Next (-11%) after the company cut their profit guidance. Elsewhere, financials continue their strong start to the year with major financial names among the notable outperformers in Europe.

European Eco Data

• (FR) Dec. Consumer Confidence 99, est. 99
• (SP) Dec. Unemployment MoM Net (’000s) 86.8, est. -50
• (SP) Dec. Markit Services PMI 55.5, 54.7 est.
• (SP) Dec. Markit Composite PMI 55.5, est. 55
• (IT) Dec. Markit/ADACI Services PMI 52.3, est. 52.6
• (IT) Dec. Markit/ADACI Composite PMI 52.9, est. 53
• (FR) Dec. Markit Services PMI 52.9, est. 52.6
• (FR) Dec. Markit Composite PMI 53.1, est. 52.8
• (EC) Dec. Markit Services PMI 53.7, est. 53.1
• (EC) Dec. Markit Composite PMI 54.4, est. 53.9
• (UK) Dec. Markit/CIPS Construction PMI 54.2, est. 52.5
• (EC) Dec. CPI Estimate YoY 1.1%, est. 1%
• (EC) Dec. CPI Core YoY 0.9%, est. 0.8%
• (IT) Dec. CPI EU Harmonized MoM 0.4%, est. 0.2%
•     (IT) Dec. CPI EU Harmonized YoY 0.5%, est. 0.3%

Top European News

• Hard Brexit Looms Large With Resignation of U.K.’s EU Envoy: Rogers says negotiating expertise ‘in short supply’ in London
• Euro-Area Inflation Outpaces Expectations as Oil Prices Surge: Consumer prices rise 1.1%, core inflation increases to 0.9%
• CEZ Sees No Impact on 2017 Earnings From Czech Currency Cap Exit: Czech central bank plan to exit its currency-cap regime after 1Q will have “practically no impact” on CEZ’s 2017 earnings, CFO Martin Novak says
• Swedish Six-Hour Workday Runs Into Trouble: It’s Too Costly: Swedes looking forward to a six-hour workday just got some bad news: the costs outweigh the benefits.

In currencies, the U.S. Dollar Index was 0.3 percent lower after touching its highest level since at least 2005. Across FX markets, the USD index has continued to run out of steam against its major counterparts with the US 10yr yield below 2.5% and USD/JPY moving further away from 118.00. Elsewhere, AUD/USD hovers at intra-day highs having tripped stops through 0.7250 while near term resistance resides at 0.7280. EUR/GBP has failed to find any firm direction with price action likely to be magnetised around 0.8500 amid a large vanilla option expiry worth lbln. Additionally, Eurozone inflation continued its upward momentum in December, accelerating at the fastest pace since 2013, however limited reaction had been observed given that the figures were largely in-line with consensus. The rand strengthened 1.4 percent as of 10:40 a.m. in London while the ruble added 0.3 percent in its second day of advances.  Citigroup strategists said in a Jan. 3 note to clients that “Russia and South Africa could be outperformers” in developing Europe, “but it might still be a bumpy ride for EMFX as the relatively hawkish FOMC signal from mid-December permeates.”

In commodities, crude oil futures climbed as much as 1.2 percent in New York after tumbling 2.6 percent Tuesday, before returning to broadly unchanged. Dampened sentiment has been due to concerns surrounding cooperation among other oil producing nations, while some note that Libya and Nigeria who are exempt from cuts have already made progress on increasing production. Elsewhere, Gold continues to remain in modest positive territory with prices in close proximity to 3-week highs while Copper rebounded of its worst levels overnight amid a mostly positive risk tone in the Asia-Pacific region.

US Event Calendar

• 7am: MBA Mortgage Applications, Dec. 30
• 8:55am: Redbook weekly sales
• 2pm: FOMC Meeting Minutes, Dec. 14
• 4:30pm: API weekly oil inventories

* * *

DB's Jim Reid concludes the overnight wrap

It hasn’t taken long for markets to dust off the holiday cobwebs and start acclimatizing to 2017. The good news is that unlike the freefall sparked by China’s equity markets this time last year, the mood in 2017 is so far so good with some decent data out of the manufacturing sector helping to set the early pace.

Indeed after the generally positive data in Europe on Monday, the UK manufacturing PMI was yesterday reported as surging to 56.1 in December (vs. 53.3 expected) from 53.6 and to the highest in two and a half years. In the afternoon we then learned that the ISM manufacturing reading in the US had risen to 54.7 in December (vs. 53.8 expected) and the highest since December 2014. The details revealed that the new orders component surged to 60.2 from 53.0 in the month prior too which is particularly noteworthy in light of the recent strength for the US Dollar. To put in perspective this component printed at 48.8 in December 2015. Meanwhile the final manufacturing PMI for the US last month was revised up a tad to 54.3 (from 54.2). It’s worth noting that Greece is the only developed nation with a manufacturing PMI below 50 but even that reading (49.3) is still at a four-month high.

Equity markets were generally firmer across the board yesterday as a result with the Stoxx 600 closing +0.70% and the S&P 500 kicking off 2017 with a +0.85% gain. European Banks (+2.84%) have also started the year in style with the catalyst yesterday appearing to be the news that the Basel Committee had postponed a meeting due for this weekend to consider a contentious reforms package, fuelling expectations that some of the proposals could potentially be watered down. Meanwhile the US auto sector was also in focus after Ford announced that they were to scrap plans for a $1.6bn expansion in Mexico and instead create new jobs in Michigan following proposals by President-elect Trump to slap tariffs on foreign made vehicles. That news also came as Trump turned to social media to criticize General Motors for production of vehicles in Mexico. The Peso (-1.82%) was a notable underperformer in FX as a result.

If that wasn’t enough then a complete reversal for Oil also added another dimension to yesterday’s session. WTI Oil peaked at $55.24/bbl in the early morning, or over 2% higher, before then plummeting some 5% from those early highs to close -2.59% on the day at $52.33/bbl. Natural Gas also tumbled -10.66% for the biggest one-day decline since February 2014. While forecasts for milder weather in the US this month were attributed to the decline for the latter, there didn’t appear to be an obvious catalyst for the sharp swing in Oil aside from the continued strength for the Greenback.

Meanwhile the rates market was an interesting microcosm of the volatility that we expect this year. Yields initially surged in Europe supported by the early gains for Oil and then later on by the bumper inflation report in Germany where headline CPI jumped +1.0% mom in December (vs. 0.6% expected) and so helping the YoY rate to hit +1.7% from +0.7% in November and the highest since July 2013. The wider Euro area CPI report is due today and a similar jump, assuming it can be maintained, will surely give the ECB some food for thought. Anyway the data helped 10y Bund yields jump +7.7bps to 0.258% while yields in the periphery were anywhere from +9.0bps to +20.8bps higher. The Treasury market opened in similar fashion with that US data also helping matters and 10y Treasury yields peaked at 2.516% (after opening at 2.445%) before the energy complex went into reverse. Treasury yields completely unwound that move higher and finished unchanged by the closing bell.

A reminder that today we’ll also get the FOMC minutes from that December meeting where we’re expecting the tone to reflect the moderately more hawkish nature of the statement. Ahead of this sentiment has remained fairly buoyant in the Asia session this morning where bourses in Japan in particular have reopened in style. The Nikkei and Topix have surged +2.14% and +2.17% respectively with financials leading the way while there are also gains in China with the Shanghai Comp +0.39% and CSI 300 +0.42%. The Kospi and ASX are little changed along with the Hang Seng while credit indices are generally tighter in Asia Pac. US equity index futures are also up modestly while Oil has rebounded about half a percent.

Moving on. Yesterday we got the latest ECB CSPP breakdown as of the end of December. The numbers took on added interest with the addition of the primary and secondary market split too. With regards to holdings, the ECB announced total holdings of €51.07bn which works out as net purchases settled during the month of €3.89bn, albeit with an unsurprising slowdown into year end. In terms of the split, of the total holdings currently, €6.93bn or 13.6% were made in the primary market and €44.14bn or 86.4% were made in the secondary market. Interestingly while the overall primary market purchases (in percentage terms) were ramped up from June to October, they have held relatively steady over the months of November and December although this may also reflect the slowdown in the new issue market into the end of the year.

Meanwhile there were some interesting developments on the Brexit front in the UK yesterday too with the announcement that Britain’s ambassador to the EU, Sir Ivan Rogers, had unexpectedly resigned just a couple of months out from the UK’s formal resignation from the EU and prior to the end of his official tenure in October. Various reports suggested that Rogers was one of most experienced EU negotiators and was heavily criticized last year by Conservative eurosceptics. His resignation letter – obtained by the FT - stated that ‘serious multilateral negotiating experience is in short supply’ and that ‘we do not yet know what the government will set as negotiating objectives for the UK’s relationship with the EU after exit’. No obvious reason was provided for his early resignation although Rogers did confirm that it would make more sense to have a team in place which see’s Britain through the entire Brexit process. The news could come as a bit of a blow to the ‘Soft’ Brexit camp though and clearly comes at a crucial time in talks so it’ll be interesting to see if there is any further fallout following this announcement.

Looking at the day ahead, this morning in Europe we’ll get the remaining December PMI’s (services and composite prints) including the final revisions for the Euro area, Germany and France as well as a first look at the data for the periphery. Also due out this morning is the CPI report for the Euro area where headline inflation is expected to have ticked up to +1.0% yoy from +0.6%. The UK will also release the November money and credit aggregates data while in France we’ll get the latest consumer confidence print. Over in the US this afternoon the lone data release is the December vehicle sales data while later on this evening we’ll get the FOMC minutes from the December meeting.

In a stunning post on his blog published on Sunday, the founder of Italy's Five-Star Movement (M5S), Beppe Grillo, said his political movement should cut ties with Nigel Farage's anti-EU UK Independence Party (UKIP) in the European Parliament, and seek a hook up with the European liberals led by European Federalist Guy Verhofstadt.

Should this unexpected switch go ahead, it could, according to Reuters, see 5-Star "enter mainstream European politics and move away from the anti-system fringes", a shift that might reassure other EU capitals that have grown uneasy about its rising popularity.

In his blog post, Grillo said in a post on his blog that since Farage had led Ukip to Britain voting to leave the EU, the two parties no longer shared common goals and he recommended leaving the Europe of Freedom and Direct Democracy (EFDD). “Recent events in Europe, such as Brexit, have led us to reconsider the nature of the EFDD group,” Grillo wrote. “With the extraordinary success of the leave campaign, Ukip achieved its political objective: to  leave the European Union.

In some ways the recommendation is forward-looking, and anticipates the departure of UK MEPs from the next legislature. As Grillo said “let’s discuss the concrete facts: Farage has already abandoned the leadership of his party and British MEPs will leave the European parliament in the next legislature. Until then, our British colleagues will be focused on developing the choices that will determine the UK’s political future.”

As The Guardian notes, Grillo and Farage forged an alliance over lunch in Brussels after 2014’s European elections, in which Ukip took the largest share of the vote in Britain and M5S came second in Italy after winning 17 seats. Both said at the time that the group was aimed at “restoring freedom and national democracy”, with Farage adding: “Expect us to fight the good fight to take back control of our countries’ destinies.”

However, since then Grillo said the two parties had only voted together around 20% of the time over the past 2-1/2 years. He added that UKIP had achieved its political goal when Britain voted last year to leave the European Union. "To stay in EFDD would mean we would face the next 2-1/2 years without a common policy objective," Grillo wrote.

Over two years later, the alliance appears to be over, and today Grillo wrote that his party was in talks with the Alliance of Liberals and Democrats for Europe (ALDE) and asked 5-Star members to back the initiative in an online ballot. In a move that would shockingly see his party mesh with European liberals, Grillo's blog post called an online referendum, scheduled for Sunday and Monday, on breaking away and instead forming a new group with the Alliance of Liberals and Democrats for Europe (ALDE).

ALDE is led by former Belgian prime minister Guy Verhofstadt, who is also the EU’s chief Brexit negotiator. He is a keen European federalist and his strong, pro-EU views would seem diametrically opposed with the eurosceptic 5-Star, which has previously ridiculed the liberal leader. Grillo also said he had also approached the Greens about a possible tie-up, but was rebuffed, adding ALDE was the only group willing to discuss an accord with his movement.

With ALDE’s 68 MEPs, the alliance could become the “third political force in the European parliament”, Grillo wrote. He said the two shared values linked to “direct democracy, transparency, freedom and honesty." They also seem to share a heretofore unannounced vision toward European unity, in contravention to what Grillo has professed during most of his political career.

A UKIP spokesman said not all 5-Star parliamentarians were happy. "While it's interesting that some 5-Star MEPs adamantly wish to stay in the EFDD group as adults, we wish them all the best whatever they do," the spokesman said.

* * *

Grillo's apparent change of ideology has already led to a swift political response: 5-Star MEP Marco Zanni urged party members to reject the switch, while Grillo's opponents in Italy lambasted his strategic shift, with the anti-euro Northern League party calling ALDE the most pro-European party in parliament.

Northern League leader Matteo Salvini blasted the proposal saying "What a pity. (5-Star) is moving from the barricades to the comfy seats."

5-Star was founded in 2009 and had risen rapidly to become Italy's main opposition party. It does not fit into any clearly defined political ideology, focusing its energies primarily on denouncing corruption and political wrongdoing. It has repeatedly called for a referendum on Italy leaving the euro single currency, and has criticized EU policy making, but has said it does not seek Italy leaving the European Union.

Perhaps the proposal is merely a tactic to yield greater political leverage in Europe: Grillo said it was important for 5-Star to be part of an EU parliamentary group because that would give it greater visibility and influence. "Refusing to belong to a political group would mean ... not being able to work," he wrote.

He added that by forging an alliance with Verhofstadt, ALDE would become the third largest group in the EU parliament. "This means that in many cases we would hold the balance of power."

However, while the proposed move may lead to an expansion of Grillo's power in the European Parliament, it is unclear how this tactical ideological change would resonate among his voter base, and whether it will cost the M5S the loss of material support domestically.

European and Asian shares, the dollar and crude all rose before President-elect Donald Trump’s first press conference since July at 11am on Wednesday, while S&P futures are little changed. Surging raw-materials stocks sent Asian stocks higher. Oil rebounds from the lowest level in a month.

In a session light on economic news, all eyes will be on Trump's press conference scheduled for 11 am: while Trump's election campaign calls for tax cuts and more infrastructure spending have boosted U.S. shares and the dollar, his protectionist statements and a flurry of off-the-cuff Tweets have kept many investors from adding to risky positions. Trump has vowed to label China a currency manipulator on his first day in office on Jan. 20 and has threatened to slap huge tariffs on imports from China.  Paul Ryan and top members of Trump's transition team are discussing a controversial plan to tax imports. Economists have warned that protectionist measures could stifle international trade and hurt global growth. That brings Trump's press conference into sharp focus.

Ahead of this markets have been fairly reluctant to lay on any big bets this week heading into today’s main event. Indeed it’s been another fairly quiet 24 hours on the whole. Look no further than the S&P 500 which closed completely unchanged last night after wiping out some early modest gains. Sector wise gains for financials and health care stocks were balanced out by losses across energy stocks and real estate

So with that out of the way, here are the session highlights so far:

1. Dollar pushes higher ahead of Trump press conference
2. Oil prices edge higher ahead of U.S. inventory data
3. U.S. stock futures point to flat open on Wall Street
4. Turkish lira hits fresh record lows
5. Gold hits fresh 6-week high before Trump appearance

"From a currency perspective, markets will aim to get a clearer picture on trade, fiscal stimulus and the new administration’s relationship to the Fed," Morgan Stanley strategists wrote in a note to clients.

“There’s quite a lot of positioning that Trump delivers at least part of the stimulus he promises,” said Christopher Jeffery, asset allocation strategist at Legal & General Investment Management in London, who has recently adopted neutral weighting on the dollar from a more-bullish stance. “We worry that positioning has become stretched and that he doesn’t deliver.”

In early trading, Europe opened lower only to post a modest rebound, as the Stoxx Europe 600 Index added 0.2% while after sliding -0.3%, while the U.K.’s FTSE 100 Index rose 0.1 percent as a result of the latest drop in sterling, climbing for a 12th day. If the move holds, it would be the gauge’s longest rising streak on record. The pound briefly dropped below $1.21 for the first time since October, even as reports show industrial and manufacturing production grew at a faster pace than analysts forecasts.

As sterling fell, the dollar rose, and the Bloomberg Dollar Spot Index gained 0.2 percent as of 11:00 a.m. in London.

In other notable currency moves, the plunge in Turkey’s lira continued again this morning, tumbling nearly 2% against the dollar to new all time lows after data showed a worsening in the country’s current account deficit and investors took no comfort in the central bank’s latest move to shore up the currency. The lira traded at an all-time low of TRY3.8925 against the dollar after November’s current account figures showed a $590m deterioration in the deficit as the FT notes, heaping further pressure on a slowing economy suffering from sharp drops in tourist revenue. Today’s renewed lira selling follows the central bank’s attempt to put a floor on the currency by freeing up liquidity in the foreign exchange market. However, as we expected, yesterday’s announcement to tweak banks’ FX reserve requirements has done nothing stop investors dumping the currency.

S&P 500 Index futures edged higher, reversing declines over the week’s first two days.

Commodities rebounded despite the dollar strength, with West Texas Intermediate rebounding from its lowest level in a month, up 0.9% to $52.16 a barrel. Iron ore futures jumped 3 percent in China after a 5.5 percent rally on Tuesday. Gold was little changed. Uranium surged the most in more than three weeks as Kazakhstan said it will reduce production by 10 percent this year after prices slumped in 2016 amid a global inventory glut. Copper held near the highest closing price in nearly a month on the outlook for tighter supply following Indonesia’s signing of new mineral export regulations and miners’ wage negotiations in Chile.  U.S. natural gas fell 1.8 percent, paring its biggest gain in three weeks following forecasts of below-average temperatures.

* * *

Bulletin headline summary from RanSquawk

•  European equities trade modestly higher with participants very much awaiting today's press conference from President-elect Trump

• Once again we are left watching GBP taking another beating, with the Cable rate pushed down to 1.2100
• Highlights include DoE crude oil inventories, comments from BoE's Carney and press conference from President-Elect Trump

Market Snapshot

• S&P 500 futures up less than 0.1% to 2265
• Stoxx 600 up 0.2% to 365
• FTSE 100 up 0.2% to 7289
• DAX up 0.2% to 11609
• German 10Yr yield up 8bps to 0.36%
• Italian 10Yr yield up less than 1bp to 1.92%
• Spanish 10Yr yield down 2bps to 1.46%
• S&P GSCI Index up 0.6% to 391.2
• MSCI Asia Pacific up 0.2% to 140
• Nikkei 225 up 0.3% to 19365
• Hang Seng up 0.8% to 22935
• Shanghai Composite down 0.8% to 3137
• S&P/ASX 200 up 0.2% to 5771
• US 10-yr yield up 1bp to 2.39%
• Dollar Index up 0.27% to 102.29
• WTI Crude futures up 0.7% to $51.20
• Brent Futures up 0.9% to $54.11
• Gold spot up less than 0.1% to $1,189
• Silver spot up 0.1% to $16.81

Top Global News

• Trump Said to Be Told of Unverified Russian Intelligence Plot: U.S. spy agencies told Obama and president-elect about scheme
• Ex-Head of Russia’s FSB Says No Dirt Collected on Trump: IFX
• Tillerson to Call Russia ‘a Danger’ in Confirmation Testimony
• President-Elect Trump to hold news conference to discuss business ventures, potential conflicts of interest
• Ford to Pay $200 Million Cash on Top of Regular Dividend: payment a show of confidence even as co. enters a year planning expensive investments in electric and autonomous vehicles
• Tesla’s Autopilot Head Said to Depart as Apple Engineer Hired: Sterling Anderson leaves car company’s autonomous driving post, Chris Lattner, who led Apple’s Swift development, joins Tesla
• VW Board Set to Sign Off on $4.3 Billion U.S. Diesel Penalty: settlement sends crisis cost above $19.2 billion set aside; U.S. Justice Department deal includes VW guilty plea
• Warburg Said to Be Forming Consortium to Bid for Singapore’s GLP: Warburg Pincus talking to banks, potential bidding partners
• U.S. May Be Probing Other Targets in Former Autonomy CFO’s Case: former Autonomy CFO Hussain set to appear in U.S. court for first time
• Airbus Retains Order Lead Over Boeing Over Late Sales Windfall: European co. booked 320 aircraft puchases in Dec.; delivery tally beat target by 18 planes as A350 pinch eased

Looking at regional markets, Asian stocks traded mostly higher to shake off a mixed US close where the energy sector dragged the DJIA lower. ASX 200 (+0.2%) traded in the green and was boosted by the materials and mining sector after Dalian iron ore rose 8% yesterday. Nikkei 225 (+0.3%) was positive as exporters benefited from recent JPY weakness as USD/JPY reclaimed the 116.00 handle, while Sony (+3.5%) shares post over 3% gains for the second consecutive day. In China, markets were mixed as Shanghai Comp (-0.6%) suffered amid the PBoC conducting yet another weak liquidity operation, while Hang Seng (+0.7%) outperformed and was lifted by positive earnings from a number of properties names. Finally, 10yr JGBs traded marginally higher after the 30yr auction showed a better than prior bid-to-cover, while there was some underperformance seen in the long end of the curve.

Top Asian News

• Singapore’s Garena Said to Pick Goldman for $1 Billion IPO: Most valuable Southeast Asian startup considering U.S. listing
• Samsung’s Lee Summoned in Bribery Probe, Prosecutors Say: Appearance set for 9:30 a.m. local time Thursday
• Indonesia Orders Bond Dealers to Uphold Country’s Interest: Bond dealers asked to maintain professionalism, integrity
• Analyst Who Foresaw Yen Fall Sees More Pain as 125 in Sight: Expects the Federal Reserve to raise rates three times

European equities trade modestly higher so far this morning, with slight outperformance seen in the FTSE 100 (+0.2%). UK indices were supported by the latest earnings update from Sainsbury's, which followed the trend set by Morrison's earlier in the week with their impressive report. Elsewhere, focus will remain on the UK housing sector after Foxtons trade lower by around 6% in the wake of their pre-market update. Elsewhere, on a sector specific basis energy and material names are among the laggards, with pharmaceuticals also seeing softness. Fixed income markets continue to see Bunds trade in a relatively tight range, as has been the case throughout the week so far. As such, the German benchmark trades marginally above the 163 level, at the upper end of the aforementioned range.

Top European News

• U.K. Industrial Output Rises More Than Forecast on Oil, Gas: gause rose more than forecast in November, led by a surge in oil and gas as a major North Sea field resumed operations
• Sainsbury’s Sales Beat Estimates as Grocers Get Christmas Boost: holiday sales growth at Argos chain confounds skeptics; shares advance as much as 7.1%, most since January last year
• Bouygues Gets $1.8 Billion Hinkley Nuclear Plant Contract: French contractor to work with U.K. builder Laing O’Rourke
• Defense Supplier Cobham Drops as Profit Falls Short, Debt Rises: U.K. aerospace parts maker cites delays in Boeing KC-46 tanker; shares fall 21% after Cobham cancels final dividend

In currencies, the Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, gained 0.2 percent as of 10:58 a.m. in London. Turkey’s lira slumped 1.7 percent, retreating for a fifth day as investors awaited signs the central bank will support the currency. Once again we are left watching GBP taking another beating, with the Cable rate pushed down to 1.2100 to record new cycle lows in the wake of the production and trade data this morning. Both the Nov manufacturing and industrial numbers beat on expectations, but the trade deficit widened on all counts to give GBP bears the ammunition to spark off another sell off. The USD rate is particularly vulnerable going forward, as ahead of the Trump press conference this evening, we are seeing the greenback gaining some traction again, just as many were expecting a little caution/moderation ahead of this, and indeed the inauguration next week. USD/JPY is again leading the way as dip buyers ahead of 115.00 have been plenty this week, but plenty more wood to chop on the upside before we can get comfortable again, as EUR/USD sales continue to run into demand on the way down. Support seen ahead of 1.0500 but stronger levels seen into the mid 1.0400's. USD/CHF is testing 1.0200 again, but the commodity currencies are giving up little ground as AUD stays in touch with .7400 up top.

In commodities, West Texas Intermediate crude advanced 0.9 percent to $52.16 a barrel. Iron ore futures jumped 3 percent in China after a 5.5 percent rally on Tuesday. Gold was little changed. Uranium surged the most in more than three weeks as Kazakhstan said it will reduce production by 10 percent this year after prices slumped in 2016 amid a global inventory glut. Copper held near the highest closing price in nearly a month on the outlook for tighter supply following Indonesia’s signing of new mineral export regulations and miners’ wage negotiations in Chile.  U.S. natural gas fell 1.8 percent, paring its biggest gain in three weeks following forecasts of below-average temperatures.

In terms of the day ahead, clearly all eyes will be on President-elect Trump’s news conference this afternoon. In fairness the calendar is fairly light anyway with just UK trade data and the industrial and manufacturing production reports for November due out this morning. BoE Governor Carney is also scheduled to speak this afternoon at 2.15pm GMT when he is set to testify before the UK parliament’s Treasury Select Committee while the NY Fed’s Dudley is due to speak at 6.20pm GMT.

* * *

US Event Calendar

• 7am: MBA Mortgage Applications, Jan. 6 (prior 0.1%)
• 10:30am: DOE Energy Inventories
• 1:20pm: Fed’s Dudley Speaks on Bank Culture in New York

US Government agenda

• 9am: U.S. Chamber of Commerce CEO Thomas Donohue and group’s chief policy officer, Neil Bradley, deliver annual “State of American Business” address
• 9:15am: Senate Foreign Relations hearing on nomination of former Exxon Mobil CEO Rex Tillerson for sec. of state
• 9:30am: Senate Judiciary Cmte second hearing on Sen. Jeff Sessions’ nomination for attorney general
• 10:15am: Senate Commerce, Science and Transportation Cmte hearing on nomination of Elaine Chao for transportation secretary
• 11am: President-Elect Trump to hold news conference to discuss business ventures, potential conflicts of interest

DB's Jim Reid concludes the overnight wrap

President-elect Trump's first news conference since the summer kicks off at 11am ET time/4pm GMT and if his recent tweets are anything to go by it promises to be a lively affair.

Mr Trump passed the acceptance speech test with flying colours back on election day with a gracious rehearsed speech. This is likely to be a more confrontational event and much of the world will be keen to see a) how he handles it and b) whether he fleshes out the desired direction of policy. I really can't see it being a non-event even if I've no idea what he'll say. In fact everything appears to be open for discussion but markets will likely be most interested in what he says about the comprehensive tax reform, foreign policy and border taxes in particular. In addition, after Trump urged congressional Republicans to repeal Obamacare immediately yesterday and vote on a replacement bill within weeks, expect that to also be a topical subject. On top of this the overnight press is dominated by a CNN report which suggests that US intelligence officers presented Trump with classified documents last week including allegations that operatives in Russia claim to have unverified compromising financial and personal information about Trump. So it should be interesting.

Ahead of this markets have been fairly reluctant to lay on any big bets this week heading into today’s main event. Indeed it’s been another fairly quiet 24 hours on the whole. Look no further than the S&P 500 which closed completely unchanged last night after wiping out some early modest gains. Sector wise gains for financials and health care stocks were balanced out by losses across energy stocks and real estate. Prior to this in Europe the Stoxx 600 (+0.11%) closed a touch firmer but again it wasn’t anything to get too excited about. One market which continues to surge on though is the FTSE 100 which yesterday closed up another +0.52%. In doing so it not only notched up its 9th consecutive fresh record high – the longest such run – but also took its run of consecutive daily gains to 11 which is a feat matched on only three other occasions, those coming in 2009, 2004 and 1997. In total return terms over those 11 days the FTSE 100 has notched +3.37% with the latest leg lower for Sterling (-1.48% in the same period) a big driving force. Indeed in US Dollar terms the return over that time is a more modest +1.83%. Refreshing our performance charts quickly, with the Pound now down -18.20% since the Brexit vote the FTSE 100 has now delivered a +16.80% total return in Sterling terms but a -4.45% total return in US Dollar terms.

Meanwhile commodity markets continue to pull in different directions. WTI Oil dipped another -2.19% yesterday and finished below $51/bbl having closed at $54/bbl on Friday. That’s despite there not really being any new news with the market still seemingly focused on the supply story in the US. On the other hand Gold was up another +0.72% yesterday along with decent gains for other precious metals, while iron ore (+2.19%), copper (+2.99%) and zinc (+1.99%) also continue to hover around recent highs after getting a boost from the huge increase in China producer price inflation yesterday. Rates markets, meanwhile, were a touch weaker if anything with 10y Treasury yields edging up 1.1bps to 2.377%. The Greenback (+0.10%) ended a touch firmer.

This morning in Asia, with the exception of China the mood is generally positive. The Nikkei (+0.36%), Hang Seng (+0.66%), Kospi (+1.45%) and ASX (+0.23%) are all up, largely led by anything commodity linked, while the Shanghai Comp (-0.53%) is currently in the red. US equity index futures are little changed while bond markets have been quiet.

Moving on. While markets weren’t particularly thrilling yesterday there was at least some interest in the data. Specifically it was the NFIB small business optimism survey in the US which turned a few heads after the index surged 7.4pts in December to 105.8 (vs. 99.5 expected). That is actually the largest one-month gain ever for the index and puts the index at the highest level since December 2004. The gain  was mostly reflected in the economic outlook index which rose a whopping 38pts. Our US economists noted that the since the NFIB data are highly correlated with the broader economy, which makes sense given that small and medium sized business account for nearly 80% of the labour market, the recent upshift in the NFIB strongly suggests that 2017 real GDP growth may be even better than their well-above consensus 3% forecast. In terms of the other data, JOLTS job openings pointed to a steady hiring and quits rate in November (3.6% and 2.1% respectively while wholesale inventories were revised up one-tenth to +1.0% mom in November versus the initial estimate. In Europe the only data came from France where industrial production was reported as jumping a much better than expected +2.2% mom in November (vs. +0.6% expected). Finally before we wrap up, yesterday we also got the announcement that Richmond Fed President, Jeffrey Lacker, is to retire on October 1st and so step down from his role at the Fed. The news is notable given that Lacker has been one of the more, if not the most, hawkish Fed officials in recent years.

In terms of the day ahead, clearly all eyes will be on President-elect Trump’s news conference this afternoon. In fairness the calendar is fairly light anyway with just UK trade data and the industrial and manufacturing production reports for November due out this morning. BoE Governor Carney is also scheduled to speak this afternoon at 2.15pm GMT when he is set to testify before the UK parliament’s Treasury Select Committee while the NY Fed’s Dudley is due to speak at 6.20pm GMT.

Submitted by 720Global's Michael Lebowitz via RealInvestmentAdvice.com,

In 1930, Herbert Hoover signed the Smoot-Hawley Tariff Act into law. As the world entered the early phases of the Great Depression, the measure was intended to protect American jobs and farmers. Ignoring warnings from global trade partners, the new law placed tariffs on goods imported into the U.S. which resulted in retaliatory tariffs on U.S. goods exported to other countries. By 1934, U.S. imports and exports were reduced by more than 50% and many Great Depression scholars have blamed the tariffs for playing a substantial role in amplifying the scope and duration of the Great Depression. The United States paid a steep price for trying to protect its workforce through short-sighted political expedience.

On January 3, 2017 Ford Motor Company backed away from plans to build a $1.6 billion assembly plant in Mexico and instead opted to add 700 jobs at a Michigan plant. This abrupt reversal followed sharp criticism from Donald Trump. Ford joins Carrier in reneging on plans to move production to Mexico and will possibly be followed by other large corporations rumored to be reconsidering outsourcing. Although retaining manufacturing and jobs in the U.S. is a favorable development, it seems unlikely that these companies are changing their plans over concerns for American workers or due to stern remarks from President-elect Trump.

What does seem likely? Big changes in trade policy occurring within the first 100 days of Trump’s presidency. The change in plans by Ford and Carrier serve as clues to what may lie ahead and imply a cost-benefit analysis.  In order to gain better insight into what the trade policy of the new administration may hold, consideration of cabinet members nominated to key positions of influence is in order.

Trump’s Trade Appointments

As we close in on Trump’s inauguration, his cabinet and team of advisors is taking shape.  With regard to global trade, there are three cabinet nominations that most capture our attention:

• Peter Navarro is a business professor from the University of California-Irvine. Mr. Navarro has been very outspoken about China and the need to renegotiate existing trade deals in order to put America on a level playing field with global manufacturers. The author of the book, “Death by China”, will lead the newly created White House National Trade Council.
• Wilbur Ross is a billionaire investor who made his fortune by resurrecting struggling companies. In the words of Donald Trump, Mr. Ross is a “champion of American manufacturing and knows how to turn them around”. The long time trade protectionist will now serve as Commerce Secretary.
• Robert Lighthizer is currently a lawyer with a focus on trade litigation and lobbying on behalf of large U.S. corporations. Earlier in his career, he served as deputy U.S. Trade Representative under President Ronald Reagan. Mr. Lighthizer has been very outspoken about unfair trade practices that harm America. In his new role he will serve as Trump’s U.S. Trade Representative.

Donald Trump said that Mr. Lighthizer will work “in close coordination” with Wilbur Ross and Peter Navarro. The bottom line is that these three advisors have strong protectionist views and generally feel that China, Mexico and other nations have taken advantage of America.

Gettysburg and Other Rhetoric

On October 22, 2016 in Gettysburg Pennsylvania, Donald Trump delivered a litany of goals that he hopes to accomplish in his first 100 days of office. Within the list are seven actions aimed at protecting American workers. Four of them deal with foreign trade. They are as follows:

These four proposals and other trade-related rhetoric that Donald Trump repeatedly stated while running for president suggest that he will take immediate steps to level the global trade playing field. At this point, it is pure conjecture what actions may or may not be taken. However, the article, “We need a tough negotiator like Trump to fix U.S. trade policy”, penned by Peter Navarro and Wilbur Ross from July 2016 offers clues.

In the article, Navarro and Ross took the World Trade Organization (WTO) to task for being negligent in defending the United States against unfair trade. Additionally, they note the WTO “provides little or no protection against  four of the most potent unfair trade practices many of our trade partners routinely engage in — currency manipulation, intellectual property theft, and the use of both sweatshop labor and pollution havens”.

They also note that the U.S. does not have a Value-Added Tax (VAT). Heavily used in the European Union and much of the rest of world, a VAT is a tax imposed at various stages of production where value is added and/or at the final sale. The tax rate is commonly based on the location of the customer, and it can be used to affect global trade. Manufacturers from countries with VAT taxes frequently receive rebates for taxes incurred during the production process. Because the U.S. does not have a VAT, the WTO has denied U.S. corporations the ability to receive VAT rebates. In fact, the WTO has rejected three congressional attempts to give American companies equal VAT rebate treatment. By denying VAT rebates the WTO is “giving foreign competitors a huge tax-break edge.” 

It is possible that, within weeks of taking office, President-elect Trump may threaten to leave the WTO. In what is likely a negotiating tactic, we should expect strong proposals from Trump and his team with the goal of forcing the WTO to alter decisions more to the favor of the United States. Among the actions the Trump administration may take, or threaten to take, is the pulling out of prior trade agreements and/or establishing tariffs on imports into the United States. Because of its efficiency and simplicity, border tax adjustments, which are similar to VAT, seem to be a more logical approach as they would effectively assess a tax on importers of foreign goods and resources without affecting exporters.  Border tax adjustments seem even more plausible when considered in the context of a recent Twitter message that Donald Trump posted: “General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border – Make in U.S.A. or pay big border tax!”

Ramifications and Investment Advice

Although it remains unclear which approach the Trump trade team will take, much less what they will accomplish, we are quite certain they will make waves. The U.S. equity markets have been bullish on the outlook for the new administration given its business friendly posture toward tax and regulatory reform, but they have turned a blind eye toward possible negative side effects of any of his plans. Global trade and supply chain interdependencies have been a tailwind for corporate earnings for decades. Abrupt changes in those dynamics represent a meaningful shift in the trajectory of global growth, and the equity markets will eventually be required to deal with the uncertainties that will accompany those changes.

If actions are taken to impose tariffs, VATs, border adjustments or renege on trade deals, the consequences to various asset classes could be severe.  Of further importance, the U.S. dollar is the world’s reserve currency and accounts for the majority of global trade. If global trade is hampered, marginal demand for dollars would likely decrease as would the value of the dollar versus other currencies.

From an investment standpoint, this would have many effects. First, commodities priced in dollars would likely benefit, especially precious metals. Secondly, without the need to hold as many U.S. dollars in reserve, foreign nations might sell their Treasury securities holdings. Further adding pressure to U.S. Treasury securities and all fixed income securities, a weakening dollar is inflationary on the margin, which brings consideration of the Federal Reserve and monetary policy into play.

Investors should anticipate that, whatever actions are taken by the new administration, America’s trade partners will likely take similar actions in order to protect their own interests. If this is the case, the prices of goods and materials will likely rise along with tensions in global trade markets. Retaliation raises the specter of heightened inflationary pressures, which could force the Federal Reserve to raise interest rates at a faster pace than expected. The possibility of inflation coupled with higher interest rates and weak economic growth would lead to an economic state called stagflation. Other than precious metals and possibly some companies operating largely within the United States, it iummaryc or global assets that benefit. d to envision other assets lation, higher interest and stagnant economic growth would lis hard to envision many other domestic or global assets that benefit from a trade war.

Summary

We like to think that the lessons from the Great Depression would prevent a trade war like the one precipitated by the Smoot-Hawley Tariff act. We must realize, however, that nationalism is on the rise here and abroad, and America will soon have a president that appears more than willing to take swift and aggressive  action to ensure that it is not taken advantage of in the global trade arena.

It is premature to make investment decisions based on rhetoric and threats. It is also possible that much of this bluster could simply be the opening bid in what is a peaceful renegotiation of global trade agreements. To the extent that global growth and trade has been the beneficiary of years of asymmetries at the expense of the United States, then change is overdue.  Our hope is that the Trump administration can impose the discipline of smart business with the tact of shrewd diplomacy to affect these changes in an orderly manner. Regardless, we must pay close attention as trade conflicts and their consequences can escalate quickly.

Submitted by Roger Barris via Acting-Man.com,

Blind to Crony Socialism

Whenever a failed CEO is fired with a cushy payoff, the outrage is swift and voluminous.  The liberal press usually misrepresents this as a hypocritical “jobs for the boys” program within the capitalist class.  In reality, the payoffs are almost always contractual obligations, often for deferred compensation, that the companies vigorously try to avoid.  Believe me.  I’ve been on both sides of this kind of dispute (except, of course, for the “failed” bit).

People are usually struck by the seeming injustice of CEOs running companies into the ground and then getting paid obscene amounts in the form of “golden parachute” type good-bye presents. Often there is no other way to get rid of a bad CEO though –  if his or her employment contract guarantees a large termination benefit, the company may have little choice in the matter. As a rule, private shareholders are bearing the cost of such transactions, and they are in this position voluntarily (after all, they could sell their shares or vote against generous CEO payment packages at shareholder meetings). We realize of course that in the age of crony socialism, one usually has to judge such things carefully on a case by case basis. Still, it is a far cry from the misuse of taxpayer funds, which are appropriated by coercion and offer those bearing the costs no opportunity to “opt out”.

So where’s the liberal outrage with a story like the pension swindle in El Monte, California?  This is about a dying town, with a per capita income of $10,316 and a quarter of its population below the poverty line, that is paying a pension to one of its retired (at the age of 58) city managers of more than $250,000 per year.  Adjusted for inflation.  With medical for him and his wife.  And survivorship benefits.  And to which he contributed nothing.

Or another retired city manager who collects $216,000 per year, allowing him to “take some things off his bucket list” such as golfing at the Old Course at St Andrews.  And it looks like the public is paying for more than just green fees.  His retirement came shortly after he was swept up in an anti-prostitution sting operation.

More broadly, with Trump’s cabinet nominations and his presidency, there is currently an enormous amount of discussion about conflicts of interest in the public sector.  All of these discussions completely ignore the most flagrant example.

Squeezed by cronyism

Public Sector Union Thugs

Many politicians, especially Democrats, get elected with huge support from public sector unions.  When it comes to negotiating the compensation of public employees, the unionists sit, in essence, on both sides of the table.  The politicians buy the support of the unions with public money.

The favorite coinage for this corrupt bargain is pension and other retirement benefits since the real cost of the bribery is easily obscured with bogus assumptions, especially about expected investment returns.[1]  The end result is public pension plans that are underfunded by trillions and the occasional bankruptcy in a place like Detroit.

The costs of surreptitious vote buying via the detour of public sector unions supporting politicians, who then provide enormous taxpayer-funded benefits to union members have become increasingly obvious to the tax cows in recent years. Ever since the bubble era has begun to be frequently shaken by financial crises, many pension funds had to abandon their fictitious return assumptions. Suddenly it became clear that maintaining the generous benefits and pensions of a great many “civil servants” would require vast sacrifices. Alas, those asked to do the sacrificing can only dream of receiving even remotely similar benefits.

This is such a glaring conflict that I have tried to find if there are any laws against it.  So far, I have found nothing.  I have, however, found an Atlantic article by a clearly left-wing journalist who started off very sympathetic to public unions but who had a Damascene moment when he was a reporter in a small California town:

“Over the next couple years, I nevertheless came to see the several downsides of the union’s influence. Contract negotiations were held in private, with the City Council representing Rancho Cucamonga residents and union reps representing the firefighters. This posed a structural problem, for the interests of elected officials weren’t particularly aligned with the public, whereas the union negotiators had a personal stake in whatever compensation package was adopted.

 

“To be more specific, if a City Council member behaved in a fiscally irresponsible manner, it wouldn’t matter for at least a few years, by which time ambitious pols would have moved on to a county post or the state legislature. And lavish compensation packages could easily be obscured by combining what appeared to be a reasonable salary, the only number the public was likely to hear, with exorbitant pay for overtime or over the top fringe benefits.

 

“But if a City Council member crossed the fire union? The consequences were immediate. As soon as the next election rolled around, they’d face a well-financed challenger. On his campaign mailers, he’d be photographed flanked by handsome firefighters. On weekends, friendly guys in fire-coats would go door to door on behalf of their would be champion.  “We’re very concerned that Councilman X is endangering public safety by refusing to do Y,” they might say. Or else, “Challenger Z is a crucial ally in our effort to make this city safer.” The incentives were clear.”

Conclusion

The left goes nuts when a private company is contractually obliged to use its own money to pay off a failed CEO.  Or the leftists dust off their little-used copies of the Constitution and start quoting the Emoluments Clause when there is the prospect of a foreign visitor to the presidential inauguration taking a bag of peanuts from the minibar in a Trump hotel.

But when left-wing politicians collude with their public union supporters to rack up unpayable pension bills in the trillions, we get… crickets.

So I ask…where’s the outrage?

Well – at least someone is outraged. Sorry, “boss” – but you actually have no say in the matter.

This article was co-authored with Disobedient Media editor Cassandra Hasenstein

This article contains graphic images of violence, reader caution is advised

Abstract:

The Syrian White Helmets, or Syria Civil Defense Force are lauded by mainstream news sources for their humanitarian work during the Syrian Civil War. But research by Disobedient Media reveals that the White Helmets are an organization supported by the United States for the purpose of regime change in Syria. We have also directly tied this group to varying levels of involvement with war crimes committed by rebel groups in Syria as well as uncovered evidence of their potential involvement in an effort to intentionally use millions of residents in the besieged city of Aleppo as bargaining chips with the Syrian government.

I. The White Helmets are Funded by the United States

The White Helmets are described by media sources such as Time as being “ordinary Syrians” who simply wanted to band together and help mitigate the damage caused by Assad’s Syrian government forces.

This could not be further from the truth. The Syrian White Helmets are an organization funded by the United States with the intention of using the group as part of America’s wider objective of forcing regime change in Syria.

The Syrian Civil Defense Force is funded in part by United States Agency for International Development (USAID). Included here are two links showing contracts awarded by USAID to Chemonics International Inc. (DBA Chemonics). The first award was in the sum of $111.2 million and has a Period of Performance (POP) from January 2013 to June 2017. It states that the purpose of the award will be to use the funds for managing a “quick-response mechanism supporting activities that pursue a peaceful transition to a democratic and stable Syria.” The second was in the sum of $57.4 million and has a POP from August 2015 to August 2020. This award was designated to be used in the “Syria Regional Program II” which is a part of the Support Which Implements Fast Transitions IV (SWIFT IV) program.

This funding was used, if not entirely, then in part to finance the White Helmets. The Syrian Civil Defense Force website lists Chemonics as its primary supporter alongside NGO Mayday Rescue, who operate out of offices in Turkey, Jordan and Dubai.

II. The White Helmets Were Involved With Depriving Five Million Civilians of Water Supplies in Aleppo

On December 31st, Jordanian news source Al-Bawaba reported that ISIS had shut down two pumping stations on the Euphrates River to leave over five million residents of Aleppo without water. The reports appear to have originated from Iranian news source Press TV on the same day. The shutdown of water supplies to Aleppo appears to be an effort on the part of rebel groups to strike back at the Syrian government following territorial losses over the past month and came on the heels of reports that other rebel groups had similarly deprived civilians in Damascus of water for weeks.

On December 3rd, a demand letter from rebels near the city of Aleppo emerged on several Twitter accounts:

Twitter Post 1

Twitter Post 2

A scan of the demand letter can be seen here:

In the letter, rebel groups stated that they would allow teams to restore the water supply to Aleppo if the Syrian Army and Hezbollah agreed to cease their assault on rebel held positions around the city and allow an international team of observers to monitor the ceasefire.

What made this letter truly significant was the fact that one of the signatories to the document was a representative of the White Helmets:

A quick reference to the Syrian Civil Defense Force website reveals the exact same logo as the one which appears in the letter:

This document indicates that the White Helmets are playing a troubling role in assisting rebel groups commit war crimes against civilians. This would hardly match the stereotype of being the purely humanitarian group the Western press loves to portray them as.

III. The White Helmets Have a Troubling Nexus to War Crimes and Members Often Appear to Actually be Rebel Combatants

The embarrassing revelation that the White Helmets participated in the deprivation of water supplies to civilians in Aleppo comes on the heels of reports that the White Helmets were present at the scene of extra judicial killings and their that members are allegedly involved with various rebel military groups.

On May 5th, 2015, the Al-Qaeda affiliated group Jabhat al-Nusra committed an extrajudicial killing of a prisoner, which was filmed for propaganda purposes. In the video, members of the White Helmets are clearly seen present at the scene of the execution helping to remove the body. They did not appear to make any effort to prevent the killing. Al-Nusra’s decision to kill their prisoner was a clear violation of 75 U.N.T.S. 135 of the Geneva Convention on Treatment of Prisoners of War, and at worst an outright war crime were the victim a civilian. Images of the execution video may be seen here, though the actual footage is too graphic to publish:

The damning revelations of the video forced Syria Civil Defense to put out a now-deleted statement on the incident admitting that their team was present during the execution and stating that they condemned the killing of civilians despite the fact that their members did not make attempts to protest the killing at the scene.

Despite their statement claiming that they do not support the murder of civilians, there are a number of videos circulating online where members of the White Helmets openly express support for al-Nusra and other mujahedeen extremist groups who operate in Syria:

Syrian White Helmet expressing support for mujahedeen operating in Syria

Syrian White Helmet celebrating the al-Nusra capture of Jisr al-Shughur, Syria

There are also a number of images circulating online which appear to show that members of the Syria Civil Defense Force are also members of various rebel military groups in Syria:

Here a screenshot from a video run by Al Jazeera shows a White Helmet member next to a black jihadist flag:

The involvement of the White Helmets in assisting rebel groups to cut water supplies to civilians in Aleppo, their failure to take steps to protest or prevent murders of prisoners of war and civilians in Syria, and the alleged involvement of their members with various rebel groups raises questions about the true nature and purpose of the organization. More broadly, the fact that the Syria Civil Defense Force is backed financially by the United States casts a cloud over the ethics and overall goals of American foreign policy objectives in the Middle East.

This article was originally posted at www.disobedientmedia.com

Submitted by Brandon Smith via Alt-Market.com,

In my last article, 'How Globalists Predict Your Behavior', I outlined the primary method globalists use to measure public consent, or, public dissent. The use of macro-analytics and the hyper-monitoring of web traffic is a powerful tool at the disposal of the establishment for gauging shifts in public consciousness in real time.

For example, in early 2016 the elites were entirely aware of the rise of conservative and sovereignty movements in the U.S. and Europe. In fact, the dangers of growing “populism” were all that elitists and their publications talked about for the first six months of the year. At first, this notion seemed a little odd to me. Generally, when globalists are attempting to manage public opinion, they are careful not to reveal the slightest hint that conservative movements exist beyond an “extremist fringe”. They certainly never suggest that there is a massive undercurrent of nationalism ready to topple the globalist structure.

In fact, whenever such movements do arise the establishment is swift to obstruct them or co-opt them. I witnessed this first hand during the Ron Paul campaign in 2008 and 2012 – the mainstream deliberately refused to acknowledge Ron Paul's existence, because attacking him repeatedly would have been a zero sum strategy that would have given him greater public attention and free publicity.

I saw it during the Neo-con co-option of the Tea Party, a movement that I was involved in long before Fox News latched onto it and long before mainstream RINO Republicans not only jumped on the bandwagon but hijacked the horse. In a matter of months the Tea Party became a defunct entity, a shell of its former self. Luckily, most liberty activists simply left it behind and started their own separate groups and projects rather than being absorbed into the Neo-con fold.

I also saw establishment interference on a local and state level during elections in Montana. An associate of mine was running for state office on a liberty platform and was doing rather well in the polls. He was approached by a contingent of political elites running as Republicans who told him in no uncertain terms that he could run on any platform and use any rhetoric he wanted, but if he won, he would be required to follow THEIR direction. They even encouraged him to continue arguing for constitutional government in his speeches and debates, because they felt this was the best way to “sell” his candidacy. But when all was said and done, he was supposed to stab his constituency in the back and take orders from the party leadership.

The point is, the elites dominate the political system. Nothing happens within it without their say. So, for those same elites to suddenly and openly suggest that “populist movements” were threatening to overtake the world and destroy the global economy was suspicious, to say the least.

In order to predict the behavior of globalists and the outcome of future economic and political events, it is important to understand certain dynamics. As just described, the establishment has a stranglehold on the political system. Party politics are a sham built around the false left/right paradigm. However, certain new dynamics are developing, and you must be able to track them.

The best way to do this is to watch what globalists say within their own publications. They often reveal their intentions directly or indirectly. In many cases I think in their arrogance they assume that the masses are too stupid to read these publications and grasp what is being said.

The most important element of predicting globalist actions is to know what they ultimately want; to know their ultimate goals. If you know the specifics of what any group or individual desperately wants, those people become highly predictable, because there are only so many useful paths to get to any goal.

I have used this method to great effect over the years, so I am not merely presenting a theory, I have concrete successes to back my position.

For example, just in the past couple of years I correctly predicted the Federal Reserve taper of QE, I predicted the inclusion of China in the IMF’s Special Drawing Rights years in advance, I predicted the exact timing of the first Fed rate hike, I predicted the success of the Brexit referendum when most of the world and the liberty movement said it was never going to happen, I predicted that the Saudi 9/11 bill would pass, that Barack Obama would veto it and that congress would override his veto, I predicted that Hillary Clinton would be the Democratic candidate and that Donald Trump would be the Republican candidate for president of the U.S. and, I predicted that Donald Trump would win the 2016 election.

Except for the China SDR inclusion, I predicted all of these events many months in advance and received a heavy amount of criticism each time from people in the mainstream and even from people in the liberty movement. Hilariously, as soon as these predictions proved true, some of the same people that were fervently opposed came quickly out of the woodwork to claim they “saw it coming all along”. I suppose this is human nature, but it is a problem because it keeps people from learning how to better gauge globalist behavior and come to correct conclusions.

My goal in this article is to make EVERY liberty activist adept at predicting globalist driven events. So, here is a good place to start:

Learn To Play Chess

The elites are obsessed with chess and chess symbolism. Many of their strategies develop much like a game of chess develops. If you don't know how to play chess, I suggest you learn. You don't have to master the game, but you do need to understand the basic concepts of winning the game.

For example, if you know the target that your opponent is really pursuing, you can easily obstruct his efforts because all his movements will become predictable. If his goal is to take your Queen, and you know this, then he should never be able to take your queen. This is why the elites go to great lengths to distract their opponents (meaning us) from their true target. They want you to think they are going straight for your King, or your Knight; they want you focused elsewhere. They will use feints often.

Another core strategy of chess is the “forced sacrifice”. That is to say, the best chess players are very good at positioning one of their pieces so that it threatens two or more of your pieces. This forces you to sacrifice one piece for the sake of the others. If they do this often enough, before you know it you have sacrificed your way into defeat. The globalists ALWAYS have a primary target and a secondary target. There is always more than one move developing at any given time.

Knowing chess is key to knowing how the globalists think.

Get In Touch With Your Darker Side

Going by their behavior and their rhetoric when they are unguarded, most globalists display highly narcissistic character traits as well as sociopathy and psychopathy. It is not enough to research these traits in a clinical fashion, you have to tap into the darker side of your own psyche, and think as they think. This means being willing to entertain evil and malicious concepts. You must be willing to ask yourself - “If I were them, how would I go about getting what I want?”

Understanding devious and aberrant psychopathic intent goes a long way in making the globalists predictable. Remember, many psychopaths are actually highly intelligent and intuitive. They don't have a moral compass and have lost the voice of conscience, but in order to adapt they have learned how to fake it. They are chameleons.

ALL people are inherently capable of evil actions, just as they are inherently capable of great good. You don't have to become like the elites, but you do have to go to some ugly places in your own mind. An elitist is basically a person who went to those places and discovered that he liked it there.

Read Globalist Publications

As noted above, the globalists have their own media outlets in which they publish their “views”, such as Foreign Policy Magazine, The Economist, Bloomberg, Reuters, etc. Sometimes these views are honest and sometimes they are calculated propaganda. Again, if you know exactly what the elitist targets are, then you can better discern if what they are saying is legitimate or a feint to distract you.

I predicted the success of the Brexit and the Trump win based on the knowledge that:

1) The globalists need a large scale crisis in order to drastically change public perceptions on society and governance. That is to say, they need to create a crisis so terrifying that people will be willing to accept a fully centralized global economic system and global governance as a solution.

2) The globalists have already set in motion an economic crisis that cannot be reversed. It is a crisis that they must avoid blame for at all costs once it accelerates.

3) Conservative and sovereignty principles are the primary threat to the dominance of globalism. As long as ideas of individualism, national sovereignty and decentralization exist, globalism can never truly prevail. Therefore, obstructing movements based on these principles is not enough. The globalists must also destroy any positive perceptions of our principles for generations to come.

4) As stated in the section on chess, the globalists like to use the strategy of forced sacrifice, in which they threaten two targets simultaneously, or kill two birds with one stone. I realized at the beginning of 2016 that all the rhetoric by globalists in their own publications on the “rise of populism” was staging the groundwork for the success of the Brexit and the success of Trump. What better strategy for the establishment than to allow conservative movements to take the helm of the political and economic ship just as that ship is about to sink? In this way, the globalists can have the crisis they need, while at the same time scapegoating conservatives and avoiding blame, and, destroying the image of conservative ideals, perhaps forever.

Have No Sacred Cows

This is a hard one for many people. We all have certain biases and these biases can blind us to reality. The overreaching bias within the liberty movement is a desire for heroic leadership. We have grown up on stories of heroes from George Washington to Thomas Jefferson – grand statesmen and military giants that crushed tyranny. The problem is, while men like Washington and Jefferson were indeed instrumental, they were nothing without the hundreds of thousands of unsung patriots working tirelessly for freedom on their own.

The founding fathers were not considered the founding fathers until long after the American Revolution was over. At the time, they were not thought of necessarily as heroes or even great leaders. They were just men, like many other men, gambling life and liberty on a cause that was uncertain at best.

Activists need to STOP looking around for mighty leaders and start taking leadership themselves in their own way. If we do end up with another Washington or Jefferson or Paine or Madison, etc., we will not know who they are until the fight is over and the history books are written.

The globalists take full advantage of the movement's weakness in seeking out and artificially elevating heroes. Also, when people have this bias, they end up with blinders when examining such heroes with any skepticism. Obviously I am referring to Donald Trump, here.

Sacred cows prevent accurate predictions of major events because a person will refuse to consider them as a potential negative factor.

Moving Beyond Predictions

It is one thing to be able to predict the outcome of social and political events; it is another matter to do something about them.In my next article I will outline solutions liberty activists can pursue on their own and in groups to counter globalist activity. Predicting their tactics is essential, but acting to disrupt those tactics should be the ultimate goal.

The globalists believe that even if some of us do manage to decipher their activities and methods, we will have no means to do anything about them. They see themselves as the “history makers”, as the men who act. They see us as the “history watchers”, or the meaningless masses wafting about with geopolitical tides, helpless and incapable of determining our own destinies. I believe we will become history makers in due course. One weakness of the globalists that will sabotage them is their own hubris. They see people as pawns – but what happens when a piece walks off the chess board completely and acts in an unpredictable way? It is this potential alone that will destroy the globalists in the end.

The key economic releases this week are durable goods and GDP on Friday. On the political front, the focus will be is on the first actions of the Trump administration including moves on TPP and NAFTA. There are no scheduled Fed speeches this week.

Arond the globe, the UK Supreme Court decision on Art.50 and the Italian Constitutional Court's decision on the electoral law are on Tuesday. In EM, we have monetary policy meetings in Colombia, Hungary, Turkey, South Africa and Ukraine.

The focus this week will remain on politics, and specifically the first actions of the Trump administration - last week his spokesman promised swift moves on TPP and NAFTA - but also on the UK as the Supreme Court decision on Article 50 is due on Tuesday. On this latter, much of the focus is on whether the court issues a separate judgement which would grant the regional assemblies of Northern Ireland, Wales and Scotland the right to vote on whether the Art.50 is triggered or not.

Italian constitutional court decision on electoral law. The decision expected this Tuesday comes at a time when the main political parties are already negotiating for a new electoral law. At this point, with a partial rejection by the court being cited as a more probable outcome, a non-constitutionality decision may accelerate current negotiations for the new electoral law which aims to be more compatible with that of the Senate and favor a more proportional system.

A look at US and European main releases.  In the US, focus is on durable goods orders for which we expect a 2.5% m/m growth in December (this should partially reverse prior 4.5% decline). In the advance release of 4Q GDP, we expect growth to have slowed to 2.4% qoq saar from 3.5% in the third quarter. In the Eurozone, we expect the preliminary release of January Composite PMI for Euro area to increase to 54.6 from 54.4 in December, driven by improved sentiment especially in the service sector. Moreover, we expect M3 money supply to remain unchanged at 4.8% y/y in December.

* * *

A look at key events by day courtesy of DB's Jim Reid

It’s a pretty quiet start to the week for data today with the only releases of note being the Euro area consumer confidence reading this afternoon and China’s leading economic index.

Things pick up on Tuesday however when we’ll get the various flash January PMI’s in Europe. As well as that we’ll also get the latest public sector net borrowing data in the UK. In the US the data due out includes the flash manufacturing PMI, existing home sales and Richmond Fed manufacturing survey.

Wednesday kicks off in Japan where the December trade numbers will be due. During the European session we’ll get various confidence indicators in France along with the IFO survey in Germany and CBI trends orders data in the UK. The only data due in the US on Wednesday is the FHFA house price index.

In Asia on Thursday we’ll get some data out of China with the December industrial profits numbers. During the European session we’ll get consumer confidence in Germany and the advanced Q4 GDP reading in the UK. The US calendar finally picks up on Thursday with the advance goods trade balance, wholesale inventories, initial jobless claims, flash services and composite PMI’s, new home sales, leading index and Kansas Fed manufacturing survey all due.

We close the week out in Asia on Friday with CPI in Japan. During the European session we’ll get M3 money supply for the Euro area and consumer confidence in France. Over in the US it’s all eyes on the advance Q4 GDP print in the US. We’ll also get a first look at durable and capital goods orders during December as well as the final University of Michigan consumer sentiment reading.

Away from the data there’s no Fedspeak this week with the Fed entering the blackout period. However we will hear from the ECB’s Praet, Weidmann and Lautenschlaeger at various points this week. BoE Governor Carney will also speak on Wednesday. Meanwhile earnings season will also start to ramp up with 107 S&P 500 companies set to report, accounting for about 29% of the index market cap. The notable reporters include Yahoo and McDonald’s today, Verizon and Johnson & Johnson on Tuesday, AT&T, eBay and Boeing on Wednesday, Caterpillar, Ford, Intel, Alphabet and Microsoft on Thursday followed by Chevron.

Finally, a brekadown of key events with consensus estimates via Goldman Sachs

Monday, January 23

• There are no major economic data releases expected.

Tuesday, January 24

• 09:45 AM Markit Flash US Manufacturing PMI, January preliminary (last 54.2)
• 10:00 AM Existing home sales, December (GS -4.0%, consensus -2.0%, last +0.7%): e look for a 4.0% drop in December existing homes sales, following the 0.7% rise in November. Regional housing data released so far suggest a sequential decline in closed homes sales, consistent with the November drop in pending homes sales (which represent contract signings) and the possibility that higher mortgage rates are reducing housing demand at the margin. Existing home sales are an input into the brokers' commissions component of residential investment in the GDP report.
• 10:00 AM Richmond Fed manufacturing index, January (consensus 6, last 8)

Wednesday, January 25

• 09:00 AM FHFA house price index, November (consensus +0.4%, last +0.4%): Consensus expects a 0.4% gain in the FHFA house price index in November, following October’s 0.4% rise. The FHFA house price index has a wider geographic coverage than the S&P/Case-Shiller housing price index, but is based only on properties financed with conforming mortgages. On a year-over-year basis, FHFA home prices were rising at a 6.2% pace in October.

Thursday, January 26

• 08:30 AM U.S. Census Bureau Report on Advance Economic Indicators; Advanced goods trade balance, December (GS -$66.8bn, consensus -$64.7bn, last -$66.6bn); Wholesale inventories, December preliminary (consensus +0.3%, last +1.0%): We expect the goods trade deficit to widen modestly to $66.8bn in December on top of last month’s $3.4bn deterioration to a deficit of $66.6bn. Softer outbound container traffic and a second month of elevated inbound containers suggest a widening in the ex-petroleum balance.
• 08:30 AM Initial jobless claims, week ended January 21 (GS 255k, consensus 247k, last 234k); Continuing jobless claims, week ended January 14 (last 2,046k); We expect initial jobless claims to rebound 21k to 255k. The four-week moving average of initial claims fell 10k last week to a cycle low of 247k. And unlike in previous weeks, the drop in initial claims was mirrored in continuing claims – the number of persons receiving benefits through standard programs – which declined 47k (w-o-w) to 2,046k from a recent peak of 2,116k. We remain in a period where seasonal adjustment is difficult, and the extent to which recent claims reports reflect a persistent drop in the trend pace of layoffs remains an open question.
• 09:45 AM Markit Flash US Services PMI, January preliminary (last 53.4)
• 10:00 AM New home sales, December (GS -1.5%, consensus -1.0%, last +5.2%): We expect new home sales to fall 1.5% in December, partially retracing last month’s 5.2% rise, driven by a larger-than-normal drop in temperatures and unseasonably high snowfall in the Midwest and West. Against these transient headwinds, a favorable fundamental backdrop and a fifth consecutive rise in single-family building permits reduce the likelihood of a much larger retrenchment, in our view. We plan to closely monitor housing releases in the coming months for signs that higher mortgage rates are constraining home sales, which could in turn affect the outlook for residential fixed investment.
• 10:00 AM Leading indicators, December (consensus +0.5%, last flat)
• 11:00 AM Kansas City Fed manufacturing index, January (consensus 8, last 11)

Friday, January 27

• 08:30 AM GDP (advance), Q4 (GS +2.2%, consensus +2.2%, last +3.5%); Personal consumption, Q4 (GS +2.4%, consensus +2.5%, last +3.0%): We expect a rise of +2.2% (qoq ar) in the first vintage of Q4 GDP, driven by a double-digit gain in residential investment (+13%) and a positive contribution from inventory investment (+0.8pp), but partially offset by a -1.5pp drag from net exports. We look for real personal consumption to rise 2.4%.
• 08:30 AM Durable goods orders, December preliminary (GS +4.0%, consensus +2.7%, last -4.5%); Durable goods orders ex-transportation, December preliminary (GS +0.3%, consensus +0.5%, last +0.6%); Core capital goods orders, December preliminary (GS flat, consensus +0.3%, last +0.9%); Core capital goods shipments, December preliminary (GS +0.5%, consensus +0.5%, last +0.2%): We expect durable goods orders to rise 4.0% reflecting a sharp rebound in December commercial aircraft orders; however, our expectations for the core measures are low. Despite strong manufacturing survey data in December (and so far in January), we expect core capital goods orders to remain unchanged, reflecting dollar strength, softer company results in the month, and mean reversion following November’s 0.9% rebound. December industrial production of business equipment rose 0.7% mom, its fastest pace in six months, so we expect a 0.5% rise in core capital goods shipments, after a disappointing 0.2% rise last month. Finally, we expect a 0.3% rise in durable goods orders ex-transportation, weighed down by the stronger dollar, which has risen 6% over the last six months on a trade-weighted basis. The headline orders measure is also likely to be weighed down by defense aircraft orders, which seem likely to fall sharply after doubling last month.
• 10:00 AM University of Michigan consumer sentiment, January final (GS 97.5, consensus 98.1, last 98.1): We expect the University of Michigan consumer sentiment index to fall to 97.5 in the January final estimate from the preliminary reading of 98.1, consistent with relatively buoyant consumer sentiment. The Conference Board’s consumer confidence index jumped to a new cycle high in the December report, however more timely measures have shown a small degree of sequential deterioration. After falling to a record low of 2.3% in December, the University of Michigan’s survey of 5- to 10-year ahead inflation expectations rebounded to 2.5% in the preliminary reading, and we expect similar relative firmness in the final reading as well.

Source: BofA, DB, GS