Oct 312014
 

Submitted by The Dissident Dad via Mike Krieger’s Liberty Blitzkrieg blog,

Remember those weird kids who didn’t say the Pledge of Allegiance in school? They either sat down or just stood up silently. I sure do. Most likely for religious reasons, but I remember thinking to myself as a kid that it was wrong not to say the pledge aloud with the rest of us. As I got older in my teenage years, I even felt that those kids were not being respectful.

Some adults may even give them the old, “well, if you don’t like it then you can leave” routine that is mentioned every time a minority opts out of the majority’s way of doing things.

Homeschooling my children will really make this a non-issue; however, my nieces were reciting the American Pledge of Allegiance the other day while playing with my children. In fact, here in Texas the kids recite both the American and Texas Pledge of Allegiance before class.

After hearing them recite it, and of course remembering the 2,500 or so times I said it in my lifetime, I started to think about the purpose and real meaning of this pledge that millions of school-aged children recite every morning Monday through Friday.

A pledge, of course, is a vow, an oath, or a commitment. Allegiance is defined as loyalty, devotion, and obedience. In fact, the antonyms for allegiance are treachery and disloyalty.

Crazy when you think about it, right? Do we really want our kids pledging obedience and loyalty to the U.S. federal government? Especially when the pledge itself is masked with a lie. I mean, it ends with, “with liberty and justice for all.” Now that’s a crock of shit right there. Not one arrest in the financial sector for the 2008 crisis, not one investigation into the 2003 Iraq invasion where no WMDs were found, and a complete cover-up of the events on 9/11, i.e., Building 7. Liberty and justice for all… how about we ask Edward Snowden about that? His patriotic actions were described as treachery and disloyalty.

Nationalism and blind patriotism is crucial in keeping a population dumbed-down and ignorant, which is why if you think about it, pledging allegiance to the government we have today is truly a backwards thing to do. Teaching it to a small child is particularly degrading.

As a dad who is proud of my own liberty, this makes life tough sometimes. Do I teach my kids the truth or go with the flow?

On the surface it seems black and white, but it’s not. Teaching your children about certain truths that make them the odd kid out is not exactly what a parent wants for their child. My wife and I are constantly turning to each other and asking ourselves, should we make a stand on this? Because if we do, it might make it hard for the kids.

A great example comes from a friend of mine with an 11-year-old son who stood up on 9/11 at school and countered the teacher’s lesson for the anniversary and told her about the Loose Change version. It was awkward to say the least. To simply question the events of 9/11 go against the state’s religion of nationalism, so for an 11-year-old boy to bring it up in a classroom…you can imagine the trouble it caused.

Teaching my children about the oligarchs and the current state of our leaders in government is not something that I take lightly. I realize that some of our core values, like the belief in liberty, respect for all life, and individual sovereignty will make them the odd kid out sometimes.

Being surrounded by people who have been taught, just as I was, to pledge allegiance to the state, is the unfortunate reality we are all confronted with. something that is so deeply engrained that the best I can do is teach my children to think for themselves and decide on their own. Figuring out how to best teach my children the danger of such blind allegiance is without a doubt the most difficult task I face as a father.



Oct 312014
 

On balance, Morgan Stanley feels that broad-based QE, (i.e. large-scale purchases of government bonds) is further away for the ECB than the market currently believes. Presently they only assign a subjective 40% probability to such a step being taken; whereas the euro rates market is already pricing in the ECB resorting to a broad-based purchase programme with a very high probability of 80-100%. Goldman agrees warning specifically that “Sovereign QE is not imminent… and indeed may never happen.” It appears no matter what, disappointment is guaranteed for the market.

 

As Morgan Stanley points out, ahead of the November ECB meeting, the newswires seem to be picking up again on the possibility of the ECB taking additional policy measures before year-end. Our interest rate strategy team believes that the bond market currently assigns a very high probability of 80-100% or higher to the ECB starting to buy government bonds. In our view, such expectations are likely to be disappointed.

QE is not a panacea: In our view, the negative long-term side-effects of QE on the financial system would undermine the ECB’s efforts to repair the bank lending channel through the AQR, the TLTROs and the two purchase programmes. Furthermore, we think QE would be inconsistent with the ECB’s recent decision to cut the deposit rate further into negative territory.

In our view, the ECB would face some serious political and legal risks if were to move into the sovereign space. Given the explicit ban on monetisation of government debt in the EU Treaty, it might be easier for the ECB to buy private sector debt instead of public sector debt – especially with the German Constitutional Court already taking a critical view on the compatibility of OMT with the German Constitution as well as the EU Treaty. This legal dispute also would put the Bundesbank in a very difficult position should the Governing Council decide – contrary to our expectation – to push ahead with government bond purchases.

For QE not just to foster ‘Japanification’, the ECB would need to make sure that governments press on with structural and, if possible also, institutional reforms. One way to keep the pressures on governments would be to link the parameters of the purchases, notably the countries whose bonds are bought, to fulfilling the requirements of the Stability and Growth Pact (SGP). This link would reinforce the governance rules EMU has been built on, notably rule-based fiscal discipline. Given that the decision as to whether a country is making enough of an effort to bring down its deficit/debt is taken by the Ecofin, finance ministers would effectively need to sign off on the list of sovereigns the ECB buys. This would free the Governing Council from taking politically charged decisions on countries repeatedly breaching their SGP targets.

Beyond these problems associated with sovereign QE, we also believe that the ECB’s surprise decision to cut the deposit rate again is inconsistent with a central bank that is close to embarking on a major QE programme. After all, the negative deposit rate is effectively a tax on the excess reserves that the banks hold. Having recently increased this tax from 10bp to 20bp is to us at odds with the direct consequence of a major QE programme that is to pump excess reserves into the banking sector. For the two policies to be consistent with each other, the ECB would need to raise the deposit rate (and possibly also the refi rate) before expanding its balance sheet through the excess reserves of the banking system. In our view, the Executive Board would be aware of this inconsistency and therefore would not have pushed for another rate cut in September if it was in the final stages of preparing a QE programme.

Because a negative deposit rate incentivizes banks to reduce their excess reserves at the ECB as much as possible, the negative deposit rate also limits the ECB’s ability to increase the size of its balance sheet materially. Instead of piling any payment received from the ECB in selling assets into a QE programme into excess reserves at the Bank, like their counterparts in the US and in the UK do, euro area banks will likely try to reduce their borrowing under the various ECB refinancing operations instead. Hence investors, who are convinced that the ECB needs to do QE, might also want to consider the prospect of an interest rate increase that would need to coincide with it to make it effective.

Furthermore, we would highlight that broad-based asset purchases could be counterproductive to the health of the financial sector. This is because after the initial relief rally, historically they have caused lower returns on a variety of assets, notably government bonds, over the longer run. The dominance of bank finance in the euro area explains why the bank lending channel is the main focus of the ECB’s policies, ranging from the AQR to the TLTROs and the asset purchase programmes at the moment. At the present juncture, the ECB will hope to leverage synergy effects between the AQR, the TLTROs, the ABSPP and the CBPP3 in order to bring down bank lending rates, reduce financial fragmentation, slow the pace of deleveraging and eventually boost new lending volumes.
 

But the market is fully pricing it in already…

We estimate that the euro rates market is already pricing in the ECB resorting to a broad-based purchase programme with a very high probability, i.e., 80-100%. This figure is based on work we previously did, which suggests that a €1 trillion government bond purchase programme would depress 10y Bund yields by 50-70bp, the assumption that QE affects bond yields primarily through depressing the interest rate term premium, and from assigning the majority of the 60bp decline in 10y Bund term premium year-to-date to increased expectations of QE, as the other factors that typically drive term premia (i.e., interest rate and inflation vol) cannot explain the scale of the decline.

However, it would be consistent with the experience of QE in the US and UK, where the announcement of the subsequent purchase programmes did not lead to lower government bond yields.

*  *  *

Paradoxically, the extent to which the market is expecting QE reduces the need for the ECB to do QE, to the extent that the ECB would be looking to engineer euro sovereign yields lower.

*  *  *

Goldman agrees, warning that ECB sovereign QE: Not so imminent…

The unique institutional setting of the Euro area increases the (political) fixed cost of adopting sovereign QE relative to other jurisdictions. In an uncertain macroeconomic environment, higher fixed costs increase the option value of waiting before engaging in sovereign purchases. This reasoning both: (1) explains why the ECB has been a laggard relative to its peers in making sovereign purchases in the past; and (2) suggests that the ECB will continue to prove more reluctant to engage in sovereign QE in the future than the conventional market narrative assumes.

ECB sovereign QE: Challenges to the conventional narrative
Market participants currently focus on the prospects for ‘sovereign QE’ by the ECB.

A typical narrative is as follows. In the Euro area, inflation is, for all practical purposes, at zero. Likewise for growth and policy interest rates. To head off protracted, Japan-like deflation and stagnation, something needs to be done. Conventional policy easing has been exhausted: unconventional measures are required. Sovereign QE – large-scale central bank purchases of government debt – has worked in the US and UK (even if we are not quite sure why). Ultimately, the ECB will have no option but to follow the Federal Reserve and Bank of England along this path. And given ongoing declines in inflation and the recent weakening of area-wide growth, there is no time to waste in moving forward.

This narrative contains important truths. On our reading, the leadership of the ECB recognises rising threats to price and macroeconomic stability in the Euro area. This prompted the ECB to ease policy in June and September. And there is a preparedness to do more. We expect further measures from the ECB over the coming quarters.

Yet sovereign QE by the ECB is not part of our base case for 2015. The Euro area is not the US or the UK: rather, it is a unique – and uniquely fragile – construct of 18 (soon to be 19) separate countries, which share a common currency but have their own fiscal policies and political institutions. And the autumn of 2014 is not the spring of 2009: the starting point for implementation of sovereign QE is quite different today.

On this basis, we identify three (inter-related) reasons why sovereign QE in the Euro area may be less likely than the conventional narrative presumes.

  • Political constraints. The distributional impact of sovereign QE is likely to be more politically contentious in a multi-country monetary union (such as the Euro area) (especially if it has a cross-border character) than in a unitary state (like the US, UK or Japan). Political considerations play an important role in constraining ECB actions.
  • Economic effectiveness. With the risk-free yield curve in the Euro area already both low and flat, and credit spreads compressed, the scope for sovereign QE to ease domestic financial conditions further from here is limited.
  • Financial structure. The Euro area has a bank-centred financial system. Direct market interventions such as sovereign QE may be less effective in this environment, should the banking system fail to transmit any easing impulse into the real economy.

Such considerations help to explain why we have not seen sovereign QE from the ECB as yet. They also weigh against the announcement of sovereign QE in the coming months.
Sovereign QE in the Euro area is more distant than the conventional narrative implies (and, indeed, may never happen). That said, it is clearly not impossible. As reflected in our ECB preview published earlier this week, we see a 1-in-3 chance of sovereign QE by the ECB through the middle of next year. There is (and always has been) a point at which the macro data are bad enough to trigger sovereign QE, notwithstanding the factors listed above that weigh against it. As the Euro area macro data deteriorate (and particularly as longer-term inflation expectations drift downwards (Exhibit 3)), this trigger point gets closer.



Oct 312014
 

Due to the depreciation of the JPY, leading to soaring raw material costs (crushing SME profitability), TSR reports that Japanese bankruptcies year-to-date in 2014 are up a stunning 140% having unerringly surged since Abenomics was unleashed. Despite constant reassurance and propaganda from various political leaders each and every night that Japan is on the right track… it simply is not and if there is a better indicator of the death spiral Abe has unleashed than surging bankruptcies, we are unaware of one.

 

Bankruptcies are soaring since Abenomics began…

 

As TSR additionally notes,

By industry, 81 of the transportation industry such as automobile cargo transportation industry (composition ratio 37.9%) is at most, fuel prices remain high is affected. Next, review the manufacturing industry 44 (20.6%), Wholesale 41 (19.2%), service industries other 19 cases (8.9%), and has spread retailing 11 (up 5.1%) in a wide range of industries.

 

Depreciation of the yen impact leads to soaring raw materials, profit deterioration deplete the strength of small and medium-sized enterprises. In addition to the deterioration in earnings, depending on trends of the future of the exchange rate, are also concerned about such further sales slump due to price competition.

But as Bloomberg reports,

“We’ve seen that the threat of an exchange rate weaker than 110 yen per dollar made a lot of people uneasy, so if the yen were to strengthen to 105 per dollar, I doubt we’d hear any complaints.”

 

A survey released last month by the Osaka Chamber of Commerce and Industry showed the majority of respondents viewed an exchange rate of 95-105 yen per dollar to be ideal. Japan Chamber of Commerce and Industry Chairman Akio Mimura said this month a “pleasing” level for the yen would be 100 per dollar, Kyodo reported.

 

An increasingly weaker yen won’t necessarily benefit Japan’s large exporters. Nintendo Co. booked a 15.5 billion-yen ($142 million) gain in the fiscal first half from the lower currency.

 

The median forecast among analysts surveyed by Bloomberg News is for the currency to weaken to 114 per dollar by the end of 2015 as U.S. and Japanese monetary policies diverge. It hasn’t been that weak since 2007.

Even though Abe and his cronies are starting to wake up to the reality…

Prime Minister Shinzo Abe said on Oct. 7 that yen depreciation is hurting small companies and households, almost two years after triggering the currency’s slide with a call for unlimited monetary easing to end deflation.

 

Little more than a week later, Kuroda said a weak yen can depress the non-manufacturing sector and real incomes, before reiterating on Oct. 28 that declines in the currency have been positive overall for Japan’s economy.

 

 

Confidence among small businesses unexpectedly fell this month, according to a survey of 1,000 companies by Shoko Chukin Bank released Oct. 28. The measure languished for a seventh month below the line that signals a balance between optimists and pessimists.

*  *  *

And so – if you are betting on NKY strength… reliant on JPY weakness… think again. Abe and Kuroda are boxed in.



Oct 312014
 

Submitted by Simon Black via Sovereign Man blog,

Earlier this week some of the biggest financial news of the year made huge waves all over Asia.

Yet in the Western press, this hugely important information has barely even been mentioned.

Singapore dollar news The dollar decline continues: China begins direct convertibility to Asias #1 financial center

While this is ignored in the US so far, it’s front page news in Asia

So what’s the news?

The Chinese government announced that the renminbi will become directly convertible with the Singapore dollar… effective immediately.

Singapore-Development-Growth

It’s clear this deal has been in the works for a while, and it’s another major step towards the continued internationalization of the renminbi and unseating of the dollar as the world’s dominant reserve currency.

For decades the renminbi has been a tightly controlled currency. It’s only been in the last few years that the Chinese government started loosening those controls, primarily in response to the obvious need for a dollar competitor.

The entire world is screaming for an alternative to the dollar and the US government.

Since the end of World War II, the US has been in the driver seat. The Fed essentially sets global monetary policy. Foreign banks are forced to rely on the US banking system. Nearly every nation on earth must hold US dollars and buy US government debt just to be able to trade with one another.

These were sacred privileges entrusted to the US government. And they have been abused time and time again.

The US government spies on its allies. It uses its banking system as a weapon to threaten foreign companies. It fines foreign banks billions of dollars for doing business with countries it doesn’t like.

 

They discredit themselves by continuing to indebt future generations and failing to make tough fiscal decisions.

 

And the Fed has printed so much money that major foreign institutions are left with no choice but to seek an alternative. Enough is enough.

China is taking the lead in providing the world with another option. And they’re not exactly doing this under cover of darkness. These moves have been widely telegraphed, at least to anyone paying attention.

For the last few years the Chinese government has entered into new ‘swap agreements’ at blazing speed, allowing other nations’ central banks and governments to hold the renminbi in reserve.

They’ve concluded direct trade arrangements (notably with Russia) to settle oil and gas deals in renminbi.

This summer we saw the establishment of a Chinese-led supranational bank intended to compete directly with the IMF.

Just last week the British government issued a new government bond denominated in renminbi.

And now this– direct convertibility between China and the #1 financial center in Asia, making it possible for ANYONE to trade and hold renminbi through Singapore.

It’s so obvious where this train is headed.

But again, this story is hardly covered in the Western press. They’re living in a dream world where King Dollar still reigns and the US is the only superpower in the world.

Nonsense. It’s imperative to stop listening to the propaganda and start paying attention to facts:

The US government has accumulated more debt than any other nation in the history of the world… and is in a position where they must borrow money to pay interest on the money they’ve already borrowed.

 

The Federal Reserve (which issues the US dollar) continues to erode its balance sheet. According to last Wednesday H.4.1 report, the Fed’s capital base is a minuscule 1.26% of its total assets.

 

A year ago it was 1.42%. That was bad enough. But on a proportional basis, the Fed has lost another 11.3% of its capital in the last twelve months.

 

And according to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), international bank payments denominated in renminbi have nearly tripled in value in the past two years.

These are all objective facts which point to the same conclusion: this current dollar/debt-based system is on the way out.

It’s not going to happen overnight, but we’re already seeing a slow and orderly exit. And we can see the rest of this trend unfolding years in advance.

Ignoring this could be very hazardous to your financial well-being. And while the Western media might be totally clueless, there are plenty of options for forward-thinking individuals.

  • Consider holding Hong Kong dollars in addition to US dollars. Hong Kong dollars are currently pegged to the US dollar, so the currency risk is minimal. But if the US dollar declines sharply, Hong Kong (controlled by China) could easily de-peg. This mitigates your downside risk.
  • Consider trading paper currency savings for productive REAL assets like farmland and private businesses which capitalize on key growth trends.

There are dozens of other solutions out there. You’ll be able to find some that are just right for your circumstances.

*  *  *

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

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Oct 312014
 

In a sad reflection of the hope-and-change expectations, a new national poll shows likely voters in the so-called millennial generation prefer a Republican-led Congress after next week’s elections, and young Hispanics are turning sharply against President Obama. As National Journal reports, the poll of 18-to-29-year-olds by Harvard’s Institute of Politics (IOP) shows that young Americans are leaving the new Democratic coalition that twice elected Obama as the president’s approval rating among Millennial tumbles from 47% in April to just 43% now (and nearly 60% of young Americans disapprove of Obamacare). However, the news is not all good as the future of the American electorate, generally hold Republicans in the lowest regard.

 

As The National Journal reports,

A new national poll of 18-to-29-year-olds by Harvard’s Institute of Politics shows that young Americans are leaving the new Democratic coalition that twice elected Obama. The news is little better for the GOP: These voters, who more than any other voting bloc represent the future of the American electorate, generally hold Republicans in the lowest regard.

 

The long-view IOP findings suggest that neither party is poised to win the largest generation in U.S. history – a pragmatic, demanding, relatively nonideological electorate raised in an age of terrorism, war, and government dysfunction.

 

“Millennials could be a critical swing vote,” said IOP Director Maggie Williams, projecting the latest results on future elections. “Candidates for office: Ignore millennial voters are your peril.” Williams is a Democrat and a former adviser to Hillary Clinton.

 

In the short term, the news is worse for Democrats than Republicans.

  • Millennials who told the IOP they will “definitely be voting” Tuesday favored Republicans over Democrats, 51 percent to 47 percent. That is a reversal of September 2010 results, when the IOP found Democrats favored over Republicans among young likely voters, 55 percent to 43 percent.
  • Obama’s job-approval rating among millennials decreased from 47 percent in April to 43 percent, his second-lowest rating in the IOP surveys. Among young Americans most likely to vote, his job-approval rating is just 42 percent.
  • Obama’s job approval is below 40 percent on several issues, including the economy, health care, the federal budget deficit, and foreign policy. Nearly six of 10 young Americans disapprove of Obamacare.
  • Among the one in four millennial voters who say they definitely will vote Tuesday, Republican-leaning constituencies are significantly more enthusiastic about the election than Democrats.
  • Just 49 percent of young Hispanics approve of Obama’s job performance, the lowest since IOP began tracking in 2009. That’s a big drop from six months ago, when his rating among young Hispanics was 60 percent, and five years ago, when 81 percent of Hispanic millennials approved of Obama’s performance. Only 17 percent of Hispanic youth plan to vote Tuesday, far smaller than the non-Hispanic percentages and likely a reflection of frustration over stalled immigration reform.

*  *  *

With a week to go… things do not look good for The Democrats… time to get long ‘veto’ pens.

*  *  *

And if you’re wondering why the disillusionment… here’s one big reason (via The Washington Times)

The Affordable Care Act was supposed to make health care more affordable, but a study of insurance policies before and after Obamacare shows that average premiums have skyrocketed, for some groups by as much as 78 percent.

 

Average insurance premiums in the sought-after 23-year-old demographic rose most dramatically, with men in that age group seeing an average 78.2 percent price increase before factoring in government subsidies, and women having their premiums rise 44.9 percent, according to a report by HealthPocket scheduled for release Wednesday.

*  *  *

Blowback’s a bitch!