Up and Down Wall Street

Without Fed’s Juice, Market Suffers Withdrawal Pains

Without that good old central-bank medicine, the stock market is suffering withdrawal pains.

By Randall W. Forsyth

Habitual watchers of financial cable channels can’t have avoided the endless repetition of advertisements for a 21st-century fountain of youth for middle-aged and older males who comprise the bulk of their viewership. You know the ones, with images of preternaturally ripped septuagenarians showing off their six-pack abs, alongside grainy photos of their naturally paunchy selves before their midlife (or later) crises spurred them to seek this magic potion.

What’s left out of the pitch is that the concoction includes stuff like steroids and human growth hormone, as CBS’s 60 Minutes detailed almost a decade ago in an exposé of the outfit (whose name doesn’t bear repeating, on the notion that any publicity is good publicity), but that evidently has faded from memory. HGH can spur growth of undetected cancer cells, including prostate cancer in men over 50, the broadcast noted. Even so, some of the users of the therapy said they would rather retain the virility artificially derived from these substances, even if it meant a few less years.

Maybe it’s my imagination, but the frequency of these ads seems to be increasing as the stock market decline has gathered pace. As viewers’ portfolios flag, perhaps their physical attributes have done the same. So, there may be increased interest in performance-enhancing substances to cure the latter.

For the markets, there’s an analogous malady. The juice that the Federal Reserve had provided is being withdrawn, and the symptoms of going off the stuff are becoming apparent. The U.S. stock market is off to its worst start of any year on record and the Dow industrials are on track to suffer their worst month since February 2009—just before the ultimate lows in the financial crisis were reached the following month.

The S&P 500 shed another 2.2% last week, putting its price decline at a hair over 8% since the turn of the year. More to the point, in the past three weeks, the big-cap U.S. benchmark is down 8.8%, the worst such span since the three weeks that ended Oct. 24, 2008, in the darkest days of the financial crisis. Even harder-hit has been the Nasdaq Composite, off 11.09% in the past three weeks. That three-week stretch dates to just after the most recent meeting of the Federal Open Market Committee on Dec. 15 and 16.

The key culprits for the 2016 stock swoon can be summed up in the three factors that have beset the markets in recent months: China, crude oil, and the related plunge in the high-yield bond market. All of these are related to monetary policies of the relevant central banks.

On a day-to-day and moment-to-moment basis, the moves in crude call the tune for other markets to an unprecedented degree. David Rosenberg, the chief economist and strategist for Gluskin Sheff, writes that “everything is now correlated to the oil price—the correlations have shifted so dramatically it is almost scary.”

High-yield bonds have had an 85% correlation with crude in the past year, up from about 23% previously. And the S&P 500, which used to have a near-zero correlation with oil prices, is up to around 50%.

Closer to Rosenberg’s perch in Toronto, the Canadian dollar’s correlation has increased to 92% from 80% 10 years ago, while the Toronto stock exchange is 82% tied to oil, versus just 30% a decade ago. (Which also was long before Apple (ticker: AAPL) introduced the first iPhone, back when Canada-based BlackBerry (BBRY) still owned the smartphone market, but that’s another story.)

Bank-stock analysts have to employ energy experts on their team, which Rosenberg calls “surreal.” Perhaps, but Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC) noted their exposure to energy loans in their fourth-quarter earnings, with negative consequences for their stock prices.

The sensitivity of stocks, especially financials and high-yield bonds, to oil has only increased as crude has plummeted to levels once thought impossible. Crude—both the U.S. marker, West Texas, and the global benchmark, Brent—crashed through the $30 barrier last week. The lower the price goes and the longer it stays there, the greater the existential threat to many highly leveraged producers, indicated by their debt trading at distress levels of 50 cents on the dollar and less in some cases.
But the decline has intensified since the Fed made its much-heralded initial increase in short-term interest rates in December. And from the standpoint of U.S. equity investors, they’re down about $2.1 trillion since the start of the year, according to Wilshire Associates’ sums.
That qualifies as withdrawal pains.

EVEN BEFORE FRIDAY’S 2%-PLUS slide in the major averages—which could have been worse, with the Dow Jones Industrial Average off as much as 537 before ending down 391 at just under the 16,000 mark—the signs of debt strains were apparent. And not just in the high-yield bond market, where energy-related issues hit a record 17.43% yield late last week, topping the 17.05% peak at the worst of the financial crisis on Dec. 5, 2008, my colleague Amey Stone reports on Barrons.com’s Income Investing blog.

Investment-grade corporate bond spreads (the extra yield over government securities to compensate for corporates’ risk) have hit levels seen only during or after recessions, writes Michael Darda, chief economist and strategist at MKM Partners. By the time corporate spreads—a key barometer of investors’ perception of the economy—widened to current levels in 1937, a recession was already six months old.

Economic historians know 1937 as the year the Fed mistakenly tightened policy, aborting the recovery that began with its policy easing in 1933, and beginning the second leg down in the Great Depression. The decline of the monetary base (currency plus bank reserves) from September 2014 to this month parallels that of the drop in January 1936 to December 1937.
The spread between Baa corporates and Treasuries also has increased in parallel fashion.

Market forecasts of inflation also have fallen as the Fed stopped expanding its balance sheet and the monetary base in late 2014, writes Darda. Based on the spread between yields on Treasury notes and TIPS (Treasury Inflation Protected Securities), the market’s five-year inflation forecast has slumped to a new low of 1.71%, according to the St. Louis Fed Website.
That decline has been in tandem with oil prices as well. (TIPS’ inflation adjustment is based on the consumer price index, which reflects energy costs.)

What’s also striking is the decline in garden-variety Treasury note yields since the Fed hiked its rate targets.

The benchmark 10-year yield dipped under the 2% mark Friday in the flight to quality, down from 2.3% near the end of December. The two-year note, which represents expectations about future Fed rate hikes, is down to 0.85% from 1.1% ahead of the turn of the year.

Those declines have come in the face of heavy sales by Chinese monetary authorities to prop up the yuan. David Goldman, head of Americas research for Reorient brokerage in Hong Kong, estimates Treasury yields are 20 basis points (two-tenths of a percentage point) higher as a result of liquidations by Chinese authorities to defend their currency. While those efforts have been successful, the withdrawal of yuan liquidity has added to downward pressures on the Chinese stock market.

NOT ONLY HAVE INFLATION EXPECTATIONS fallen, along with oil prices and, in turn, the stock market, so have the odds that the Fed will follow up its initial rate hike any time soon.
A move at the Jan. 26 and 27 FOMC meeting never was in the cards and now the probability for a hike at the March 15 and 16 confab is just 24%, based on the federal-funds futures market, down from over 50% at the end of December.
Odds of another rate hike only get over 50% by Sept. 20 and 21 and are under 50% for any further boosts later in the year—notwithstanding statements by Fed officials that four increases remain likely in 2016. As a result, stocks and other risk markets have to cope without the insurance policy provided by the Fed since Alan Greenspan’s day, that the central bank will come to their rescue. That is, unless things get a lot worse.

As for the stock market, Louise Yamada, who heads the technical advisory firm bearing her name, said after Friday’s retreat that while interim bounces are possible, she thinks we are in a cyclical bear market. The market is at the phase where “the best go last,” she adds, noting the breakdown in financial, technology, and biotech stocks.

The cyclical bear market would be in the context of a structural “albeit Fed-induced” bull market that began in 2013 with the market’s break above 2007 and 2000 highs, she wrote to clients earlier this month. An eventual retreat of 23% from the highs to the 2013 breakout level would be completely normal in that case, she added Friday.

Adding to the nervousness at week’s end was a three-day weekend that could hold unpleasant surprises from abroad, notably China, while U.S. markets are shuttered for the Martin Luther King holiday. Don’t expect a return to normalcy when the U.S. comes back to work Tuesday.

Exporting the Chinese Model

Francis Fukuyama

  STANFORD – As 2016 begins, an historic contest is underway over competing development models – that is, strategies to promote economic growth – between China, on the one hand, and the US and other Western countries on the other. Although this contest has been largely hidden from public view, the outcome will determine the fate of much of Eurasia for decades to come.
Most Westerners are aware that growth has slowed substantially in China, from over 10% per year in recent decades to below 7% today (and possibly lower). The country’s leaders have not been sitting still in response, seeking to accelerate the shift from an export-oriented, environmentally damaging growth model based on heavy manufacturing to one based on domestic consumption and services.
But there is a large external dimension to China’s plans as well. In 2013, President Xi Jinping announced a massive initiative called “One Belt, One Road,” which would transform the economic core of Eurasia. The One Belt component consists of rail links from western China through Central Asia and thence to Europe, the Middle East, and South Asia. The strangely named One Road component consists of ports and facilities to increase seaborne traffic from East Asia and connect these countries to the One Belt, giving them a way to move their goods overland, rather than across two oceans, as they currently do.
The China-led Asian Infrastructure Investment Bank (AIIB), which the US earlier this year refused to join, is designed, in part, to finance One Belt, One Road. But the project’s investment requirements will dwarf the resources of the proposed new institution.
Indeed, One Belt, One Road represents a striking departure in Chinese policy. For the first time, China is seeking to export its development model to other countries. Chinese companies, of course, have been hugely active throughout Latin America and Sub-Saharan Africa in the past decade, investing in commodities and extractive industries and the infrastructure needed to move them to China. But One Belt, One Road is different: its purpose is to develop industrial capacity and consumer demand in countries outside of China. Rather than extracting raw materials, China is seeking to shift its heavy industry to less developed countries, making them richer and encouraging demand for Chinese products.
China’s development model is different from the one currently fashionable in the West. It is based on massive state-led investments in infrastructure – roads, ports, electricity, railways, and airports – that facilitate industrial development. American economists abjure this build-it-and-they-will-come path, owing to concerns about corruption and self-dealing when the state is so heavily involved. In recent years, by contrast, US and European development strategy has focused on large investments in public health, women’s empowerment, support for global civil society, and anti-corruption measures.
Laudable as these Western goals are, no country has ever gotten rich by investing in them alone.
Public health is an important background condition for sustained growth; but if a clinic lacks reliable electricity and clean water, or there are no good roads leading to it, it won’t do much good. China’s infrastructure-based strategy has worked remarkably well in China itself, and was an important component of the strategies pursued by other East Asian countries, from Japan to South Korea to Singapore.
The big question for the future of global politics is straightforward: Whose model will prevail?
If One Belt, One Road meets Chinese planners’ expectations, the whole of Eurasia, from Indonesia to Poland will be transformed in the coming generation. China’s model will blossom outside of China, raising incomes and thus demand for Chinese products to replace stagnating markets in other parts of the world. Polluting industries, too, will be offloaded to other parts of the world. Rather than being at the periphery of the global economy, Central Asia will be at its core. And China’s form of authoritarian government will gain immense prestige, implying a large negative effect on democracy worldwide.
But there are important reasons to question whether One Belt, One Road will succeed. Infrastructure-led growth has worked well in China up to now because the Chinese government could control the political environment. This will not be the case abroad, where instability, conflict, and corruption will interfere with Chinese plans.
Indeed, China has already found itself confronting angry stakeholders, nationalistic legislators, and fickle friends in places like Ecuador and Venezuela, where it already has massive investments. China has dealt with restive Muslims in its own Xinjiang province largely through denial and repression; similar tactics won’t work in Pakistan or Kazakhstan.
This does not mean, however, that the US and other Western governments should sit by complacently and wait for China to fail. The strategy of massive infrastructure development may have reached a limit inside China, and it may not work in foreign countries, but it is still critical to global growth.
The US used to build massive dams and road networks back in the 1950s and 1960s, until such projects fell out of fashion. Today, the US has relatively little to offer developing countries in this regard. President Barack Obama’s Power Africa initiative is a good one, but it has been slow to get off the ground; efforts to build the Fort Liberté port in Haiti have been a fiasco.
The US should have become a founding member of the AIIB; it could yet join and move China toward greater compliance with international environmental, safety, and labor standards. At the same time, the US and other Western countries need to ask themselves why infrastructure has become so difficult to build, not just in developing countries but at home as well. Unless we do, we risk ceding the future of Eurasia and other important parts of the world to China and its development model.

Fears of global liquidity crunch haunt Davos elites

Rising Fed interest rates means "liquidity could drop dramatically, and that scares everyone", warns IMF deputy

By Ambrose Evans-Pritchard

Traders work in the crude oil options pit on the floor at the New York Mercantile Exchange in New York, U.S., on Tuesday, April 15, 2008. Crude oil and gasoline rose to records as investors purchased commodities because their returns have outpaced stocks, bonds and other financial instruments. Photographer: Jin Lee/Bloommberg News

"The key issue is that liquidity could drop dramatically, and that scares everyone" 
The International Monetary Fund is increasingly alarmed by signs that market liquidity is drying up and may trigger an even more violent global sell-off if investors rush for the exits at the same time.
Zhu Min, the IMF's deputy director, said the stock market rout of the last three weeks is just a foretaste of what may happen as the US Federal Reserve continues to raise interest rates this year, pushing up borrowing costs across the planet.
He warned that investors and wealth funds have clustered together in crowded positions. Asset markets have become dangerously correlated, amplifying the effects of any shift in mood.
"The key issue is that liquidity could drop dramatically, and that scares everyone," he told a panel at the World Economic Forum in Davos.
"If everybody is moving together we don't have any liquidity at all. We have to be ready to act very fast," he said.

Chinese central banker Zhu Min warns of new Asian crisis
 Ex Chinese central banker Zhu Min  Photo: AFP

Zhu Min said the worry is that policy-makers still do not understand the complex interactions in the global financial system, where vast sums of money can move across borders at lightning speed.

What the IMF has observed is that market correlations are near an historic peak, with aligned positions in the US equity markets four times higher than the average since 1932. This is a recipe for trouble when the Fed is tightening.

"When rates go up, market valuations have to adjust," he said.

Harvard professor Kenneth Rogoff said the fear in the markets stems from a dawning realisation that the Chinese authorities are not magicians after all, and that this time the Fed may stand back and let the blood-letting run its course.  

"What is driving this is that the central banks are not coming to the rescue," he said, speaking at a Fox Business event hosted by Maria Bartiromo. Rates are already zero or below in Europe and Japan, and quantitative easing is largely exhausted, leaving it unclear what they could do next if the situation deteriorates.

Prof Rogoff said these deep anxieties are causing companies to hold back investment, entrenching a slow-growth malaise. The Fed may be forced to halt its tightening cycle and even cut rates again if the wild sell-off continues for much longer.

Kenneth Rogoff warns on interest rates Professor Rogoff, former IMF economist  Photo: AP

Prof Rogoff said the events of the last year had demolished the myth that China is a "perpetual growth machine" and could somehow escape the curse of the business cycle. It is the last domino of the "debt supercycle" to fall and the scale of it is the haunting spectre now hanging over the global economy.

Nariman Behravesh, chief economist for IHS, said capital flight from China has reached $1 trillion since the mid-2015. "It has been massive. They have offset it by running down reserves but doing this is a form of monetary tightening. So what are they going to do now?"

Mr Behravesh said China is trapped by the "Impossible Trinity", unable to manage the exchange rate without losing control over internal monetary policy within a context of (partially) free capital flows. They are likely to opt for draconian capital controls as the lesser of evils, he said.

But the danger for the world is that capital flight spins out of control and forces Beijing to abandon its defence of the yuan.

"This all reminds me of the ERM crisis in Europe in the early 1990s. There is a risk that we could see a 20pc devaluation of the Chinese currency, and that really would push the world economy into recession," he said.

Paul Singer, head of Elliott Management, said central banks have corrupted global assets markets with $15 trillion of bond and equity purchases over the last seven years, creating a total dependency on monetary largesse that must inevitably be all the more painful when it ends.

The bond markets - supposedly safe - have become the epicentre of risk.

"Things could be very disorderly. There is the potential for a tectonic shift if investors lose confidence in central banks," he said.

Review & Outlook

$29 Oil and the Dollar

As the greenback keeps rising, commodity prices keep falling.


Photo: Getty Images/Ikon Images

Equities took another beating on Friday, on the heels of one more Chinese market selloff and oil sinking below $29 a barrel for the first time in 12 years. The Dow industrials and the S&P 500 are down more than 8% in two weeks, and the growing fear is that this is a harbinger of recession.

Amid the hunt for culprits, one place to look is the link between the price of oil and the dollar.

There has long been an inverse correlation between dollar strength and commodity prices, as we saw more than a decade ago. As the Federal Reserve made its historic mistake of staying too easy for too long in the early 2000s, oil began its long march upward to $100 a barrel and beyond. The correlation has been going in reverse in the last year as the dollar strengthens and oil plunges.

Morgan Stanley MS -4.35 % tracked this correlation in a smart research note earlier this week.

While not ignoring the fundamentals of oil supply and demand, especially lower oil demand from slower growth in China, Morgan Stanley estimated that increasing dollar strength could take the oil price down to $20 a barrel.

The Fed’s inevitable unwinding of its post-panic monetary exertions explains part but not all of the dollar’s rebound. Central banks in Japan and Europe have been pursuing a devaluation strategy and capital flight from China is causing the yuan to depreciate. As more investors demand dollars, the greenback strengthens and the chances of currency markets overshooting grows.

If oil does fall to $20, the economic pain is likely to be considerable throughout the oil patch and commodity markets. Energy bankruptcies will proliferate. Eventually low prices will lead to cuts in supply and oil will find a bottom. But the carnage might be reduced if the dollar stabilized against major currencies. Meantime, the world desperately needs pro-growth economic policies, but it’s hard to see where they’ll be coming from any time soon.

viernes, enero 22, 2016



Military reform

Xi’s new model army

Xi Jinping reforms China’s armed forces—to his own advantage

CHINA’S biggest military shake-up in a generation began with a deliberate echo of Mao Zedong.

Late in 2014 President Xi Jinping went to Gutian, a small town in the south where, 85 years before, Mao had first laid down the doctrine that the People’s Liberation Army (PLA) is the armed force not of the government or the country but of the Communist Party. Mr Xi stressed the same law to the assembled brass: the PLA is still the party’s army; it must uphold its “revolutionary traditions” and maintain absolute loyalty to its political masters. His words were a prelude to sweeping reforms in the PLA that have unfolded in the past month, touching almost every military institution.

The aim of these changes is twofold—to strengthen Mr Xi’s grip on the 2.3m-strong armed forces, which are embarrassingly corrupt at the highest level, and to make the PLA a more effective fighting force, with a leadership structure capable of breaking down the barriers between rival commands that have long hampered its modernisation efforts. It has taken a long time since the meeting in Gutian for these reforms to unfold; but that reflects both their importance and their difficulty.

The PLA itself has long admitted that it is lagging behind. It may have plenty of new weapons—it has just started to build a second aircraft-carrier, for instance—but it is failing to make effective use of them because of outdated systems of command and control. Before any substantial change in this area, however, Mr Xi felt it necessary to strengthen the party’s control over the PLA, lest it resist his reforms and sink back into a morass of money-grubbing.

The reforms therefore begin with the main instrument of party control, the Central Military Commission (CMC), which is chaired by Mr Xi. On January 11th the CMC announced that the PLA’s four headquarters—the organisations responsible for recruiting troops, procuring weapons, providing logistics and ensuring political supervision—had been split up, slimmed down and absorbed into the commission. Once these were among the most powerful organisations in the PLA, operating almost as separate fiefs. Now they have become CMC departments.

Power to the party
The political headquarters was the body through which the party kept an eye on the ranks and ensured they were up to speed on Maoist texts and the party’s latest demands. The loss of its autonomous status may suggest that the party’s role is being downgraded. Far from it. Now the party’s CMC (there is also a state one, which exists only in name) will be better able to keep watch. The body’s 15 new departments will include not only departments for politics but also for logistics, personnel management and fighting corruption. Mr Xi has already turned his guns on graft, imprisoning dozens of generals.

The second reform has been to put the various services on a more equal footing. The land forces have hitherto reigned supreme. That may have been fine when the PLA’s main job was to defend the country against an invasion across its land borders (until the 1980s the Soviet Union was considered the biggest threat). But now China has military ambitions in the South China Sea and beyond, and wants the ability to challenge American naval and air power in the western Pacific. A recent editorial in the Liberation Army Daily, a PLA mouthpiece, berated the armed forces for their “army-centric mindset”.

In addition to those for the navy and air force, a separate command has now been created for the army, which had previously run everything. On December 31st the CMC also announced the formation of a command responsible for space and cyberwarfare, as well as one for ballistic and cruise missiles (previously known as the Second Artillery Force, part of the army). There is also a new joint command with overall control of the various services, a little like America’s joint chiefs of staff.

Big changes are also afoot in regional command structures. China used to be divided into seven military regions. These were powerful and relatively self-contained; sharing or swapping troops and equipment was rare. Now, according to reports in the South China Morning Post, a newspaper in Hong Kong, the number will be reduced to five. Troops will be recruited and trained by the various services before regional deployment. This will ensure greater central control over the regions.

China has been talking about military reform for decades, but change has been glacial. Opposition within the armed forces has been intense. “If [reform] is not done properly,” wrote Sun Kejia and Han Xiao of the PLA National Defence University last month, “it could affect the stability of the armed forces or even all of society.” (The article was promptly removed from the Liberation Army Daily website.) Demobbed soldiers could make trouble—Mr Xi wants the number of troops to be cut by 300,000. State firms have been ordered to reserve 5% of jobs for laid-off veterans.

The recent reforms are more extensive than most Western observers had expected after the Gutian conference. But even so, they are incomplete. The army still holds sway over some appointments (all five chiefs of the new regional commands are army generals, for instance).

The PLA has traditionally given higher status to combat units than to those providing communications, logistics, transport and the like, a misplaced emphasis in an age when information and communications are crucial in warfare. The reforms do little to correct that bias. Moreover, many details about them remain unclear.

No one knows, for example, where the troop cuts will come from or what units will go into the new space and cyberwarfare command.

The first result of the reforms is likely to be confusion in the ranks, until the new system settles down.

Dennis Blasko, an American observer of the PLA, says no one can be sure of the results until they are tested in battle. Amid the murk, only one man clearly seems to have got his way: Mr Xi.

A Uniquely American Problem

by: Shareholders Unite

- Until now, the US economy recovered fairly briskly from the financial crisis, with solid private sector growth.

- The US recovery is much better than in most other areas of the world economy.

- But there is one area where the US lags, and that is wages.

- But US wages have been stagnant for decades, and this turns out to be a surprisingly US problem only.
We argued (here) that the unusual amount of gloom and doom in the US is largely unwarranted as the economy didn't fall into a depression post 2008.
Also, markets have ratcheted up, private sector employment creation has been as good as in any recovery (certainly better than the post 2001 recovery) and there has been a fair amount of deleveraging post 2008.
We also argued that compared internationally, the economic performance of the US has been rather good, despite the headwinds coming from the deleveraging, public sector employment loss, and rising dollar.
However, we're not blind optimists, and acknowledged that actual GDP growth has disappointed historically, and tried to explain that (here).
Not only has growth disappointed, it is also increasingly distributed unevenly as inequality exploded.
Median wages are little higher than they were in the 1970s, despite all the productivity gains since.
This, for us is the real problem of the US economy, and as we show below, it's fairly unique to it as well.
The slowing growth has been increasingly dependent on increasing debt as the stagnating incomes at the middle were supplemented by borrowing in order to share in the increase in living standards.
Below you see how, from the mid 1980s (after the recovery from the recession), the saving rate is going down for 90% of households.
Of course this wasn't (and isn't) sustainable as debt/GDP ratio's ratcheted up ever higher.
To top off the economic problems, the exploding debt, combined with slow growth and absence of any meaningful inflation is a particularly toxic cocktail producing very unfavorable debt-dynamics in the form of the denominator effect, where due to stagnant nominal GDP debt ratio are ratcheting up.
Despite that, the US managed to actually deleverage post 2008 financial crisis, despite the public sector's releveraging.
So we have stagnating median incomes for decades, which led large swaths of the middle class to leverage up in order to share in the increasing wealth creation.
These stagnating incomes are often blamed on a combination of:
  • Globalization: the competition from low wages abroad plus the threat of offshoring.
  • Technology: automation replacing unskilled and semi-skilled employment.
  • Education: the US losing its advantage in mass education.
For instance, here is Robert Reich widely shared view:
Technology and globalization haunted dreams of American middle-class prosperity.  
Machines displaced low-skilled (and increasingly middle-skilled) workers whose routine jobs could be automated, and globalization meant the flight of manufacturing and service jobs to factories and call centers in emerging countries.  
The result was ever-widening inequality.

But here is a particularly brutal figure:
This is simply extraordinary. It turns out wages in France and Japan, often considered economic basket cases, have grown 2.5 times as fast as those in the US.
A possible retort to this could be that while wages have been growing much faster in sclerotic France, this could have come at the expense of job creation. After all, higher wages could mean labor pricing itself out of the market and France isn't well known for its economic dynamism anyway.
But then there is this figure showing that while France has managed to increase employment for it's working age population, the US hasn't.
The figure is likely to be somewhat flattering to France as early retirement is likely to be considerably higher compared to the US, but still, it's difficult to argue France has done worse on employment despite much better wage growth.
But there is a much more fundamental and important conclusion to be drawn from these developments. Japan and France are very much under the same forces of globalization and technology which are often deemed the culprits of the stagnant wages in the US.
This points squarely to domestic causes for the stagnant median wages in the US. That is actually good news, as policies and institutions can be changed, while globalization and technology are much bigger and powerful forces.
One can tinker with the consequences of technology and globalization, to alter them isn't really a good idea, witness the plight of countries that shut themselves from world markets.
The conclusion about domestic causes is confirmed by other stuff, like the plight of the white middle-aged, especially those with just a high school diploma or less. Unlike middle aged whites in other rich countries, and most notably unlike other American ethnic groups, their life expectancy isn't increasing.
Here is Fareed Zakaria:
The main causes of death are as striking as the fact itself: suicide, alcoholism, and overdoses of prescription and illegal drugs. "People seem to be killing themselves, slowly or quickly," Deaton told me. These circumstances are usually caused by stress, depression and despair. The only comparable spike in deaths in an industrialized country took place among Russian males after the collapse of the Soviet Union, when rates of alcoholism skyrocketed
A conventional explanation for this middle-class stress and anxiety is that globalization and technological change have placed increasing pressures on the average worker in industrialized nations. But the trend is absent in any other Western country - it's an exclusively American phenomenon. And the United States is actually relatively insulated from the pressures of globalization, having a vast, self-contained internal market. Trade makes up only 23 percent of the U.S. economy, compared with 71 percent in Germany and 45 percent in France.
It's also an interesting debate exactly which domestic policies and institutions are responsible for the stagnant wages in the US, but we'll leave that for another article.
Investors complain (rightly, in our view) about the quality of earnings and the lack of topline growth for many companies. The source of this is remarkably simple.
It's difficult to have robust topline growth when wages are stagnant, and they have been stagnant for quite some time. Yes, this effect was masked for a while.
First by women entering the workforce en masse (1970 - 1990s) and then by the great leveraging up, that is, the credit boom largely based on the housing boom.
Now that these two countervailing forces have exhausted themselves, the stagnant wages are laying bare and the economic consequences can no longer be masked.
They show up in disappointing topline growth, reducing capex, an aging capital stock and hence slowing productivity growth, financial engineering and even as a disgruntled electorate which feels the game is rigged against them.

Gold And Silver: NWO: Public Be Damned, Preferably Dead

By: Michael Noonan

In the midst of this political and economic maelstrom that appears to be reaching its peak since the pivotal 9/11 "attack" on the US, when the twin towers of the World Trade Center were destroyed, partially by an airplane flying into each tower, then more fully by the detonation of all the explosives planted in the buildings to insure their destruction. Should there be any question as to that assessment, which has gained greater acceptance by those willing to do their due diligence, the unprovoked destruction of building seven [WTC 7] adds proof of how these buildings were planned for certain demolition, in advance.

The planes flying into the WTC buildings was just a sideshow, a distraction for what really occurred, a smokescreen for public consumption to accept the Problem-Reaction-Solution template of the elites to clear the way for ushering its planned police state of this nation.

Question: Why did building seven collapse if it were not intentionally wired to do so?

There is zero evidence of any external cause. Here, folks, is "your" government at work.

The elites control and run the US government, top to bottom. The entire US economy has been purposefully gutted by the elites just as happened with building seven. The rise of China as the elite's next phase of global domination has been equally planned since the days of Mao Tse-Tung and his Cultural Revolution, half a century ago. The globalists plan long-term. Count on it. There are no accidents, including the heinous event called "9/11."

With troops and/or bases in over 200 countries around the globe, the US is responsible for, mostly indirectly and behind the scenes, instigating wars of destruction, strife, and the devaluing of human existence, acceptable collateral damage as the intentional "Reign of Chaos" reaches the culmination stage.

The elites do not care what happens to human populations, and, in fact, plan for the elimination of millions upon millions of people dying, wars being just one way. Forced vaccinations that are laced with traces of viruses that are harmful to one's immune system is another way, of so many. If one has not questioned it already, why are vaccinations becoming mandatory, dictated by the government? It is part of the overall plan to cull the existing world population [The two links are for convenience on the topic. There is substantially more evidence available if one looks for it.]

Genetically Modified Foods [GMOs], are another example, and corporations have enough control over governments to prevent having to label GMO foods. Like vaccines, GMOs are designed to modify one's immunity system to be less resistant to diseases and more prone to an unhealthy life and a shortened life expectancy.

What does this have to do with the price of gold and silver?

Last week, our commentary stated Why is More Important Then When in understanding the sad state of pricing for PMs relative to the ineffective realities of Supply and Demand.

Globalists have modified the natural forces of Supply and Demand through their interference and suppression of them in favor of maintaining the artificial status of the "unnatural" fiat "dollar."

Because the elite's control the world money supply, directly in the West, indirectly in China and Russia, no country can withstand the financial havoc and undeclared economic warfare by the US to keep the increasingly failing fiat "dollar" as the world's reserve currency. By world's reserve currency means that international trade shall be settled in terms of the US "dollar,' hence world demand for and use of this paper fiat facade.

Putin and Russia have become a thorn in the globalist's flanks, running interference with plans for world dominance and destruction along the way. US imposed sanctions against Russia have backfired and have economically harmed Europe far more than Russia. The US does not care!

Europe can collapse as far as the US is concerned.

This so-called refuge problem is creating huge problems for European countries. It was planned in advance. Weaken the world as much as possible, Problem. Watch as chaos and instability unfolds everywhere, Reaction. The Solution to all this economical and political turmoil is the establishment of a One World Government, the New World Order, behind which the elites are pulling every string to maintain control and cull the world's population in the process.

This is more of the Why for gold and silver's protracted suppressed price scenario, and it will continue until the elites succeed, or with the interference of Putin and Russia, fail on a grand scale.

Gold and silver are the enemy of the US fiat "dollar," the proverbial wooden stake into the heart of a vampire. The forces of evil will not allow that to happen, which is an impossibility, for all fiat Ponzi schemes fail by the very nature of their unnatural existence.

We first show the fiat "dollar" chart, then the crude oil chart before dealing with our weekly gold and silver analysis with their respective charts.

The intrinsically worthless fiat Federal Reserve Note, accepted world-wide as a false "dollar," show no sign of turning around its bullish trend. The chart is not an in-depth analysis, but it is used to show how markets can be muscled higher by the Fed in order to protect the fiat "dollar" from realizing its true value: nothing. The elites know this. Few others in the world accept that reality.

The bigger the lie and the longer it is told, the more the truth of the matter will be rejected. The US "dollar" is as valuable as monopoly money. To believe otherwise is, as Shakespeare would say, "Thinking makes it so."

US Dollar Index Weekly Chart

Everything that happens on such a grand scale is always about one thing: "money," and the decline in crude oil is no exception. The US has controlled the fiat "dollar" as the world's reserve currency, and the Saudis have controlled oil for the same period of time. Both are losing control, but it will get uglier before it gets better. This is why the extraordinarily bullish fundamentals, on the demand side for gold and for silver, equally on the supply side as well as demand, have meant nothing for their pricing, in terms of the fiat dollar.

For those who would "argue" the picture is more bullish for gold when measured by other currencies, this is true, for sophist reasoning. However, those other currencies have been weaker relative to the "dollar." You say tomato, we say tomahto. One and the same, in the end.

WTI Crude Oil Weekly Chart

The KISS principle at work. Keeping it simple to recognize the trend and recognize there is no change, for now.

Weekly Gold Chart

More of a sublte observation on gold: the gap higher open on Friday, after the possible "bear trap close" lower on Thursday forming a higher low, could lead to a change in the daily trend, but even if a higher high develops to change the trend from down to up, there is still a lot of work to undue the damage from the suppressed price structure.

Daily Gold Chart

We have favored silver over gold for the past year, based on the gold:silver ratio, now running consistently between 75:1 - 78:1, and the chart structure is offering reasonable support for that sentiment. The lower lows are making less progress to the down side, and that can be taken as a potential sign of developing change in the ability to keep silver as low as it is.

Weekly Silver Chart

The two-month sideways TR with overlapping bars indicates a draw in the battle between buyers and sellers. We continue to allow for another downside washout in silver, perhaps even gold, as the chart structure is overall weak, and it would be a positive sign if such a washout were to occur because it could signify a final bottom for this 5 year decline. Even if that developed, it would not ensure a bull market would begin to rage, for the globalists are not about to give up so easily, and that means change will come reluctantly, as opposed to swiftly.

Still, the alternative for owning [and still accumulating more] physical silver and gold is far better than what the globalists have in mind for control of all assets owned by people.

They have virtually little to no control over one's holding of PMs, which one could always claim were lost in a boating accident. Remain confident, and stay the course.

Daily Silver Chart


States Should Raise the Gas Tax

  A service station in Leonia, N.J. Credit Seth Wenig/Associated Press       
The tumbling price of crude oil is helping many Americans save money. It also presents a good opportunity for state governments to raise their gasoline taxes to help pay for road repairs and other needed transportation investments.
Ideally, Congress should raise the national gasoline tax, which has remained at 18.4 cents per gallon since 1993. But federal lawmakers are so fearful of raising taxes just ahead of an election that they refuse to do so. The transportation bill they approved in December provides far too little money to repair and upgrade America’s crumbling transportation system.
That leaves it up to the states to do the job. And now is the time to do it. The average price of gas was $1.99 a gallon in the week ended Jan. 11, down from $2.80 a gallon at the end of June, according to the Energy Information Administration. That decrease gives state lawmakers plenty of room to raise taxes without hitting drivers with a big new expense.

Many states have already acted. Last year, eight states, including Iowa, Michigan and Washington, raised their gasoline taxes, according to the National Conference of State Legislatures. Two others, Kentucky and North Carolina, changed the way that they tax fuel to make sure the revenue they collect does not decline as the price of gasoline fluctuates.

Other states have not stepped up. Among them is New Jersey, which taxes gasoline at just 14.5 cents a gallon, a fraction of the tax rates in neighboring New York, which charges 42.64 cents a gallon, and Pennsylvania, which charges 50.04 cents.

As a result, New Jersey is falling behind on needed repairs to its roads and bridges, and has been forced to raise fares for rail commuters. The state also needs to come up with money to help pay for its share of the cost of a new rail tunnel under the Hudson River that is expected to cost about $20 billion. The federal government and Amtrak will put up half of that, and Gov. Andrew Cuomo of New York and Gov. Chris Christie of New Jersey have agreed to come up with the rest.
New Jersey’s reluctance to raise taxes makes it harder for neighboring states to raise theirs, since some residents in New York and Pennsylvania will be even more tempted to cross state lines to fill up their tanks. Still, New York should certainly consider raising its gas tax to help pay for the many transportation projects Mr. Cuomo has announced in recent weeks, including the renovation of Penn Station, the addition of a track to the Long Island Rail Road and improvements in the city’s subway and bus system.
The case for more transportation investment is very strong. Study after study finds that the country’s roads, bridges and rail lines are inadequate and that public spending on transportation as a percentage of the gross domestic product has been stagnant for several decades. More investment would not just improve roads and railways. It would also boost the economy by creating jobs and improving efficiency.

The Real Problem is Government

Doug Casey

I give a good number of speeches each year. For some time I've asked audiences a question: "What useful purpose does the U.S. government serve?" I do that not to be challenging or provocative, but to actually find out if anyone else can think of a useful purpose the government serves. The question at first shocks, then amuses and then perplexes almost everyone because it is both so obvious and outrageous that no one ever thinks of asking it. Most people accept the institution of government because it has always been there; they have always assumed it was essential. People do not question its existence, much less its right to exist.

Government sponsors untold waste, criminality, and inequality in every sphere of life it touches, giving little of value in return. Its contributions to the commonweal are wars, pogroms, confiscations, persecutions, taxation, regulation, and inflation. And it's not just some governments of which that's true, although some are clearly much worse than others. It's an inherent characteristic of all government.


The essence of something is what makes the thing what it is. But surprisingly little study of government has been done by ontologists (who study the first principles of things) or epistemologists (those who study the nature of human knowledge). The study of government almost never concerns itself with whether government should be, but only with how and what it should be. The existence of government is accepted without question.

What is the essence of government? After you cut through the rhetoric, the doublethink, and the smokescreen of altruism that surround the subject, you find that the essence of government is force…and the belief it has the right to initiate the use of force whenever expedient.

Government is an organization with a monopoly, albeit with some fringe competition, on the use of force within a given territory. As Mao Zedong said, "The power of government comes out of the barrel of a gun." There is no voluntarism about obeying laws. The consent of a majority of the governed may help a government put a nice face on things, but it is not essential and is, in fact, seldom given with any enthusiasm.

A person's attitude about government offers an excellent insight into his character. Political beliefs reflect how a person thinks men should relate to one another; they offer a practical insight into how he views humanity at large and himself in particular.

There are only two ways people can relate in any given situation: voluntarily or coercively. Almost everyone, except overt sociopaths, pays at least lip service to the idea of voluntarism, but government is viewed as somehow exempt. It's widely believed that a group has prerogatives and rights unavailable to individuals. But if that is true, then the Ku Klux Klan (KKK), the Irish Republican Army (IRA), the Palestine Liberation Organization (PLO) – or, for that matter, any group from a lynch mob to a government – all have rights that individuals do not. In fact, all these groups believe they have a right to initiate the use of force when they find it expedient. To the extent that they can get away with it, they all act like governments.


You might object that the important difference between the KKK, IRA, PLO, a simple mob and a government is that they aren't "official" or "legal."

Apart from common law concepts, legality is arbitrary. Once you leave the ken of common law, the only distinction between "laws" of governments and the "ad hoc" proceedings of an informal assemblage such as a mob, or of a more formal group like the KKK, boils down to the force the group can muster to impose its will on others. The laws of Nazi Germany and the U.S.S.R. are now widely recognized as criminal fantasies that gained reality on a grand scale.

But at the time those regimes had power, they were treated with the respect granted to any legal system. Governments become legal or official by gaining power. The fact that every government was founded on gross illegalities – war or revolt – against its predecessor is rarely an issue.

Force is the essence of government. But the possession of a monopoly on force almost inevitably requires a territory, and maintaining control of territory is considered the test of a "successful" government. Would any "terrorist" organization be more "legitimate" if it had its own country? Absolutely. Would it be any less vicious or predatory by that fact? No, just as most governments today (the ex-communist countries and the kleptocracies of the Third World being the best examples) demonstrate. Governments can be much more dangerous than the mobs that give them birth. The Jacobin regime of the French Revolution is a prime example.