The Reality of ‘Flow’

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

To many, the “strong dollar” will always be an economic condition. If the price of the dollar is rising, then it will be assumed, mostly by economists, to be a relative judgment in favor of domestic growth potential and reality. That view misses the very relevant fact that “dollars” are not necessarily of domestic origin or for domestic purposes. The eurodollar standard ensures that “money supply” is tied very closely to overseas financial factors, which include perceptions about the US’ place in the global economy.

So it may seem tautological to compare commodity prices denominated in “dollars” with the “dollar” itself. However, these are actually different systemic factors combining to intertwine financial function with economic function.

ABOOK Feb 2015 Flow Dollar Rising Commodity Inverse

It would make sense in the eurodollar view for the “dollar” to be rising ever since the near-panic in 2011. That event was by and large an permanent or at least durable impairment of global banking that has not been unwound by the dramatic implementation of monetary programs. Rather, central bank activities sought instead to incorporate private “funding” functions onto themselves; without actually resolving disabilities in the global system. Continue reading

Fourth Turning – The Shadow of Crisis Has Not Passd – Part Four

Submitted by Jim Quinn  –  The Burning Platform

In Part One of this article I explained the model of generational theory as conveyed by Strauss and Howe in The Fourth Turning. In Part Two I provided an overwhelming avalanche of evidence this Crisis has only yet begun, with debt, civic decay and global disorder propelling the world towards the next more violent phase of this Crisis. In Part Three I addressed how the most likely clash on the horizon is between the government and the people. War on multiple fronts will thrust the world through the great gate of history towards an uncertain future.

War on Multiple Fronts

“The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.” – Strauss & Howe –The Fourth Turning

The drumbeats of war are pounding. Sanctions are implemented against any country that dares question American imperialism (Russia, Iran). Overthrow and ignominious imprisonment or death awaits any foreign leader questioning the petrodollar or standing in the way of America spreading democracy (Iraq, Libya, Syria, Ukraine, Egypt). The mega-media complex of six corporations peddle the government issued pabulum about ISIS being an existential threat to our freedoms; Russia being led by the new Hitler and poised to take over Europe; Syria gassing innocent women and children; and Iran only six months away from a nuclear bomb (they’ve been six months away for the last fourteen years). Hollywood does their part with patriotic drivel like American Sniper, designed to compel low IQ unemployed American youths to swell with pride and march down to enlistment centers, located in our plentiful urban ghettos.

The most disconcerting aspect of Fourth Turnings is they have always climaxed with total destructive all-out war. Not wars to enrich arms dealers like Iraq, Afghanistan, and Syria, but incomprehensibly violent, brutal, wars of annihilation. There are clear winners and losers at the conclusion of Fourth Turning wars. Leaders mobilize all forces, refuse to compromise, define their enemies in moral terms, demand sacrifice on the battlefield and home front, build the most destructive weapons imaginable, and employ those weapons to obtain victory at any cost.

It may seem inconceivable that war on such a scale will happen within the next ten years, but it was equally inconceivable in 1936 that 65 million people would die in the next ten years during World War II. We valued all the wrong things and made all the wrong choices leading up to this Crisis and during the early stages of this Crisis. The accumulation of unmet obligations, unpaid bills, un-kept promises and unresolved issues will provide the fuel for an upheaval that will shake our society to its core and transforms the country’s direction for the next sixty years. The outcome of the conflict could be tragedy or triumph. Our choices will make a difference.

There will be war on many fronts, and they have already begun. The culmination will likely be World War III, with the outcome highly uncertain and potentially disastrous.

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The “Catastrophic Shutdown Of America’s Supply Chain” Begins: Stunning Photos Of West Coast Port Congestion

Submitted by Tyler Durden  –  ZeroHedge

One week ago, when previewing what may be the first lockout of the West Coast Ports since 2002, we cited the Retail Industry Leaders Association who, realizing that failure to reach an agreement between the dockworker union and their bosses, the Pacific Maritime Association representing port management would lead to devastating consequences for the US retail industry, had several very damning soundbites:

  • “a work slowdown during contract negotiations over the past seven months has already created logistic nightmares for American exporters, manufacturers and retailers dependent on an efficient supply chain. A complete shutdown would be catastrophic, with hundreds of thousands of jobs at risk if America’s supply chain grinds to a halt.
  • “A west coast port shutdown would be an economic disaster.” 
  • “A shutdown would not only impact the hundreds of thousands of jobs working directly in America’s transportation supply chain, but the reality is the entire economy would be impacted as exports sit on docks and imports sit in the harbor waiting for manufacturers to build products and retailers to stock shelves.” 

And the punchline: “The slowdown is already making life difficult, but a shutdown could derail the economy completely.

Just so readers have a sense of what is at stake, this is what the average dockworker makes: $147,000 a year in salary, plus $35,000 a year in employer-paid health care and an annual pension of $80,000 (according to an association press release). It is the overtime compensation to the total shown here, which grosses to over a quarter of a million dollars, that dockworkers are negotiating to raise or else the key US supply-chains gets it.

Incidentally, the demands of the dockworker union and their leverage is precisely the reason for the dramatic discrepancy we showed in the following chart:

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The Minsk Peace Deal: Farce Or Sellout? — Paul Craig Roberts

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

Judging by the report on RT 
I conclude that the Ukraine peace deal worked out in Minsk by Putin, Merkel, Hollande, and Poroshenko has little chance of success.

As Washington is not a partner to the Minsk peace deal, how can there be peace when Washington has made policy decisions to escalate the conflict and to use the conflict as a proxy war between the US and Russia?

The Minsk agreement makes no reference to the announcement by Lt. Gen. Ben Hodges, commander of US Army Europe, that Washington is sending a battalion of US troops to Ukraine to train Ukrainian forces how to fight against Russian and rebel forces. The training is scheduled to begin in March, about two weeks from now. Gen. Hodges says that it is very important to recognize that the Donetsk and Luhansk forces “are not separatists, these are proxies for President Putin.”

How is there a peace deal when Washington has plans underway to send arms and
training to the US puppet government in Kiev?

Looking at the deal itself, it is set up to fail. The only parties to the deal who had to sign it are the leaders of the Donetsk and Lugansk break-away republics. The other signers to the Minsk deal are an OSCE representative which is the European group that is supposed to monitor the withdrawal of heavy weapons by both sides, a former Ukrainian president Viktor Kuchma, and the Russian ambassador in Kiev. Neither the German chancellor nor the French, Ukrainian, and Russian presidents who brokered the deal had to sign it.

In other words, the governments of Germany, France, Ukraine, and Russia do not appear to be empowered or required to enforce the agreement. According to RT, “the declaration was not meant to be signed by the leaders, German foreign minister Frank-Walter Steinmeier said.” 

The terms of the agreement depend on actions of the Ukrainian parliament and prime minister, neither of which are under Poroshenko’s control, and Poroshenko himself is a figurehead under Washington’s control. Moreover, the Ukrainian military does not control the Nazi militias. As Washington and the right-wing elements in Ukraine want conflict with Russia, peace cannot be forthcoming.

The agreement is nothing but a list of expectations that have no chance of occurring.

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Dollar & Bond Yields Are Plunging

Submitted by Tyler Durden  –  ZeroHedge

US equity markets are quietly doing what they do – go up and stay up. But in the biggest markets in the world – US Treasury, Japanese bonds, and foreign exchange – something turmoily is happening. Yields are cratering today.. The USDollar is getting hammered on the back of JPY gapping dramatically stronger and EUR surging.

USDJPY is perhaps the most notable…

As WSJ reports,

Some Bank of Japan officials have grown more concerned about the drawbacks of a weak yen, making them increasingly cautious about the central bank undertaking additional quantitative easing, according to people familiar with their thinking.

These officials are worried that a further sharp decline in the currency could hurt Japan’s fragile economic recovery by damping consumer spending, which accounts for around 60% of gross domestic product, the people said.

This week, BOJ policy board member Yoshihisa Morimoto said the additional easing introduced in October has had an “impact on households’ purchasing power somewhat.” The yen has fallen to ¥119.75 against the dollar, from around ¥109.20 at the time the further stimulus was announced. Mr. Morimoto was one of four board members who voted against taking further action in October. The vote was 5-4.

Worried that a weaker yen could frustrate households, particularly ahead of local elections in April, the Japanese government has started signaling that it doesn’t want the BOJ to rush to achieve its inflation goal.

“If they rigidly stick to the ’two year’ time frame and take additional easing measures in the hope of reaching the target, that could have an impact on foreign-exchange rates,” a person familiar with the government’s view told The Wall Street Journal recently. “If the yen falls to ¥130, ¥140 that would be considerably away from its PPP exchange rate.”

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The Greek Issue Just Got Personal

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Dorothea Lange Water supply in squatter camp near Calipatria CA  1937

It was already present over the past two weeks, for example in Yanis Varoufakis’ meetings with Eurogroup head Jeroen Dijsselbloem and German FinMin Schäuble, awkwardly obvious in facial expressions and body language. A touch of personal discomfort. A touch of a threat that required chest-thumping and hubris to be brushed off. ‘You better do what we say or else’. Back then, perhaps it was still experienced from a political, deal-making, perspective. But in the course of yesterday it became clear something has changed.

It has become personal, you could feel it in the air, and that raises the danger level considerably. It’s not personal from the Greek side; Alexis Tsipras and Varoufakis merely act according to – their interpretation of – the mandate handed them by their voters. It’s the other side(s) that have started making it personal. They see themselves, their positions, as being under attack. And they blame Greece’s new Syriza government for that. Which may seem logical at first blush, but that doesn’t make it true. The people sitting on the other side from Varoufakis have dug themselves into these positions.

Which, as they rightfully fear, are now threatened. Not because Syriza means to do so, but because they come to the table with that mandate, to put an end to what has caused Greece to sink as deep as it has. There’s nothing personal about that, it’s democracy at work, it’s politics. Still, it’s perceived as personal, because it makes the ‘old’ leadership uncomfortable. They haven’t seen it coming, they were convinced, all the way, that they would prevail. They mostly still are, but in a now much more nervous fashion.

It’s started to dawn on them that perhaps Syriza will not back down on its demands, that yet another – mostly superficial – political deal is not in the cards. CNBC reported last night that a deal on an extension of the existing bailout was near, and markets reacted quite strongly. It would appear, therefore, that both media and investors have been as deaf as the EU to what Syriza has been consistently saying, that it’s not interested in such an extension. It was never on the table, not from the Greek point of view.

Perhaps a headline such as yesterday’s ‘Greece Warned To Expect No Favors’ sums it up best. The EU side sees – or at least publicly presents – any negotiation with Greece as handing out favors, while Syriza says it doesn’t want any favors, it wants something that will give the Greek people back a future. And there is nothing that will make them not want that.

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The First Casualty as Debt Implodes Will Be

Submitted by William Bonner, Chairman – Bonner & Partners

Last week, McKinsey Global Institute reported that the world’s total debt levels were twice what we thought – $200 trillion, or about three times the planet’s total output.

So, what a relief it was to discover… only a few hours later… that there was nothing whatsoever to worry about. Our concern was totally misplaced. It was nothing but a colossal misunderstanding or, as Nobel laureate economist Paul Krugman put it in the New York Times, a “bad analogy.”

So now, we can go back to our Portuguese lessons here in São Paolo without a care.


1-Global Debt Growth

Growth in global debt, per the latest McKinsey report on the non-deleveraging echo bubble era: Since Q4 2007, global debt levels have increased by a cool $57 trillion. Thankfully, Paul Krugman informs us that it “doesn’t matter”. Phew! Dodged a bullet there! – click to enlarge.

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Wholesale Problems

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

One of the primary criticisms I have leveled against economic interpretations based solely on statistics like GDP is that they are relative in the narrowest sense. GDP especially compares one quarter to the prior, meaning that it is susceptible to those that extrapolate short-term trends. In this current age of monetary elongation in the “business cycle”, that is a dangerous proposition, though it explains a lot, I believe, of why optimistic forecasts never make it past the next quarter or two.

A big reason for that is inventory change, which we have seen inaugurated in several mini-cycles within the latest downturn dating back to the middle of 2012. As such, each year, economists take the increase in inventory as a permanent or at least durable signal of robust expansion – only to see those extrapolations thwarted by something as truly benign as winter (twice now).

So it is again with 2014, which started in concern before giving way again to a mid-year mini-cycle which “confirmed” the finality of the “recovery” at long last. However, since the summer, there has been a marked slowdown in wholesale activity that actually grew more severe the last two months of the year. That means 2014 actually ended on a very sour note.

ABOOK Feb 2015 Wholesale Trouble Sales Inv YY

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Stalemate At Minsk Summit And Eurogroup Meeting Suggests Tensions In Europe And Globally Are Set To Escalate

Submitted by Mark O’Byrne  –  GoldCore

– Diplomats best hopes for Minsk is for freeze in hostilities

– Russia engages the U.S. in war of words as tensions mount

– Greece and EU buy time – no agreement thus far

– Anti-austerity parties in Spain and Greece may bring down the euro

The Minsk Summit which was called at the urgent behest of Angela Merkel and Francois Hollande seems not to have yielded any tangible outcome despite the high stakes on all sides.

Minsk Summit

Media reports present little new information regarding the talks which ran through the night. The Guardian reports that President Putin confirmed a ceasefire agreement has been reached which would come into effect on Sunday.

Ukraine’s Poroshenko denied an agreement had reached, insisting that some of Russia’s demands were “unacceptable”.

While a ceasefire, if it does transpire, will bring much relief to the people of East Ukraine it is unlikely to last without a real political solution. The Pro-Russian rebels do not trust Poroshenko.

The Donetsk and Luhansk regions – which are inhabited predominantly by ethnic Russians – voted to secede from Ukraine following the overthrow of former, pro-Russian, Prime Minister Yanukovich last year.

As such, the rebels do not recognize Poroshenko as the leader of Ukraine and reject a return to the Ukrainian state in it’s current form. They are apparently willing to return as part of a federalized Ukraine which would limit the power of both Kiev and Moscow which seems reasonable. Continue reading

No Oil ‘Windfall’ Either

Submitted by Jeff Snider – Alhambra Investment Partners

The problem with a high rate of inventory build is that it eventually has to go somewhere. In an actual economic “boom” that isn’t much of a concern as businesses remain relatively confident that even if inventory is high in one month it will be easily disposed, profitably, in the next. That is the dominant narrative that seems to be taken as a given surrounding the current circumstances. As released yesterday, wholesale inventories are at a “cycle” high, having risen despite slowing sales across the last few months of 2014 – the all-important Christmas disappointment. But 2015 is supposed to be different, as there is purported to be a robust jobs market and the huge “tailwind” of lower oil prices (that may not have yet found how low is low).

Diane Swonk, chief economist at Mesirow Financial, said that if oil prices stay low, gas savings throughout the U.S. economy could reach $300 billion this year. “It’s an enormous windfall for consumers,” Swonk said. “They thought it was temporary and it wouldn’t pan out, but as oil prices continued to go lower, there was a shift (in consumer attitude). Not only have prices fallen quite a bit, but we see it’s real money.”

The problem with that analysis is that so far it amounts to an economist’s dream. Those that expect such “an enormous windfall” are practicing that decrepit simplification of ceteris paribus. All things being equal, lower oil prices would certainly be a massive boost to consumer spending power, but only as it removes the same from energy producers. That, however, is the best case. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Eurogroup Fails to Agree to Next Greek Bailout Steps (Bloomberg)
Rejected Eurogroup Draft Spoke Of “Extending” Greek Bailout (Reuters)
Greece And Eurozone In Stalemate Over Debt Burden (Guardian)
Greece Said to Offer Euro Area Four Principles for Talks (Bloomberg)
Germany Faces Impossible Choice As Greek Austerity Revolt Spreads (AEP)
Eurozone Leaders Believe Syriza Must Fail And Be Seen To Fail (Telegraph)
If The Greek Olive Branch Is Rejected, Europe May Fall (Pablo Iglesias)
86 Names Missing from Greek ‘Lagarde List’ (Greek Reporter)
Ukraine Gets IMF-Led $40 Billion Aid Accord to Avert Default (Bloomberg)
Ukrainian Cease-Fire Sealed After All-Night Minsk Peace Summit (Bloomberg)
Putin Top Advisor: US Eyes Ukraine for Regime Change in Russia (Zero Hedge)
Oil Firms ‘Need Fresh Strategies’ To Operate in Future of $50 Oil (BBC)
Global Oil Layoffs Exceed 100,000 (Bloomberg)
Goldman: Why Oil Crashed—and Why Lower Prices Are Here to Stay (Bloomberg)
Have Banks Overplayed Their Hand Fighting Wall Street Regulation? (Bloomberg)
Audit The Fed – And Shackle It, Too (David Stockman)
‘No Solution To Brazil’s Crisis’ (CNBC)
Sweden’s Riksbank Cuts Key Rate to Negative (Bloomberg)
Mediterranean Sinking ‘Kills 300 Migrants Bound For Europe (BBC)
New Ebola Cases Rise For Second Week In A Row (BBC)
Australia On Brink Of ‘Extinction Calamity’ (BBC)

Much more here: Debt Rattle February 12 2015 –