New revelations from Wikileaks’ ‘Vault 7′ leak shed a disturbing light on the safeguarding of privacy. Something already known and largely suspected has now become documented by Wikileaks. It seems evident that the CIA is now a state within a state, an entity out of control that has even arrived at the point of creating its own hacking network in order to avoid the scrutiny of the NSA and other agencies.
Reading the revelations contained in the documents released by WikiLeaks and adding them to those already presented in recent years by Snowden, it now seems evident that the technological aspect regarding espionage is a specialty in which the CIA, as far as we know, excels. Hardware and software vendors that are complicit – most of which are American, British or Israeli – give the CIA the opportunity to achieve informational full-spectrum dominance, relegating privacy to extinction. Such a convergence of power, money and technology entails major conflicts of interest, as can be seen in the case of Amazon AWS (Amazon’s Cloud Service), cloud provider for the CIA, whose owner, Jeff Bezos, is also the owner of The Washington Post. It is a clear overlap of private interests that conflicts with the theoretical need to declare uncomfortable truths without the need to consider orders numbering in the millions of dollars from clients like the CIA.
While it is just one example, there are thousands more out there. The perverse interplay between media, spy agencies and politicians has compromised the very meaning of the much vaunted democracy of the land of the Stars and Stripes. The constant scandals that are beamed onto our screens now serve the sole purpose of advancing the deep interest of the Washington establishment. In geopolitical terms, it is now more than obvious that the deep state has committed all available means toward sabotaging any dialogue and dtente between the United States and Russia. In terms of news, the Wikileaks revelations shed light on the methods used by US intelligence agencies like the CIA to place blame on the Kremlin, or networks associated with it, for the hacking that occurred during the American elections.

This post was published at The Daily Sheeple on MARCH 13, 2017.

Modi’s Demonetization Is a Cure Worse Than the Disease

Next Tuesday will mark four weeks since Indian Prime Minister Narendra Modi made his surprise demonetization announcement that has sent shockwaves throughout the South Asian country’s economy. In an effort to combat corruption, tax evasion and counterfeiting, all 500 and 1,000 rupee banknotes are no longer recognized as legal tender.
I’ve previously written about the possible ramifications of the ‘war on cash,’ which is strengthening all over the globe, even here in the U. S. Many policymakers, including former Treasury Secretary Larry Summers, are in favor of axing the $100 bill. In May, the European Central Bank (ECB) said it would stop printing the 500 euro note, though it will still be recognized as legal currency. The decision to scrap the ‘Bin Laden’ banknote, as it’s sometimes called, hinged on its association with money laundering and terror financing.
Electronic payment systems are convenient, fast and easy, but when a government imposes this decision on you, your economic liberty is debased. In a purely electronic system, every financial transaction is not only charged a fee but can also be tracked and monitored. Taxes can’t be levied on emergency cash that’s buried in the backyard. Central banks could drop rates below zero, essentially forcing you to spend your money or else watch it rapidly lose value.
Inevitably, low-income and rural households have been hardest hit by Modi’s currency reform. Barter economies have reportedly sprung up in many towns and villages. Banks have limited the amount that can be withdrawn. Scores of weddings have been called off. Indian stocks plunged below their 200-day moving average.
Demonetization has also weighed heavily on the country’s manufacturing sector. The Nikkei India Manufacturing PMI fell to 52.3 in November from October’s 54.4. Although still in expansion mode, manufacturing production growth slowed, possibly signaling further erosion in the coming months.

This post was published at GoldSeek on 2 December 2016.

Cronyism: Government, the AMA, and Med Schools

In the introduction to a talk I gave at the Mises Institute this year, I noted how, in the early part of the twentieth century, a convergence of interests between social progressivists and ideological empiricists led to the publication of the Flexner Report and the subsequent enactment of licensing laws.
That historical context is further treated in an outstanding article by Alfred Tauber, who was professor of medicine and philosophy at Boston University School of Medicine.
In ‘The Two Faces of Medical Education: Flexner and Osler Revisited,’ Tauber contrasts the radically different views these two men held about the ethos of medicine and the proper approach to medical education. It is ironic that the victorious position would be the one pushed by Flexner who, as Murray Rothbard put it, was ‘an unemployed former owner of a prep school in Kentucky … sporting neither a medical degree nor any other advanced degree.’
Tauber perfectly captures the aim of Flexner:
Flexner had another agenda than simply eliminating substandard institutions. The registration of medical schools with the Association of American Medical Colleges, the imposition of state licensing linked to such accreditation, the development of a model medical school at Johns Hopkins, and finally the effective use of philanthropic foundation support (e.g., Rockefeller, Carnegie) helped mould American medical standards closely to those advocated by Flexner. The 20th century doctor was to be an active and skeptical medical scientist.

This post was published at Ludwig von Mises Institute on September 8, 2016.

Below The August Jobs Headline – -Even More Weakness

In the technical notes for the Employment Situation Report, the payroll numbers that everyone obsesses over in fine detail, the BLS still shows a 90% confidence interval at 1.6 standard deviations that works out to /- 115k. That means that whatever number gets splashed onto every headline and worked into every major commentary piece isn’t really the number of payroll changes. It is a statistical estimate that only anchors that confidence interval.
What the BLS actually reported for August was that if they gathered all the data again and again100 times, it is expected that in ninety of those the payroll gain would fall in a range of 266k at the upper end of the confidence interval and 36k at the lower end. That changes the interpretation dramatically from the certainty that is reported about how there was a ‘disappointing’ 151k jobs created in August 2016. In fact, given that confidence interval, it could be that the true amount of job gains was something like 266k and consistent with the mainstream interpretation of the past two months that made everyone forget all the economic problems, or closer to 36k and the disaster that so unnerved everyone in the May report (and anything in between those extremes).
There is entirely too much focus and deference to the individual monthly figures; they tell us very little in the end. That is even more the case in the past two years where purported job gains, statistical or real, have proved completely irrelevant to the overall state of the economy. And that discrepancy has led even further into the wrong direction; rather than question the payroll numbers as statistics, the fact that the BLS figures have been in a world of their own has caused this emotional response where the media and economists now scrutinize the fine details of each monthly payroll estimate that much more. The mainstream has declared even more meaning out of desperation even as the usefulness of the jobs report actively declines (as if such accuracy was ever possible in the first place).

This post was published at David Stockmans Contra Corner on September 4, 2016.

Why A Crisis Is Coming – – Two Charts Which Explain It All

The great ‘science’ of economics once discovered an empirical relationship between GDP and unemployment that has been dubbed Okun’s Law. It simply states that the unemployment rate rises as GDP contracts, or vice versa, as production shrinks less people will be employed. It is not exactly rocket science.
However, this made us think about another relationship we have observed lately. US government real tax receipts have been trending downwards while employment has kept up remarkably well. If we draw a chart of US withholding taxes (smoothed from all the short-term noise) and overlay that with employment growth, we find a worrisome divergence that has historically not been the

This post was published at David Stockmans Contra Corner by Eugen Von Bohm-Bawerk ‘ September 3, 2016.

Forget The Fed Model’s High PE/Low Interest Rate Theory – – History And Logic Deny It

A few days ago I examined the relationship between the stock market PE and CPI inflation. The reason was the sudden renewed emphasis on low inflation in the context of trying to justify increasingly outlying earnings multiples in stocks. Earnings fell sharply in 2015, but prices really didn’t; there was, at most, only more volatility spread across sideways trading (even including recent record highs). EPS haven’t as yet recovered and there are growing signs that risks to the earnings recovery have only increased, not decreased. By simple math, then, stocks are trading on very shaky ground at already high multiples and greater uncertainty that it will all be corrected naturally by the any-day-now thriving economy; leaving prices as the more likely motivated method for convergence.
Inflation is but one of the inappropriate attempts to justify high PE’s; as one reader pointed out (thanks to RUI), there is also the interest rate comparison to the stock earnings yield. The inverse of the PE is the EP ratio, which is supposed to be a relative comparison of stocks to bonds. The current PE ratio, according to Robert Shiller’s data, is an alarming 23.7 as of the latest earnings, which are for December 2015. Since earnings haven’t improved much at all since then, while prices are somewhat higher, the valuation imbalance has likely grown worse over the interim.
But if you flip the ratio around, the so-called earnings yield is a ‘healthy’ 4.21%. Compared to a 10-year UST yield around 2% at the time, and now much less, the EP theory would imply that stocks are not at all overvalued in comparison to UST’s. You might even go so far as to suggest stocks have a lot of room for even more multiple expansion.
This theory was popular during the dot-com bubble, and much less so after it. It had been around for some time, but Alan Greenspan testified to Congress in February 1997 that:

This post was published at David Stockmans Contra Corner on July 21, 2016.

Gallup Economic Confidence Index plunges while stock market near record: Stock Market decoupled from financial well being of average Americans.

Gallup releases an Economic Confidence Index which should reflect the overall sentiment of Americans as it pertains to the economy. With the stock market near record highs and the housing bubble market soaring, you would expect average Americans to be smiling from ear to ear with glee. But when you click on over to Gallup, the chart looks downright gloomy like finding out you just failed a midterm exam you studied so hard for. While Gallup may be stumped and scratching their head as to why this divergence is there, I feel we have touched upon a few points as to why this is occurring. First, half of Americans don’t even own one stock. Next, you have many U. S. companies making large profits abroad. Good for the company but that doesn’t translate necessarily into a better financial position for most Americans. Housing values being inflated only keeps Americans from buying as reflected in a generationally low homeownership rate. In other words, crony capitalism is working as it should.
People understand that something is rotten in Denmark
The Gallup Economic Confidence Index looks like it is taking a similar trip to Enron’s stock. People are just not happy with the economy. People don’t pay the bills with the stock market and while half the nation is playing Pokmon Go and then going to Facebook to enjoy the latest celebrity gossip a large part of America is wondering why they are flat broke. Rome had its version of distracting the public and it involved feeding gladiators to wild animals. Today we throw cute balls to virtual fuzzy animals.

This post was published at MyBudget360 on July 19, 2016.

Inside The June Payroll Report – – -More Of The Same, And Not In A Good Way

As it currently stands in the headline BLS figures, the Establishment Survey greatly rebounded to 287k from a downward revised 11k in May. There is this month, just as last month, too much emphasis on the monthly payroll figure as it is more often than not noise. We can only hope the drastic extremes of the past two months may have finally injected a more cautious approach to what has always been a statistical process.
Two payroll reports ago, one that was taken as ‘ugly’, I wrote:
There is very little value to begin with in trying to parse monthly variation, reflected in a wide confidence interval at just 90% confidence. For all we know the jobs market in April 2016 was exactly the same growth as March 2016 when everyone was far more pleased. What we really don’t know is whether both March and April should have everyone elated or seriously worried (obviously, the rest of the economic data points uniformly point to the latter).
That seems to be the overall message even for a blowout topline figure like 287k; it might be good but in reality there is just as good a chance payrolls in June were no different than May as both may have been somewhere in the middle. Even with that huge gain, the overall trend is still slowing. The 6-month average in June was just 172k, barely changed from 169k in May because the 287k for June replaced 271k from December as it dropped from the 6-month period. That isn’t just significant for the arithmetic of moving averages, it is significant in terms of orientation and determining significance.
In other words, the BLS estimates now that payroll gains in December 2015 ended a 3-month run where the increase in each was above 270k. For three months straight to end last year, the Establishment Survey suggests even more robust conditions than just the one month in June 2016 – and that all amounted to nothing. In the context of the wider economy, the major payroll reports seem to be generating much more noise than meaningful signal.

This post was published at David Stockmans Contra Corner on July 8, 2016.

Hole At The Center Of The S&P Rally – -170 Basis Point Profit Margin Squeeze Is Historic Recession Warning

Stocks are rising, the worst start to a year is a memory, and short sellers are getting pummeled. And yet something is going on below the surface of earnings that should give bulls pause.
It’s evident in quarterly forecasts for the Standard & Poor’s 500 Index, where profits are declining at the steepest rate since the financial crisis relative to revenue. The divergence reflects a worsening contraction in corporate profitability, with net income falling to 8 percent of sales from a record 9.7 percent in 2014.

This post was published at David Stockmans Contra Corner on April 19, 2016.

Junk Bond Update – -Refi Trouble Ahead

Does the corporate bond market have an inequality problem?
The bifurcation between bonds sold by investment-grade companies with stronger balance sheets and those sold by high-yield corporations with more fragile financials was on full display this week following a change in a proposed debt sale by Western Digital Corp. While the junk-rated maker of hard disks had originally planned to fund its acquisition of SanDisk Corp. through a $5.6 billion bond sale, lackluster demand from investors forced it to scale back the program to $5.23 billion of debt issuance.
Western Digital’s reduced ambitions are emblematic of the dramatic divergence in the fortunes of issuers in recent months. All U. S. bond markets have recovered, but some have recovered more than others. For instance, sales of investment-grade, also known as ‘high-grade,’ debt total a healthy $454 billion so far this year, according to Bloomberg data, surpassing the $446 billion sold in the first quarter of 2015. Issuance of fresh high-yield debt has languished at $36 billion, compared with $86 billion a year ago.
‘There is a clear divide taking shape in credit. The bid for yield is lifting high-grade, while credit risk is thwarting high-yield,’ UBS AG analysts led by Stephen Caprio and Matthew Mish wrote in a note on Thursday. They point out that while money has continued to flow into junk-rated bonds, many of which have been sold by energy producers and have therefore rallied alongside the recent gain in oil prices, the inflows have not been supported by increased issuance in the primary market where new bonds are sold.

This post was published at David Stockmans Contra Corner on April 5, 2016.


As a Brit I well understand the deep admiration the Canadians have for their powerful neighbors south of the border, even if it is not always expressed. The good news in this update is that now is the time to ‘put your money where your mouth is’ when it comes to admiring the Yanks, by changing your Canadian dollars immediately into US dollars, the prime reason being that the Canadian looks set to drop after a big rally from mid-January, while the US dollar looks set to surprise by rallying away from the danger zone of the support around 93 on the dollar index.
Conventional wisdom has it that the dollar is now doomed because the Fed has just chickened out of raising rates again, but what the market is overlooking is that the Fed can blow hot and cold on interest rates anytime they like, and since the market hangs sycophantically on their every word, only words are required, not actions. Furthermore, the outlook for the dollar is actually determined by factors other than whether or not the Fed decides to hike rates by a microscopic quarter of a percent, factors like the Chinese economy imploding and dragging the world into depression, with the potential for mass liquidation driving another ramp in the dollar.
In any event what we are going to look at here predicates a dollar recovery and another drop in most other currencies, including and especially the Canadian dollar. We’ll start by looking at the US dollar itself and then proceed to look at the Canadian dollar.

This post was published at Clive Maund on April 2nd, 2016.

Profit Margins Going Down For The Count

Over the past few years I’ve written a fair amount about the record-high levels of corporate profit margins. I’ve been focused on this topic because corporate earnings are one of the most popular ways to value equities thus the sustainability of record-high profit margins should be an issue of great concern to investors. If profit margins revert to historical averages, earnings-based valuation measures investors are using to justify investment in equities today could quickly go against them making stocks appear much more expensive than they do currently. And this process may now be underway.
To the point of mean reversion in profit margins, in the past I have referenced the words of a pair of investment legends. Jeremy Grantham has called profit margins, ‘the most mean-reverting series in finance.’ And back in 1999, Warren Buffett explained why:
In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%. One thing keeping the percentage down will be competition, which is alive and well. In addition, there’s a public-policy point: If corporate investors, in aggregate, are going to eat an ever-growing portion of the American economic pie, some other group will have to settle for a smaller portion. That would justifiably raise political problems – and in my view a major reslicing of the pie just isn’t going to happen.
Both of these two gentlemen clearly believe, and very strongly, that corporate profit margins have an equilibrium. They can rise above or fall below that equilibrium but the very nature of capitalism, along with its social contract, will force an inevitable reversion to the mean.

This post was published at David Stockmans Contra Corner on March 31, 2016.

Inside China’s Housing Bubble

SHANGHAI, China’s financial centre, does not make it easy on outsiders wishing to buy homes. Non-residents who are single are banned from buying property. The married are welcome but only so long as they have paid local taxes for two years and make nearly a third of the purchase in cash. Shenyang, China’s biggest northern city, is far more welcoming. Anyone can buy a home there. All to little effect: housing prices in Shanghai, five times more expensive than those in Shenyang, have risen by 20% over the past year; those in the northern city have edged down.
This bifurcation is a worry for the government, which wants to spur growth without inflating bubbles. A divergence in housing prices between wealthy cities and the hinterland is a familiar problem in other countries – just look at London and Lincolnshire, say, or New York and Nebraska. But the divisions are starker in China. In its most prosperous cities, already giddy prices continue to shoot up, while unsold flats pile up in markets where valuations were low to begin with. Moreover, construction has long been one of the economy’s main engines, accounting for as much as a quarter of GDP growth until recently. This makes it especially important that the government get the balance right. Doing so is proving hard.
Over the past half-year, the government has unveiled a series of measures to support the housing market that specifically exclude China’s five hottest markets (Beijing, Guangzhou, Sanya, Shanghai and Shenzhen). People buying homes need only make a 20% down-payment to obtain a mortgage, except in the five conurbations, where they must put down 30%. By the same token, in most of the country transaction taxes have been cut by as much as two-thirds for people buying second homes; in the five outliers they have been left unchanged. In Shenzhen, a southern tech hub that is the frothiest market, with prices up by 53% in the past year alone, local officials have vowed to crack down on speculators and expand the supply of affordable housing.

This post was published at David Stockmans Contra Corner on March 11, 2016.

Inside The Wholesale Slump – – -Its Not Just Petroleum, It’s Incipient Recession

The wholesale level of the supply chain continued its divergence, though it seems increasingly likely that inventories have at least rolled over even if they are still building. Sales fell by 4.2% unadjusted year-over-year while inventories were up only 1.8%. That was the slowest inventory growth since the summer of 2010, but it still leaves the inventory gap as unbelievably wide.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ February 9, 2016.

These 8 Dow Components Are In Bear Market Territory

The Dow Jones Industrial Average ended last week at 17,128.55, which is 3.8% below the Janet Yellen high of 17,796.76. Even so, the Dow is up 5.2% so far in the fourth quarter, down 3.9% year-to-date, and 6.7% below its all-time high of 18,351.36 set on May 19. I guess the call to sell in May and go away was quite accurate in 2015.
The Dow 30 ended last week below its five-week modified moving average at 17,418 with its 12x3x3 weekly slow stochastic reading declining to 81.06 down from 85.45 on Dec. 11 becoming less overbought. This reading will be declining below the overbought threshold next week and if the close on Christmas Eve is below 17,418 the weekly chart profile will be negative.
The Dow is not yet in correction territory as that would have the average at least 10% below the all-time high. However, eight components are in bear market territory more than 20% below their multiyear or all-time highs.
Here’s the weekly chart for the Dow Jones Industrial Average:

This post was published at David Stockmans Contra Corner on December 22, 2015.

Mind The Skew – -Its Flashing Danger Ahead

For more than a year, dealers in the U. S. equity derivatives market have noted a widening gap in the price of certain options. If you want to buy a put to protect against losses in the Standard & Poor’s 500 Index, often you’ll pay twice as much as you would for a bullish call betting on gains.
New research suggests the divergence is a consequence of financial institutions hoarding insurance against declines in stocks.
The pricing anomaly is visible in a value known as skew that measures how much it costs to buy bearish options relative to those that appreciate when shares rise. In 2015, contracts betting on a 10 percent S&P 500 decline by February have traded at prices averaging 110 percent more than their bullish counterparts. That compares with a mean premium of 68 percent since the start of 2005, according to data compiled by Bloomberg.

This post was published at David Stockmans Contra Corner on December 10, 2015.

Viewing Payrolls As A Product of A Shrunken Economy

The numbers all change with each month, but nothing really changes. And that includes how the economy changed in 2012 and clearly again in 2015. By raw count of the payroll figures, there were positive numbers in every location in the latest update as only full-time employment was close to zero growth (only 3k for November). The labor force grew for the second straight month which brings the total for the year since January back to just even. And the Household Survey has gained only 1.16 million in those ten months compared to the 2.11 million in the Establishment Survey.
So nothing much has rehabilitated as divergences continue to abound. In a virtual repeat of late 2012/early 2013, only the Establishment Survey appears unfazed by economic weakness spread everywhere else.
The civilian non-institutional population, those 16 years and older available for work, the potential labor pool, has grown by 2.1 million in those ten months but only a small handful have joined the continued robust jobs market? It may be that the economy is still working off the ‘slack’, the ongoing pool of previously unemployed, leftover from the Great Recession, but that qualifies as something other than a recovery.
As it was, by count of the BLS it took this ‘cycle’ 95 months to close the gap with the prior cycle peak in terms of full-time jobs. In the past two recoveries, neither of which would be characterized as historically robust, the deficiency was rebounded in just 43 and 41 months. This accounts for a great deal of the confusion about the jobs market and labor interpretation.

This post was published at David Stockmans Contra Corner on December 4, 2015.

Missing By Dismissing: Manufacturing Still Leads The Cycle And The Signals Are Punk

There has been a bit of chatter going on lately about the divergence of the services sector from the manufacturing sector of the economy. This note from David Rosenberg took note of that divergence.
‘We are seeing questions come up as to whether a manufacturing recession means that the broader economy is destined to follow suit?’
His answer is that such an outcome is likely not the case. His belief is that manufacturing is no longer a good bellwether for the overall economy. Currently, manufacturing makes up just 12% of total economic output, down from about 30% in the 1950s.
However, is this really the case?
There are a couple of problems with discounting the importance of manufacturing from the economic debate.
First, is the impact on jobs. As Sam Ro wrote this morning:
‘With the unemployment rate having tumbled to a 7-year low of 5.0%, the employment factor is not the concern.’
While the unemployment rate, as measured by the BLS, has fallen to a 7-year low, there is vast difference between now and when it has previously achieved such levels. In order to sidestep all of the arguments about retiring’baby boomers’ and ‘students,’ let’s focus on the 25-54 age groups which are in their prime working years. As shown in the chart below, when the unemployment rate had previously achieved ‘full employment’ levels, more than 80% of the prime working age group was employed. Today, that number is 77%.

This post was published at David Stockmans Contra Corner on November 23, 2015.

UN passes resolution urging nations to use ‘all necessary measures’ to fight ISIS

November 2015 – UNITED NATIONS – The United Nations Security Council on Friday adopted a resolution, drafted by France, calling on countries around the world to take ‘all necessary measures’ to fight the Islamic State. The 15-to-0 vote came a week after the terrorist attacks in Paris, for which the Islamic State claimed responsibility, and just hours after the deadly siege of a hotel in Bamako, the capital of Mali, by Islamic militants. The French ambassador, Franois Delattre, told the Security Council after the vote that the resolution ‘recognizes the exceptional nature of the Daesh threat,’ using an Arabic acronym for the group.
Russia voted for the measure, which signaled a rare diplomatic convergence. For four years, Russia and the West have sparred over the war in Syria, with the Kremlin staunchly backing the government and Western powers backing the opposition. Russia has floated its own counterterrorism proposal, but it would require coordination with the governments of the affected countries – meaning, in Syria, the administration of President Bashar al-Assad. That idea is anathema to the West.

This post was published at UtopiatheCollapse on November 21, 2015.