Sunday, October 19, 2014

Today's Links

1---TBTF Bond Funds pose risk to financial system; Who decides their capital requirements to accommodate redemptions, NYT

global regulators are warning that the positions being taken on by the big asset management firms pose a broad danger to the financial system."

PIMCO has now *officially* joined the exclusive "Too Big To Fail" financial services country club. What's next, a new "chief surveillance officer" (ala Point72) with ties to the CIA(comments)

The term of art for this scenario is a liquidity mismatch, with some going so far as to call it a systemic liquidity mismatch. If, for example, there is a sustained emerging-market crisis and a fund wants to liquidate these bonds to meet redemption demands, the manager will be required to provide cash immediately even though it may take several days to sell the securities in question.
Traders calculate that less than 1 percent of corporate bonds trade more than $5 million a day.
“People are worried about massive liquidations in a market that is not as liquid as it used to be,” said Amy Koch, a senior trader at Standish, a Boston-based bond manager.
That asset management companies have emerged as the main providers of riskier types of credit to companies around the world is a little-appreciated consequence of increased regulation of banks following the financial crisis.
With banks shying away from these types of loans, bond-oriented mutual funds — which have benefited from an asset boom in the last five years — have stepped up.
For the first time ever, according to I.M.F. data, mutual funds have surpassed banks as the largest holders of corporate and foreign bonds, holding 13 percent of these securities
The latest to sound the alarm was the International Monetary Fund, which recently released a report warning about large bond investors like Pimco that have built up dominating stakes in high-risk, hard-to-sell bonds all over the world.
“Credit-focused mutual funds have seen massive inflows and have become the largest holders of corporate and foreign bonds,” José Viñals, the head of the I.M.F.’s financial-markets division, said at a news conference in Washington last week. “These inflows have created a liquidity illusion, which can amplify shocks and lead to sharper falls in the market.”

The issue has also drawn the attention of the Federal Reserve Bank of New York.
In its paper, the I.M.F. highlighted high-yield bonds issued by Ally Financial, SLM and the insurance giant American International Group. Pimco owns at least 25 percent of the outstanding debt of each of those three companies.
Outside the United States, the numbers were even starker: Pimco owned close to 50 percent of a number of foreign bonds. And it controlled over 40 percent of the debt issued by the Bank of China, just under 40 percent of the State Bank of India and close to 30 percent of the Spanish bank BBVA....

over the last 10 months, investors have pulled $65 billion out of Pimco — $42.8 billion from Total Return and the rest from other bond funds, according to Morningstar.
If redemptions persist and bond trading conditions worsen, Pimco would be forced to unload some of its larger positions. But selling more than 40 percent of the outstanding bonds in Qatar National Bank or over 20 percent of the debt of the Hong Kong gambling company Melco Crown Entertainment could be a difficult proposition, given how little these bonds trade.

(Comments from company prospectus: You can't exit) Redemptions of all Classes of Fund shares may be made on any day the New York Stock Exchange (“NYSE”) is open, but may be suspended when trading on the NYSE is restricted or during an emergency which makes it impracticable for the Funds to dispose of their securities or to determine fairly the value of their net assets, or during any other period as permitted by the SEC for the protection of investors. Under these and other unusual
circumstances, the Trust may suspend redemptions or postpone payment for more than seven days, as permitted by law.

If they want they can redeem your shares in kind not cash. You are over your head here.

2---Why Abenomics Failed: There Was A "Blind Spot From The Outset", Goldman Apologizes, zero hedge

Misconception Number 1: Export prices do not fluctuate as much as forex
Misconception Number 2: The key determinant of export volumes is global demand not prices

3---“We cannot lose Ukraine, because it is not just a group of people who toppled the government and seized power…, but a close, fraternal nation that shares historical, cultural, existential and civilizational origins with us,” the foreign minister said., ria novosti

EU decision-making was always shaped by Washington's global interests: "many years ago, we offered to negotiate and adopt a treaty on European security, which would codify proclaimed at the political level principle of indivisibility of security, when no state has the right to ensure its security at the expense of others. This treaty was rejected. It turns out to be that the NATO countries, which refused to even discuss [the treaty], are a collective "Mister No" Lavrov said in a show on Russia’s NTV channel.

"I am convinced that if the agreement on European security was at that time agreed and a single economic and humanitarian space from Lisbon to Vladivostok began to form, there would not have been the problems that we are having now which led to a profound crisis of statehood in Ukraine," he said.
The minister recalled that Russian President Vladimir Putin proposed to start a serious discussion with the European Union on the formation of a common economic and humanitarian space from the Atlantic to the Pacific. "A few years ago, we were said: let's wait - it meant "no." Now, after several years the leadership of the EU says that it is needed to think and begin to talk about it in practical terms," Lavrov added

Washington “goes out of its way to teach all countries how to set their record straight, establish the rule of law and respect democratic principles.” “But they lose enthusiasm as soon as these very principles – respecting international laws and democratic decision-making – are applied to international relations,” the Russian foreign minister emphasised.
Lavrov believes that “the recipe for success is to combine responsibility for making the world a fairer place with a non-confrontational but persistent promotion of our interests, and also readiness to make reasonable compromises based on the balance of interests, rather than on one-way concessions.”

4---Goldilocks Economy? What Are They Smoking at the Wall Street Journal? , WSOP

5---The International Monetary Fund (IMF) finally realized what should have been obvious years ago: Zero percent borrowing costs has encouraged speculation rather than investment.
Now, the IMF warns that ultra-low interest rates pose a new financial crisis threat.
Then why did the IMF and all its central banking buddies promote these zero percent interest rates in the first place?, McClure's

6---Deadlock around South Stream needs to be resolved to avoid cold winter – Putin, RT

7--US dusted off old USSR-break-up strategy for use in Ukraine - former FSB chief, RT

8--Andrew Huszar: Confessions of a Quantitative Easer, wsj

9--Another Wall Street Inside Job?: Stock Buybacks Carried Out in Dark Pools , WSOP

10--Credit nation? HELOCs up 20.6% year-over-year, HW
Highest level of home equity loans since June 2009

11--Hedge Funds Get Pummeled: Shades of Long-Term Capital Management L.P. , WSOP

12---Not all lenders think HELOCs are the next bubble, HW
Rates set to reset, HELOC demand on the rise

13--Peak Buybacks?, Mish

14--Bubble Bubble Toil & Trouble , MA
also --

Another major parallel, which dovetails into our third point is the fact that the only other period in which the Fed actively intervened and bought the Treasury market in support of the broader system was in the 1940's. Similar with the current lackluster fundamental backdrop that has diverged over recent years from the stoic strength of the equity markets, the massive bond buying program in the 1940's had a much stronger correlation to the capital markets it directly affected than the macro climate that most economists appraise....

In an effort to keep interest rates low during and directly following WWII and avoid another chapter of the near-view Great Depression, the Fed purchased all available short-term US Treasuries and virtually all long-term US Treasuries from the market starting in April of 1942. When all was said and done, the US had a debt to GDP ratio that was almost 20% larger than where it currently resides today.

In Milton Friedman and Anna Schwartz's A Monetary History of the United States 1867-1960, the market climate in the 40's is described as being so sensitive and suspect of the Fed and Treasury's very visible hand, that the entire equity market rally (150+%) from the April 1942 low through the cyclical high in 1946 was viewed with great skepticism and likely to end with another pronounced economic contraction. The fresh scars of the Great Depression provided abundant fear for market participants of a possible revival of kindred economic instabilities, despite the countervailing strength of the equity markets that continued to rally more than 20% even through the recession in 1945. 

What happened in 1946 when the Fed and Treasury stepped away from their extraordinary support of the Treasury markets? Similar to the air pockets experienced with the Fed pauses in QE I and QE II, the equity markets swiftly revalued expectations. From our perspective a similar fate awaits the current equity market rally, which in turn should continue to support the Treasury market - despite rising inflation expectations and the calls by many that the Fed will begin raising rates as early as next year. 

15--Why I Am Leaving Goldman Sachs, NYT

These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.

16--Loan modifications destroyed the move-up market for a generation, , oc housing

17---Why Half Of America Thinks We're Still In A Recession, gongloff

18---Subprime Lending Drives Spending, House of Debt
A concern that we highlighted in yesterday’s post is that the only way the U.S. economy can generate significant consumer spending is through aggressive lending to borrowers with low credit scores. Here is more evidence supporting that view.
In the chart below, we plot retail spending on appliances, furniture, and home improvement, or “home-related spending” (blue line) and spending on new autos (red line) from 1998 through 2014. We have highlighted the two major subprime lending booms we’ve seen in that period — the subprime mortgage lending boom from 2003 to 2006, and the subprime auto loan boom from 2010 to 2014. In order to be able to include 2014, we focus only on the first four months of each year.


When subprime mortgage lending was booming from 2003 to 2006, so were purchases of home-related goods. As soon as the subprime mortgage lending market crashed, so did home-related spending. In fact, in 2014, home-related spending is still below its 2006 level in nominal terms. It’s a pretty incredible boom and bust.
For auto spending, growth was positive prior to the Great Recession, but unspectacular. But as soon as subprime auto lending heated up in 2011 and afterward, so did purchases of new auto vehicles. The growth in new auto sales from 2011 to 2014 has been really impressive. So once again, spending in a particular market is strongest when subprime lending in that market is strongest.
It appears that the key to boosting spending in the U.S. economy is subprime lending. The financial system was lending against homes before the Great Recession, and now it has moved to lending against cars. But the basic message is the same.

19---America's Lost Decade: Typical Household Wealth Has Plunged 36% Since 2003, zero hedge

20---Junk-Bond Turmoil just Preliminary, “The Real Panic Will Come With…”, wolf street

21------In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates, Dealbook

22---GM unit gets subpoena over subprime auto loans, reuters

23---Focusing on G.M. Unit, U.S. Starts Civil Inquiry of Subprime Car Lending, Dealbook

24--Inequality? You decide, zero hedge

Chart: @ptcherneva

25--Vicious circle: ‘Economy not growing as companies sit on billions and don’t invest‘, RT

26--18 Sobering Facts About The Unprecedented Student Loan Debt Crisis In The US, zero hedge

27--Washington Wields the Oil Weapon, SC

28--Top LBO Fund Investors Pile on Leverage to Boost Returns, Bloomberg

29--STILL 1.4 Million Fewer Full-Time Jobs Than in 2008, NC

30--Why You Have Every Right To Demand A Raise, In 1 Chart, Gongloff

31-  The collapse of household income in the US, wsws

32--Consumers decide to hoard money, yahoo

33--Subprime Blows up on Retailer, CEO Warns on ALL Subprime, Hits Auto Sales, wolf street

34--Used Car Loans at All-Time High, Average Monthly Payment Now $355, NBC

35--This is why it feels like the recession never ended, WA Post

36--QE and the Investor Class, jack rasmus, cp
Central Bankers in a Deep Hole

37--On the Precipice of Another Global Recession?, cp

38---What Bubble? Record $924 Billion In 65 Million Auto Loans: 31% Of All New Loans Are Subprime, zero hedge

39--Labor Participation Rate Drops To 36 Year Low; Record 92.6 Million Americans Not In Labor Force, zero hedge

40---Smart Money’ Unloads, Sits on Cash, Waits for Stocks to Swoon, wolf street

This year, public-to-private LBO volume plunged to $3 billion, the lowest level since crisis year 2009, when deal volume dropped to zero.
Last year, there were still $80 billion in public-to-private LBOs, including four deals of over $5 billion each:  H.J. Heinz, Dell, BMC Software, and Neiman Marcus. Between 2004 and 2013, the average was $75 billion in these deals per year. The record? LBO bubble year 2007, just before the house of cards came crashing down: $275 billion in deals.

41--The Buyback Party Is Indeed Over: Stock Repurchases Tumble In The Second Quarter, zero hedge

42--JPMorgan Seems Less And Less Interested In Lending Money, HP

jp morgan deposits to loans

43---Food Stamp Recipients Top 46 Million for 35th Straight Month, CBS

44---Thirty-Five Largest U.S. Cities Saw Increase in Child Poverty Rate Between 2005 and 2013

45--30 Facts That Prove The American Middle-Class Is Being Destroyed, zero hedge

According to a study recently discussed in the New York Times, the "typical American household" is now worth 36 percent less than it was worth a decade ago.
... One out of every seven Americans rely on food banks at this point.
... One out of every three adults in the United States has an unpaid debt that is "in collections".

 ... Only 48 percent of all Americans can immediately come up with $400 in emergency cash without borrowing it or selling something.
 The overall homeownership rate has fallen to the lowest level since 1995.

46--Dows biggest gains and losses

47-Return to Subprime: -Mortgage Giants Set to Loosen Lending, wsj
Fannie, Freddie Near Deal to Lift Limits; Concerns Persist

Fannie Mae , Freddie Mac and mortgage lenders are nearing an agreement that could lower barriers and restrictions on borrowers with weak credit, a move that would expand access to home loans amid the sluggish housing recovery.
The move by the mortgage-finance giants and their regulator, the Federal Housing Finance Agency, would help lenders protect themselves from claims of making bad loans, according to people familiar with the matter.

Fannie and Freddie are also considering programs that would make it easier for lenders to offer mortgages with down payments of as little as 3% for some borrowers, the people said. That would be a reversal for the loan giants. The moves could be announced as soon as this coming week.
Regulators and White House officials have struggled to expand access to mortgages, which have been hard for some borrowers to get since the financial crisis despite a sharp rise in home prices. But the likely moves by Fannie and Freddie could provide kindling for critics who worry about repeating some of the mistakes that led to the housing boom and bust....

The latest moves underscore just how much the government is relying on Fannie and Freddie to help increase the supply of credit. Steps to reduce down-payment standards would further signal a turn away from previous efforts to shrink the influence of the two mortgage giants.

48---New Dodd-Frank fix runs risk of Lehman-esque meltdown, The Hill

The situation has gotten completely out of hand. According to PitchBook, which compiles data on private equity, median debt in LBOs by private equity funds was 8.2 times earnings (EBITDA) in the first half of 2014, up from 6.9 times in 2013 and the 5.7 times earnings that prevailed at the last peak in 2007 and 2008. This is far above the six times earnings suggested as the limit for debt in the guidelines on leverage issued by bank regulators.

The danger that highly leveraged loans may not perform well is very real, as creditors who loaned money in the last boom to such prominent private equity-owned companies as Hilton Hotels & Resorts, Caesars Entertainment, and Texas utility company Energy Futures Holdings (EFH) learned. According to FitchRatings, there were 10 LBO-related bond defaults in the first half of 2014, more than double the nine that occurred in all of 2013. While the default rate is relatively low, this can change quickly if the economy falters.

Regulators are worried. They remember what happened in 2008 when complex securitized debt instruments like mortgage-backed securities imploded. In its semiannual report reviewing 2013 trends, the Office of the Comptroller of the Currency (OCC), one of the banks' regulatory agencies, expressed its concerns about the high issuance of CLOs: "The combination of higher leverage, lower yields, tighter credit spreads, and weaker covenant protections (for lenders) provides ample evidence of increasing credit risk in the leverage loan market."

49---Auto Loans: A Subprime Market Grows in the Shadows, Bussinessweek

50---Idiot Monetary Fund finally notices "too much risk taking": IMF warns period of ultra-low interest rates poses fresh financial crisis threat, Guardian

Almost zero borrowing costs has encouraged speculation rather than hoped-for pick up in investment, says Fund

“Accommodative policies aimed at supporting the recovery and promoting economic risk taking have facilitated greater financial risk taking,” the IMF said. As evidence it pointed to rising asset prices, smaller premiums on riskier investments and the lack of volatility in financial markets. In many cases, the IMF said the behaviour of investors was at odds with the state of the global economy.
“What is unusual about these developments is their synchronicity: they have occurred simultaneously across broad asset classes and across countries in a way that is unprecedented.”

The IMF said there was a trade-off between the upside economic benefits of low interest rates and the money creation process known as quantitative easing and the downside financial stability risks. While its report found that in some countries, including the UK and the US, economic benefits were becoming more evident, it warned that “market and liquidity risks have increased to levels that could compromise financial stability if left unaddressed

51--Shadow banking system a growing risk to financial stability – IMF, Guardian

Fund report says tightening of bank regulations may be driving shift to lending by hedge funds and private equity

Saturday, October 18, 2014

Today's Links

Today's Quote: "All the participants, on all sides, are very suspect, if not criminally insane. It may be the end of the world. To which I say … Good riddance. Nice try, humans; in fact, GREAT TRY … but good riddance. ISIS … Ebola … Climate Change … nuclear radiation … The Empire … Which one will do us in first? … Have a nice day." Bill Blum, Empire Report

 “Everyone has a plan until they get punched in the  face.” – Mike Tyson

“If you can't dazzle them with brilliance, baffle them with bullshit.” W.C. Fields. 

1---Countering Tech’s Damaging Effect on Jobs, WSJ

It is well known that median household incomes are lower today than they were 15 years ago. But declining labor-force participation explains only a portion of this drop. Since 2000, corrected for inflation, the weekly earnings of full-time wage and salary workers at the median have declined slightly. And remarkably, average hourly wages adjusted for inflation are lower than they were 40 years ago.
To be sure, workers get benefits as well as wages, and employers must pay for both. The cost of benefits—especially health care—has been rising faster than wages. It is easy to conclude that total compensation has been rising briskly even if wages have stalled. But the facts don’t bear out this conjecture.

Between 1981 and 2014, according to calculations based on the Bureau of Labor Statistics, wages corrected for inflation rose at the anemic rate of 0.3% a year. (At that pace, it would take 230 years for wages to double.) But total compensation—wages plus benefits—hasn’t done much better, rising at only 0.6% a year. Workers feel stuck because they are stuck. When they look at an economy that has expanded much faster than their wages and benefits in recent decades and even since 2009, they have a right to ask: Where’s our share and why haven’t we gotten it?

2---The American oligarchy, wsws

Late last month, Forbes magazine reported that the 400 richest people in the United States saw their wealth grow 14 percent over the past year. The following week, the Organization for Economic Cooperation and Development reported that global social inequality has eclipsed the pre-Great Depression highs of the 1920s.
This week, Credit Suisse reported that the top one percent of the world’s population control nearly half of all wealth, with the ultra-rich concentrated in the United States.

This was followed by the release of a paper by economists Emmanuel Saez and Gabriel Zucman showing that wealth in the US is increasingly monopolized not merely by the wealthiest 10 percent or even the top 1 percent, but by the top 0.1 percent. They concluded, “Virtually all the increase in the top 10 percent and top 1 percent shares over the last three decades is due to the rise in the top 0.1 percent share, from 7 percent in the late 1970s to 22 percent in 2012.”

Even US Federal Reserve Chair Janet Yellen, who is overseeing the continued handout of oceans of cash to the financial markets, felt compelled to warn of the “extent of and continuing increase in inequality in the United States.” She noted in remarks Friday, “By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then....

Money buys elections. The 2012 election, the most expensive election cycle in history, was decided by some $6.3 billion in campaign cash. An analysis of elections to the House of Representatives found that 93 percent were decided by which candidate raised the most money. In the 2004 elections, a stunning 98 percent of victorious candidates out-spent their opponents.

3---FHFA Head Mel Watt Pushes Banks To Make Extreme Risk Home Loans, zero hedge

Watt's speech on Oct 20

Fannie Mae (FNMA), Freddie Mac and their regulator are nearing agreement with mortgage issuers on efforts to boost lending and ease banks’ concerns that they will get stuck with bad loans when borrowers default.
The initiatives include a consensus on when defaulted loans are so flawed that lenders must buy them back from the two mortgage-finance companies, a key sticking point in efforts to unlock credit, according to three people familiar with the discussions. The steps are part of a broader push to increase lending after banks had to repurchase billions of dollars of mortgages that were issued during the housing bubble.

Melvin L. Watt, the director of the Federal Housing Finance Agency, will clarify in a Oct. 20 speech at the Mortgage Bankers Association conference in Las Vegas how some loans can be permanently exempted from the threat of buybacks, said the people, who asked not to be identified because the plans aren’t public. Watt will also discuss an effort that would allow borrowers to put down as little as three percent of the purchase price on loans backed by Fannie Mae and Freddie Mac (FMCC), enabling borrowers with lower incomes to access the mortgage market, the people said. The two companies currently require a five percent down payment on most loans.

4---'Zombie' homes haunt Florida neighborhoods, center for public integrity
Aborted foreclosures leave thousands of properties in legal limbo

5---Low Down Payment Mortgages Have Much Higher Default Rates, Dean Baker

That is a fact that would have been worth mentioning in a Washington Post article on plans by Fannie Mae and Freddie Mac to lower the down payment requirements on the mortgages they purchase. The delinquency rate, which closely follows the default rate, is several times higher for people who put 5 percent or less down on a house than for people who put 20 percent or more down.
Contrary to what some folks seem to believe, getting moderate income people into a home that they subsequently lose to foreclosure or a distressed sale is not an effective way for them to build wealth, even if it does help build the wealth of the banks.

6---Roll Out the Fire Hoses (Here Comes QE4) , Daily Reckoning

Yes, dear reader. Things are setting up pretty much as expected. That is to say in a way that seems logically coherent, but is nevertheless incomprehensible. Liquidity is drying up. Volatility is returning. The leaves are falling. Investors are getting nervous. And Fed officials are promising more cash and credit, neither of which they actually possess.
You’ll recall that stocks fell when QE1 and QE2 ended. Why shouldn’t they fall now that QE3 is ending too? No doubt, they will. And that will set little feet running in predictable, but preposterous, directions.

7---More QE? These Charts Show the Pauperization of Workers in the UK and America since 2008 , wolf street

8---German journo: European media writing pro-US stories under CIA pressure (VIDEO), RT

German journalist and editor Udo Ulfkotte says he was forced to publish the works of intelligence agents under his own name, adding that noncompliance ran the risk of being fired. Ulfkotte made the revelations during interviews with RT and Russia Insider.
“I ended up publishing articles under my own name written by agents of the CIA and other intelligence services, especially the German secret service,” Ulfkotte told Russia Insider. He made similar comments to RT in an exclusive interview at the beginning of October.
“One day the BND (German foreign intelligence agency) came to my office at the Frankfurter Allgemeine in Frankfurt. They wanted me to write an article about Libya and Colonel Muammar Gaddafi...They gave me all this secret information and they just wanted me to sign the article with my name,” Ulfkotte told RT.
“That article was how Gaddafi tried to secretly build a poison gas factory. It was a story that was printed worldwide two days later.”

9--Putin press conference, RT

Russian President Vladimir Putin has said that the current low oil prices are “no tragedy” for the Russian budget, stressing that they may soon see an upward correction

10--‘Oversupply and weakening demand growth behind oil price fall’, RT

11--"Geopoliticians discuss the Russian response to America's 'declaration of war' ", Saker
must see Q&A

12--US attack on Russia  is based on Zbigniew Brzezinski’s “strategy of weak spots RT

13---Israel Is Cautiously Arming Syria's Rebels -- And Has A Fragile Unspoken Truce With An Al Qaeda Affiliate BI
"Some rebel groups maintain constant contact with the IDF, including frequent secret meetings reportedly held in Tiberias, but only a modest amount of weapons have been provided to them, mainly rocket-propelled grenade launchers.
Within the next few months, however, a wider scope of military aid may prove necessary as these non-Islamist battalions — composed mainly of local youths — fight to defend their supremacy in the south against JN and ISIS. An upgraded support program could also help draw many fighters away from JN, particularly those who hail from local towns and do not necessarily share al-Qaeda's ideology."

14--War on Terror?
"Only 4 Percent Of Drone Victims In Pakistan Identified As Al Qaeda Members

This situation stems back to the increased demand for second mortgages during the financial crisis. Homeowners sought to take cash out of appreciating homes or finance purchases without private mortgage insurance, pushing demand to historic levels.   Right now the debate revolves around if the market, and better yet borrowers, can handle this looming increase in payments.
According to a recent panel discussion held by the Urban Institute's Housing Finance Policy Center, “The volume of outstanding second mortgages peaked in 2007, at the height of the housing boom, at just over $1.1 trillion. Piggyback loans--second liens that accompany a first lien at signing, also known as “simultaneous seconds” — were a staple of the time, with as many as 45% of purchasers in coastal and bubble areas using a piggyback loan to subsidize the down payment on a first mortgage, hoping to eliminate the need for mortgage insurance.”...

“This recent rise in HELOC originations indicates that an increasing number of homeowners are gaining confidence in the strength of the housing recovery and, more importantly, have regained much of their home equity lost during the housing crisis,” said Daren Blomquist.
But not everyone agrees that this surge in demand is a good thing.
Lynn Effinger, executive vice president of business development for ZVN Properties, wrote an exclusive blog for HousingWire in response to the RealtyTrac report, saying that the number of homeowners getting HELOCs signals that many who have seen some return of equity to their home may be tapping into it to offset higher costs and stagnant wages, or even loss of income

17---Credit nation? HELOCs up 20.6% year-over-year, HW

Highest level of home equity loans since June 2009

Friday, October 17, 2014

Today's Links

Today's Quote:  "Russia doesn’t make anything. Immigrants aren’t rushing to Moscow in search of opportunity.  The life expectancy of the Russian male is around 60 years old. The population is shrinking."  Barack Obama bashing Russia

1--Anticipating the next bank run; Getting out won't be easy, NYT

“We are worried about liquidity....And the question is, do we have enough time before a true liquidity event destabilizes the market?” Laurence D. Fink, the chief executive of BlackRock

as Pimco’s portfolio managers double down on their bet that high-risk bonds will thrive in a world of low interest rates, a growing number of global regulators are warning that the positions being taken on by the big asset management firms pose a broad danger to the financial system.
These concerns were amplified this week as stock markets gyrated, the yields of high-risk corporate and European bonds spiked upward and, crucially, trading volumes evaporated.
Regulators and bank executives have cautioned that an accumulation of hard-to-trade, risky bonds by a small group of fund companies could turn a bond market hiccup into a broader rout, in light of how illiquid many of these securities have become.

That asset management companies have emerged as the main providers of riskier types of credit to companies around the world is a little-appreciated consequence of increased regulation of banks following the financial crisis.
With banks shying away from these types of loans, bond-oriented mutual funds — which have benefited from an asset boom in the last five years — have stepped up.
For the first time ever, according to I.M.F. data, mutual funds have surpassed banks as the largest holders of corporate and foreign bonds, holding 13 percent of these securities.
Before 2008, for example, investment banks like Goldman Sachs and JPMorgan Chase were the main buyers and sellers of these bonds, earning profits for themselves and making a market for their clients.
Now, with banks being pressured to take fewer risks, they no longer trade or hold these securities in significant amounts. Wall Street executives worry about how the markets will react if funds start to sell off their concentrated positions....

“Now there is plenty of liquidity,” Mr. Broderick said. “But when things are different, the alternative providers will not be there.”
The term of art for this scenario is a liquidity mismatch, with some going so far as to call it a systemic liquidity mismatch. If, for example, there is a sustained emerging-market crisis and a fund wants to liquidate these bonds to meet redemption demands, the manager will be required to provide cash immediately even though it may take several days to sell the securities in question.
Traders calculate that less than 1 percent of corporate bonds trade more than $5 million a day.
“People are worried about massive liquidations in a market that is not as liquid as it used to be,” said Amy Koch, a senior trader at Standish, a Boston-based bond manager....

When retail investors are driving the investment money coming in and flowing out, the dangers are compounded.

2---Iran's Former Intel Minister: Mossad, MI6, And CIA Created Islamic State , RFE

3---Home prices headed for a triple dip, CNBC

The West, which has some of the largest metropolitan markets in the nation, has seen a huge drop in distressed sales, as fewer properties go to foreclosure. At their peak in 2009, just over half of all sales in the West were of distressed properties; today that share is just over 12 percent, according to Clear Capital. Investors, consequently, are moving on to other markets in the South and Midwest, where there are still bargains to be had. The West is therefore seeing sharper drops in home price appreciation.

 "And that is why the West is really that leading indicator, the canary in the coal mine, because as the West goes, both on the downturn and in the recovery,we've seen the rest of the country go as well," said Villacorta.

4---Reserve Bank's Guy Debelle warns of violent market sell-off, MSN Money

The Reserve Bank's assistant governor Guy Debelle is warning that markets are likely heading for a "violent sell-off".
The RBA official charged with monitoring financial markets said traders appear to be underpricing risks around Middle East and Eastern European tensions, potential changes in US interest rates, policy uncertainty in Europe and Japan and rising concerns about China's economic health.
Dr Debelle said the contrast between relatively low volatility on markets and relatively high uncertainty in real world events is "unlikely to be resolved smoothly."
"There are a few other reasons to suspect that the sell-off, particularly in fixed income, could be relatively violent when it comes," he warned investors in a speech at the Citi Markets Conference in Sydney.
Dr Debelle said many investors seem to be assuming that there will be buyers for their investments when markets finally turn, and that they will be able to get out ahead of a major sell-off.
"History tells us that this is generally not a successful strategy. The exits tend to get jammed unexpectedly and rapidly," he cautioned.

Rate rises will 'blow up' positions

Dr Debelle also sees zero, or near zero, interest rates in many major economies as another factor that could spark a violent market correction.
"There are undoubtedly positions out there which are dependent on (close to) zero funding costs. When funding costs are no longer zero, those positions will blow up," he said.

5---The next crash will take place in the shadow banking system, CNBC

 "reason to suspect that the selloff might be violent is the starting point, namely zero nominal interest rates," he said. "That is a point we haven't started from before (with the possible exception of Japan). There are undoubtedly positions out there which are dependent on (close to) zero funding costs. When funding costs are no longer zero, those positions will blow up. Where are they? How large are they? ...

"I don't really have a good answer to those questions. It appears more likely that they are held by real money investors than directly on the balance sheets of the core banking system, which is probably a good thing. But then if we think back to 2007, structured investment vehicles weren't directly on the balance sheet of the core banking system either."
The result: Financial markets faced with uncertainty that isn't going away. The Europe slowdown is probably in the early innings, the Fed hasn't even begun to raise interest rates yet, and geopolitical crises seem to pop up by the day.

6---Don’t hold your breath waiting for QE4, cnbc

Those comments come two days after those of San Francisco Fed President John Williams (who, like Bullard, is a non-voting member of the Fed Open Market Committee). Williams told Reuters: "If we get a sustained, disinflationary forecast… then I think moving back to additional asset purchases in a situation like that should be something we seriously consider."

Some are extremely skeptical of a QE encore performance.
"The only thing that could justify QE4 is a high probability of a downturn in the real economy and/or falling core inflation," said Eric Chaney, chief economist at AXA Group, in a note. "The probability of a U.S. recession is close to zero," he said. "Overall, there is not one single indicator flashing red, as far as the risk of recession is concerned," he added, citing indicators such as the consumer debt-to-income ratio back at end-2002 levels, high corporate profitability and even the declining federal deficit.

7--Israeli DM: We’re Aiding Syrian Rebels to Keep al-Qaeda Away From Border  antiwar
           Insists Israel Backing FSA Along Golan Frontier

Yet Ya’alon presented this as a working model for keeping al-Qaeda from having a common border with Israeli occupied Golan, which hasn’t been the case for over a month, with al-Qaeda’s Jabhat al-Nusra controlling much of the territory

8--Brzezinski strategy behind war on Russia, RT-

Nikolai Patrushev who headed the FSB from 1999 until 2008 said in an interview with the Russian government daily Rossiiskaya Gazeta that intelligence analysts established a current anti-Russian program being executed by American special services dates back to the 1970s, and is based on Zbigniew Brzezinski’s “strategy of weak spots”, the policy of turning the opponent’s potential problems into full scale crises.

The CIA decided that the most vulnerable spot in our country was its economy. After making a detailed model US specialists established that the Soviet economy suffered from excessive dependency from energy exports. Then, they developed a strategy to provoke the financial and economic insolvency of the Soviet state through both a sharp fall in budget income and significant hike in expenditures due to problems organized from outside,” Patrushev told reporters.

The result was the fall in oil prices together with the arms race, the war in Afghanistan, and anti-government movements in Poland, all of which eventually led to the breakup of the Soviet Union, said the former Russian security chief. He stressed that each of these factors bore hallmarks of US influence...

Some US experts such as former Secretary of State Madeleine Albright have suggested that Moscow has power over enormous territory that it cannot develop and it prevents these territories from serving humanity’s needs. Statements are being made about the allegedly unjust distribution of natural resources and the necessity to provide free access to them for other nations,” he claimed

9---Russia; Number 1 Enemy, RT

10--The cruelty of Abenomics--The Continuing Struggles of Abenomics  wsj
Despite robust profits, a booming stock market and low unemployment, too many Japanese have not benefited from the recovery

Real wages have fallen throughout the Abenomics experiment, including 2.6% in August. Households continue to keep much of their savings in cash, limiting the impact of a bull market. Virtually all of the new jobs are temporary, nonregular positions for low pay, few benefits and little advancement prospects. And, as the Abe government has acknowledged, Abenomics has exacerbated long-standing income inequalities between metropolises such as Tokyo and the depressed countryside....

 the Abe government, at the urging of fiscal hawks in the LDP, the bureaucracy and the business establishment, has already abandoned fiscal stimulus for a spending policy that alternates between expansion and austerity. The government has no current plans for stimulus spending, and Mr. Abe has said that his 2015 budget will seek “spending cuts without sanctuary.” Moreover, Mr. Abe may soon decide to raise the consumption tax again, beginning in October 2015......

 Meanwhile, Japan’s large exporters have continued to shift operations abroad, something that neither government pressure nor a proposed 5%-6% corporate-tax cut is likely to change.

10--The Russian response to America's 'declaration of war' , Saker
Must watch video

11---QE4 jawboning turns market positive, wolf street

Bank of America Merrill Lynch handed down the sacred words that “roughly 8 minutes” after the launch of the Alibaba IPO, the S&P 500 index hit 2019. And that was it. Since that fateful September 19, “US and global stocks have fallen 10%, and cyclical sectors such as energy, materials, and industrials have been decimated.”...

But here is what happened the last two times QE ended, as Bob Janjuah, Nomura’s global head of tactical asset allocation, pointed out:
I want to remind readers of a message that may be buried in the past: When QE1 ended, the S&P 500 fell just under 20% in a roughly three-month period before the QE2 recovery. When the QE2 ended, the S&P 500 fell about 20% in a three-month period before the next Fed-inspired bounce (aided by the ECB). QE3 is ending this month….
Using declining inflation expectations as a pretext, he proposed to delay the end of QE. The Fed should continue buying $15 billion in securities a month. It wouldn’t be much, and Bullard doesn’t get to vote on the FOMC, and he’s considered a hawk and still wants the first rate hike in Q1, and it was just an interview. But nevertheless it instantly turned around the markets. The spoiled brats on Wall Street were ecstatic to imagine that the Fed might continue to deliver the goodies they’ve become addicted to, and without which life seems unbearable. To allow markets to return to some sort of old normal, forget it.
Bullard bailed out Wall Street by jawboning, for the day. But for investors to continue pouring perfectly good cash at startups that are just burning it, they must have a magnificent exit in view. That magnificent exit only exists in a booming no-questions-ask stock market. But that market psychology and momentum has popped.

12---Andrew Huszar: Confessions of a Quantitative Easer, wsj
We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall

13--Wall Street Might Know Something the Rest of Us Don’t, NYT

“Due to excessive confidence in central banks, investors eagerly decoupled high market valuations from what was warranted by the sluggish fundamentals,” said Mohamed A. El-Erian, chief economic adviser of Allianz, the financial services company. That disconnect, he said, has been undermined over the last few weeks by signs that the global economy’s fundamentals are weaker than they seemed and concern that the European Central Bank will not adequately fight that continent’s economic drift....

Fed officials have been clear that they expect to start raising interest rates from their longstanding near-zero levels in the middle of 2015. Until this month, markets have believed them.
On Oct. 1, futures markets priced in only about 9 percent odds that the Fed would not raise rates by December 2015. By Wednesday, that had risen to about 40 percent. That means investors are now betting, given the recent declines in stock prices, bond yields and inflation expectations, that Janet L. Yellen, the chairwoman of the Fed, and her colleagues at the central bank are quite a bit less likely to follow through with their plans to increase interest rates next year. There have even been some early rumblings of a new round of quantitative easing, or bond buying (the previous round is set to end in the weeks ahead).....

14--We got your back: Bullard’s surprise suggestion of continuing QE lifts markets, marketwatch

15---Richest one percent controls nearly half of global wealth, wsws
By Andre Damon
17 October 2014
The richest one percent of the world’s population now controls 48.2 percent of global wealth, up from 46 percent last year, according to the most recent global wealth report issued by Credit Suisse, the Swiss-based financial services company.
Hypothetically, if the growth of inequality were to proceed at last year’s rate, the richest one percent for all intents and purposes would control all the wealth on the planet within 23 years.
The report found that the growth of global inequality has accelerated sharply since the 2008 financial crisis, as the values of financial assets have soared while wages have stagnated and declined.
“These figures give more evidence that inequality is extreme and growing, and that economic recovery following the financial crisis has been skewed in favour of the wealthiest,” commented Emma Seery, head of Inequality at Oxfam, the British anti-poverty charity. “This report shows that those least able to afford it have paid the price of the financial crisis whilst more wealth has flooded into the coffers of the very richest.”

While job growth has been solid this year, wages are rising barely faster than inflation, and the United States economy is producing far below its economic potential by most official estimates. Yet the stock market and other risky investments have generally been on tears since early in 2009, soaring to relatively high valuations relative to earnings. The Fed’s policies of printing trillions of dollars to buy bonds have been an important factor.
So the correction may not be about Wall Street knowing something about the outlook for the future that the rest of us do not, but rather about markets adjusting to more realistically reflect economic reality. Yes, things have improved, but maybe not enough to justify stock prices that are quite so high relative to corporate earnings.
Things are looking better, that is, unless you turn your eye to Wall Street. There, the stock market’s main gauge, the Standard & Poor’s 500-stock index, fell 0.8 percent on Wednesday after a wild ride during the day. It is off 7.4 percent since mid-September.
Moreover, longer-term interest rates are down sharply, which normally signals pessimism in the bond market about the nation’s economic future. A measure of expected volatility hit its highest level since 2011 on Wednesday, signaling that more manic days could lie ahead.

This apparent contradiction — and how it is resolved — points to the basic question for the United States economy and for Federal Reserve policy makers right now. How powerful is that underlying economic strength? And will the recent market volatility prove ultimately inconsequential, or does it presage harder times ahead for a nation still trying to muddle its way out of a downturn that technically ended more than five years ago?

Thursday, October 16, 2014

1--World leaders play war games as the next financial crisis looms, Larry Elliot, Guardian

Six years after the global banking system had its near-death experience, interest rates are still at emergency levels. Even attaining the mediocre levels of activity expected by the IMF in the developed countries requires central banks to continue providing large amounts of stimulus. The hope has been that copious amounts of dirt-cheap money will find its way into productive uses, with private investment leading to stronger and better balanced growth.

It hasn’t happened like that. Instead, as the IMF rightly pointed out, the money has not gone into economic risk-taking but into financial risk-taking. Animal spirits of entrepreneurs have remained weak but asset prices have been strong. Tighter controls on banks have been accompanied by the emergence of a powerful and largely unchecked shadow banking system. Investors have been piling into all sorts of dodgy-looking schemes, just as they did pre-2007. Recovery, such as it is, is once again reliant on rising debt levels. Central bankers know this but also know that jacking up interest rates to would push their economies back into recession. They cross their fingers and hope for the best.
Lagarde talks a good game, but the advice her organisation dispenses to individual countries has not really changed. There were four things that ensured shared prosperity in the 1950s and 1960s: strong trade unions; redistribution through the tax system; higher public spending; and curbs on the financial system. Apart from suggesting that some countries, such as Germany, might care to spend a bit more on infrastructure, the Fund is not really in favour of any of them. The message, therefore, is clear enough. Lagarde et al are worried about inequality. But they are not yet worried enough to do much about it

2---The Never ending crisis, Guardian

What concerns the IMF is that the slowdown – particularly in the advanced countries of the west – may be permanent. The phrase being bandied around in Washington was “secular stagnation”, the notion that there has been a structural decline in potential growth rates. Blanchard said it was entirely possible that developed countries would never return to their pre-crisis growth levels, and that even achieving the lower rates of expansion now expected would require interest rates to be maintained at historically low levels....

José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.”
This is not what the central banks intended when they cut the cost of borrowing and cranked up the electronic-money printing presses in the process known as quantitative easing. They expected cheap and plentiful money to rouse the animal spirits of entrepreneurs, encouraging them to invest. Instead, they have provided the casino chips for speculators....

risk is shifting from traditional banks to what is known as the shadow banking system – institutions such as hedge funds, investment banks and money market funds that do not take deposits directly from the public, but have grown in size and importance over the past decade. The fund thinks the next crisis could well stem from the shadow banks.


One of the architects of the IMF at Bretton Woods was Britain’s John Maynard Keynes, and there was a Keynesian tone to much of the IMF’s analysis. Keynes argued that when monetary policy – interest rates and QE – were exhausted, the state should step in and boost activity, through either tax cuts or public works. The IMF has taken up this idea with relish, and says its member governments should be looking seriously at the option of increasing spending on infrastructure projects.

3--JPMorgan Seems Less And Less Interested In Lending Money, HP

JPMorgan Chase has a problem: It’s taking in money faster than it can lend it out.
Here’s an updated version of the chart:
jp morgan deposits to loans
This is a chart showing a bank acting less and less like a bank. Banks take in deposits, lend a large portion of those deposits and buy things like bonds with the money that’s left over.

4---Dow Has Its Worst Day In Years Amid Global Market Freakout, Mark Gongloff

The Dow had its worst day in years.

4--12 Charts That Show The Permanent Damage That Has Been Done To The US Economy, zero hedge

5---Treasuries Gain as Oil Drops Below $80 While Stocks Slide, Bloomberg

6---Saudi Arabia Beheaded 59 People So Far This Year, Burning Platform

7--Risk of deflation feeds global fears, WSJ

8---Hundreds have been killed in eastern Ukraine since a ceasefire was declared on Sept 5, and other news, Roger Annis

9--As secret Saudi deal increases harm to Russia, China intervenes

10--How to blow up OPEC in 3 easy steps, automatic earth

I’ve hinted before at the long-standing cooperation between the US and Saudi Arabia, and there’s little doubt in my mind that the two are up to something. Washington has it in for Putin, first and foremost. The ‘Ukraine project’ has not brought what was intended.
Russia also still stands behind its only Middle East sphere of influence, Syria, something the Saudis like as little as America (but which Moscow won’t give up and and end up with zero say in the region) . And there’s always Venezuela, OPEC member and very vulnerable to power oil prices. Then there are a dozen other possible ‘targets’ among oil producers that the Saudi/US partnership may want to weaken. Who likes Iran, for one thing?

We’ve known for a while that the Saudis were lowering their prices. Which is something other OPEC members will be plenty upset about. But now we find out they’re also increasing production, and trying to catch EUropean and Asian customers before other fellow members can. That adds a whole extra dimension to the story:...
The 3 easy steps to blow up OPEC are easy indeed. The question may be why now, and why the way it happens. But that it’s happening is clear.
  • Step 1: raise output
  • Step 2: lower prices
  • Step 3: watch member nations’ governments go down like cats in a sack, trying to keep control of their societies.
  • Step 3a: yank up the US dollar
This is not a purely economic issue, it’s political. The US has a large voice in it in the director’s role, and the House of Saud plays the part of the protagonist. This is a major development in world politics, it’s not just some financial market-driven move

11--BIS warns on 'violent' reversal of global markets, telegraph

The BIS warned earlier this summer that the world economy is in many respects more vulnerable to a financial crisis than it was in 2007. Debt ratios are now far higher, and emerging markets have also been drawn into the fire over the last five years. The world as whole has never been more leveraged.
Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since the Lehman Brothers crash.

12--Turmoil rips through global financial markets, wsws

Global financial markets experienced a day of violent gyrations on Wednesday amid growing signs that the financial house of cards created by the provision of ultra-cheap money by the world’s major central banks may be collapsing.

European stocks experienced their biggest decline in three years as investors tried to cut their exposure to more risky assets. Concerns are mounting that the European economy is sliding into its third recession since the 2008 financial crisis and that global growth is slowing.
The FTSE Eurofirst index of the top 300 European shares ended the day more than 3 percent lower, its biggest one-day slide since late 2011. The key index is down 11 percent since the start of September.
A key European volatility index, sometimes referred to as the “fear gauge,” reached its highest level since mid-2012 when concerns over the sovereign debt of a number of countries threatened to spark a crisis. All major European indexes are in negative territory for the year, with the key German Dax index down more than 10 percent.

As the European sell-off proceeded, it was joined by Wall Street in a day of wild trading in both the equity and bond markets, reflecting extreme nervousness, if not panic.
At one point in the day, the Dow Jones index was down by as much as 460 points, as money flooded into US Treasury bonds in search of a safe haven. Such was the movement of cash that at one stage the yield on treasuries fell by 35 basis points in a few minutes. The price of bonds, which move in an inverse relationship to the yield, was lifted by a surge in demand...

Compounding the fears generated by falling world growth is the disarray in financial markets. In the US, there is growing uncertainty about where the US Federal Reserve is heading. It is nominally on track to begin lifting interest rates once its asset purchasing program ends this month.
However, the rise in the US dollar over recent months is impacting American export markets, giving rise to the belief that the Fed may postpone any return to higher interest rates......

The quantitative easing policy of the Fed, initiated in response to the 2008 financial crisis, has seen more than $3 trillion pumped into the coffers of the banks and finance houses. Nothing like it has taken place in the history of global capitalism, and no one can predict with any confidence what might be the consequences of even small rises in official interest rates. Some indication was provided in the gyrations in world markets last year as the Fed indicated it would begin to “taper” its asset purchasing program.

13---Is housing headed for another stimulus hangover, oc housing

The headline for much of this year has been that home price gains are easing. Prices are still higher compared to last year, but not nearly as much as they had been. Now, suddenly, it looks as if home values could actually go negative on a national level.
That will be the first time collectively, as a nation, we’ve seen prices drop since the low point or the trough of the housing crisis,” said Alex Villacorta, vice president of research and analytics at data firm Clear Capital.

14--QE4?, Reuters

San Francisco Federal Reserve President John Williams told Reuters on Tuesday that he would be open to another round of asset buying if the outlook for the economy worsened significantly. But he stressed it was a distant possibility and his main scenario was that the U.S. economy would weather global headwinds and the Fed could start lifting rates in mid-2015.
The ECB and the BOJ, meanwhile, are still in the thick of unconventional policies that are achieving only mixed results. They may be hard pressed to do more, even though ECB President Mario Draghi recently suggested it was European nations turn now to do their part saying that European governments with the capacity to borrow, such as Germany, should ramp up spending.
The Fed's policy setting committee meets Oct. 28-29 and plans to end its bond-buying program then. Its language will be watched particularly closely for evidence of how deeply recent world events have affected its thinking.

15---A nation of renters, Dr H Bubble

Since the crisis hit, we have added 7 million renter households. Not a coincidence that we have witnessed 7 million foreclosures over this time as well. Then, you will find that the home ownership rate has gone stagnant over this period:
Most Americans derive their net worth from their equity in their home.

16--Mortgage apps hit 14 year low, Dr H Bubble
mortgage applications

17--Younger Americans not buying "any second hand American dream", Dr H Bubble

Yet people still lust for homes and if we look at the homeownership rate for those 35 and younger, it looks like we hit a peak in 2004:
annual rate for 35 and under

18---Here is a brilliant, and brilliantly researched and documented, 37-minute video on the history of how this control of the public's perceptions of public events and of politics in our 'democracy' evolved, or came about. You can even see speaking there some of the people who developed it, and who carried it out for the oligarchs -- the controlling aristocrats -- and who thereby played key behind-the-scenes roles in shaping 20th-Century history. This video comes from the same genius, Aaron Hawkins, who researched and produced the best videos on the Ukrainian coup, and on the resulting Ukrainian civil war, and on the MH-17 shoot-down in Ukraine. Each one of these videos presents the visual and audio evidence, and places it into historical context so that it can be understood truthfully, and it coordinates that evidence with all of the written and other documentary evidence, so as to provide, in each one of these brief videos, authentic history, not myth, regarding its subject-matter

19--The Continuing Struggles of Abenomics, wsj
Despite robust profits, a booming stock market and low unemployment, too many Japanese have not benefited from the recovery

Tuesday, October 14, 2014

Today's Links

Today's quote: "
The IMF discussions presented a picture of a ruling class in disarray. Divided over what to do and unable to advance a program to promote anything remotely resembling an economic recovery, the ruling elites are acutely aware they are sitting on a powder keg. They are united only by their fear that the worsening social conditions and deepening inequality produced by the breakdown of the economic order over which they preside will provoke an explosion of social struggles from below." Nick Beams, WSWS

1---US Army drafts blueprint for World War III, wsws

...the United States Army has unveiled a new document entitled the Army Operating Concept (AOC), which provides a “vision of future armed conflict” that has the most ominous implications. It is the latest in a series of documents in which the Pentagon has elaborated the underlying strategy of preventive war that was unveiled in 1992—that is, the use of war as a means of destroying potential geopolitical and economic rivals before they acquire sufficient power to block American domination of the globe....

The Army’s strategic aim, according to the document, is to achieve “overmatch,” which it defines as “the application of capabilities or use of tactics in a way that renders an adversary unable to respond effectively.”
What do these words entail? In the case of a confrontation with another nuclear power, they encompass the implementation of a first-strike doctrine of mass annihilation. In regard to the subjugation and domination of other areas of the globe, they call for massive ground operations to quell popular resistance and enforce military occupation....

Only a powerful deployment of US ground forces, it argues, can deter Russian “adventurism” and “project national power and exert influence in political conflicts.”
From there, the paper proceeds to “regional powers,” in the first instance, Iran. It also accuses Iran of “pursuing comprehensive military modernization” and argues that “Taken collectively, Iranian activity has the potential to undermine US regional goals,” i.e., undisputed hegemony over the Middle East and its energy resources. Iran’s activities, it concludes, “highlight the need for Army forces to remain effective against the fielded forces of nation states as well as networked guerrilla or insurgent organizations.”
The document does not limit the “vision” of future military operations to war abroad, but includes the need to “respond and mitigate crises in the homeland,” which it describes as “a unique theater of operations for the Joint Force and the Army.” The Army’s mission within the US, it asserts, includes “defense support of civil authorities.”

2---Storm clouds gather over world economy, wsws

Elliott pointed out that the IMF and central bankers are well aware that pumping money into the financial system has not boosted the real economy through expanded investment and increased production, but led only to increased financial risk-taking. At the same time, they fear that lifting interest rates to halt speculation will push their economies into recession, and so they “cross their fingers and hope for the best.” The IMF, he continued, knows something is going “badly wrong in Europe, but was powerless to do anything about it.”

Clear evidence of the gathering slump is provided by the sharp declines in commodity prices. Oil prices are reported to be in “free fall,” with benchmark Brent Crude down 24 percent since the middle of the year. The International Energy Agency says oil prices have been “weighed down by abundant supplies” and weakening demand.....

As six years of central bank interventions have demonstrated, however, injections of money cannot bring about increased investment and production in the real economy, which is where the crisis is now centered. The only beneficiaries are the banks, finance houses and ultra-wealthy speculators.
Moreover, there are deep divisions in the ECB itself. German representatives have already voted against the present round of asset purchases and are certain to stridently oppose any central bank move to buy up government bonds and extend quantitative easing.

The IMF discussions presented a picture of a ruling class in disarray. Divided over what to do and unable to advance a program to promote anything remotely resembling an economic recovery, the ruling elites are acutely aware they are sitting on a powder keg. They are united only by their fear that the worsening social conditions and deepening inequality produced by the breakdown of the economic order over which they preside will provoke an explosion of social struggles from below.

3---Europe’s Austerity Zombies, Joseph Stiglitz

4---The Chechens are ISIL’s shock troops. Emir Omar al-Shishani’s Chechens lead the siege of Kobane, because ISIL recognizes that their violence and zealotry are a force-multiplier. The Chechens defeated the Syrian army at Raqqa, cracked the Iraqi army at Mosul, and are smashing the Kurdish army, known as the People’s Protection Unit (YPG), in Kobane

5---Spy agency says ISIS "No threat", This week

Americans are scared of ISIS. More than 70 percent believe that there are ISIS terror cells in the United States, while 90 percent believe ISIS poses a real threat to America, and 45 percent label the threat "very serious."
But that assessment is nowhere close to the reality of the ISIS threat.
Multiple U.S. intelligence agencies have repeatedly announced their consensus that ISIS is not an immediate threat to America. Gen. Martin Dempsey, the chair of the Joint Chiefs of Staff, says there's no evidence that ISIS is occupied with "active plotting against the homeland." DHS reports ISIS is not in Mexico, attempting to infiltrate the southern border. The FBI swatted down any notion that ISIS is planning an attack in the New York City subway system

6--Russia's navy warships berth in northern Iran, press tv

7---Mortgage Application Pipeline At America's Largest Mortgage Lender Drops To Lowest Since Lehman, zero hedge

according to Wells Q3 Earnings Supplement, while Mortgage Applications declined from a transitory one year high of $72 billion in Q2 to $64 billion, this number is going far lower. The reason: Wells' Morgage Application Pipeline just tumbled back to $25 billion, matching the lowest number since Lehman, and putting an end to any debate about the state of the US housing market.

In short: the only people buying houses in the US now are foreigners laundering their illegal, tax-exempt profits (ever fewer) and those as close to the Fed's ZIRP as possible, and, of course, paying all cash. Everyone else: not so much.

8---Interview with Sybil Edmonds, RT

my news organization was the first one to really break within the U.S. the training of the Syrian rebels in Turkey, and this was 6 or 5 months before anything about Syria actually made it to the news; using a U.S. airbase – and this is in Southern Turkey, close to the border with Syria – and this was NATO and the U.S. factions training and arming and sending back, having them cross the border, rebels, long before Syria actually became the news. As I said this was done in Turkey by the NATO forces, mainly U.S. and British forces, and it was something that was planned and designed and implemented by the U.S. So, for Joe Biden to come and put this out right now… of course he will get away with it, because the mainstream media here is not going to go and revisit the facts that were exposed with the activities of the U.S., what they did in Turkey, training these faction – now it’s called ISIS, it’s like the French fries or the freedom fighters: you’re looking exactly at the same fries at the same price. That’s all I’m going to say, it’s just ludicrous.

9---5 Reasons Oil Prices Are Dropping, zero hedge

10--One chart says it all, zero hedge

We have shown this chart before. We will show it again because, to nobody's surprise, nothing has changed since then.
The chart in question, which we believe demonstrates all that is wrong with the US financial and banking system, shows JPM's quarterly deposits, which in Q3 just hit a new all time record of $1.335 trillion, and its loans, which despite the much hyped rebound in Q2, once again declined to $743 billion from $747 billion in Q2 (so much for that lending-driven recovery?) leading to a new record low Loan-to-Deposit ratio of 56%. So while deposits are obviously hitting new record nominal highs quarter after quarter, when was the last time JPM's loans printed at all time highs? The answer: just as Lehman filed for bankruptcy, when the number was $761 billion.

And for those who missed our explanation last time, here it is again, updated for the times:
As the blue bar shows, total loans issued by the biggest US bank were $743 billion in Q3 2014: about $20 billion less than in the quarter Lehman blew up. Four years later, and the US commercial bank lending apparatus is still in a state of depression. Or so it would appear on the books.

11--Buy the dip!, wolf street

Cali Money Man, a seasoned wealth manager who sat at various desks during the last three crashes and hasn’t forgotten the lessons, observed that a large-scale decline in stock prices may become “disorderly on a scale we’ve not seen since 1987.”
Why? “Too many poorly understood structural changes have created unstable markets. It’s been unstable rising, which we’ve enjoyed. Now comes the dismount”:
Low liquidity in a rising market (liquidity evaporates with prices).
Phenomenally low trading volume, largely covered up by enormous volumes of high-frequency trades and ETF arbitrage.
Massive hedge fund speculators only lightly restrained by regulations on leverage, but unrestrained on selling into down markets.
Low confidence in the economy by retail and professional holders (esp. Boomers who cannot take another large drop, their 3rd in 15 years).
Record high use of technical analysis systems, which will give near-simultaneous, widely followed sell signals.

The effect of the massive switch to fee-based accounts during the past 6 years. We’re now fiduciaries (no matter what the fine print says). Collecting fees on the way up then watching it all evaporate will not look good. Yes, we tell ourselves that we’re now long-term strategic asset-allocators, hand-holding financial planners, and wealth advisors. But we forgot to tell our clients. They still think we’re investment managers. Either we’re going to sell on the way down; or get sued if the market goes down big but does not bounce back like it did last time. My guess is that we’ll sell.
And if this occurs with rising rates – so both stocks and bonds drop – it will get ugly fast.
None of these reasons have anything to do with sky-high valuations and the sheer distance that asset prices can plunge from their perch; or with corporate and economic fundamentals, a slowing world economy, or the implosion of China’s property bubble. These real-world reasons come on top of Cali Money Man’s structural reasons why the decline could become “disorderly.”

The last time the S&P 500 dropped below its 200-day moving average was in 2012, twice, but recovered quickly. It taught everyone that dips of this nature were nothing but a “buying opportunity.” Just buy the frigging dip became the rallying cry. It worked better than anything else, and the dips became shorter and shallower as dip-buying set in more and more quickly.
But beneath the skin, it looks much worse than the benign 200-day moving average: 80% of the stocks in the Russell 3000 are 10% or more below their highs, according to Bloomberg. Many of them have gotten demolished. Some have gone bankrupt as the appetite for high-risk debt at these low yields is drying up [read... Credit Bubble Begins to Exact its Pound of Flesh: GT Advanced Tech Soars, Crashes, and Burns]. That’s the bloodletting in small caps that UBS said was “actually fairly bullish.”

12--Saudis deploy the oil weapon, NC

It was only a matter of time until the evidence became irrefutable that the only way out of a global deflation on the order of the Great Depression was to address the fact that 571 U.S. billionaires simply don’t have enough hours in the day to spend adequate money to buy enough goods that would require the restocking of shelves, create new factory orders and thereby ramp up job hiring to keep a nation of 317 million people afloat.

A nation where the top 10 percent reaps more than 50 percent of the income is doomed to end up in the quicksand of deflation, dragging down the rich along with everyone else….
A key component that has allowed both the Fed and Congress to keep from taking strong measures to address a looming deflation has been the price of crude oil. Because oil impacts everything from transportation costs that inflate the price of food and other products to the cost of an airline ticket or heating a home, the high price of this commodity has, to a degree, masked the growing deflation threat.

Now the mask has been removed. Oil prices are in freefall and an oil price war has broken out among OPEC members, raising the specter of 1986 when oil prices fell by 50 percent in just an eight month span. A serious global slowdown has effectively turned the oil cartel, OPEC, into a beggar thy neighbor band of go-it-alone dealmakers who hope to sign individual contracts with customers and grab market share before prices decline further…

In other words, a sudden, sharp drop in inflation expectations caused by an oil price war raging around the globe was not present in the Fed’s crystal ball just a month ago. But it should have been: other commodity prices have been sending up red flags for some time now…
The market has delivered epiphanies to the Fed on multiple fronts – some of them blazing with sirens – but the Fed seems to have had its head in the sand just as securely as it did heading into the 2008 crisis.

13---Ukraine Refuses to Pre-Pay for Russian Gas: Energy Minister, Ria novosti

14---Americans Face Post-Foreclosure Hell As Wages Garnished And Assets Seize, BI

15--Terms laid down for taming shadow bank risk, FT