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Goldman Warns "Further Yen Depreciation Could Be A Net Burden" As Japanese Bankruptcies Soar

Zerohedge - 1 hour 30 min ago

It is no secret that one of the primary drivers of relentless S&P 500 levitation over the past two years, ever since the start of Japan's mammoth QE, has been the use of the Yen as the carry currency of choice (once again as during the credit bubble of the early-2000s), whose shorting has directly resulted in E-mini levitation. One look at the intraday chart of any JPY pair and the S&P500 is largely sufficient to confirm this. Those days, however, may be coming to an end, at least according to Goldman which overnight released a note saying that the Yen is "Almost at breakeven: Further yen depreciation could be a net burden."

Here are the highlights:

The yen has depreciated quickly beyond ¥115/US$ from the ¥107/US$ level since the FOMC made the decision to terminate quantitative easing and the BOJ surprised with additional easing at the end of October. This has prompted concern over possible damage to Japan as a whole if the yen weakens further.


Using industry input/output tables to investigate the costs and benefits of a weak yen, we find that the manufacturing sector still reaps forex translation gains under Japan’s current economic structure. However, in materials and nonmanufacturing industries that have limited opportunity to pass on forex-driven cost growth to exports, the costs of a weak yen far outweigh the benefits. According to our calculations, a 25% decline in the yen’s valueresults in a ¥4.1 tn net cost increase for Japanese industry as a whole since 2012 and a ¥10.5 bn increase in household sector import inducement.


By contrast, the decline in commodity prices is a substantial relief. A 10% decline in commodity prices cancels out the increase in net cost borne by 14.5% yen depreciation. The 25% decline in commodity prices so far (oil price) offsets the net cost increase borne by 35% yen weakness. Calculating from the late 2012 rate of ¥78/US$, 35% depreciation works out to a rate of ¥120/US$. In other words, the combination of the oil price around US$80/bbl and the yen exchange rate of ¥120/US$ is just about at breakeven, netting out the benefit and cost of yen depreciation and oil price decline since Abenomics began.


That said, our commodities research team sees limited scope for further decline in crude oil prices, while we expect the yen to depreciate further as the FRB and BOJ’s policies diverge. If further yen depreciation is not accompanied by real economic growth in the form of an export volume recovery and broad wage increases, and ends up merely producing forex translation gains, we believe it could very well place an increased burden on the Japanese economy as a whole. Needless to say, the cost burden will ease if the rapid decline in oil price over the last few days stabilizes at the low levels.

Oddly enough, one can almost make the case that the collapse in crude price has been manufactured to allow Japan's QE to continue as long as possible. And yet, this is hardly comforting news to Japan's companies, which as shown in the chart below, are seeing a surge in bankruptcies unseen in recent history. This is how Goldman explains this:

For the nonmanufacturing sector, yen depreciation means growth in net cost, increased burden for corporate and household sectors


Nonmanufacturing industries export little. Most of the goods they produce are consumed domestically. Imported intermediate products used as raw materials in the nonmanufacturing sector amount to only ¥8.6 tn, but we estimate that depreciation-linked input cost is ¥40.3 tn as this includes electricity/gas used at retail stores and event spaces as well as fuel (oil) costs for transporting goods. Nonmanufacturing sector exports, meanwhile, amount to just ¥18.5 bn. A 25% decline in the yen’s value raises the input cost by ¥10.1 tn, but this far exceeds the additional export receipt of ¥4.6 tn, resulting in a net cost increase of ¥5.5 tn. This additional cost must be borne by the “domestic sector” in Japan—i.e., the corporate or household sector.


Keeping personnel costs in check is key for companies forced to bear increased costs due to yen depreciation. Personnel costs have a high weighting in the nonmanufacturing sector, and if the yen continues to weaken it will be difficult to continue raising wages unless sales rise commensurately with cost increases. Cost increases in the nonmanufacturing sector due to yen depreciation have an ultimate ripple effect on the household sector because the  higher costs are passed on to retail prices and/or they prompt companies to rein in personnel costs (see Exhibit 2).



Costs of yen depreciation outweigh benefits for industry as a whole: Policies for addressing weak yen effect appear limited based on past experience


A similar calculation made using input/output tables for 2005 results in a “net export” figure of ¥16.3 tn for the manufacturing sector. Even after  subtracting nonmanufacturing sector “net cost” of ¥14.9 bn, net exports of ¥1.4 tn remain, indicating that policies to offset the impact of a weak yen had a positive impact on the Japanese economy as a whole. The secular rise in crude oil prices from 2005 significantly raised the cost of intermediate inputs—mining, oil, and coal products—for both manufacturing and nonmanufacturing. For industry as a whole, input costs affected by yen depreciation increased to ¥86.6 bn in 2012 from ¥71.8 tn in 2005. Over the same period, exports of goods and services from Japan declined to ¥70.3 tn from ¥73.2 tn due to yen appreciation, the global financial crisis, and the March 2011 earthquake. The lack of growth in exports is due partly to the global demand cycle, but a larger structural factor is that Japanese companies have lost global  market share due to the shift of production overseas and increased competition with foreign products.


In 2012, the structure of the Japanese economy was that manufacturing sector had net export value of just ¥5.5 tn, which was insufficient to offset the nonmanufacturing sector’s net cost of ¥21.8 tn, resulting in net cost of ¥16.3 tn for Japanese industry as a whole. A 25% decline in the yen’s value raises industry’s net cost burden by ¥4.1 tn, which is equivalent to 0.8% of GDP. The impact of weak-yen policy measures based on experiences when Japan was a net exporter, has clearly diminished.


Bankruptcies precipitated by yen depreciation on the rise


According to a recent bankruptcy survey by Tokyo Shoko Research, there were 214 bankruptcies due to the weak yen in January-September 2014, which is 2.4 times the 89 seen in January-September 2013. Far more of the bankruptcies were in the nonmanufacturing sector—81 in transport, 41 in wholesale trade, 19 in services, and 11 in retail—than in the manufacturing sector (44), which is consistent with our analysis based on the input/output tables.


Surprisingly, the number of bankruptcies since 2013 due to yen depreciation far surpasses the number of bankruptcies in 2009-2011 due to yen appreciation. Presumably, in many cases in 2009-2011 the strong yen was not cited as the direct cause of bankruptcy because there were numerous other factors at work also, beginning with the sharp slowdown in the global economy and financing difficulties. Nevertheless, the 353 bankruptcies since  2013 attributed to the weak yen are 2.2 times greater than the 157 bankruptcies from 2009 to 2011 attributed to the strong yen (see Exhibit 3).


And it is not just corporations that are approaching their weak-yen breaking point. So are households:

Household burden increases with weaker yen


Let us turn to the household sector. The input-output table has a matrix of “import induction value by final demand categories”. This shows the value of goods and services imports induced by final demand categories such as household consumption, private business investments, public fixed investment and exports (see Exhibit 4).


Household sector final demand totaled ¥279 tn in 2012, with imports accounting for ¥41.9 tn, or 15.0%, of household consumption. This includes gasoline and mineral fuels (oil, coal) needed to generate electricity for households. Taking into account the decline in the yen’s value since 2012, household sector import value has risen ¥10.5 tn to ¥52.4 tn. The ¥10.5 tn rise is equivalent to 3.6% of 2012 household sector disposable income of ¥287 tn. 


In 2005, imports represented ¥32.8 tn of household final consumption. This figure rose ¥9.1 tn to ¥41.9 tn in 2012, and if we take the 25% decline in the yen’s value into account, the rise comes to ¥19.6 tn over seven years. Mining, oil, and coal products account for 50% of the rise since 2005, clearly showing how the rises in gasoline, kerosene and electricity prices due to yen depreciation increased households’ burden.


Household final consumption was largely unchanged during this period, rising just barely from ¥277 tn in 2005 to ¥280 tn in 2012. This means that domestic consumption of goods and services declined to the same extent that import consumption value increased. Disposable income declined just slightly over this period, to ¥287 tn from ¥290 tn, meaning that the rise in import costs for households due to yen depreciation was borne directly by households, causing them to curb their spending.


Food and fuel-related imports in the household sector totaled ¥22 tn in 2012, accounting for 54% of household sector imports of ¥41 tn. The recent decline in crude oil and other commodity prices is partially offsetting the impact of the weak yen, but not the rise in costs due to yen depreciation on the 46% of imports that are not food or fuel-related.

Goldman's conclusion:

If further yen weakness is not accompanied by real economic growth in the form of an export volume recovery and broad wage increases, and ends up merely producing forex translation gains, we believe it could very well place an increased burden on the Japanese economy as a whole. Needless to say, the cost burden will ease if the recent rapid decline in oil price stabilizes at the low levels.

Needless to say, none of this is preventing the momentum-chasing algos to push the USDJPY up some 100 pips in the overnight session to offset the tumble in energy companies and push the S&P higher, and send it almost back to the highest level seen since 2007. And once the USDJPY trigger the 119 buy stops, all bets are off, if only for the Japanese economy. The Nikkei and the S&P 500 on the other hand, well those will keep rising as more economic devastation rains on Japan's economy thanks to Abenomics.

Then again, with Paul Krugman now openly advising Abe, it should come as no surprise that Japan's economy is in the late stages of a total and unprecedented collapse.

The Price Of Oil Exposes The True State Of The Economy

Zerohedge - 1 hour 52 min ago

Submitted by Raul Ilargi Meijer via The Automatice Earth blog,

Jack Delano Cafe at truck drivers’ service station on U.S. 1, Washington DC Jun 1940

We should be glad the price of oil has fallen the way it has (losing another 6% today as we write this). Not because it makes the gas in our cars a bit cheaper, that’s nothing compared to the other service the price slump provides. That is, it allows us to see how the economy is really doing, without the multilayered veil of propaganda, spin, fixed data and bailouts and handouts for the banking system.

It shows us the huge extent to which consumer spending is falling, how much poorer people have become as stock markets set records. It also shows us how desperate producing nations have become, who have seen a third of their often principal source of revenue fall away in a few months’ time. Nigeria was first in line to devalue its currency, others will follow suit.

OPEC today decided not to cut production, but whatever decision they would have come to, nothing would have made one iota of difference. The fact that prices only started falling again after the decision was made public shows you how senseless financial markets have become, dumbed down by easy money for which no working neurons are required.

OPEC has become a theater piece, and the real world out there is getting colder. Oil producing nations can’t afford to cut their output in some vague attempt, with very uncertain outcome, to raise prices. The only way to make up for their losses is to increase production when and where they can. And some can’t even do that.

Saudi Arabia increased production in 1986 to bring down prices. All it has to do today to achieve the same thing is to not cut production. But the Saudi’s have lost a lot of clout, along with OPEC, it’s not 1986 anymore. That is due to an extent to American shale oil, but the global financial crisis is a much more important factor.

We are only now truly even just beginning to see how hard that crisis has already hit the Chinese export miracle, and its demand for resources, a major reason behind the oil crash. The US this year imported less oil from OPEC members than it has in 30 years, while Americans drive far less miles per capita and shale has its debt-financed temporary jump. Now, all oil producers, not just shale drillers, turn into Red Queens, trying ever harder just to make up for losses.

The American shale industry, meanwhile, is a driverless truck, with brakes missing and fueled by on cheap speculative capital. The main question underlying US shale is no longer about what’s feasible to drill today, it’s about what can still be financed tomorrow. And the press are really only now waking up to the Ponzi character of the industry.

In a pretty solid piece last week, the Financial Times’ John Dizard concluded with:

Even long-time energy industry people cannot remember an overinvestment cycle lasting as long as the one in unconventional US resources. It is not just the hydrocarbon engineers who have created this bubble; there are the financial engineers who came up with new ways to pay for it.

While Reuters on November 10 (h/t Yves at NC) talked about giant equity fund KKR’s shale troubles:

KKR, which led the acquisition of oil and gas producer Samson for $7.2 billion in 2011 and has already sold almost half its acreage to cope with lower energy prices, plans to sell its North Dakota Bakken oil deposit worth less than $500 million as part of an ongoing downsizing plan.


Samson’s bonds are trading around 70 cents on the dollar, indicating that KKR and its partners’ equity in the company would probably be wiped out were the whole company to be sold now. Samson’s financial woes underscore how private equity’s love affair with North America’s shale revolution comes with risks. The stakes are especially high for KKR, which saw a $45 billion bet on natural gas prices go sour when Texas power utility Energy Future Holdings filed for bankruptcy this year.

And today, Tracy Alloway at FT mentions major banks and their energy-related losses:

Banks including Barclays and Wells Fargo are facing potentially heavy losses on an $850 million loan made to two oil and gas companies, in a sign of how the dramatic slide in the price of oil is beginning to reverberate through the wider economy. [..] if Barclays and Wells attempted to syndicate the $850m loan now, it could go for as little as 60 cents on the dollar.

That’s just one loan. At 60 cents on the dollar, a $340 million loss. Who knows how many similar, and bigger, loans are out there? Put together, these stories slowly seeping out of the juncture of energy and finance gives the good and willing listener an inkling of an idea of the losses being incurred throughout the global economy, and by the large financiers. There’s a bloodbath brewing in the shadows. Countries can see their revenues cut by a third and move on, perhaps with new leaders, but many companies can’t lose that much income and keep on going, certainly not when they’re heavily leveraged.

The Saudi’s refuse to cut output and say: let America cut. But American oil producers can’t cut even if they would want to, it would blow their debt laden enterprises out of the water, and out of existence. Besides, that energy independence thing plays a big role of course. But with prices continuing to fall, much of that industry will go belly up because credit gets withdrawn.

The amount of money lost in the ‘overinvestment cycle’ will be stupendous, and you don’t need to ask who’s going to end up paying. Pointing to past oil bubbles risks missing the point that the kind of leverage and cheap credit heaped upon shale oil and gas, as Dizard also says, is unprecedented. As Wolf Richter wrote earlier this year, the industry has bled over $100 billion in losses for three years running.

Not because they weren’t selling, but because the costs were – and are – so formidable. There’s more debt going into the ground then there’s oil coming out. Shale was a losing proposition even at $100. But that remained hidden behind the wagers backed by 0.5% loans that fed the land speculation it was based on from the start. WTI fell below $70 today. You can let your 3-year old do the math from there.

I wonder how many people will scratch their heads as they’re filling up their tanks this week and wonder how much of a mixed blessing that cheap gas is. They should. They should ask themselves how and why and how much the plummeting gas price is a reflection of the real state of the global economy, and what that says about their futures.

About Those Eyeball-Based Valuations: "Half Of Twitter Accounts Created In 2013 Have Already Been Deleted"

Zerohedge - 2 hours 6 min ago

Still paying a #Div/0 valuation for Facebook or Twitter based on expectations of exponential growth in eyeballs, or rather "eyeballs"? Then perhaps read this first.

... many of the “users” on social media sites aren’t real people at all – they’re celebrity staff tweeting on behalf of their employer, or PRs promoting a company, or even fake accounts for people that don’t exist at all. In fact, half of all Twitter accounts created in 2013 have already been deleted.


These fake accounts are often created by unscrupulous firms that will beef up your follower count in return for cold hard cash.


“Twitter is in the centre of public interest and politicians or companies are often ranked by number of followers or re-tweets or the like – so, there is a whole “web optimisation” industry offering services to make you look better on Twitter – everybody can buy 10,000 followers for $5,” Pfeffer said.

Source: Forbes

The US Consumer Is So Exuberant, Best Buy's Website Just Died

Zerohedge - 2 hours 39 min ago

Apple-esque marketing gimmick or spend-more-than-you-can-afford US consumer in full rampage...?


Can QE Prop Up Asset Prices Forever?

Zerohedge - 2 hours 57 min ago

Submitted by Chris Hunter via Acting man blog,

Popular Myths and a Shrinking Work Force

It’s not just voters who buy into popular myths. Many investors do too. Few have wider appeal than the myth that central banks can create economic growth via the printing press.

What central bankers and their supporters seem to forget is that growth comes from living, breathing human beings.

It often sounds a lot more complicated than it really is. But genuine economic growth comes from two things: the number of workers in the labor force and the productivity of those workers.



That’s a problem for the US. Because according to a recent report in The Economist, its potential labor force is set to grow at less than one-third the 0.9% rate we saw between 2003 and 2013.

Making things worse, many of America’s boomers – the first of whom qualified for Social Security in 2008 – are opting out of the labor force. Instead of looking for jobs, they are choosing to live on benefits.

This helps explain why the percentage of working-age adults looking for jobs in the US has fallen to below 63% from about 66% when the global financial crisis struck.

And it’s not just Americans who are getting older on average.

From The Economist:

“[T]he ratio of workers to retirees is now plunging in most developed countries and soon will in many emerging markets. Japan is already liquidating the foreign assets its people acquired during their high-saving years; China and South Korea are starting to do so and Germany will soon.”

Fewer workers in the labor force. More retirees to support for those with jobs. Foreign retirees cashing out of their US stocks and bonds. Janet Yellen et al. better hope investors are gullible enough to believe the magic of QE can continue to levitate financial assets forever.

Otherwise, stock and bond investors will start to reconsider the prices they’re willing to pay to own their pieces of paper.

Past and projected workers per retiree of selected countries – via


Netherlands, Germany Have Euro Disaster Plan - Possible Return to Guilder and Mark

Zerohedge - 3 hours 6 min ago

Netherlands, Germany Have Euro Disaster Plan - Possible Return to Guilder and Mark

The Dutch and German governments were preparing emergency plans for a return to their national currencies at the height of the euro crisis it has emerged. These plans remain in place.

German Gold Deutsche Mark - (Special Edition)

The Dutch finance ministry prepared for a scenario in which the Netherlands could return to its former currency - the guilder. They hosted meetings with a team of legal, economic and foreign affairs experts to discuss the possibility of returning to the Dutch guilder in early 2012. 

The Dutch finance minister during the period has confirmed that Germany also discussed such scenarios.

At the time the Euro was in crisis, Greece was on the verge of leaving or being pushed out of the Euro and the debt crisis was hitting Spain and Italy hard. The Greek prime minister Georgios Papandreou and his Italian counterpart Silvio Berlusconi had resigned and there were concerns that the eurozone debt crisis was spinning out of control - leading to contagion and the risk of a systemic collapse.

A TV documentary broke the story last Tuesday. The rumours were confirmed on Thursday by the current Dutch minister of finance, Jeroen Dijsselbloem, and the current President of the Eurogroup of finance ministers in a television interview which was covered by EU Observer and Bloomberg.

“It is true that [the ministry of] finance and the then government had also prepared themselves for the worst scenario”, said Dijsselbloem.

“Government leaders, including the Dutch government, have always said: we want to keep that eurozone together. But [the Dutch government] also looked at: what if that fails. And it prepared for that.”

While Dijsselbloem said there was no need to be “secretive” about the plans now, such discussions were shrouded in secrecy at the time to avoid spreading panic on the financial markets.

When asked about Germany, Dijsselbloem said he couldn’t say whether that country’s government had made similar preparations.

German Silver Deutsche Mark - (1951-1974)

However, Jan Kees de Jager, finance minister from February 2010 to November 2012, acknowledged that a team of legal experts, economists and foreign affairs specialists often met at his ministry on Fridays to discuss possible scenarios.

“The fact that in Europe multiple scenarios were discussed was something some countries found rather scary. They did not do that at all, strikingly enough”, said De Jager in the TV documentary.

“We were one of the few countries, together with Germany. We even had a team together that discussed scenarios, Germany-Netherlands.”

When the EU Observer requested confirmation from Germany, the German ministry of finance did not officially deny that it had drawn up similar plans, stating simply:
“We and our partners in the euro zone, including the Netherlands, were and still are determined to do everything possible to prevent a breakup of the eurozone.” 

This is quite a revelation. At that time the German finance minister Wolfgang Schauble had said that the Euro could survive without Greece. Whether it could survive without the Dutch is another matter entirely.

A Euro without Holland and especially Germany is currently inconceivable. De Jager also states that other countries found the prospect of a Euro break-up frightening. 
So much so that they buried their heads in the sand rather than deal with the situation facing them. It appears that no emergency contingency plans were made in the unfortunately named PIIGS nations - Portugal, Ireland, Italy, Greece and Spain.

One has to wonder if the plans would have been made public had a TV documentary not forced the Dutch government to confirm the claim.

It is interesting to note that it is these two countries, Germany and Netherlands, whose citizens have also been at the forefront of the gold repatriation movement currently sweeping across Europe - France's second largest party entered the fray this week.

In a climate with a lack of faith in fiat currencies, any return to a purely fiat guilder or mark would be risky in the absence of the confidence that gold backing provides.
Despite the implication that secrecy is no longer necessary because Europe is over the worst we believe the Dutch repatriation of 20% of it's sovereign gold from the U.S. indicates that the Dutch are still, wisely, preparing for the worst - whether that be a euro crisis or indeed a dollar crisis and an international monetary crisis.

Their stated reason for returning their 122 tonnes of gold to Netherland’s soil was to instil public confidence in the Dutch central bank.

The prospect of a Euro-break up is a frightening one. It would appear that most Eurozone nations are ill-prepared and indeed unprepared for. 

As always we recommend investors act as their own central bank by taking delivery of bullion or keeping gold and silver in secure, allocated and segregated vaults in safer jurisdictions such as Switzerland and Singapore.

For investors and savers currently using the euro, it begs the important question do you have a euro failure contingency plan? 

Indeed, for investors and savers internationally using other fiat currencies, it begs the important question do you have a currency failure contingency plan? 

While the risks in peripheral European nations of reversion to their national currencies and currency devaluations have diminished – some risks still remain.

The risk is that individual national governments may elect to take this route rather than suffer deflationary economic collapse and Depressions. Alternatively, it could happen through contagion or a systemic event like the collapse of a large European bank, a la Lehman Brothers, that leads to a domino effect jettisoning a member state out of the monetary union.

It could also come about should the German people and politicians decide that the European monetary project is not worth saving or they decide that it cannot be saved and elect to return to the Deutsche mark.
All significantly indebted nations, so called PIIGS and non PIIGS such as Japan, the UK and the U.S. are at risk of currency devaluations.

Competitive currency devaluations or the debasement of currencies for competitive advantage and currency wars poses real risks to the long term stability and prosperity of all democracies in the world and to the finances and savings of people in all countries.

Get Breaking News and Updates On Gold Markets Here

Copper & Crude Crash To 4 Year Lows

Zerohedge - 3 hours 21 min ago

With all eyes focused on the malls around America, we thought a glimpse at two of the most important commodities to the world economy would provide food for thought...




And Crude...


are at 4-year lows...

But you can still get a bargain stock at record highs...



As It Turns Out Deflation Is Good After All

Zerohedge - 3 hours 30 min ago

Earlier today, in typical German fashion, the chief of the Bundesbank poured cold water on Europe's latest round of demands that Germany carry the weight of the rebound from the triple-dip on its shoulders, as usual, when Buba President Jens Weidmann Friday rejected calls for a German stimulus plan, saying only structural reforms and more competitiveness would kick-start eurozone economies. “Calls for a public fiscal stimulus plan in Germany to boost the Eurozone economy are amiss,” said Mr. Weidmann in a speech for an economic summit hosted by the German newspaper Süddeutsche Zeitung. He is, of course, right: the longer Europe's insolvent, uncompetitive governments kick the can and force Germany to do all the hard work, the longer Europe will be unable to get out of a hole that gets deeper with every passing day. In short: Mr. Weidmann refuses to "get to work" for a bunch of corrupt, clueless politicians.

He then proceeded to do something shocking: he was logical. Quoted by the WSJ, he said: "Investment rates that are above the growth potential of a developed economy aren't likely to boost prosperity—this applies to both public and private investments."


The German government shares Mr. Weidmann’s view. It says public investment can’t solve the eurozone’s growth problem as structural reforms are needed. The International Monetary Fund and neighboring countries France and Italy have called on Germany to boost public investment. But Berlin has pledged only €10 billion ($12.5 billion) in additional public investment over three years starting in 2016, hoping this would spur private investment worth €50 billion.


Mr. Weidmann stressed that it is also wrong to believe central bank monetary policy would be able to solve the bloc’s economic problems.


“It is an illusion to believe that monetary policy means can raise economies’ growth potential permanently, or create lasting jobs,” Mr. Weidmann said. “In the end, this can only be achieved by structural reforms, because growth and employment occur in innovative companies and competitive products, and well-educated and highly motivated employees.”

Therein lies the rub: Europe is allergic to structural reforms, and as we have shown in the past, it blames its woeful fate on evil, evil "austerity" (somewhat paradoxical for a continent where record debt gets recorder with every passing quarter), when in reality what is causing the ongoing European depression is crime, corruption, cronyism and capital misallocation.

But none of that is news. What was news, and what was truly notable in Weidmann's statement is his open jab at the stupidity of Keynesian economics itself. To wit from Bloomberg: ECB Governing Council member Jens Weidmann says at event in Berlin that consumer prices in euro area “are strongly influenced by the energy prices, which are at the moment experiencing a positive supply shock.”

The punchline:  "There’s a stimulant effect coming from the energy prices - it’s like a mini stimulus package."

But wait a minute, isn't deflation under Keynesian voodoonomics, the biggest bogeyman imaginable?

It turns out deflation is only bad when it impacts... the S&P 500. Otherwise deflation for such things as energy prices and other input costs is suddenly bullish? So, by that logic, Japan with its soaring energy costs as a result of its currency devastation must be smack in the middle of the biggest depression ever. Which, of course, it is, as we warned would happen in early 2013.

For now, however, we are more focused on the official transformation of the German Central Bank into the central bank of "Austrian" economics.

The 2014 Black Friday Frenzy: America Goes Shopping, In Photos

Zerohedge - 4 hours 11 min ago

Black Friday is the day when the trademark US consumerism takes center stage for its annual manic, full-frontal exposure around the globe. Here is what it looked like around the US...

People buying TVs


Thanksgiving Day shoppers line up to start shopping at a Target store in Chicago


People carry shoes in Macy's during Black Friday sales in New York


Shoppers line up outside Best Buy before the store opens in Newport, New Jersey


People line up outside before the Toys R Us store opened in Times Square


Women try on shoes in Macy's to kick off Black Friday sales in New York


Shoppers wait to enter Macy's to kick off Black Friday sales in New York


A girl chooses an item from Disney's Princess toy line up to purchase at the Toys R Us store in Times Square


A shopper carries a TV outside a Best Buy store in Newport, New Jersey.


Shoppers enter Best Buy as the store opens in Newport, New Jersey


People look in the window before the Toys R Us store opened in Times Square.


A girl poses with an Olaf plush toy from Disney's Frozen toy line at the Toys R Us store in Times Square.


Thanksgiving Day shoppers ride an escalator while shopping at a Target store in Chicago


Thanksgiving Day shoppers carry televisions at a Target store in Chicago


A woman lines up outside before the Toys R Us store opens in Times Square.


Shoppers line up outside Best Buy before the store opens in Newport, New Jersey


A girl looks at items from Disney's Frozen toy line at the Toys R Us store in Times Square.

* * *

... And not only, because other countries increasingly adopt the "best" of US traditions. Here is what happened in the UK earlier today:

Black Friday hops the pond: Shoppers compete to purchase retail items on "Black Friday" at an Asda superstore in Wembley.


Shoppers wrestle over a television as they compete to purchase retail items on "Black Friday" at an Asda superstore in Wembley, north London November 28


... And Brazil:

Here, shoppers crowd outside a store before it opens on "Black Friday" in Sao Paulo.

Photos: Reuters

Russian Warship Flotilla Enters English Channel For Military Exercises

Zerohedge - 4 hours 49 min ago

The French delivery of two Mistral ships to Russia may be postponed indefinitely (a move which ultimately would cost Hollande over $4 billion in contract breach penalty fees he simply can't afford to pay), but that doesn't mean the Russian navy has been hobbled or is hiding in the corner. To the contrary: according to the following tweet from the UK Ministry of Defense, Russia's navy is getting quite bolder.

Four Russian ships escorted through Dover Strait from North Sea by @RoyalNavy HMS Tyne this morning. Ships have left UK waters.

— Ministry of Defence (@DefenceHQ) November 28, 2014

What happened?

As Bloomberg reports, at least 4 vessels which departed the Russian Northern Fleet main base on November 20, led by anti-submarine ship Severomorsk, entered English channel for exercises that include anti-sabotage training, damage control in case of fire and water intake, state-run news service RIA Novosti says, citing statement from Navy.

Reuters confirms that a squadron of Russian warships entered the English Channel on Friday to hold exercises, RIA news agency reported, the latest apparent show of military might since ties with the West plunged to Cold War lows over Ukraine.

RIA quoted the Northern Fleet as saying its vessels, led by anti-submarine ship Severomorsk, had passed through the Strait of Dover and were now in international waters in the Seine Bay to wait for a storm to pass.


"While it is anchored the crew are undertaking a series of exercises on how to tackle ... infiltrating submarine forces and are training on survival techniques in the case of flooding or fire," RIA quoted the Northern Fleet as saying in a statement.


The Russian navy could not reached for comment and the Defence Ministry declined to comment on the report.

The Russian navy frigate Smolny is seen at the STX Les Chantiers
de l'Atlantique shipyard site in Saint-Nazaire, western France, November 25, 2014

Naturally, NATO - afraid of looking even weaker than it is - was quick to downplay the incident since a lack of retaliation would make the defensive alliance appear quite prone to "penetrations" by Russian forces:

France's navy confirmed the location of the ships and said it was not unusual to have Russian warships in the Channel.


"They are not holding exercises. They’re just waiting in a zone where they can be several times a year," said the French Navy's information service.


Lieutenant-Colonel Jay Janzen, NATO's military spokesman, also said the alliance was aware of the Russian ships' location.


"Our information indicates that the ships are transiting and have been delayed by weather conditions. They are not exercising in the Channel, as some Russian headlines would have us believe," he said.

And if they were in fact "exercising" it would simply mean that NATO exercises in the Black Sea miles away from the Russian coast, are finally being met in kind by a Russia which with every passing day is making it clear its "concern" of western reprisals and retaliation to Russian actions, which in turn are a consequence of NATO expansion eastward, is increasingly more negligible.

Frontrunning: November 28

Zerohedge - 5 hours 16 min ago
  • Oil Seen in New Era as OPEC Won’t Yield to U.S. Shale (BBG)
  • Alberta Producers With World’s Cheapest Oil Face Cascading Woes (BBG)
  • Bundesbank’s Weidmann Rejects Calls for German Stimulus Plan (WSJ)
  • Google Should Be Broken Up, Say Euro MPs (BBC)
  • Calm comes to troubled Ferguson; protests dwindle across U.S. (Reuters)
  • Russia’s Banks Feel Capital Squeeze in Grip of Sanctions (BBG)
  •  Italian Unemployment Rate Rises to Record, Above Forecasts (BBG)
  • Hedge Funds Seek to Tie Up Money for Longer (WSJ)
  • Laughing Hacker Who Hit Sony, FBI Now Seeks Legal Lols (BBG)
  • China Motorists Exceed 300 Million as Cities Struggle (BBG)
  • WHO advises male Ebola survivors to abstain from sex (Reuters)
  • Why Italy's stay-home shoppers terrify the euro zone (Reuters)
  • Iron Caps Biggest Monthly Drop Since September as Supply Climbs (BBG)


Overnight Media Digest


* Two music publishers are taking aim at a new target in the battle against illegal song downloading: the cable industry. Wednesday afternoon, BMG Rights Management LLC and Round Hill Music LP sued cable giant Cox Communications Inc, claiming that Cox, which provides Internet service to millions, is deliberately turning a blind eye to illegal downloading by its subscribers. (

* Hedge-fund managers are increasingly persuading investors to lock up their money for longer - in many cases more than double the typical one-year period - and dangling lower fees to close the deal. (

* European politicians are poised to approve a new generation of lower-cost rockets, partly in response to competition from U.S. launch providers, according to government and aerospace-industry officials on both sides of the Atlantic. (

* Manufacturers are taking matters into their own hands to patch up a weak spot of Thailand's economy: its worsening shortage of skilled labor. A shrinking labor pool and inadequate training for workers are constraining business and industrial growth, investors here say. Now an increasing number of companies - many in the auto industry - are rolling out apprenticeship programs aimed at beefing up the workforce themselves. (

* Europe escalated its war against U.S. technology superpowers as the Continent's two largest economies and the European Parliament on Thursday backed fresh efforts to rein in the growing influence of companies such as Apple Inc, Facebook Inc and Google Inc. (

* Outbrain Inc, a provider of "native ads," filed confidentially with the U.S. Securities and Exchange Commission earlier this month seeking preliminary approval to list shares on the Nasdaq Stock Market, according to people familiar with the matter. (

* The financial crisis and its aftermath have revived interest in gold as a monetary policy instrument, especially in Europe, where central banks face public pressure to buy gold or bring back home what they hold overseas. (

* BAIC Motor Corp, a Chinese car maker partly owned by Daimler AG, is planning to start gauging investors' interest next week in an initial public offering which could raise between $1.2 billion and $1.5 billion in Hong Kong, a person familiar with the situation said. (



Two senior executives, Kevin Grace, group commercial director, and Carl Rogberg, UK finance director, of troubled British grocer Tesco, left the company on Wednesday.

Mexican billionaire Carlos Slim is set to become the largest investor in Spanish builder FCC after agreeing to buy top shareholder Esther Koplowitz's part of a $1.3 billion capital increase. This capital increase will leave Slim with a 25.6 percent stake in the company.

Deutsche Bank AG is winding down its physical precious metals trading business, it said on Thursday, moving to further scale back its exposure to commodities.

Director of Britain's "Business for New Europe", a pro-EU lobby group and a non-profit organisation, Alisdair McIntosh, is set to quit after less than a year in office.



* Oil cartel OPEC decided not to cut petroleum production, despite the plunge in prices in recent months that has indicated the diminishing clout of the organization. The price of Brent crude oil fell an additional $4 to a four-year low of about $73. American crude dropped below $70, an even more significant threshold. (

* Europe's resentment of the American technology giant Google Inc reached a new noise level as the European Parliament passed a nonbinding vote to break up the company. European fears of American technology giants have been stoked in the last 18 months by the revelations of Edward Snowden, the former National Security Agency contractor, about American intelligence agencies' spying activities and perceived easy access to the world's tech infrastructure. (

* A London high court judge has ordered Chris Hohn, founder of one of Britain's largest and most successful hedge funds, to pay his former wife $531 million to settle their messy public divorce, according to statements made in court. The figure demonstrates the immense wealth Hohn has accumulated at the helm of the Children's Investment Fund, known as TCI. (

* Cheyne Capital, a $6 billion hedge fund based in London, plans to buy property it will then rent to organizations that deliver services like affordable housing, aid for the elderly or care through the National Health Service. (

* Argentina's tax agency accused HSBC Bank PLC of helping more than 4,000 Argentines evade taxes by placing their money in secret Swiss accounts. The head of the country's tax agency said Argentine citizens had evaded about $3 billion in taxes. (

* U.S. Bank, a division of U.S. Bancorp, is being accused of failing to engage with borrowers who missed payments. The legal action could mean fresh problems for other big mortgage banks, as well. (

* Japan will follow the United States in forcing automakers to recall all vehicles containing potentially dangerous driver's-side airbags made by Takata Corp. An order from the Transportation Ministry on the airbags would lead to the recall of an additional 200,000 vehicles in Japan. (




** Canada's energy sector faces the prospect of a lengthy downturn in oil prices and broad spending cuts after the Organization of the Petroleum Exporting Countries said it did not intend to cut production - a move that sent crude prices and energy shares plunging. Investors immediately punished Canadian energy companies in reaction to the OPEC's decision on Thursday to stand firm on its production plans, defying industry hopes for a cut. (

** It has been a long road to redemption for Canadian Imperial Bank of Commerce, but the lender's retail banking revamp is finally bearing fruit. For the first time in years, there is a buzz inside CIBC - a confidence instilled in its executives by early signs of above-industry-average growth. After years of lagging its peers, retail banking head David Williamson says he and other executives can't help but feel a little swagger. (

** Patents are a key measure of a country's ability to turn research into viable products, and Canada is slipping. Per capita patent filings in Canada have been on a steady decline since 2000, according to a study of more than one million applications to the Canadian Intellectual Property Office by the C.D. Howe Institute. (


** Wal-Mart Stores Inc's Walmart Canada is expanding its 'grab and go' locker pickup system for online orders just in time for Christmas, beating Amazon Canada to the punch. Walmart began testing a locker system for web customers at 10 Toronto-area stores in August, offering it as an alternative to home delivery. It allows customers to pick up the goods at a locked unit with a personal PIN code tied to their order, thereby skipping cash register lines and in-store shopping time. (

** In his blogging about Canada's hate speech laws, right-wing personality Ezra Levant defamed a young law student as a serial liar, a bigot and a Jew-hating "illiberal Islamic fascist," bent on destroying Canada's tradition of free expression, a judge has found. (

** Canada is sending a team of military medical specialists to Sierra Leone to help combat the spread of Ebola in that country. The government says up to 40 Canadian Armed Forces healthcare and support staff will be deployed to the West African country. (




- A cut in China's reserve requirement ratio (RRR) is "imminent" after the central bank slashed interest rates last week, said Wen Bin, senior economist at Minsheng Bank.


- The Legislative Affairs Office of the State Council, or China's Cabinet, is seeking public comments on draft rules for the country's social security fund.

- Balance in China's margin trading accounts reached a record 800 billion yuan ($130.31 billion), the newspaper said, citing a report.


- The National Development and Reform Commission (NDRC) will soon release guidelines on Public-Private Partnership (PPP) regarding cooperation between local governments and social capital, said Ou Hong, an NDRC official.


- The people of Hong Kong must respect Beijing's jurisdiction over the region in order to smoothly implement the "One country, two systems" policy, the China Daily said in an editorial.


PROOF: While The Bank Of Japan Goes 'Full-QE-Retard', Japanese Investors Are Hoarding Physical Gold

Zerohedge - 5 hours 41 min ago

Japan’s Prime Minister Shinzo Abe has had an extremely busy past few weeks. After increasing the sales tax rate earlier this year which caused the GDP to contract by more than 7%, the Bank of Japan announced earlier this month it would step up its game and print money like never before. In a previous column we explained that Japan would print new money at twice the rate the USA was printing cash at the height of its quantitative easing program.

Even though Abe’s economic policy (called Abenomics) seemed to be working in the first phase of the implementation, the progress has stalled and Japan is now back in a recession again. This could be a huge indication that Abenomics is quite dead. In an attempt to resuscitate the policy, the huge money printing program has started and Abe has announced he would postpone a planned increase in the sales tax to 10% by 18 months years as the effect of another increase might have been devastating for the country’s economy. It was already quite weird for someone who wanted to increase the consumption pattern of the Japanese population to increase a sales tax (which obviously reduces the demand for goods) to get the country’s financial situation back in order.

Surprisingly enough, even though Japan’s economy is now officially in recession again Abe has called for new elections within the month. With Abenomics failing and the domestic economy tumbling back into recession, the central bank printing money like crazy leading to a severe depreciation of the Japanese Yen and an unpopular move to increase the sales tax from 5% to 8%, one would definitely not expect a democratic leader to ask the citizens of Japan to vote for him once again.

But Abe has effectively called for elections which will be held on December 14th which is in less than four weeks from now, now that’s an electoral ‘Blitzkrieg’! It’s also quite easy to understand why the sales tax hike has been postponed as the prime minister needs to make himself popular with his citizens. But more than anything else, the elections were called to take the left side of the political landscape by surprise. As elections are a complete surprise for everyone, the left-wing parties haven’t organized and harmonized their opposition against Abe yet. On top of that, with such a short time frame before the elections it’s extremely unlikely the left side will actually be able to organize themselves and take up the glove Abe has dropped.

By adding this element of surprise, Abe just wants to secure another term in office despite his failing economic policy. As he’s a real politician, Shinzo Abe is still upbeat about Abenomics stating ‘it’s working’ but he seems to forget that even though the unemployment rate decreased and the company’s revenues increased, there still isn’t a noticeable increase in consumption and salaries. Realizing one out of three promises isn’t really what you’d call ‘passing’ the test. It’s also a very wise decision to ask the Japanese population for a vote of confidence before the newly-printed money will be felt by the man in the street through an increasing inflation rate.


The ‘Abenomics -balloon’ is slowly deflating and Abe seems to want to secure his personal future before Japan’s economic situation deteriorates even further. The Japanese Yen has already lost 15% of its value in the past six months and with a failing economy and huge quantitative easing program we are expecting a further depreciation of the Yen. Meanwhile, the gold price in JPY has increased by almost 10% in the same six months, despite a 7.5% drop in the price of gold (expressed in USD). This once again emphasizes every decent investment portfolio should contain some gold and silver to protect yourself against sudden changes in the economic policy.

Our thesis seems to be confirmed as our research has indicated the total amount held in a physical gold ETF issued by Mitsubishi UFJ - "Fruit of Gold" - has increased exponentially since Abenomics went in full force, as can be seen on the following chart.


The amount of gold is expressed in grams. So whereas this ETF had roughly 1 million grams of gold in 2010 ( 32,150 ounces), this increased exponentially and almost eightfolded in just a few years time. The vertical red line is the moment the Bank of Japan started behaving irrational and you can clearly see the interest to hold physical gold has increased since then. The smart Japanese have mobilized their money and invested it in physical gold to safeguard and protect their purchasing power. And they are right to do so!

>>> Check Out Our Latest Gold Report!

Sprout Money offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies from Sprout Money are transformed into the Gold & Silver Report and the Technology Report.

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OPEC's Crude Bloodbath Sends 10 Year To 2.20%, Energy Companies Tumble

Zerohedge - 5 hours 47 min ago

The biggest, and most market-moving, event overnight continues to be yesterday's shocking OPEC announcement, which is still reverberating across the energy space as markets largely ignore European and Japanese inflation data which is once again sliding back dangerously fast, or Italian unemployment which rose more than expected, and joined France in hitting a new record high. As a result European shares remain lower, close to intraday lows, with the oil & gas and industrials sectors underperforming and telco and travel outperforming as oil continues its decline. EU inflation slowed in Nov. to 0.3%. Italian and Swedish markets are the worst-performing larger bourses, Spanish the best. The euro is weaker against the dollar. And while US equity futures are largely unchanged even as, or perhaps because, the world is screaming economic slowdown, bonds are finally getting the message with U.S. 10yr bond yields falling to only 2.20% as Japanese yields also decline.

Some more detail from RanSquawk:

European equities enter the North American crossover in negative territory albeit off their worst levels. The sole catalyst for price action thus far has been the fallout of yesterday’s decision by OPEC to refrain from altering their output ceiling. More specifically, the energy sector has naturally been substantially weighed on by the ramifications of yesterday, with the top 10 laggards in the Stoxx 600 all being from the sector, with the FTSE 100 feeling the squeeze with BP and shell notably lower, with the two Co.’s accounting for just over 12% of the index. Nonetheless, airliners have provided stocks with some modest reprieve as the lower energy prices will benefit the sector, although the implications for airliners are less substantial than those of oil producers. Elsewhere, in fixed income markets, Bunds opened at fresh contract highs, although now reside in relatively modest territory after failing to make a break above the 153.00 level. One thing to be aware of looking ahead, is that the lower energy prices are likely to filter through to global inflation prospects and thus could have further considerations on central bank policies, notably the ECB, with this also coming in the backdrop of the heightened expectations of a sovereign QE programme.

Market Wrap

  • S&P 500 futures down 0.3% to 2067.1
  • Stoxx 600 down 0.5% to 345.7
  • US 10Yr yield down 5bps to 2.2%
  • German 10Yr yield up 0bps to 0.7%
  • MSCI Asia Pacific up 0.1% to 140.9
  • Gold spot down 0.8% to $1181.5/oz

Bulletin Headline Summary from RanSquawk and Bloomberg

  • The OPEC oil-slide continues to cause further turmoil for oil producers and commodity currencies, while lower energy prices provide airline names with some reprieve.
  • Looking ahead, today’s calendar is exceedingly thin with ECB’s Weidmann due on the speaker slate, although volumes are expected to be surprised by yesterday’s US Thanksgiving Holiday
  • Treasuries head for weekly gain amid well-received 2Y and 5Y auctions and as oil prices slide after OPEC refrained from reducing output at meeting yesterday.
  • OPEC’s decision to cede no ground to rival producers underscored the price war in the crude market and the challenge to U.S. shale drillers
  • Euro-area inflation slowed in November to match a five-year low, prodding the ECB toward expanding its unprecedented stimulus program
  • Draghi yesterday said the ECB is open to buying a wide variety of assets for further stimulus as German and Spanish inflation data highlighted the struggle to revive the euro-area economy
  • David Cameron raised the prospect of Britain leaving the EU unless fellow leaders agree to let him restrict access to welfare payments for migrants
  • Rating companies say defaults in China will spread as the central bank’s interest rate cut will do little to stop a wave of maturities from worsening record debt downgrades
  • China asked state-owned companies to investigate risks associated with commodity trading, said people familiar with the matter, as the government seeks to avoid losses amid a price slump for raw materials
  • Brazil’s economy expanded 0.1% in 3Q, less than forecast, as the world’s second biggest emerging market recovers from recession
  • Brazil’s Finance Minister-designate Joaquim Levy pledged to adopt more rigorous fiscal discipline without providing details on how he will reduce the country’s debt levels
  • Sovereign yields mostly lower. Asian stocks gain; European stocks,  U.S. equity-index futures fall. Brent crude falls; WTI reached $67.75 yday, lowest since May 2010; gold and copper lower


In FX markets, the notable focus has been on commodity currencies with the NOK reaching a 5 year low against the EUR, while CAD has continued its OPEC-inspired losses, with USD/CAD steadily approaching the 1.1400 level; should we trade above 1.1400 in the pair then the 6th of November 2014 high comes in at 1.1443 to the upside. Furthermore, the RUB has also felt the squeeze of lower energy prices and earlier printed a fresh record low against the greenback, with the USD broadly stronger after breaking above the 88.00 level during Asia-Pacific trade, which subsequently saw USD/JPY break above 118.00 overnight. EUR was provided a modest uptick as Y/Y CPI came in-line with expectations at 0.3%, although was not as low as some participants had feared. Furthermore, today is the last trading day before the results of the Swiss national gold referendum with results due on Sunday.


In the energy complex, as to be expected, yesterday’s OPEC decision has continued to take centre-stage with energy prices continuing to plummet lower and seemingly unable to find a floor, with analysts at Barclay’s suggesting that Crude prices to drop another USD 10/bbl before new floor is discovered. Elsewhere in metals markets, a strong USD capped any potential pullback in prices and also weighed on metals with COMEX copper, spot gold and spot silver all slipping to their 1-week lows. Elsewhere, Spot iron ore prices rose to around USD 70/ton overnight, boosted by Dalian iron ore futures rising for their 3rd consecutive day as investors covered short positions

7 Benefits of Lithium - 11 hours 48 min ago

Lithium, the mineral known for its efficacy against bipolar disorder, has become one of the most effective go-to prescriptions for psychiatric disorders. What many do not know, however, is that lithium offers a host of other lesser-known benefits, many of which go far beyond brain health. Lithium orotate, one of the popular lithium supplements, is perhaps the most bioavailable lithium available. Look out for this form when looking for supplementation.

What is Lithium?

Lithium is a trace mineral in the same class as essential electrolyte minerals like sodium and potassium. Largely considered a drug, many medical doctors and nutrition authorities believe it to be a vital trace mineral and an essential nutrient. Many health organizations repeat its benefits for the body, setting a provisional recommended daily allowance (RDA) for adults at 1 mg per day. [1] Lithium orotate, which differs from prescription lithium carbonate, is lithium combined with orotic acid. It was developed by Dr. Hans Nieper.

The Seven Health Benefits of Lithium

Below is a brief list of the seven little-known health benefits of lithium. Remember that lithium orotate is the best option for lithium considering its safety and bioavailability. While this list is by no means exhaustive, it does provide a bit more insight into its amazing versatility.

1. Promotes Normal Brain Health

Studies have shown that lithium may increase grey matter volume in the prefrontal cortex region of the brain, most likely through the generation of new stem cells. This process is called neurogenesis, or the creation of new brain cells. Research also demonstrates lithium’s neuroprotective potential and ability to discourage age-­related, neurodegenerative brain shrinkage. [2] [3] Research shows that smaller doses of lithium orotate can be used to maintain therapeutic brain levels of lithium for longer periods of time compared with lithium carbonate. These findings could revolutionize the field of brain research and neurodegenerative disease.

2. Supports Bone Health

The effects of calcium and phosphorus, two minerals integral to bone formation, may be enhanced through lithium supplementation. Some research indicates lithium’s potential to support bone strength. Lithium may also stimulate bone formation. [4] [5] [6] [7]

3. Promotes Focus and Attention

In one randomized, double-blind study comparing a popular mind medicine with lithium, it was found that lithium was comparable at addressing the most common symptoms of short attention span and even secondary symptoms like mood imbalance. [8]

Read the rest of the article

An Armed Society - 11 hours 48 min ago

So, when Ferguson got the grand jury ruling they didn’t like, they showed how interested they were in justice by burning down the businesses of people that had nothing at all to do with it. Meanwhile, in the State of Arizona, people showed their solidarity with Ferguson by going to bed. While other major cities held protests, some of which ended up with minor looting, Arizona just did what Arizona does: Conducted business as usual. There was one small protest of about 60 people down in Tempe, close to Phoenix. They argued among themselves, broke into two groups, but then gave up and went home. The next day, businesses were fearlessly open as usual, people were buying early Christmas presents, people were getting ready for Thanksgiving and getting their turkeys. Hmmm…weren’t Phoenix and Tucson two of the major cities that all the Ferguson “direct action” groups listed as scenes of protest? Yet, both these cities pretty much ignored the call to action, as did the entire state. What happened? That question can be answered below.

First of all, the major metropolitan area and state capital, Phoenix, is controlled by a warlord known as Sheriff Joe Arpaio. He is known as “America’s Toughest Sheriff” and he rules with an iron fist. He has a rather growing collection of tanks and armored personnel carriers but unlike many other departments, these are not just for show. Sheriff Joe will actually use his armor assets if he goes to the trouble of hauling them out. Everyone knows Sheriff Joe is the Warlord of Phoenix and basically runs Maricopa County, including Phoenix. No one in the county and city government has more power than he, and he has proven this to them many times. There have been numerous attempts to topple Sheriff Joe and none have succeeded. Even the federal government and AG Eric Holder have failed to unseat the Warlord of Phoenix. Far from intimidated by the feds, Warlord Joe retaliated by launching his own investigation into a federal judge in the area, as well as investigations into President Obama himself. Warlord Joe runs a jail that is a collection of fenced in tents called his “Tent City Jail”. To be sure, this is Warlord Joe’s concentration camp and no one wants to be carted off to it. People know what will happen if a riot starts in Phoenix. There will be three destinations for the rioters: Tent City Jail, the hospital, and the morgue. The Warlord of Phoenix had people watching Phoenix for any sign of unrest when the Ferguson grand jury finding was released. However, this is not what discourages riots in Arizona.

Our state is run by a governor who is actually our shogun. Arizona state law says that the governor can raise his or her own private army of armed citizens to secure the state during an “emergency”. What is or is not an “emergency” is up to the shogun to decide. This goes well beyond the Arizona National Guard, because this militia would be composed of armed citizens called to volunteer by the Arizona Shogunate. It would not be a federal military masquerading as a “National Guard”. Therefore, such a force would be wholly outside the control of the federal government. Now, the governor also has access to a quasi-police force of armed, unpaid volunteers known as the Arizona Rangers. But the law says the shogun can raise the additional force of a citizen militia as mentioned above. What’s more, the militia would answer to the shogun (our governor) alone. Even if the federal government said “You can’t use your National Guard to quell that riot”, the governor as shogun could snap his or her fingers and raise an army of several thousand armed citizens. What’s the federal government going to do about that? However, this is not what discourages riots in Arizona.

While our police forces here are heavily-militarized, there is a flip side to this coin. The state and state politicians have made it possible for the citizenry themselves to be generously armed, carry those arms, and use them in self-defense. The Warlord of Phoenix and the shogun cannot be everywhere at once, but armed citizens can be and will be. What’s more, the weaponry available to citizens here would boggle the minds of the citizens of “progressive” states. Go into an Arizona gun shop that is a Class 3 weapons dealer. You will see M-60 machine guns. You will see M2 Browning .50 caliber heavy machine guns. Submachine guns of every flavor. Many of these gun shops will even help you fill out and submit the federal paperwork. Semi-automatic rifles are quite common. You can carry them loaded in your vehicle and many people do. No permit is required to carry a loaded firearm here for self-defense, either concealed or open. Self-defense laws here are very generous. Basically, they’re “Stand Your Ground” and “Castle Doctrine” laws on steroids. This means if a riot started and rioters were trying to drag motorists from cars and assault them, they’d probably wind up getting themselves shot. If they tried to break into businesses to loot or torch the businesses, they’d be met with gunfire.

This is the real reason we don’t have huge riots here with blocks of businesses reduced to smoking heaps of rubble. It isn’t Sheriff Joe, his tanks, or the governor. It’s the individual armed citizen. People here work hard to build businesses. They put their lives into them and they’re not going to step aside and let someone torch their dreams in an agitator-sponsored temper tantrum and looting-fest masquerading as “outrage”. People here defend themselves, have the weapons to do so, and laws that make it possible. Rioters might make it past the Warlord of Phoenix, if they’re lucky. They might defy the Shogun of Arizona. But they will not make it past the armed citizens defending their homes and businesses. Everyone here knows this. They know a huge riot would become a mass suicide mission for the rioters. Protests happen and everyone is fine with that. But everyone knows there is a line that cannot be crossed—or else. Because it will not be tolerated and people won’t cower and wait for the government to save them. They will save themselves.

Arizona is a different world. We’ve only been a state since 1912 and the Old West is still very much alive out here. Armed citizens are very common. No one pays any attention to it. People here don’t rely solely on the government to protect them because they know the government can’t. There are people here who live hours away from the nearest law enforcement authorities. A woman being stalked in this state isn’t just told “Well, maybe you should get a restraining order…” People also tell her, “Time to buy a gun and learn how to use it.”

It also isn’t that Arizona doesn’t care about Ferguson. It’s that, for the most part, we know the answer to those problems lies in one place: The free market. That’s why our businesses were open as usual. Protesting and rioting isn’t going to ever solve anything. All you’re doing is chasing out the businesses in your neighborhood and creating a “concrete desert” devoid of goods and services that you are now going to have to live in. Many of those businesses that burned will not be coming back. Even if they wanted to, they might not be able to obtain insurance to do so. Businesses that want to open there will not be able to obtain loans. The police might not be able to stop you from looting and burning businesses and you might think you got away with that. But the market can and will create consequences for your actions also. The answer isn’t burning down the businesses in your community, folks. The answer is opening your own. Destruction never solves anything but only causes yet more problems. Creating is what solves problems. That’s what the free market teaches and will be teaching.

So, police departments can buy all the tanks and military gear they want to. They aren’t what truly keeps the peace, as we see in Ferguson. What truly keeps the peace is the armed citizen.

Radical Readers - 11 hours 48 min ago

One Man’s Crack-Crazed Rampage - 11 hours 48 min ago

In a bygone, saner era, Michael Zehaf-Bibeau’s murder of Canadian soldier Nathan Cirillo and subsequent shooting rampage inside the Parliament would have been treated as a drug-related murder. Not so in the age of terrorism.

Instead, the authorities used the long-time crack addict and Muslim’s actions to whip up hysteria, framing the events of Oct. 22 as excuses for expansion of the security state. Will Prime Minister Stephen Harper lead Canada down the same road the George W. Bush led America?

The center of Ottawa was locked down for several hours until evening, when Prime Minister Stephen Harper told the Canadian nation it was a terrorist act, “a grim reminder that Canada is not immune to the types of terrorist attacks we have seen elsewhere around the world.” [ii] Ottawa police spokesman Chuck Benoit told the media that two or three gunmen were believed to be involved in the attacks. [iii]

First news reports, citing official sources, also said that “Zehaf-Bibeau … has been on the terrorist watch list … and could be an ISIS jihadi.” [iv] A dramatic photo of him, with a long-barreled gun and semi-masked with a scarf, like an outlaw in a Hollywood Western, was also reproduced widely in the media and on the Internet. [v]

The alleged source of the photo, a Twitter account, was used to link Zehaf to another Muslim murderer, Martin Couture-Rouleau, who two days earlier had killed a Canadian soldier and injured another in St-Jean-sur-Richelieu, Quebec. (It was alleged that Couture-Rouleau followed the same Canadian-based pro-ISIS Twitter account.) [vi] CNN reported, from a “U.S. source,” that “Zehaf-Bibeau has ‘connections’ online with jihadists.”[vii]

Conflicting Stories

Within 24 hours, a very different picture emerged, creating conflicting stories about the Royal Canadian Mounted Police’s prior knowledge of Zehaf-Bibeau that deserve a deeper investigation. The RCMP soon stated for the record that Zehaf, although a Muslim, “was not one of the 90 radicalized Canadians on an RCMP watchlist.” [viii]  According to RCMP Commissioner Bob Paulson, Zehaf had come to Ottawa on Oct. 2 to deal with a stalled passport application:

“When the RCMP were asked to review his passport application, they found no evidence he posed a threat to national security,” Paulson said. [ix] The commissioner claimed that Zehaf wanted to go to Syria. However, a witness who had saw Zehaf in the hostel where he had been staying said the suspect’s travel plans were for Libya (the land of his immigrant father) and not Syria. [x]

Other records suggested that Zehaf’s actions may have been driven more by his psychology than his politics. “Three years earlier, as part of a psychiatric evaluation prior to a trial in Vancouver, Zehaf-Bibeau said “he wants to be in jail as he believes this is the only way he can overcome his addiction to crack cocaine,” according to a psychiatric assessment provided by a Canadian court.” [xi]

Unfounded ISIS Fears

The fears that Zehaf was an ISIS-linked terrorist now seem to have had little foundation. (Police have since alleged that Zehaf-Bibeau made a video of himself beforehand, saying he was motivated by his religious opposition to Canadian foreign policy. But this video has not been released to the public). [xii]

As a Canadian Muslim leader has observed: “Why can’t Muslims have insane individuals? When these actions are done by others, they say he is insane . . . Why, as a Muslim Canadian, do we always say right away it was a terrorist act?” [xiii]

The murder two days earlier of another Canadian soldier by Couture-Rouleau, who allegedly was on the 90-person watchlist, helps explain why terrorism was on the minds of Canadian authorities as well as the public. Another reason was that the RCMP and Canadian Security Intelligence Service had been conducting a war game to deal with just such an attack.

According to the CBC on October 23:

Within the last month we know that the CSIS, the RCMP and the National Security Task Force … ran a scenario that’s akin to a war games exercise if you will, where they actually imagined literally an attack in Quebec, followed by an attack in another city, followed by a tip that that ‘hey some foreign fighters are coming back from Syria.’ So they were imagining a worst case scenario. We’re seeing elements of that happening right now. … [Canadian authorities] may talk today in terms of being surprised but we know that this precise scenario has been keeping them up at night for a while.[xiv]

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Blue Privilege - 11 hours 48 min ago

“Any time I’m involved in an officer-involved shooting, be it a fatal one or non-fatal, it is always during my initial investigation listed as an assault on law enforcement,” explained the St. Louis County Police Detective who inaugurated the investigation of the Michael Brown shooting. “Officer Wilson … was the victim of the assault we were investigating.”

Once it had been established that the living, armed individual was the “victim” and the dead, bullet-ridden body had belonged to the “assailant,” continued the detective in his September 3 grand jury testimony, “One of the sergeants with Ferguson [gave] me a brief walk-through to start my investigation so I [could] have a logical starting point from where I would start my video, photographs, and looking for evidence.”

That unnamed sergeant, most likely, was the supervisor who had told Darren Wilson to leave the scene after the shooter told him that Brown had tried to take his gun.

From its inception, the shooting of Michael Brown was not investigated as a potential criminal homicide, and the inquiry was an exercise in validating the killer’s story, rather than testing it against the available evidence.  The assumption was that killing was part of his job description – or, as Wilson has subsequently told George Stephanopoulos, “I did what I was paid to do.”

If Wilson had been a member of the productive class, rather than a state employee licensed to dispense aggressive violence, he would have been presumed legally innocent, but required to justify his actions. Because of his occupation, however, Wilson was considered both legally innocent and presumptively correct, and the investigation became an exercise in justifying the shooter’s actions, rather than an inquiry into their propriety.

If Officer Wilson had been “merely” Darren Wilson, the deceased Michael Brown would have been identified as the presumptive “victim.” The shooter would not have been allowed to leave the scene without making a statement to the police, and his associates would not have been allowed to frame the crime scene for the benefit of the investigating detective.

Most importantly, if Wilson had been treated as a homicide suspect, rather than the “victim” of an “assault on law enforcement,” he would not have had the luxury of composing his story at leisure, in consultation with his attorney, to fit the facts as they emerged from the investigation.

“When you got back to the police department, after you washed off and everything, did you ever think at what time that I needed to write a report while it is fresh in my mind?” asked assistant St. Louis County prosecutor Kathi Alizadeh.

“No,” Wilson replied. “The protocol is whenever you are involved in a significant use of force, that you contact your FOP [Fraternal Order of Police] representative and then he will advise you of what to do step by step because they are the clear head in that situation. They have not been through a traumatic experience.” (See the transcript of Darren Wilson’s grand jury testimony, pages 77-78.)

When the shooter is a Mundane – that is, a common citizen, rather than a police officer – he may be similarly traumatized, but he can’t count on the “step-by-step” guidance of clear-headed police officers who have identified him as the victim. One of the first priorities for investigators in non-“officer involved” shootings is to get the original story from the shooter, and compare it against the evidence. As a police officer, however, Wilson wasn’t required to make an initial statement of any kind – either in an incident report, or to any of the investigating officers

Asked by Alizadeh if he had committed his recollections to paper in a diary or journal, Wilson replied: “My statement has been written for my attorney.”

“And that’s between you and your attorney, then?” asked the unusually helpful prosecutor, who received an affirmative reply.

“So no one has asked you to write out a statement?” the assistant DA persisted.

“No, they haven’t,” Wilson acknowledged. He made one brief reference to speaking with a detective while in the hospital, but that communication was protected by Wilson’s “Garrity” privileges, which means that it could be used only for the purposes of an internal investigation, not in a criminal or civil proceeding.

In his November 24 press conference, St. Louis County DA Robert McCulloch made conspicuous mention of the fact that some witnesses had changed their testimony once their original story was found to be in conflict with subsequently discovered evidence. This is something that happens frequently to homicide suspects, as well. Wilson was never in danger of being caught in that contradiction because he was not treated as a suspect, nor was he required to make a statement to criminal investigators.

During Wilson’s examination before the grand jury, McCulloch’s deputy prosecutors were gentle and deferential, rather than being adversarial. This is to be expected, given that this was a conversation among colleagues.

At several points in his testimony, Wilson made statements that a motivated prosecutor would have aggressively pursued. For example: Wilson – who at 6’4” and roughly 225 pounds is no small man – said that when he grappled with Brown, he felt like a “five-year-old” who was trying to restrain “Hulk Hogan.” He likewise claimed that he had been struck twice by Brown with such force that he was concerned a third blow would be “fatal” – yet the medical examination displayed no evidence of corresponding trauma to his face.

Wilson didn’t explain how the right-handed Michael Brown could have punched the right side of his face while the officer was sitting in the driver’s side of his vehicle. Although Wilson claimed that the initial blows were inflicted while Brown was holding stolen cigarillos in his right hand, no broken cigars were ever recovered, either in the SUV or the surrounding area. The stolen cigars were not found by the medical examiner who arrived on the scene after the shooting. (Interestingly, that examiner never took photos of the deceased, because “My battery in my camera died,” nor did he take any measurements at the crime scene.)

A well-known and highly respected forensic analyst and expert witness on biomechanics and accident reconstruction takes note of several points the prosecution either ignored or minimized to the point of invisibility.

“The big issue as I see it, is how do the cops justify provoking a lethal confrontation with a kid over some damned cigarillos?” the analyst pointed out in an email to me. “Why not wait for ample backup and use non-lethal methods to subdue and arrest for shoplifting? This of course assumes grounds for an arrest. Why were the alleged cigarillos not found? And what did the DA mean when he stated on TV that Brown’s body was on the road 150 feet from the police car? How does an unarmed kid that far away with no weapons constitute an immediate threat to life?”

He also underscores the fact that the unarmed pedestrian Brown, rather than Wilson, may have had the stronger case for self-defense:

“As for what supposedly went on in the passenger compartment with the alleged grabbing of the cop’s arm – this is “consistent with” a kid whose life was threatened by an overly aggressive cop with a gun aimed at him and where the kid was so terrified of an immediate shooting that he felt compelled to take preemptive action to protect himself by disarming the cop.”

If Darren Wilson had been part of the wealth-producing class, as opposed to an armed emissary of the tax-consuming elite, those questions most likely would have been examined in a criminal trial. But, once again, owing to his occupation, this was never going to happen.

Robert McCulloch has a well-earned reputation for deference to the police, and a well-established habit of justifying every use of lethal force, no matter how questionable. Rather than simply seeking an indictment, McCulloch presented the case for the “defense” as well – a characterization that is an odd fit here, given that Wilson – it bears repeating – had been treated as the “victim” in this incident from the beginning.

“Had the prosecution desired an indictment against Ferguson Police Officer Darren Wilson, the presentment would have taken an hour, maybe two, and there would have been a true bill by close of business the next day, well before Michael Brown had been laid to rest,” points outattorney and civil rights advocate Scott Greenfield. “The grand jury isn’t the venue to present `all the evidence.’ That’s what trials are for. The grand jury serves a very limited function, to determine whether sufficient evidence exists so that there is probable cause to proceed to trial.”

A great deal of the media coverage has referred to the Grand Jury’s decision as a “verdict,” which is both technically incorrect and substantively true: Rather than seeking probable cause to indict Wilson, McCulloch and St. Louis County law enforcement built a case to convict Michael Brown of “an assault on law enforcement.”

Given the ambiguity of the evidence, Darren Wilson as a private citizen likely would not have been convicted of murder if the case had gone to trial, but a conviction on a lesser count would be a possibility. Under Missouri’s constitutionally perverse statute dealing with police homicide – which has been criticized by former federal judge Paul Cassell, who is broadly indulgent of killer copsOfficer Wilson was never in danger of being convicted of a crime.

It is not necessary to believe that Michael Brown was the embodiment of winsome innocence (it’s pretty clear that he was not) to take issue with the architecture of official privilege that protects Darren Wilson – and the other armed representatives of the political class – from accountability. The problem, in a single phrase, isn’t “white privilege,” but rather “blue privilege.”

Edmund Burke could have had this case in mind when he wrote these lines from his neglected essay “A Vindication of Natural Society”:  “In a State of Nature, it is true, that a Man of superior Force may beat or rob me; but then it is true, that I am at full Liberty to defend myself, or make Reprisal by Surprise or by Cunning, or by any other way in which I may be superior to him. But in Political Society … if I attempt to avenge myself, the whole Force of that Society is ready to complete my Ruin.”

Antiquated, Nonsensical, and Dangerous - 11 hours 48 min ago

If there’s one thing the government is good at, it’s inhibiting progress and halting modernization. “Stop in the name of the law” is not just a cute phrase, it’s the standard government response to the world working to advance forward.  A review of obsolete laws and standards still enforced today is a healthy reminder of this fact.

Let’s begin with a few hypothetical questions to ponder about.  What if you took your car in to your local service station for some repairs and the law required your mechanic to use a vehicle repair manual that was 10 years old. How would you feel about that?

Imagine if you were sick and went to the doctor, and the law required your doctor to utilize a 15 year old medical manual for diagnosing your condition? Would that make you feel better?

Imagine if your computer broke down and the computer repair shop was required by law to utilize a 20 year old computer manual for maintenance and repair?  Would that even do you any good?

Those may be silly questions and we all are thankful that the government doesn’t require such things (at least not right now), but how many of us know that our homes and offices all across the country are being built and maintained under very old and obsolete standards?  The fact is that building regulation is pretty much exclusively controlled by government, government which happens to be extremely slow to react to new and modern methods of building and construction.  The process of updating government building codes is so slow that many jurisdictions around the country are still enforcing codes that are 10-20 years old!

For example, if you happen to live in San Diego, California, and are planning to build yourself a home, you are required to build your new home according to the 1997 Uniform Housing Code (, a 17-year old manual regulating home building and construction.  If you feel that your home would be better served if it were constructed according to a more modern edition, you don’t have that choice, because the law says the 1997 code is correct, and none other.

There are other smaller cities and counties across the country where today, in the year 2014, you are required to build your home according to the 1994 Uniform Housing Code, a 20 year old manual on home building.  And, unfortunately, you can’t do anything about it, because that’s the law, and the law doesn’t recognize anything newer.  Sure, you can attempt to construct your home using modern guides and publications, but if something in those modern guides conflicts with an obsolete rule in the 1994 code, you can get fined or ticketed for the criminal offense of constructing your home in violation of the law.

Even the City of New York runs obsolete standards.  It took the politicians running New York until 2008 to finally get rid of the 1968 code which they had been enforcing for 40 years, periodically revising certain sections in what ultimately became a mess of old and new conflicting standards confusing many architects, engineers and contractors all over the city for decades.  The preface to the 2008 code (, published by the City of New York states as much:

“The 1968 revisions reflect the last comprehensive update of New York City’s building construction laws. Predictably, they had begun to show their limitations. Obsolete provisions remained on the books, conflicting amendments became loopholes for industry to navigate, and new technologies and construction practices that had become industry standards were noticeably absent. Significant amendments over the years tended to be reactions to unfortunate events rather than comprehensive revisions.

“Recognizing these problems, in November 2002, Mayor Michael R. Bloomberg signed Executive Order No. 30, creating an advisory commission to study the feasibility of adopting a model code for the City.”

Of course the politicians all congratulated themselves for solving this problem, without even realizing that it’s a problem they created in the first place.  No private company or organization would survive if they insisted on using 40 year old standards in a competing market.  Only the government with its monopoly powers and inability to react to market signals can do this, to the detriment of the people they are purportedly serving.

This brings us to the point of this article, which is that governments simply do not have the ability to keep current with technological advancements in any industry, including the building and construction industry.  By forcing aged and aging standards on the industry and refusing to let the market develop and advance in the most efficient way, governments are impeding progress and slowing down technological advancement and innovation.  The mind can’t help but wonder about what kind of high-quality building would be the norm today if not held back by governments and their control over building during the last 50-100 years.

Will This Crash the US Shale Industry? - 11 hours 49 min ago

As we warned yesterday, the last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans. OPEC’s decision not to cut production, and Nigeria’s comments on the need for burden-sharing among non-OPEC members, ensures a crash in the US shale industry according to Leonid Fedun (Russia’s Lukoil board member). The Russian finance minister’s comments that oil at $80 in coming years is moderately optimistic and as Fedun ominously warns, this is a “major strike against the American market.” Isolated, much?

As Bloomberg reports,

OPEC policy on crude production will ensure a crash in the U.S. shale industry, a Russian oil tycoon said.

The Organization of Petroleum Exporting Countries kept output targets unchanged at a meeting in Vienna today even after this year’s slump in the oil price caused by surging supply from U.S shale fields.

American producers risk becoming victims of their own success. At today’s prices of just over $70 a barrel, drilling is close to becoming unprofitable for some explorers, Leonid Fedun, vice president and board member at OAO Lukoil, said in an interview in London.

“In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” said Fedun, who’s made a fortune of more than $4 billion in the oil business, according to data compiled by Bloomberg. “The shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish.”

In Russia, where Lukoil is the second-largest producer behind state-run OAO Rosneft, the industry is much less exposed to oil’s slump, Fedun said. Companies are protected by lower costs and the slide in the ruble that lessens the impact of falling prices in local currency terms, he said.

Even so, output in Russia, the biggest producer after Saudi Arabia in 2013, is likely to fall slightly next year as lower prices force producers to rein in investment, Fedun said.

“The major strike is against the American market,” Fedun said.

*  *  *

“Everybody is trying to put a very happy spin on their ability to weather $80 oil, but a lot of that is just smoke,” said Daniel Dicker, president of MercBloc Wealth Management Solutions with 25 years’ experience trading crude on the New York Mercantile Exchange. “The shale revolution doesn’t work at $80, period.”

Reprinted with permission from Zero Hedge.


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