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August 16, 2017

BofA: “2018 Is When Bond Investors Again Get Very Concerned About Fundamentals”

One week ago, we closed the book on the long-running debate whether gross (and net) leverage is the highest on record, when we showed a chart from Goldman according to which net debt/EBITDA for all companies (with or without energy) is the highest on record, surpassing the previous credit bubble peak by nearly 0.3x turns. Furthermore, as Goldman said that the time, “given we are 8+ years into an economic expansion, we believe it’s prudent to also view this via a “normalized EBITDA” lens (i.e., median NTM 2007Q1-2017Q1). On this basis, aggregate leverage (ex- Energy) would move up to 2.1x, roughly 20% higher than current levels and 18% above the prior cycle peak.“

 

Of course, none of the above matters right now; in fact if anything as Friday’s oversubscribed Tesla bond sale as well as yesterday’s massively oversubscribed sale of Amazon bonds confirmed, investors still can’t get enough of corporate debt.

But how much longer can this relentless re-leveraging continue before something snaps, or before someone finally pays attention? According to BofA’s chief credit strategist, Hans Mikkelsen, the answer is 2018.

Recall that the 2017 BofAML Corporate Risk Management Survey showed that roughly two-thirds of US companies do in fact plan to use some of the overseas cash to pay down debt. A lot of companies – but not as many – also have plans for each of the categories “Share repurchases”, “M&A”, “Capital expenditure”, “Dividends”, “Fund Pension” and “Other”. But these are also the usual uses of proceeds for new issuance, suggesting that that overseas cash will be used over time in place of supply, thus further reducing gross leverage as existing bonds mature. However, even despite this corporate balance sheets overall will remain relatively stretched and we think that 2018 is when corporate bond investors again get very concerned about fundamentals. This as less uncertainty about US fiscal policy, and continued economic growth of just around 2%, incentivize companies once again to accelerate M&A and share repurchases.

Well, if this is what “less uncertainty about US fiscal policy” looks like just over a month before a debt ceiling debate which increasingly looks like it could result in a technical default by the US, we would hate to see what more uncertainty is. But we agree that even in that case, companies would probably just issue more debt, not less, as they rush to take advantage of every last greater fool out there investing with other people’s money.

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August 16, 2017

Salt, Wampum, Benjamins – Is Bitcoin Next?

Authored by Michael Lebowitz via 720Global.com,

Currency was first developed about 4000 years ago. Its genius was in the ability to supplant barter thus greatly improving trade and providing a better means for storing value. As illustrated in our title, currency has taken on many different physical forms through the years. Given the recent advances in technology, is it any surprise the latest form of currency resides in the ether-sphere? In this article we explore the basics of cryptocurrencies and the important innovation they support, blockchain. We also offer an idea about whether or not Bitcoin, or another cryptocurrency, can become a true currency worthy of investment.

A Primer on Cryptocurrency and Blockchain

Cryptocurrency is an independent, digital currency that uses cryptology to maintain privacy of transactions and control the creation of the respective currency. While not recognized as legal tender, cryptocurrencies are becoming more popular for legal and illegal transactions alike. Bitcoin (BTC), developed in 2009, is the most popular of the cryptocurrencies. It accounts for over half the value of the more than 750 cryptocurrencies outstanding. In this article we refer to cryptocurrencies generally as BTC, but keep in mind there are differences among the many offerings. Also consider that, while BTC may appear to be the currency of choice, Netscape and AOL shareholders can tell you that early market leadership does not always translate into future market dominance.

Before explaining how BTC is created, acquired, stored, used and valued, it is vital to understand blockchain technology, the innovation that spawned BTC. As we researched this topic, we read a lot of convoluted descriptions of what blockchain is and the puzzling algorithms that support it. In the following paragraphs, we provide a basic description of blockchain. If you are interested in learning more, we recommend the following two links as they are relatively easy to understand.

The Ultimate 3500-word guide in plain English to understand Blockchain – Mohit Mamoria

A blockchain explanation your parents could understand – Jamie Skella

Blockchain is an open database or book of records that can store any kind of data. A blockchain database, unlike all other databases, is stored real time and is accessible for anyone to view its complete history of data.

The term block refers to a grouping of transactions, while chain refers to the linkages of the blocks. When a BTC transaction is completed BTC “miners” work to solve the cryptology algorithm that will enable them to link it to the chain of historical transactions. As a reward for being the first to solve the calculation, the miner receives “newly minted” BTC. As the chain grows, the effort needed to solve and verify the algorithms increase in complexity and demand greater computing power. As an aside consider the following statement by Bitcoin Watch (courtesy Goldman Sachs): “BTC worldwide computational output is currently over 350 exaflops – 350,000 petaflops – or more than 1400 times the combined capacity of the top 500 supercomputers in the world.” Needless to say, a tremendous amount of computing resources and energy are being used by BTC miners, and it is still in its infancy. Could these resources be better employed in other industries, and if so, how much productivity growth is BTC leeching from the economy?

The takeaway is that blockchain is an open, real-time database that provides anonymity to its users. It is not controlled or regulated (yet) by any government. BTC miners, driven by the incentive to earn BTC, and fees at times, verify and authenticate the database. Blockchain technology is incredibly powerful and will likely revolutionize data management regardless of whether cryptocurrencies thrive or disappear.

BTC

Bitcoin Mining (Creation): New Bitcoins are created as payment to BTC miners that solve the aforementioned calculations that verify transaction data and link it to the blockchain. This ingenious reward system incentivizes miners to compete to perform these calculations, enabling the blockchain to exist. Currently there are approximately 16 million bitcoins outstanding out of a proposed limit of 21 million. As the blockchain grows, the calculations required to mine BTC and add to the chain become more complex, making each bitcoin harder and more costly to earn than the prior one.

Obtaining and Storing Bitcoin: Other than mining Bitcoin, the only other way to obtain them is via transactions and exchanges. One can earn bitcoin by selling a product or service to someone willing to pay in BTC, or one can purchase them with traditional currency through a BTC exchange. BTC can be exchanged for cash or goods and services in a similar fashion. There are reportedly over 100 BTC exchanges, and BTC ATMs are gaining in popularity. BTC’s are stored in a so-called “wallet”. Wallets may reside on a mobile phone or a desktop computer. The decision to use one versus the other largely comes down to a trade-off between security and ease of use.

Transacting with Bitcoin: Each wallet has a unique key which serves as a personal identifier. When one wishes to transact, the buyer and seller swap their personal keys and the transaction information is posted for miners to verify and post to the blockchain. The identity of the buyer and seller is never revealed. This is one reason that black market, money laundering and tax avoidance transactions are popular on BTC exchanges. While not 100% accurate, you can think of a BTC transaction process as similar to a debit card transaction, but instead of banks verifying, approving and transferring cash to fund the transaction, miners fill that role.

Valuing Bitcoin: Valuing BTC is just like valuing any other currency. One can compare BTC to U.S. dollars or to any other currency. One can also compare the value of BTC to its purchasing power or what one may buy given a set amount of BTC. Currently, BTC is rising rapidly versus all major currencies thus its purchasing power is following suit. As marginal interest in BTC versus sovereign nation currencies increases, the rise in value could continue.

In trying to provide a succinct summary of BTC, we left out many details which you may find pertinent and/or interesting. As blockchain technology represents an important innovation and will certainly find many other uses besides cryptocurrencies, we would encourage you to apply further rigor and read beyond the scope of this article.

BTC – Currency or Investment Fad?

Since BTC started trading in July of 2010, it has risen over 51,000 percent! This meteoric rise in the price of a bitcoin, as graphed below, has certainly attracted many traders and speculators to the cryptocurrency space. While price gains are certainly drawing short term players, others are buying it for its promise as an alternative currency. It is this aspect of BTC that we believe is most relevant.

Data Courtesy: Bloomberg

BTC is a pure fiat currency, meaning it is backed by nothing tangible other than the value users ascribe. Currencies, whether fiat or hard money (backed by something tangible of value) derive value from their utility and scarcity. As the Weimar Republic and many other nations throughout history have learned, economic disasters occur when governments ignore the value proposition and recklessly print money.

The U.S. dollar, also a fiat currency, is backed by the full faith and credit of the United States as well as a small amount of gold. While some may not ascribe too much value to “faith and credit”, almost 250 years of economic progress, military might, and the most powerful tax base in the world strongly argue otherwise. The dollar is globally accepted for almost any kind of transaction, and, despite recent actions of the Federal Reserve, dollars remain relatively scarce. Put another way, even billionaire Bill Gates would stop to pick up a dollar bill laying on the ground. Visit a third world nation and notice how many vendors not only accept U.S. dollars but encourage their use over the domestic currency.

The question investors, not short term speculators, are tasked with answering is, “Will enough people value BTC to make it a respected and often used currency?” In our opinion, the most crucial information needed to answer that question is understanding how governments will respond to the rise of BTC. Gaining a sense for what is at stake for existing currencies and the economies that employ those currencies offers keen insight into the future of BTC and its ability to become more than an afterthought in global trade.

The preamble to the U.S. Constitution states the purpose of the Federal government is to: “form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.” In other words the government’s role is to protect the freedoms and liberties of its citizens. If the government has no ability to fund itself and is unable to provide defense and law enforcement it cannot uphold the Constitution. More precisely – the sovereignty of any nation, regardless of its form of government, rests upon the strength and integrity of its currency.

All transactions, and their participants, that occur with BTC are anonymous. Accordingly taxes cannot be efficiently assessed, black market transactions are made easier, and fraud can easily escape the eye of law enforcement.

If BTC continues to gain in popularity there is little doubt in our opinion the government will seek control or at a minimum the personal data from the transactions. In fact the SEC has recently opined on the matter claiming that “tokens” such as BTC can be deemed securities and may need to be formally registered. This is just a first step but given the potential threat, we envision government will impose a way to remove the secrecy BTC offers, allowing taxation and legal supervision to occur.

We strongly believe the government will not allow BTC to become a full-fledged currency, at least in its current form, but we think they are enamored with the technology. It is possible that a deeply regulated and controlled version of BTC or a new government cryptocurrency could at some point usurp the dollar as we know it today.

Before summarizing this article we leave you with a few pros and cons of BTC:

Pros

  • BTC is unregulated, allowing users to avoid taxes or any other kind of governmental, banking, and law enforcement scrutiny.
  • BTC is in limited supply which should help it to retain its value over time. We caveat that with the fact that there are many competitors, each with their own rules about creation.
  • BTC creation is not subject to the whims of central bankers that appear constantly looking to devalue their respective currencies via inflation.
  • Transacting in BTC is easy. As more sellers of goods and services accept BTC its flexibility improves.
  • Typically storing BTC is less expensive than most other national currencies as well as precious metals. Additionally, transaction fees and other banking costs are largely avoided.

Cons

  • Bitcoin is unregulated. Regulations to enforce market structure and prevent fraud are not available.
  • There are over 750 cryptocurrencies and the number is growing rapidly. Which one will emerge as the dominant currency beyond the first mover stage? Conversely, which ones will fail and leave holders with nothing?
  • BTC security is not fool proof. Wallets have been hacked on both desktop computers and mobile phones. Due to the anonymous nature of the exchanges, remediation of such actions is difficult.
  • Price volatility makes accepting BTC a risky proposition. Accordingly transaction fees are becoming popular by many merchants.
  • The energy costs and computing power associated with mining BTC is massive and will increase as the complexity of the blockchain and the number of users grow. Seemingly these resources could be put to better use.

Summary

The U.S., E.U., Japan, China and Great Brittan have devalued their currencies significantly over the past ten years. The recent success of cryptocurrencies is a meaningful sign that central banker actions have not gone unnoticed by the users of traditional currencies. While we applaud the concept of a currency that is scarce and avoids the whims of bureaucrats, we do not own, nor do we have plans to own cryptocurrencies in the future. The current market is one of significant volatility and heavy speculation. Additionally, the bigger concern is that global governments have the means to make or break cryptocurrencies. Until these powers more fully reveal their intentions on BTC, the risks are too speculative to warrant involvement.

http://WarMachines.com

August 16, 2017

FBI Unexpectedly Releases Confidential Employee Evaluations Of James Comey

In an unexpected, impromptu release, on Tuesday morning the FBI’s “Records Vault” twitter account released a trove of information, divulging “Field Office and Headquarters Climate Survey Results” among which are annual results for the years 2013 through 2017, but more notably, the confidential employee evaluation results for now-former Director James Comey.

It is unclear why the FBI releases this data now, although like on previous occasions, it was likely prompted by an external FOIA request.

In the description of the survey results, the FBI notes the following:

The FBI Annual Employee Survey (AES) provides an opportunity for employees to anonymously share their perspective on the performance of FBI leaders and the organization.

 

The AES is comprised of two surveys: the Leadership Survey, measuring employees’ perceptions of their supervisors’ leadership abilities; and the Climate Survey, measuring employees’ attitudes about their work, work environment, and the FBI as a whole. The FBI analyzes the data to help improve current leadership, pick new leaders, and encourage employees to express ideas on how management and the FBI can improve.

 

Each survey item is rated on a five-point scale. Each rating is averaged by the number of respondents. The following scoring breakdown is congruent with the scoring ranges identified by Human Resources senior level executive in the Senior Leader selection process:

 

  • Average scores between 1.0 and 2.99 indicate potential areas of concern which could worsen if not addressed. A focus on development in these areas would be recommended.
  • Average scores between 3.0 and 3.80 indicate positive feedback in these areas with potential for improvement.
  • Average scores between 3.81 and 5 indicates success in those areas.

 

FBI Field Office and Headquarters Climate Survey Results (2013)
FBI Field Office and Headquarters Climate Survey Results (2014)
FBI Field Office and Headquarters Climate Survey Results (2015)
FBI Field Office and Headquarters Climate Survey Results (2016)
FBI Field Office and Headquarters Climate Survey Results (2017)
FBI Director James Comey Climate Survey Results (2015-2017)

In the charts below, we have summarized the disclosed results from Comey’s survey results, broken down across 4 key verticals: i) Personal Characteristics and Values, ii) Leading People, iii) Managing Work and iv( Miscellaneous. While there are not drastic changes over the roughly 3 years during which Comey was FBI Director, there appears to be a notable downward shift in Comey’s evaluations by anywhere from 36 respondents (in 2015) and 48 (in 2017).

While there are more details in the full evaluations, here is the core breakdown:

Personal Characteristics and Values:

Leading People:

Managing Work

Miscellaneous.


The full Comey Survey Results are below (link)

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August 16, 2017

WTI/RBOB Slide After Oil Production Surge Offsets Biggest Crude Draw Since Sept

Following last night's mixed mesage from API (crude draw, gasoline build), WTI prices have gone nowhere as all eyes focus on DOE data this morning. Confirming API's trend, crude saw its biggest draw since Sept 2016 but Gasoline, Distillates, and Cushing (most since March) saw builds which upset the machines and sent prices lower. Crude production rose once again to its highest since July 2015.

 

API

  • Crude -9.2mm (-3.38mm exp) – biggest draw since Sept 2016
  • Cushing +1.7mm (+700k exp) – biggest build since March
  • Gasoline +301k (-450k exp) – second weekly build in a row
  • Distillates -2.1mm (-250k exp)

DOE

  • Crude -8.945mm (-3.38mm exp) – biggest draw since Sept 2016
  • Cushing +678k (+700k exp) – biggest build since March
  • Gasoline +22k (-450k exp)
  • Distillates +702k (-250k exp)

Last week's surprise build in gasoline (confirmed by API) and big draw in crude (also confirmed by API overnight) remains the big focus and DOE data confirmed it with the biggest crude draw since Sept 2016 but builds in products and at Cushing…

While the builds in produst were modest, they were nevertheless a surprise shift in trend from draws to builds…

Imports from Saudi Arabia jumped 47 percent to 813,000 barrels a day, but remain well under the 1-million barrel figure exceeded through much of the first two quarters of this year.

As Bloomberg's David Marino notes, the total stockpile draw of 7.32 million barrels brings inventories to the lowest since January 2016, but still more than 200 million barrels above November 2014, when the glut really started building up. A lot of work still to do, as OPEC well knows.

Some more details, courtesy of Reuters: total commercial stocks fell -8.9 million bbl to 466 million bbl in the week to Aug 11 (much faster than normal at this time of year).

Total stocks are now -25 million bbl below 2016 level but… +134 million bbl over 10-yr average.

Stocks are now down -13 million bbl since start of year compared with +40 million rise in 2016 and 10-yr avg of +25 million, as the rebalancing appears to be taking shape.

Meanwhile, refinery throughput unchanged last week's record 17.6 million b/d.

One number which the market was closely watching were gasoline stocks, which disappointed the bulls by rising fractionally by 22kb, and basically unchanged at 231 million bbl, despite an expectation of a 1mm decline.

As a result, gasoline stocks are now 2.3mm bbl below similar levels last year, but are 19 mm bbls above the 10 year average.

Finally, while domestic production increased again, so did imports, which accelerated by +364,000 b/d to 8.1 million b/d in the week to Aug 11

While rig count growth has stabilized, crude production continues to rise in the Lower 48 (though had dropped in Alaska for 3 straight weeks) but both saw a rise this week (total production up 79k) as Lower 48 production hit its highest since July 2015…

Bloomberg notes that U.S. oil production from major shale plays is set to hit another record at 6.15 million barrels a day next month, according to the EIA. It's not just the Permian that's growing, as the agency sees higher output across the board.

WTI Crude prices barely budged from last night's API print heading into the DOE data, spiked higher on the crude draw but slipped back lower on product builds and production surge…

Heading into the print, "the size of a potential draw in crude inventories is “going to be the most material” aspect of the report, Brad Hunnewell, senior equity analyst at Rockefeller & Co., says, adding that "investors also expect to see a rise in gasoline demand."

However, as Bloomberg Intelligence energy analyst Vince Piazza notes:

No change to our bearish view: long road to recovery still ahead. We still see mid $50-$60s as the threshold for acceleration of U.S output. Commentary from exploration and production company conference calls implies drilling efficiencies are aiding productivity.

 

Elevated refining utilization has helped deplete bloated inventories across the petroleum value chain during the key seasonal driving period, and exports have helped as well. However, the market is seeing the end to summer, with runs traditionally declining in early fall.

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August 16, 2017

Doc Copper breaking out again, gains are piling up!

wrists breaking out rope ties chris kimble post

Ole Doc Copper has struggled since 2011, as it created a series of lower highs. Over the past 90-days, Doc Copper has experienced some impressive upside action.

Below looks at Doc Copper Futures over the past 4-years-

Copper futures weekly

CLICK ON CHART TO ENLARGE

Doc Copper created a series of lower highs below line (1) over the past few years. Earlier this year it hit falling resistance again and backed off. Over the past 6-weeks, Copper has witnessed some bullish price action it hasn’t in the past few years, which is breaking above falling highs.

A few weeks ago Copper broke above falling resistance (1) and highs earlier this year at (2). The rally of late now has it testing 2015 highs at (3). A breakout above (3) would send a bullish breakout message to Copper, with the next key horizontal resistance coming into play at the $3.25 level, which was 2014 highs.

How are members playing Doc Copper strength? Buy owning Freeport McMoran (FCX). A position was taken in FCX, by Premium, Metals and Sectors members 90- days ago.

performance comparison FCX, copper, spy chris kimble post

CLICK ON CHART TO ENLARGE

Doc Copper weakness over the past few years seemed to have little impact on the broad market. Will Doc Copper’s strength over the past few months and breaking above multi-year falling resistance, have a positive impact on the broad market and suggest that some economic strength is around the corner? In our humble opinion it is too early to tell. The Power of the Pattern did share that an opportunity was in play to make some decent Pocket Change 90-days ago and so far that message has not changed. as gains continue to pile up.

 

from Kimble Charting Solutions.  We strive to produce concise, timely and actionable chart pattern analysis to save people time, improve your decision-making and results

Send us an email if you would like to see sample reports or a trial period to test drive our Premium or Weekly Research

 

Website: KIMBLECHARTINGSOLUTIONS.COM

 

Questions: Email services@kimblechartingsolutions.com or call us toll free 877-721-7217 international 714-941-9381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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August 16, 2017

Did the Fed Just Warn the Debt Bubble is Beginning to Burst?

While everyone is focusing on political issues, the NY Fed published a stunning report on the state of the US consumer.

According to the NY Fed, the average US household has hit a new record for debt, surpassing the old record set at the peak of the 2007 bubble.

Put simply, the average US household today is more in debt that it was in late 2007: the former peak of a massive debt bubble.

Of course, revealing that we’re in a massive debt bubble is only half the story. The more critical issue for those looking to invest based on this is when the debt bubble bursts.

Bad news… it’s starting already.

Flows of credit card balances into both early and serious delinquencies climbed for the third straight quarter—a trend not seen since 2009.

Source: New York Fed

The NY Fed noted that early and serious delinquencies for credit cards are rising. This is not a new development either… it’s been happening for NINE straight months: a trend not seen since the depth of the great crisis in 2009.

So US households are more in debt than they were in late 2007… and the credit cycle is turning with delinquencies rising just as they did in the Great Crisis of 2008.

Meanwhile, stocks are at all-time highs. So what happens when the markets wake up to the fact that yet another massive debt bubble is beginning to burst?

You've been warned.

For more insights that can help you see serious returns from your investments, join our FREE daily e-letter, Gains Pains & Capital.

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August 16, 2017

One Trader Scoffs “Finally, A Market Where It’s Easy To Get Rich”

Sometimes you have to just throw in the towel, know when to fold 'em, and join 'em coz you can't beat 'em.. and that appears to be former fund manager Richard Breslow's take on the current utter apathy in markets currently. His message is clear – nothing matters except technical levels – which ironically, none other than CNBC's-own Jim Cramer admitted this morning "the market is completely divorced from whatever is going on," whioch presumably means "buy it all."

Via Bloomberg,

That which does not kill us, makes us stronger. A much debated concept, but in terms of navigating markets, there’s a lot of truth in it. Asset prices have been all over the map during the last week. Good news mixing with ugly news. Well-laid plans having to consider great uncertainty.

But one positive outcome is we have technical levels, and close ones, for just about every stripe of security class to lean on and whatever your directional inclination.

We’re not good at pricing geo-political events, hence the student body type moves to the headlines. Jackson Hole and the September central bank meetings seem to be swiftly becoming known knowns, so not a lot of help with what to do now. But there’s no reason to throw your hands up in despair. There are plenty of trades to do with limited downside risk but the potential to morph into something good.

 

The dollar comes out of this looking pretty good. Whether you look at it against the dollar index or the Bloomberg dollar index, it is definitely attempting to put in a bottom and see if it can push higher. It’s retaken its shorter-term moving averages and, more importantly, the levels it cratered from last week. On the DXY, you can risk half of one-percent to get two-percent of potential upside at 96 or play a break below 93.50 for a re-test of August lows.

 

 

Interestingly, and I’d say, unexpectedly, given recent trends, the euro itself looks decidedly so-so. Could be a position reduction. Maybe a reality check on ECB hawkishness. Versus the yen, below 130.5 is a potential problem, but hardly far away. We were close to getting back above it this morning. EUR/CHF has a beautiful pivot at 1.14 and we’ve been playing with that level all day. It’s still doing well against sterling, but one-percent lower and those calls for parity will seem like wishful thinking. But as frothy as it looked cruising through 1.18 to the dollar, it will look appalling below 1.16. It’s not surprising that we currently sit at 1.17. Although, I would point out that forays below 1.17 have been short-lived.

 

The S&P 500 has identified a 2440, 2470 pair of pivots. No reason to sit out 5 percent corrections and such. I’ve no particular bias, but would point out that it seems to get tradable follow-through when it crosses back and forth through its 21-day moving average.

 

 

For a real shocker, Treasury yields are trying to convincingly reject that panic dive below 2.2%. Back below would look horrific, but the risk is no more than 10 basis points. On the other hand, they need to clear the top put in before Chair Yellen’s July 12 testimony to break free of this demoralizing range.

 

 

Gold made a triple top on Friday, matching peaks from April and June. So far, despite any news, $1300 has proven to be a bridge too far. But if you want to play for it you can get a cheap look with a $10 stop from current levels. Below $1250 you can get a potential look at the July lows.

 

 

Oh, I almost forgot. West Texas crude broke below channel support at $48 this past Monday. If you want to be really parsimonious, play with that pivot.

 

Breslow concludes optimistically "so many opportunities and plenty of time to see what can be done with them… finally a market where it's easy to get rich."

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August 16, 2017

Indian, Chinese Soldiers Clash Following Alleged Chinese “Incursion”

In what may be the first documented clash between Chinese and Indian soldiers who have been piling up across the border between the two nations over the latest territorial dispute, Reuters reports that “Indian and Chinese soldiers were involved in an altercation” in the western Himalayas on Tuesday, “further raising tensions between the two countries which are already locked in a two-month standoff in another part of the disputed border.”

While there has been no official confirmation yet by either India or China, a Reuters source in New Delhi who was briefed on the military situation on the border, said Indian soldiers “foiled a bid by a group of Chinese troops to enter Indian territory in Ladakh, near the Pangong lake.” He added that some of the Chinese soldiers carried iron rods and stones, and in the melee there were minor injuries on both sides, the source said. 

“There was an altercation near the Pangong lake,” said a police officer in Srinagar, the capital of India’s Jammu and Kashmir state, under which the area falls. An army source in Srinagar, quoted by Reuters, spoke of an altercation following what he called a Chinese army “incursion in Pangong lake area“. This fresh standoff at Pangong Tso lake in Ladakh comes in the backdrop of tensions between Indian and Chinese troops over Doklam plateau in Sikkim sector with the PLA skipping the ceremonial border meetings on Independence Day.


Pangong Tso Lake

Here are additional details from the Indian Express:

Amid strained ties over the Doklam standoff in the Sikkim sector, Indian and Chinese boat patrols clashed at the Pangong lake in Ladakh on Tuesday even as the People’s Liberation Army declined the Indian invitation to participate in ceremonial border meetings on the occasion of India’s Independence Day. This is the first time since 2005 that the PLA has declined to meet with their Indian counterpart.

Courtesy of the Indian newspaper, here is a breakdown of all that happened in the past 24 hours

1. Indian and Chinese boat patrols clashed with each other at Pangong Tso lake in Ladakh at 7:30 am near the Finger-6 part of the 135-km long lake, one-third of which is in Indian control and the rest under Chinese control. The brief standoff led to jostling and exchange of blows between soldiers of the two armies. No shots were fired though.

 

2. Sources told the Indian Express said at least 52 trucks belonging to the Chinese army were spotted parked on the road built by the Chinese on the side of the lake but they moved out by the evening. The Indian Army, however, refused to comment on the issue. Also Read: Indian, Chinese patrols clash on Ladakh lake, PLA skips Independence Day meets

 

3. This fresh standoff at Pangong Tso lake in Ladakh comes in the backdrop of tensions between Indian and Chinese troops over Doklam plateau in Sikkim sector with the PLA skipping the ceremonial border meetings on Independence Day.

 

4. For the first time since 2005, the ceremonial meeting with the troops of both sides was not held on August 15. Another ceremonial meeting, which used to be held on the Chinese side on August 1, the founding day of the PLA, was also not held this year.

 

5. Indian and Chinese troops have been engaged in a stand-off in the Doklam area of the Sikkim sector for seven weeks now after Indian troops stopped the Chinese army from building a road in the disputed area. China claimed that they were constructing the road within their territory and has been demanding immediate pull-out of the Indian troops from the disputed Doklam plateau. New Delhi has expressed concern over the road building, apprehending that it may allow Chinese troops to cut India’s access to its northeastern states.

 

6. India has conveyed to the Chinese government that the road construction would represent a significant change of status quo with serious security implications for it. Doka La is the Indian name for the region which Bhutan recognises as Doklam, while China claims it as part of its Donglang region.

 

7. Of the 3,488-km-long India-China border from Jammu and Kashmir to Arunachal Pradesh, a 220-km section falls in Sikkim. China also claims that Thimphu has no dispute with Beijing over Doklam.

To summarize: soldiers of the world’s two populous nations just got into a skrimish – luckily without shots fired for now – over a terrotorial dispute that is far from over, and if anything, is just beginning. As a reminder, the two armies are already engaged in a standoff in the Doklam plateau further east, in another part of their 3,500 km (2,175 mile) unmarked mountain border. As we reported on Friday, India had deployed even more troops to fortify existing positions, as China does the same, while raising the military “caution” level.

China has repeatedly asked India to unilaterally withdraw from the Doklam area, or else face the prospect of an escalation. As reported last month, Chinese state media warned India of a fate worse than its crushing defeat in a brief border war in 1962.

The latest standoff between China and India started in June when India sent troops to stop China building a road in the Doklam area, which is remote, uninhabited territory claimed by both China and India’s ally Bhutan.  New Delhi said it sent its troops because Chinese military activity in Doklam, near the trijunction of the borders of India, China and Bhutan, was a threat to the security of its own northeast region. But Beijing has said India had no role to play in the area and diplomatic efforts to defuse the crisis have not made much headway.

An Indian government minister told Reuters efforts were continuing to find a way to end the standoff.  The minister, “speaking on condition of anonymity because of the sensitivity of the issue” , said Prime Minister Narendra Modi’s government had “no choice but to act to stop the Chinese road activity in the region because it had come too close for comfort.”

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August 16, 2017

Why We’re Doomed – Our Economy’s Toxic Inequality

Authored by Charles Hugh Smith via OfTwoMinds blog,

Anyone who thinks our toxic financial system is stable is delusional.

Why are we doomed? Those consuming over-amped "news" feeds may be tempted to answer the culture wars, nuclear war with North Korea or the Trump Presidency.

The one guaranteed source of doom is our broken financial system, which is visible in this chart of income inequality from the New York Times: Our Broken Economy, in One Simple Chart.

While the essay's title is our broken economy, the source of this toxic concentration of income, wealth and power in the top 1/10th of 1% is more specifically our broken financial system.

What few observers understand is rapidly accelerating inequality is the only possible output of a fully financialized economy. Various do-gooders on the left and right propose schemes to cap this extraordinary rise in the concentration of income, wealth and power, for example, increasing taxes on the super-rich and lowering taxes on the working poor and middle class, but these are band-aids applied to a metastasizing tumor: financialization, which commoditizes labor, goods, services and financial instruments and funnels the income and wealth to the very apex of the wealth-power pyramid.

Take a moment to ponder what this chart is telling us about our financial system and economy. 35+ years ago, lower income households enjoyed the highest rates of income growth; the higher the income, the lower the rate of income growth.

This trend hasn't just reversed; virtually all the income gains are now concentrated in the top 1/100th of 1%, which has pulled away from the top 1%, the top 5% and the top 10%, as well as from the bottom 90%.

The fundamental driver of this profoundly destabilizing dynamic is the disconnect of finance from the real-world economy.

The roots of this disconnect are debt: when we borrow from future earnings and energy production to fund consumption today, we are using finance to ramp up our consumption of real-world goods and services.

In small doses, this use of finance to increase consumption of real-world goods and services is beneficial: economies with access to credit can rapidly boost expansion in ways that economies with little credit cannot.

But the process of financialization is not benign. Financialization turns evertything into a commodity that can be traded and leveraged as a financial entity that is no longer firmly connected to the real world.

The process of financialization requires expertise in the financial game, and it places a premium on immense flows of capital and opaque processes: for example, the bundling of debt such as mortgages or student loans into instruments that can be sold and traded.

These instruments can then become the foundation of an entirely new layer of instruments that can be sold and traded. This pyramiding of debt-based "assets" spreads risk throughout the economy while aggregating the gains into the hands of the very few with access to the capital and expertise needed to pass the risk and assets off onto others while keeping the gains.

Profit flows to what's scarce, and in a financialized economy, goods and services have become commodities, i.e. they are rarely scarce, because somewhere in the global economy new supplies can be brought online.

What's scarce in a financialized economy is specialized knowledge of financial games such as tax avoidance, arbitrage, packaging collateralized debt obligations and so on.

Though the billionaires who have actually launched real-world businesses get the media attention–Bill Gates, Jeff Bezos, Steve Jobs, et al.–relatively few of the top 1/10th of 1% actually created a real-world business; most are owners of capital with annual incomes of $10 million to $100 million that are finance-generated.

This is only possible in a financialized economy in which finance has become increasingly detached from the real-world economy.

Those with the capital and skills to reap billions in profits from servicing and packaging student loan debt have no interest in whether the education being purchased with the loans has any utility to the indebted students, as their profits flow not from the real world but from the debt itself.

This is how we've ended up with an economy characterized by profound dysfunction in the real world of higher education, healthcare, etc., and immense fortunes being earned by a few at the top of the pyramid from the financialized games that have little to no connection to the real-world economy.

Anyone who thinks our toxic financial system is stable is delusional. If history is any guide (and recall that Human Nature hasn't changed in the 5,000 uears of recorded history), this sort of accelerating income/wealth/ power inequality is profoundly destabilizing–economically, politically and socially.

All the domestic headline crises–culture wars, opioid epidemic, etc.–are not causes of discord: they are symptoms of the inevitable consequences of a toxic financial system that has broken our economy, our system of governance and our society.

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August 16, 2017

Cash-Strapped Qatar Unexpectedly Cuts Credit Suisse Stake

Is the ongoing Qatar blockade starting to seriously squeeze the finances of the tiny, but rich (or maybe not so rich any more) Gulf nation?

Overnight, Credit Suisse’s largest shareholder, Qatar, announced it has lowered its direct shareholding in the largest Swiss bank to 4.94% through the nation’s sovereign wealth fund – the Qatar Investment Authority – marking a rare sale of the Swiss bank’s stock. The QIA previously owned 5.01% in voting rights and is reporting a sale of shares for the first time since 2008. Qatar’s overall holding – including convertible bonds – declined to 15.91% from 17.98% after a rise in the number of outstanding Credit Suisse shares because of its capital increase.

In June, Credit Suisse, which is halfway through a three-year strategy revamp, raised about CHF4.1 billion after tapping shareholders for a second time since CEI Tidjane Thiam took over in mid-2015, Bloomberg reported. The fresh funding would boost its common equity Tier 1 capital to 13.4% of risk-weighted assets, up from 11.7% in the first quarter.

Qatar’s sovereign wealth fund has been the Zurich-based bank’s biggest shareholder since the financial crisis of 2008-09. Then, the cash-rich emirate helped Credit Suisse avert a state bailout by injecting billions in capital into the bank; now Qatar itself may be on the verge of needing a bailout.  The sale has come at a price: the infusion was designed as convertible bonds in Credit Suisse, for which the bank has paid a coupon of between 9 and 9.5%. However, in a harbinger of what’s to come, in February Credit Suisse said that Bin Hamad J.J. Al Thani, who represented the Qataris on Credit Suisse’s board of directors, won’t stand for re-election. Saudi Arabian group Olayan is also a major shareholder in Credit Suisse.

As shown below, Qatar boasts one of the world’s largest sovereign wealth funds, with stakes in companies from Glencore to Barclays to Volkswagen (come to think of it, all companies that have one or major major “structural” issues). The small peninsular nation also hosts the regional headquarters for U.S. Central Command, making it a critical outpost for the US military’s ongoing involvement in the middle east.

In the nearly ten years since the capital investment, Credit Suisse has made hundreds of millions in annual payments to Qatar. That changed in February of this year when as noted above, Qatar’s board representative, Jassim Bin Hamad J.J. Al Thani, left the bank with little explanation and no replacement. However, Qatar did participate in Credit Suisse’s CHF4.1 billion capital-raising to full up its depleted cushion of capital.

Now, Qatar has sharply lowered its overall stake in Credit Suisse. The emirate now holds 4.94% of shares and 10.97% in converts, down from 5.0%1 in shares and 12.96% in the securities, or from 17.98% to 15.91% in total.

The sale comes against the backdrop of tensions between the emirate and Saudi Arabia, Egypt, Bahrain, and the United Arab Emirates, which according to some have led to a sharp deterioration in the country’s finances.  The move has unpleasant consequences for Credit Suisse as well: Abu Dhabi has reportedly boycotted banks in which Qatar is invested. Besides Credit Suisse, those include Germany’s Deutsche Bank and London’s Barclays Bank, also a crisis beneficiary of Qatar’s generosity.

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