The war on intelligence is in full swing. It's game time. They've been planning this for years. As we explain in Splitting Pennies, the world isn't as it seems, in fact - the world is a great big illusion to many.In case you're not fo...
I recently watched the recent Noam Chomsky documentary, Requiem for the American Dream, and it was excellent. I highly recommend everyone watch it since it provides a historical roadmap for how positive change happens. Lessons that we will all need to put into practice in the coming years if we want to take the world off its current collision course with disaster.
With Chomsky already on my mind, I was excited to see an article published yesterday at AlterNet titled, Noam Chomsky Unravels the Political Mechanics Behind His Gradual Expulsion From Mainstream Media.
Here’s what we learned:
Ralph Nader and leading linguist Noam Chomsky engaged in a much anticipated discussion in early October on Ralph Nader Radio Hour. The two raised questions about changing the media narrative in a totalitatian-like state, and how Chomsky got dismissed from the mainstream altogether.“How often have you been on the Op-Ed pages of the New York Times,” Nader asked Chomsky.For Chomsky, the last time was over a decade ago.“[I was asked] to write about the Israeli separation wall, actually an annexation wall that runs through the West Bank and breaking apart the Palestinian communities… condemned as illegal by the World Court,” Chomsky told Nader.Chomsky would later pen a similar piece for CNN on the 2013 Israeli-Palestinian peace talks. But Chomsky has never been interviewed on the network; Nor has he appeared on NBC, ABC or CBS.“How about NPR and PBS, partially taxpayer-supported.. more free-thinking and more tolerant [outlets]?” Nader wanted to know.“I’ve been on ‘Charlie Rose’ two or three times,” Chomsky told Nader, adding that he had a curious story about a particularly Boston outlet for NPR based in Boston University.“They used to have a program in their prime time news programs all things considered some years ago at 5:25… maybe once a week or so, a five-minute discussion with someone who had written a new book and there’s a lot of pressure,” Chomsky began.NPR was going to allow Chomsky to present his book, “Necessary Illusions: Thought Control in Democratic Societies” (1989).“I got a call from the publisher telling me when I should tune [in at 5pm] and I never listened [before], so I tuned in [and] there was five minutes of music… I started getting phone calls from around the country asking ‘What happened to the piece?'” Chomsky remembered.He didn’t know.“I then got a call from the station manager in Washington who told me that she’d been getting calls and she didn’t understand it because it was listed… she called back saying kind of embarrassed … that some bigwig in the system had heard the announcement at five o’clock and had ordered it cancelled,” Chomsky explained.
This is not what a free press looks like.
The irony of Chomsky’s media criticism being dismissed by the media is not lost on the former MIT professor, who remains constantly awed by America’s level of censorship.“Any one of the former Bush-Cheney warmongers like Paul Wolfowitz and John Bolton and others have gotten far more press after they’ve left federal positions; in the New York Times The Wall Street Journal the Washington Post,” Nader said.And unlike Chomsky, “They’ve been on television public television, NPR and they have a record of false statements; they have record of deception, they have record of pursuing policies are illegal under our Constitution under international law and under federal statutes such as criminal invasion of Iraq and other adventures around the world,” Nader pointed out.But the media problem permeates thouroughly throughout other industries, like education and government.“Now a society that operates in a way where propaganda is not only emanating from the major media but it gets into our schools, the kind of courses are taught, the content of the history, is a society that’s not going to be mobilized for its own survival, much less the survival of other countries whose dictators we have for decades supported to oppress their people,” explained Nader.
Below you can find Nader’s full interview of Chomsky as well as the trailer for the documentary, Requiem for the American Dream.
While markets wait for the election, getting closer by the day- one big question - in fact maybe the most important question - What is Trump's plans (if any) for Fed policy? As we explain in Splitting Pennies - Understanding Forex - Fed Policy (Monetary Policy) TRUMPS any regulation, domestic political policy, corporate policy, or social movement. In fact - the only thing more powerful than Fed policy is a nuclear arsenal (which is why - there is a correlation between the most powerful currencies and the most powerful militaries).
The BIG Question
Even TRUMP supporters don't know the answer to this question - because Trump never explicitly said it. Maybe Trump doesn't understand Fed policy. He is sure of himself that he understands debt. Maybe he does know - but also knows that the people don't know so it's pointless to talk about it. Whatever is the case - we don't know where Trump stands on the one issue that will determine America's economic fate one way or another - Fed policy. Will the Fed continue Quantitative Easing? Will radical Fed policies clean up a junk filled economy (for example, by raising rates to 10%) ? Will Trump nationalize the Fed? (Maybe - that's what the Elite are worried about!) - Let's make one thing perfectly clear. He can do it! 99% of 'folks' don't understand what the President really does, what his powers are, for example the President is more of a 'ceremonial' and 'cultural' leader than anything else.. But Trump would have the power to do something like this if President. Would he do it? Something like this - just as an example - would transform Wall St. and the US economy completely. Maybe, as we've covered in previous articles, this is THE REAL DEBATE going on right now at the Fed, and behind closed doors on Wall St.
Let's take a step back, and understand how far Presidential power stretches. A great President, maybe one of only great Presidents- Richard Nixon - Created the Forex market as we know it today. In one swift move, Nixon defaulted on Bretton Woods and in the same moment, defaulted on his Gold obligations, and made the US Dollar the World's Reserve Currency. For detailed info about Nixon checkout this book. Practically, although Nixon stiffed the French and other potential Gold customers that wanted payment in Gold - the world didn't have many other choices. For example, had France been stronger in that time, we'd all be using French Francs instead of USD. Anyway, Nixon's actions were a pro-Fed, pro-USD move- whether this was calculated or not is irrelevant. The fact is that, the USD is really the only "One World Currency" in operation today, and will be for the forseeable future.
In case you are not following the way the world really works, Read this book: Confessions of an Economic Hit Man. This is a MUST READ for any trader, investor, economist, businessman, politician, lawyer, or anyone interested in the world. The point here is that, yes - it's true. The Fed Chairman is the most powerful person in the world, because they control the money supply, the amount of US Dollars in the world, and the interest rates. But - Trump could oust-em! What does Trump think about the current Fed? Well, he's not happy with Fed policy, and says The Fed and in particular Chairman Yellen "Should be Ashamed"-
Republican presidential nominee Donald Trump on Monday accused the Federal Reserve of keeping interest rates low for political reasons, the latest in a string of often contradictory critiques of the nation’s central bank.The Fed vehemently defends the setting of its influential interest rate as independent of political considerations — a principle that is considered fundamental not only to the Fed but for central banks around the world. Yet speaking on CNBC, Trump said Fed Chair Janet L. Yellen should be “ashamed” of keeping interest rates so low for so long. “She’s obviously political and doing what Obama wants her to do, and I know that’s not supposed to be the way it is,” Trump said.
In another moment, Trump stated in crystal clarity, a moment of sobriety of sorts for Trump, that he's aware - the game is rigged, and it's all a house of cards waiting to crash:
The latest such comment came Monday, when Trump responded to a question from a reporter about the potential for a Federal Reserve interest rate hike this year. “They’re keeping the rates down so that everything else doesn’t go down,” Trump said, according to reports. “We have a very false economy.” “At some point the rates are going to have to change,” Trump added. “The only thing that is strong is the artificial stock market.”
There we go- we have our answer. At least, we have a hint on the answer. But the BIG QUESTION remains - will Trump simply put in his own chairman - or abolish the Fed altogether? Wouldn't that be something. Either way it seems Dollar Up for a Trump victory. Put your limit orders in now - Open a Forex Account.
To learn more about how Trump can really affect the markets, if elected - checkout Splitting Pennies - Understanding Forex - YOUR GUIDE TO THE ELECTIONS ON HOW THEY CAN IMPACT MONETARY POLICY or in Plain English - How politics determines the value of what our dollars are worth, i.e. the dollar in your pocket. For a more detailed Forex Education - Checkout Fortress Capital Trading Academy.
Warning to investors - traditional markets are flawed. In one of many hypothetical futures, not so far in the future, FX may be the only game in town. As we explain in Splitting Pennies - Understanding Forex - it's FX that drives the world, not stocks, bonds, commodities, or real estate. Let's take a quick look at some of the cracks in traditional markets.
HFT Market to collapse, or drastically change
During the credit crisis HFT snuck in a huge business for themselves in the stock market via Reg NMS by manipulating 'order types' and 'latency'. Well, that's all starting to unwind. Top HFT firms are fearful that the SEC is about to 'spill the beans' according to Bloomberg:
Some of the biggest electronic traders are complaining that a new test in the U.S. stock market will compromise their top-secret strategies, one of their most valuable assets. Citadel Securities and KCG Holdings Inc. are among a chorus of brokers questioning elements of a U.S. Securities and Exchange Commission experiment, which began Monday, designed to whip up more trading in small companies. Their complaint is that the test will force firms to publicly expose detailed trading data with only the thinnest veil of anonymity, allowing competitors to reverse engineer how their prized trading algorithms work. For high-speed trading firms, complex computer code is the secret weapon for profiting from the market. Some brokers say they fear that in their test, regulators won’t sufficiently mask their publicly reported trading data. “It’s going to take someone exactly three seconds to figure out who’s who,” said Jamil Nazarali, head of execution services at Citadel Securities, which is the market-making arm of billionaire Ken Griffin’s Citadel LLC. Trading firms will “likely change their behavior to protect their intellectual property,” making the test’s results less meaningful, he added.
Big Banks collapsing - SOON
Previously to the "DB Crisis" - Europe's biggest bank, Douche Bank, is now probably insolvent at best, and at worst - will form a black hole so big that it will suck half of the worlds banks and assets into it when it implodes. DB isn't just a bank, it's a financial powerhouse - a superbank. For example, if you've ever bought a currency ETF, it was probably offered by DB:
Hmm.. only 35 ETFs in the USA. Anyway, creating an ETF isn't easy. DB is registered in almost every country in the world, yes even in Malta. They are in thousands of businesses. Unwinding this behemoth will take decades. Unraveling all of their crimes, money laundering, scandals, and derivatives is practically impossible. Just one example of a $10 Billion dollar liability, in this case, just money laundering:
Almost every weekday between the fall of 2011 and early 2015, a Russian broker named Igor Volkov called the equities desk of Deutsche Bank’s Moscow headquarters. Volkov would speak to a sales trader—often, a young woman named Dina Maksutova—and ask her to place two trades simultaneously. In one, he would use Russian rubles to buy a blue-chip Russian stock, such as Lukoil, for a Russian company that he represented. Usually, the order was for about ten million dollars’ worth of the stock. In the second trade, Volkov—acting on behalf of a different company, which typically was registered in an offshore territory, such as the British Virgin Islands—would sell the same Russian stock, in the same quantity, in London, in exchange for dollars, pounds, or euros. Both the Russian company and the offshore company had the same owner. Deutsche Bank was helping the client to buy and sell to himself...Although the bank’s headquarters remained in Germany, power migrated from conservative Frankfurt to London, the investment-banking hub where the most lavish profits were generated. The assimilation of different banking cultures was not always successful. In the nineties, when hundreds of Americans went to work for Deutsche Bank in London, German managers had to place a sign in the entrance hall spelling out “Deutsche” phonetically, because many Americans called their employer “Douche Bank.”
On the other side of the pond, Wells Fargo - previously one of America's 'trusted' banks, "Main St. bank" - is collapsing after the market learned that their great sales figures were based on a house of cards that was, well, fraudulent. If you're not aware or not following this crisis, checkout this article for a simple explanation.
Real Estate Market Shaky, at best
With a major hurricane likely to hit Florida and possibly a direct hit on Miami, which already has a problem with high tides, hot markets such as Miami are feeling multiple pressures.
There are a lot more apartments available for purchase these days in Manhattan. And fewer people are buying. Sales of previously owned condominiums and co-ops fell 20 percent in the third quarter from a year earlier as potential buyers grew cautious amid more choices, according to a report Tuesday from appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. There were 5,290 resale apartments on the market at the end of September, 53 percent more than the number available in late 2013, the lowest point for listings.The swelling inventory is providing an opportunity to New Yorkers shut out of a market in which construction has been dominated by ultra-luxury condos aimed at the wealthiest buyers. Resales, particularly those priced at less than $1 million, were in chronically short supply in recent years, and those that made it to the market sparked bidding wars. Now, more owners are listing apartments to profit from climbing values, and they’re finding lots of company. “Rapidly rising prices over the years have pulled more sellers into the market hoping to cash out,” Jonathan Miller, president of Miller Samuel, said in an interview. “But buyers are more wary. There isn’t the same intensity of activity to burn through the new supply.”
Hedge Funds, not capitalizing on the turmoil, and even losing
Well, hedge funds are having their worst year EVER, with fewer than one in five beating a basic market benchmark:
In fact, this has been the year investors wanted to do anything but try to pick stocks. Active fund managers had their worst first half ever, with fewer than one in five beating a basic market benchmark, according to data from Bank of America Merrill Lynch that go back to 2003.Stock pickers were done in by two major factors: following the crowd and an uneven pattern of correlations among stocks. The 10 most-crowded stocks lagged the 10 least-owned by a whopping 18 percentage points, which BofAML called "an atypically high spread."
So what's left?
Forex Markets to dominate the next 20 years
There's always Forex algorithms, which Wall St. simply afraid of, because they don't 'control' the FX markets. Some FX strategies perform month in and month out like clockwork, a pension fund's dream - but why go with something that works when it's politically correct to lose with hedge funds (it's good for jobs, right?).
The point is that, FX is a money market - and a super set of other markets. If the stock market completely crashes like 50%, investors will still have trillions in cash. It will even create a dollar shortage. But that cash has to go somewhere. Some, will go to Euros, Swiss Francs, and other 'money'. Bitcoin isn't a percent of a percent of a percent, although certainly money will flow into Bitcoin. Bitcoin isn't viable alterantive to major FX currencies simply because of acceptability. It's not possible to pay for goods in foreign countries in Bitcoin - but many accept US Dollars. Until that changes - or until the United States of America ceases to exist as a country (which is probably the only event that could really obliterate FX markets) - then, FX is going to be the only game left in town. Why? Because, the US Dollar is supported by bombs. As long as the US Army has enough gas in their tanks, and munitions in their supply, you can bet dollar markets will function. Other markets, like real estate, don't have such protection. But there's a good reason for that. Because all markets DEPEND on FX. Without a dollar market, the stock market couldn't exist. If you want to be Wall St.'s next HFT firm, you first need to fund an account WITH DOLLARS.
So, although many markets teetering on the brink of implosion, FX looking stronger than ever, and until there's a viable alternative (which considering alternatives, China, Russia, Bitcoin, etc... not a real solid candidate next 20 years) we can expect FX supremacy and US Dollar Hegemony for the long term. So, if you're still naive to the realities of FX - now's a great time to start learning!
If you don't know Forex, checkout the book Splitting Pennies - Understanding Forex - or checkout Fortress Capital Trading Academy, who offers a great Introductory course.
It isn't often such a clear market signal is painted such as the impending real estate market collapse. It doesn't take sophistocated algorithms or an MBA from Harvard to add up the math and the data and see that we're on the precipice of a historic real estate asset cliff; and that the market is waiting for an 'event' to tip it over. That event, it can be Hurricane Matthew. That means this can all unfold THIS WEEK. For those of us who have been following this trend for a long time (like, more than 10 years) this isn't news, it's just the obvious result of bad planning and decades of building a foundation on the wrong things (this is an educational metaphor - Real Estate Investors built their knowledge on the wrong ideals, the false axioms, and thus - invested in the wrong markets, on markets build on soft, unstable foundations...).
As we explain in Splitting Pennies - Understanding Forex; the entire world's economy, both micro and macro, can be explained through the prism of monetary policy. Or in other words, if you master FOREX, you can master any market, because all markets are denominated in Forex. Or in yet other words, markets are only able to function as a derivative of money markets - which Forex is.
Bubbles have persisted for years, but this last bubble that caused the 2008 crisis was based on real estate. For a long time, US real estate prices always went up; until they didn't. So what changed in 2008? Enter Quantitative Easing, a program designed by the Fed to create 'liquidity' in the market that was otherwise illiquid. Starting out buying 'toxic' assets no one wanted, now the Fed has a diversified portfolio of many assets, much of which is real estate. This is not the only thing propping up the real estate market. Also, the Fed has given banks and hedge funds HUGE access to cheap capital, or free capital, in large quantities. Let's take the world's largest, as the best example; Blackstone, with $100 Billion + to invest in real estate:
Blackstone, helmed by global head of real estate Jon Gray, is the largest real estate private equity firm in the world. Since raising their first opportunistic real estate fund in 1997, Blackstone has been a dominant player in the industry with their simplified opportunistic philosophy of “buy it, fix it, sell it”. Just this month, Blackstone real estate surpassed a staggering $100 billion in assets under management. As part of a push towards a longer hold, core plus strategy, they recently closed the largest ever PE real estate fund at $15.8 billion. Furthermore, Blackstone recently acquired Chicago’s iconic Willis Tower, which they plan to enhance through value add renovations and a repositioning of the tower’s retail space.
Well, not all $100 Billion is invested in Real Estate, but remember, they are leveraged, so they don't buy for cash, so it's not known what they're real 'real' estate portfolio is. Between the Fed buying MBS (Mortage Backed Securities), Hedge Funds & Private Equity Funds like Blackstone, and your typical foreign buyers fleeing corruption or a crashing economy in their own market - real estate is highly inflated. This is of course, exaggerated in niche areas; Los Angeles, San Francisco, Las Vegas, Boston, New York, Miami, Greenwich CT, and many, many others. Just take a look at what you get in Ohio for $4M and what you get in San Francisco for $4M. Hmm... Something doesn't add up here. People in CA shocked at non-CA market values. Hmm... and there's high state taxes in CA, and pollution, a water drought, and fallout from Fukushima irradiating the crops and population, explosion of cancers. Where do I sign?
Years ago, analysts said that in 50 years Florida will be underwater. Real Estate investors didn't feel that their feet were wet, so they ignored this. Well, these analysts were wrong - it's happening much, much, much faster. Miami-Dade County is going to be hit the hardest. If you don't know about this issue, read this article here "A Rising Tide" :
“This whole beautiful landscape’s going to change,” he said. Miami Beach consists of a long, low barrier island accompanied by a scattering of manmade islets. It’s one of the lowest-lying municipalities in the country, and its residents are leading the way into the world’s wetter future. Along the island’s low western side bordering Biscayne Bay, people have come to dread full-moon high tides, when salt water seeps into storm-drain outlets and the porous limestone that provides the island’s foundation, forcing water up and out into the streets and sidewalks and threatening buildings and infrastructure. And Miami Beach is just one small part of a region that’s in big trouble. If sea levels rise as projected, no major U.S. metropolitan area stands to rack up bigger losses than Miami-Dade County. Almost 60 percent of the county is less than six feet above sea level. Even before swelling of the seas is factored in, Miami has the greatest total value of assets exposed to flooding of any city in the world: more than $400 billion. Once you account for future sea-level rise and continued economic growth, Miami’s exposed property will far outstrip that of any other urban area, reaching almost $3.5 trillion by the 2070s. The sea level around the South Florida coast has already risen nine inches over the past century. Among experts, the optimists expect it to edge up another three to seven inches in the next 15 years and nine inches to two feet in the next 45 years. More pessimistic (some say increasingly realistic) predictions say the rise will be much faster. Even the very gradual rise of recent decades will make extensive infrastructure reengineering necessary—Mowry’s job. However, according to a report published by the Florida Department of Transportation, it will become difficult, expensive, and maybe impossible for these efforts to keep up with the accelerated sea-level rise that is actually expected.
Miami is spending $500 Million building walls and drainage to address this problem. Read the 2012 Presentation in PDF here. But will it be enough? And what about Hurricanes? A Category 5 hurricane can have a storm surge of 20 - 30 feet, such as Camille in 1969. Storm Surge is when the water rises, completely - that means the ocean will rise 24 feet (Read about it here). Matthew, if it struck Florida, would really be Biblical. Billions of Dollars in damage would occur, just from the storm. And this information is not 'priced in' to this already 'frothy' market, just see spring articles about Miami's real estate crash here, here, and here.
This article being the most dramatic: "Luxury Urban Housing, Built on a Myth, Is About to Take a Big Hit".
The other info that you need to know, since the early 90's, the US Government manipulates the weather. If you're not up to date on this topic, you can read about it here in this groundbreaking book Chemtrails, HAARP, and the Full Spectrum Dominance of Planet Earth. Or for a simple primer on Geo-engineering, checkout No Natural Weather: Geoengineering 101. Then, why would they allow a hurricane to smash into South Florida? Who knows, but if you want to look at the strange correlation between military events and Hurricanes, take a deeper look at 911 and Hurrican Erin - This book Black 911 is a great start.
Matthew is now heading toward Jamaica, at which point it may settle down; Jamaica has mountains which Hurricanes don't like. But Florida is being warned.
Traders, tomorrow's trade is easy; put in your buy limits above the MAs on HD, LOW, and get ready to short homebuilders, and other South Florida real estate companies. This week is going to be a wild ride for real estate, regardless if Matthew hits FL or not.
The market now is quiet, sales are down 80% in some areas (i.e. Greenwich, CT "Billionaire Capital"), but the panic selling hasn't started yet. An event such as a Hurricane in FL, or a big Earthquake in CA, can be the tipping point that starts it.
This will hit the rent market too - as values collapse, rents will too. Not only that, but a bad economy will put pressure on renters and their ability to pay. This recent bubble, in both housing values, rent prices, and other assets - is just that. A bubble. It will pop. And as we saw in 2008, each time the bubble bursts, the drawdown is a little deeper. But real estate in particular recovered with the help of the Fed and numerous Fed players, as this was a political victory as well as an economic one. It was seen as helping Main St. as well as Wall St.
There's other investments, other ways to make money than real estate, such as Forex algorithms. But it seems that as usual, investors will need to have a huge loss before learning this lesson.
Pain - is the only real teacher!
Sometimes the best economic analysis comes anecdotally. Why not explain the most important economic issue of our day with America's favorite food: PIZZA. As we explain in our book Splitting Pennies - Understanding Forex, the real reason of inflation is because of monetary policy, not supply and demand. For a basic primer on Inflation, you can checkout this book "What you should know about Inflation."
In case you didn't know, facts about Pizza
Pizza is actually America's favorite food. The Atlantic covered a DOA report that showed the cheesy stats:
Like football, pop music, and democracy itself, pizza follows in the long American tradition of things that began overseas before the United States imported, violently altered, and eventually defined the institution. Although the first pizza shops didn't open in the U.S. until the early 20th century, hundreds of years after the original Neapolitan pies, we now spend $37 billion a year on pizza, accounting for a third of the global market. The obsession deepens. On any given day, about 13 percent of Americans eat pizza, according to a new report from the Department of Agriculture. One in six guys between the ages of two and 39 ate it for breakfast, lunch, or dinner today. In part due to this obsession, per capita consumption of cheese is up 41 percent since 1995. Drawn from the report, here are seven facts about Americans and pizza, presented free of moralizing comments about whether or not it is healthy or sensible for the American diet to consist so overwhelming of bread adorned with tomato-cheesey gloop.
Pizza, is actually an AMERICAN food, brought to America by the Italians. Pizza was invented in Italy, but in Italy, Pizza is completely different, and not very popular. In fact, Pizza is most popular in America. It's more American than Apple Pie. Check it out:
In 1905, a slice of pizza cost five cents. During the Depression, when families did not have much money, pizza became popular with everyone in the United States. Families were eating different types of pizza on the east and west coasts. A thick-crust pizza was called double-crust pizza or west coast pizza. When they had a large exhibit about pizza at the Texas State Fair, more people inquired about this food than any other.The first recipe for pizza appeared in a fundraising cookbook published in Boston in 1936. The recipe, for Neapolitan pizza, was made by hand. Dough had to be hand-stretched by pizzaiolos and housewives until it was half an inch thick. The pizza had cheese, tomatoes, grated parmesan cheese, and olive oil. Surprisingly, the dough was not made by hand, but cooks were told to buy it at a good Italian bake shop.However, pizza was mostly limited to Italian immigrant communities until after World War II, when American soldiers returning from Italy still wanted their pies. Popularity spread, and various American styles developed. Pizzeria Uno is credited with the invention of the Chicago deep dish pizza in 1943. This is known as tomato pie and was baked in rectangular pans in bakeries. Its crust was extra thick and it had seasoned tomato puree and was dusted with Romano cheese before it went into the oven. Some eventually had meat and thick cheese, and it was so thick, it often had to be eaten with a knife and fork.
The American Dollar is collapsing
From five cents a slice to $20 a Pizza. What happened? During this time, the US Dollar went down by more than 95%. Let's take a look at one of America's favorite Pizzas, Numero Uno Pizza. For those of you who have not had the pleasure to live in the greater Los Angeles area, where Numero Uno has had 95% name recognition, Numero Uno Pizza is a household name. Interestingly, Numero Uno was founded in Los Angeles right around the time Nixon created Forex; 1970. We've obtained an old Numero Uno menu (we think though, it's from the 80s) that shows prices from that time:
Wow! .85 House Wine, less than $5 for a Carafe!
Now take a look at prices we've lifted from current NU store sites, such as Numero Uno Palmdale:
The most popular NU pizza is the S5 "Slaughterhouse 5" which currently stands at $16.95. We confirmed with the manager of Palmdale location that indeed; prices are due for a rate hike in January.
From $10.85 to $16.95 isn't too bad, Pizzaflation is not nearly as bad as inflation in other markets, most notably, real estate, groceries, coffee, and other items. Using an inflation calculator, $1 in 1970 is about $6.21 today. If the menu is from 1985, the S5 should be $24.29. Other NU stores have it priced at $19.99. In any case, for older folk, $20 is a lot to pay for a Pizza, in their mind. But that's only because of memory, of times past. Inflation is a slow subtle tax. From a 'real dollar' perspective, Numero Uno Pizza is cheap.
Let's understand the second component of inflation that's less obvious - the deterioration of QUALITY. You can get a Pizza today for $5 - but it's a bunch of crap. Like any product, you get what you pay for. This part of inflation, the decline in quality, is less obvious but more damaging. Every year, products get a little worse and worse.
The real cause of Pizzaflation
Real analysts must always seek the CAUSALITY
Inflation happens only for one reason: Central Bank prints more currency. More currency, chasing the same or fewer goods and assets, makes the price go up. It's really simple! QE (Quantitative Easing) has been rampant in recent years. Fortunately for consumers, most inflation has happened in financial markets, real estate, and other markets.
In our household, we measure inflation with the "Burrito Index": How much has the cost of a regular burrito at our favorite taco truck gone up?Since we keep detailed records of expenses (a necessity if you’re a self-employed free-lance writer), I can track the real-world inflation of the Burrito Index with great accuracy: the cost of a regular burrito from our local taco truck has gone up from $2.50 in 2001 to $5 in 2010 to $6.50 in 2016.That’s a $160% increase since 2001; 15 years in which the official inflation rate reports that what $1 bought in 2001 can supposedly be bought with $1.35 today.If the Burrito Index had tracked official inflation, the burrito at our truck should cost $3.38—up only 35% from 2001. Compare that to today's actual cost of $6.50—almost double what it “should cost” according to official inflation calculations.Since 2001, the real-world burrito index is 4.5 times greater than the official rate of inflation—not a trivial difference.Between 2010 and now, the Burrito Index has logged a 30% increase, more than triple the officially registered 10% drop in purchasing power over the same time.Those interested can check the official inflation rate (going back to 1913) with the BLS Inflation calculator by clicking here.My Burrito Index is a rough-and-ready index of real-world inflation. To insure its measure isn’t an outlying aberration, we also need to track the real-world costs of big-ticket items such as college tuition and healthcare insurance, as well as local government-provided services. When we do, we observe results of similar magnitude.The takeaway? Our money is losing its purchasing power much faster than the government would like us to believe.
It's important for consumers to understand, Pizzaflation is not caused by Pizza makers. Numero Uno actually is doing a great job keeping prices low, because their food cost, rent, and other costs, are all exploding parabolic.
Los Angeles has the highest rent burden in America:
Overall, rents in Los Angeles have doubled since the 1970s:
But of course, that's not counting other various fees, taxes, increased regulatory costs, increased insurances due to higher crime rates, and other factors. Pizzaflation has hit Los Angeles hard, creating a 'double whammy' for businesses like Numero Uno. And with LA's median income flat since 1970, it makes one wonder who can afford a $20 Pizza. But the remaining Numero Uno stores are mostly packed and have great reviews, so it seems that it takes something really Magic to survive the pressure of the Fed.
To learn more about how the Fed decreases the value of the US Dollar via Quantitative Easing, checkout Splitting Pennies - Understanding Forex - your pocket guide to make you a Forex genius!
The good news, Forex is artificial so you can learn about it online. It's all digital. If you want the best Pizza you've ever had in your life - you'll have to drive all the way to Palmdale, California and visit Numero Uno Palmdale.
Oscar winners, sports stars and Bill Gates are building lavish bunkers — with amenities ranging from a swimming pool to a bowling alley — as global anxiety fuels sales and owners "could be the next Adam and Eve."
Given the increased frequency of terrorist bombings and mass shootings and an under-lying sense of havoc fed by divisive election politics, it's no surprise that home security is going over the top and hitting luxurious new heights. Or, rather, new lows, as the average depth of a new breed of safe haven that occupies thousands of square feet is 10 feet under or more. Those who can afford to pull out all the stops for so-called self-preservation are doing so — in a fashion that goes way beyond the submerged corrugated metal units adopted by reality show "preppers" — to prepare for anything from nuclear bombings to drastic climate-change events. Gary Lynch, GM at Rising S Bunkers, a Texas-based company that specializes in underground bunkers and services scores of Los Angeles residences, says that sales at the most upscale end of the market — mainly to actors, pro athletes and politicians (who require signed NDAs) — have increased 700 percent this year compared with 2015, and overall sales have risen 150 percent. "Any time there is a turbulent political landscape, we see a spike in our sales. Given this election is as turbulent as it is, we are gearing up for an even bigger spike," says marketing director Brad Roberson of sales of bunkers that start at $39,000 and can run $8.35 million or more (FYI, a 12-stall horse shelter is $98,500).
Adds Mike Peters, owner of Utah-based Ultimate Bunker, which builds high-end versions in California, Texas and Minnesota: "People are going for luxury [to] live underground because they see the future is going to be rough. Everyone I've talked to thinks we are doomed, no matter who is elected." Robert Vicino, founder of Del Mar, Calif.-based Vivos, which constructs upscale community bunkers in Indiana (he believes coastal flooding scenarios preclude bunkers being safely built west of the Rockies), says, "Bill Gates has huge shelters under every one of his homes, in Rancho Santa Fe and Washington. His head of security visited with us a couple years ago, and for these multibillionaires, a few million is nothing. It's really just the newest form of insurance."
A hidden door by Creative Home Engineering leads to a secret passageway that connects to an underground bunker.
Rising S Bunkers installed a 37-room, 9,000-square-foot complex in Napa Valley for an Academy Award-winning client that rang in at $10.28 million, with a bowling alley, sauna, jacuzzi, shooting range and an ultra-large home theater. Swimming pools, greenhouses, game rooms and gyms are other amenities offered. This year, on another Napa Valley property, the company constructed a $9 million, 7,600-square-foot compound with horse stables and accommodations for 12, along with four escape tunnels leading to outlets on the estate, multiple hidden rooms — in case "you let someone in whom you do not fully trust," says Lynch — and an aboveground safe house "disguised as a horse barn." The company also is designing a $3 million bunker for "a major sports figure from Southern California."
The company's best-selling bunkers for L.A. are 10 by 50 feet, start at $112,000 and have their own power sources, water supplies and air-filtration systems: "These complexes accommodate families of four or five and are self-sustaining," says Roberson, adding: "You can pretty much put a palace underground anywhere there is physically enough room." Regardless, Ellia Thompson, chair of land use practice at Ervin Cohen & Jessup in Beverly Hills, notes that zoning guidelines vary throughout L.A., so one should check with the city department of building and safety about permits: "A special permit may be required if you are digging out more dirt than certain basement quantities."
Business has doubled in the past year at Ultimate Bunker, which just built a $10 million complex on a 700-acre property a few hours north of Minneapolis for a client "known for television, who has his own show," says Peters. Two 1,000-square-foot bunkers (one for storage) are connected by 300 feet of tunnels to the main 6,800-square-foot home as well as three guesthouses that each boast a $200,000 bunker "to take care of his family and friends," says Peters. "It's like an underground mansion with more mansions on top of it."
Al Corbi, president and founder of S.A.F.E. (Strategically Armored & Fortified Environments), with offices in West Hollywood, says that his most spectacular projects were $100 million subterranean residences, one for a global venture capitalist and the other for an East Coast developer to mimic the Universal CityWalk promenade, with a pizzeria and wellness outpost that, he says, "resembles a Burke Williams day spa." Corbi says both bunkers protect from nuclear holocaust (8 feet of soil blocks radioactive fallout), pandemic (a positive-pressure air system with HEPA filters keeps contaminants out), electromagnetic pulses and solar flares (using a metal encasement), among other threats. "Power technology has improved tremendously thanks in part to Tesla and lithium-ion batteries that only degrade a maximum of 10 percent after 30 years," says Corbi. "And now there is food with a 25-year minimum shelf life. [The owners] could be the next Adam and Eve." (Note to L.A. chefs, however: The rations are grim, ranging from beef Stroganoff to chili.)
When it comes to the details of secret passageways and hidden doors, many in Hollywood turn to Arizona-based Creative Home Engineering. "We've seen year-over-year growth of about 20 percent, but perhaps more telling is an increasing percentage of clientele who need their secret door to employ high-security features," notes president Steve Humble, who says before, 60 percent of secret doors in cigar rooms, home theaters, children's bedrooms and the like were for novelty value. "Nowadays, 80 percent are used for security. In the past year, I have performed installations inside two nuclear-protected complexes with more than 10 secret doors each, one in the L.A. area owned by a plastic surgeon."
Film fantasies play a part in the choice of secret entrances. "Many of my clients come to me knowing what movie secret door they would like duplicated," says Humble, who cites as top inspirations Indiana Jones and the Last Crusade, the Batman and James Bond franchises, Mr. & Mrs. Smith and Goonies, on which a popular access control device that "requires that a certain sequence of notes be played on the piano to get the door to open" is based. There's also Get Smart: "At this moment, we are converting a phone booth [inside a private residence] so that when the user dials the correct number, the back panel opens to grant access to a secure area." He adds: "I can tell you that we've built secret doors for many of the most recognizable and highly awarded directors and celebrities in Hollywood. There are a lot of Oscars and Emmys tucked away safely behind my secret doors."
1. A floor plan for an $8.35 million, 6,000-square-foot bunker from Texas company Rising S Bunkers includes a decked-out game room.
2. The largest swimming pool that Rising S has built measures 40 feet.
3. Fitness rooms are a must to compensate for a lack of outside activity.
4. Natural light tubes and ultraviolet LED lamps promote growth in underground gardens of consumable plants and vegetables.
5. Theaters seat as many as 20 people and come with 10-foot screens.
6. Rising S has seen garages with 15 vehicles, including Rolls-Royces, muscule cars and armored personnel carriers (one client has three).
The Elite have invested billions of dollars over a period of 60 years to create a population of semi-conscious happy consumers in the US (and are attempting to do so globally). The form changes from time to time, but the essence is the same: don'...
The U.S. Commodity Futures Trading Commission fined a Russia bank $6 million Monday for executing "fictitious and noncompetitive" Russian Ruble - U.S. dollar futures contracts on the Chicago Mercantile Exchange.
The CFTC brought the enforcement action against VTB Bank, headquartered in St. Petersburg, Russia, and its subsidiary VTB Capital PLC.
VTB Capital is a U.K.-incorporated bank.
The CFTC’s order required VTB Bank and VTB Capital to jointly and severally pay a $5 million civil penalty.
VTB Bank didn't have the capital base to hedge a large position in ruble - dollar contracts, the CFTC said.
So between December 2010 and June 2013, VTB Bank and VTB Capital executed on the CME over 100 block trades in RUB/USD futures contracts, with a notional value of about $36 billion.
The purpose of the trades was to transfer VTB’s cross-currency risk to VTB Capital at prices more favorable than VTB could have obtained from third-parties.
VTB Capital then hedged the cross-currency risk in OTC swaps with various international banks.
That allowed VTB Bank to accomplish through risk-free, non-arms-length transactions in the futures market what it couldn't do through the swaps market.
The block trades were fictitious sales, the CFTC said. They were done without risk to VTB Bank and reported by the CME at prices that weren't bona fide prices.
Non-competitive and fictitious trades violate CFTC rules.
VTB is the former Vneshtorgbank. The Russian government controls most of the stock in VTB. The Bank of Moscow is VTB's biggest subsidiary.
The CFTC said VTB Bank and VTB Capital cooperated with the U.S. investigation.
The CFTC said VTB Bank and VTB Capital cooperated with the U.S. investigation.
The UK Financial Conduct Authority helped the CFTC in the investigation.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He'll be the keynote speaker at the FCPA Blog NYC Conference 2016.http://www.fcpablog.com/blog/2016/9/23/cftc-fines-russia-bank-5-million-for-36-billion-of-phony-rub.html
OPEN A FOREX ACCOUNT - YOU JUST MIGHT GET LUCKY
The staggering incoherence of the election campaign only mirrors the shocking incapacity of the American public, from top to bottom, to process the tendings of our time. The chief tending is permanent worldwide economic contraction. Having hit the resource wall, especially of affordable oil, the global techno-industrial economy has sucked a valve in its engine.
For sure there are ways for human beings to inhabit this planet, perhaps in a civilized mode, but not at the gigantic scale of the current economic regime. The fate of this order has nothing to do with our wishes or preferences. It’s going down whether we like it or not because it was such a violent anomaly in world history and the salient question is: how do we manage our journey to a new disposition of things. Neither Trump or Clinton show that they have a clue about the situation.
The quandary I describe is often labeled the end of growth. The semantic impact of this phrase tends to paralyze even well-educated minds, most particularly the eminent econ professors, the Yale lawyers-turned-politicos, the Wall Street Journal editors, the corporate poobahs of the “C-Suites,” the hedge fund maverick-geniuses, and the bureaucratic errand boys (and girls) of Washington. In the absence of this “growth,” as defined by the employment and productivity statistics extruded like poisoned bratwursts from the sausage grinders of government agencies, this elite can see only the yawning abyss. The poverty of imagination among our elites is really something to behold.
As is usually the case with troubled, over-ripe societies, these elites have begun to resort to magic to prop up failing living arrangements. This is why the Federal Reserve, once an obscure institution deep in the background of normal life, has come downstage front and center, holding the rest of us literally spellbound with its incantations against the intractable ravages of debt deflation. (For a brilliant gloss on this phenomenon, read Ben Hunt’s essay “Magical thinking” at the Epsilon Theory website.)
One way out of this quandary would be to substitute the word “activity” for “growth.” A society of human beings can choose different activities that would produce different effects than the techno-industrial model of behavior. They can organize ten-acre farms instead of cell phone game app companies. They can do physical labor instead of watching television. They can build compact walkable towns instead of suburban wastelands (probably even out of the salvaged detritus of those wastelands). They can put on plays, concerts, sing-alongs, and puppet shows instead of Super Bowl halftime shows and Internet porn videos. They can make things of quality by hand instead of stamping out a million things guaranteed to fall apart next week. None of these alt-activities would be classifiable as “growth” in the current mode. In fact, they are consistent with the reality of contraction. And they could produce a workable and satisfying living arrangement.
The rackets and swindles unleashed in our futile quest to keep up appearances have disabled the financial operating system that the regime depends on. It’s all an illusion sustained by accounting fraud to conceal promises that won’t be kept. All the mighty efforts of central bank authorities to borrow “wealth” from the future in the form of “money” — to “paper over” the absence of growth — will not conceal the impossibility of paying that borrowed money back. The future’s revenge for these empty promises will be the disclosure that the supposed wealth is not really there — especially as represented in currencies, stock shares, bonds, and other ephemeral “instruments” designed to be storage vehicles for wealth. The stocks are not worth what they pretend. The bonds will never be paid off. The currencies will not store value. How did this happen? Slowly, then all at once.
We’re on a collision course with these stark realities. They are coinciding with the sickening vectors of national politics in a great wave of latent consequences built up by the sheer inertia of the scale at which we have been doing things. Trump, convinced of his own brilliance, knows nothing, and wears his incoherence like a medal of honor. Clinton literally personifies the horror of these coiled consequences waiting to spring — and the pretense that everything will continue to be okay with her in the White House (not). When these two gargoyle combatants meet in the debate arena a week from now, you will hear nothing about the journey we’re on to a different way of life.
But there is a clear synergy between the mismanagement of our money and the mismanagement of our politics. They have the ability to amplify each other’s disorders. The awful vibe from this depraved election might be enough to bring down markets and banks. The markets and banks are unstable enough to affect the election.
In history, elites commonly fail spectacularly. Ask yourself: how could these two ancient institutions, the Democratic and Republican parties, cough up such human hairballs? And having done so, do they deserve to continue to exist? And if they go up in a vapor, along with incomes and savings, what happens next?
Enter the generals.
Jens Nordvig, one of the hottest prognosticators in finance, will sell anyone his secret sauce for winning trades for $30,000 a year.
But if you want unfettered access to his best ideas and personal touch—the kind that the deep-pocketed hedge funds covet—be prepared to shell out about 20 times more.
That two-pronged approach to research, off-limits (at least officially) at Wall Street banks, captures one of the most striking shifts in finance today: the rise of a class system where entire businesses cater to only the highest-paying clients. Of course, haves and have-nots have long existed in the world of finance. But the widening gap within Wall Street itself, between what the privileged few and most others get, is creating a new financial elite—what amounts to the 1 percent of the 1 percent.
And if you’re not part of the 0.01 percent, the next best thing is to sell to it.
“Investors either get personalized advice from someone they really trust, or it’s the data tools, good robots—and the price of those two things are different,” the 42-year-old Dane explained from his WeWork office in Manhattan’s Flatiron district one recent afternoon.
For Nordvig, who left Nomura Holdings Inc. in January after five years as Wall Street’s top-ranked currency strategist, it meant leveraging that standing to build his firm, Exante Data, around a rarefied group of the brightest hedge-fund names— and the money they dole out.
Exante counts Key Square, founded by George Soros protege Scott Bessent, and Adam Levinson’s Graticule, a Singapore-based firm spun out of Fortress Investment Group, among its clients, according to conversations with investors and people familiar with the matter. Graticule didn’t reply to requests for comment.
Nordvig declined to identify specific firms, but says there are just “five to seven” large institutions, whose fees covered most of his startup costs. And by design, he isn’t accepting any new business. That’s because while Exante’s six employees are focused on its analytics rollout, Nordvig devotes the majority of his time advising his marquee customers.
He’s in touch with them on an almost daily basis and is just a phone call or instant message away—any time, 24/7. His research is tailor-made to suit each one’s needs and Nordvig says he’ll often spend hours at a time with a single firm debating macroeconomic policy and trade strategies.
In late July, Nordvig was up until midnight defending his high-stakes call to a hedge-fund client in Asia that the Bank of Japan would stand pat, rather than announce a new set of aggressive stimulus measures as everyone expected. (He dissuaded the firm from shorting the yen, which proved to be prescient as the Japanese currency surged following the non-event.)
“At banks, it’s mass production. It’s Target versus Hermès.”
So far, his backers like what they see.
“Jens is one of the great thinkers in the market,” said Key Square’s Bessent, who oversaw Soros’ personal fortune before starting his own billion-dollar macro fund this year. “Part of what we did was we got him to control his number of clients. At banks, it’s mass production. It’s Target versus Hermès.”
Nordvig isn’t shy about what he brings to the table. Prior to his years at Nomura, he spent almost a decade at Goldman Sachs Group Inc., where he rose to become co-head of global currency research and made his name with bold calls and savvy analysis. In between, he did a brief stint at Ray Dalio’s Bridgewater Associates. And Nordvig brushes off the perception among both admirers and critics that he can, at times, be just a bit too brazen in promoting himself. To him, it’s just part of the cutthroat nature of finance.
“I have a track record of being quite detail-oriented, precise in my analysis and also able to develop new frameworks for thinking about things, and at the same time being quite pragmatic,” he said. “I’ve set up the advisory business so that the people I deal with are some of the biggest macro investors in the world, and I know their interests fit with how I think.”
Whatever the case, there is little doubt the appetite for bespoke research like Nordvig’s is growing. Banks are slashing costs, cutting jobs and abandoning their ambitions to be all things to all customers in the face of a slew of regulations over issues like selective access and excessive risk-taking. An industry-wide slump in revenue since the financial crisis has also prompted bank executives to rethink the value of the commission-based model, where investment research is offered for free in return for trade orders.
Many firms have eliminated analysts as they scale back research spending—making personalized service and attention all the more valuable. Some like Citigroup Inc. and Morgan Stanley have drawn up preferred client lists with code names such as “Focus Five” and “supercore” for top clients.
“It’s a changing landscape,” said Matthew Feldmann, a consultant at Scepter Partners, a multi-family office, and a former money manager at Citadel and Brevan Howard. “People like Jens have found a niche area where all you need is a few wealthy individual customers.”
Perhaps just as important is the proliferation of automated trading strategies and machine-driven data mining, which has replaced many traditional roles that used to exist on Wall Street (not to mention made it harder for hedge funds to outperform as technology makes financial data almost ubiquitous).
Nordvig’s old job at Goldman Sachs exemplified that bygone era. As recently as 2007, he’d stand in the middle of the trading floor with mic in hand on the first Friday of every month, just before the 8:30 a.m. payrolls report. His task? Shout out his immediate take. If the U.S. added more jobs than expected, he’d cry “buy dollar-yen!” and within seconds, Goldman Sachs’s traders would hit the button on their keyboards to put in the order.
“We used to be able to make so much money by just being fast,” he said. Yet today, it’s all done by robots.
Amid the upheaval, Nordvig is confident his experience and smarts will ensure his high-priced advice remains in demand. But he’s not taking any chances.
After years of lackluster returns and faced with the biggest withdrawals since the financial crisis, hedge funds are looking for any edge they can find. These days, that often comes from the world of quantitative analysis. Even legendary names like Paul Tudor Jones, who made their fortunes the old-fashioned way, are hiring a bevy of programmers and mathematicians to build out more sophisticated, computer-driven strategies.
But not everybody has the research budgets to hire scores of Ph.D.s or pay for Nordvig’s white-glove service. That’s where the “data” in Exante Data comes in (Exante is derived from “ex ante,” Latin for “before the event”). Plenty of research superstars have decamped from Wall Street to set up boutique advisory firms, but Exante’s two-tier model is rare. Once the data business is fully up and running, Nordvig promises to give mere mortals on Wall Street the same type of data-mining tools once available only to the biggest quant shops.
Nordvig says he has one overriding advantage: he simply understands markets better.
Yet competition on the data front is heating up. Scores of startups are already scraping data and turning the information into actionable ideas. Goldman Sachs is the biggest investor in Kensho Technologies Inc., which analyzes historical trading patterns to predict how assets react to events like policy meetings and economic releases. An outfit called SpaceKnow Inc. uses satellite images of factories to gauge economic activity in export-oriented countries like China.
Nordvig, in his typical cocksure manner, says he has one overriding advantage: he simply understands markets better.
In coming months, Exante will launch its first data product for the masses. According to Nordvig, his data scientists have come up with a complex algorithm that precisely estimates how much the yuan exchange rate is influenced by China’s buying or selling of dollars, on a daily basis.
There’s nothing publicly available that comes close to measuring intervention in such detail. But Nordvig says his algo succeeds because it can capture anomalies in yuan trading, like a sudden widening in bid-ask spreads, and then compare the data against freely-traded markets in big financial centers.
While the tool can’t yet gauge intervention in offshore yuan and currency forwards, his backtested results show it closely tracks less frequently released official figures. And knowing beforehand can make a huge difference. Case in point: In August 2015, the People’s Bank of China unexpectedly engineered a weakening of the yuan, which blindsided investors and sent financial markets worldwide into a tailspin.
“This is about knowing what topics are important to the clients you serve,” Nordvig said.
With a seismic overhaul of the $2.6 trillion money-market industry weeks away from kicking in, money managers are bracing for a last-minute exodus of as much as $300 billion from funds in regulators’ cross hairs.
Prime funds, which seek higher yields by buying securities like commercial paper, are at the center of the upheaval. Their assets have already plunged by almost $700 billion since the start of 2015, to $789 billion, Investment Company Institute data show. The outflow has rippled across financial markets, shattering demand for banks’ and other companies’ short-term debt and raising their funding costs.
The transformation of the money-fund industry, where investors turn to park cash, is a result of regulators’ efforts to make the financial system safer in the aftermath of the credit crisis. The key date is Oct. 14, when rules take effect mandating that institutional prime and tax-exempt funds end an over-30-year tradition of fixing shares at $1. Funds that hold only government debt will be able to maintain that level. Companies such as Federated Investors Inc. and Fidelity Investments, which have already reduced or altered prime offerings, are preparing in case investors yank more money as the new era approaches.
“All managers, like ourselves, are positioning around the uncertainty of the exact magnitude of the outflows,” said Peter Yi, director of short-term fixed income at Chicago-based Northern Trust Corp., which manages $906 billion.
While Yi sees the additional outflow from prime-fund investors potentially reaching $200 billion in the next 30 days, TD Securities predicted in a Sept. 7 note that it may tally as much as $300 billion.
Yi is preparing by shortening his funds’ weighted average maturity and avoiding short-term debt that matures beyond September. He’s not alone. For the biggest institutional prime funds tracked by Crane Data LLC, the weighted average maturity of holdings fell to an unprecedented 10 days as of Sept. 12. It’s not just floating net-asset values that investors are avoiding. Prime funds can also impose restrictions such as redemption fees.
Amid the tumult, money-fund assets have held steady because most of the cash leaving prime and tax-exempt funds has streamed into less risky offerings focusing on Treasuries and other government-related debt, such as agency securities and repurchase agreements. These funds are exempt from the new rules, which the U.S. Securities and Exchange Commission issued in 2014.
A major repercussion of the flight from prime funds is that there’s less money flowing into commercial paper and certificates of deposit, which banks depend on for funding. As a result, banks’ unsecured lending rates, such as the dollar London interbank offered rate, have soared. Three-month Libor was about 0.85 percent Wednesday, close to the highest since 2009.
Libor may stabilize after mid-October because prime funds may begin to increase purchases of bank IOUs, although the risk of a Federal Reserve interest-rate hike by year-end will keep it elevated, said Seth Roman, who helps oversee five funds with a combined $3.2 billion at Pioneer Investments in Boston.
“You could picture a scenario where Libor ticks down a bit,” Roman said. But “you have to keep in mind that the Fed is in play still.”
Financial firms paying higher rates to attract investors to their IOUs will push three-month Libor to about 0.95 percent by the end of September, according to JPMorgan Chase & Co.
Although bank funding costs are rising, it isn’t a signal of financial strain as in 2008, said Jerome Schneider, head of short-term portfolio management at Newport Beach, California-based Pacific Investment Management Co., which oversees about $1.5 trillion.
“This is not a credit stress event, it’s a credit repricing due to systemic and structural changes,” he said.
The market for commercial paper has shrunk about 50 percent from its $2.2 trillion peak in 2007, pushing financial firms to diversify funding sources -- choosing longer-term debt and loans in foreign currencies.
At least $269 billion in commercial paper and certificates of deposits held by prime funds will come due before Oct. 14 and most issuers of that debt will need to find financing outside the money-fund industry, JPMorgan predicts.
The hubbub in money markets has its roots in a crucial episode of the financial crisis -- the demise of the $62.5 billion Reserve Fund, which became just the second money fund to lose money, or “break the buck.” The event contributed to the global freeze in credit markets and pushed the Treasury Department to temporarily backstop almost all U.S. money funds.
With the Fed’s target rate still not far from zero, money-fund investors looking to pad returns may overcome their aversion to prime funds. Institutional prime funds’ seven-day yield was 0.24 percent as of Sept. 12, compared with 0.17 percent for government funds, according to Crane Data.
“You’ll see the prime-fund space continue to shrink until we hit mid-October,” said Tracy Hopkins, chief operating officer in New York at BNY Mellon Cash Investment Strategies, a division of Dreyfus Corp.
“After that,” she said, “I would not be surprised to see assets return, once customers get accustomed to the floating NAVs and want to earn incremental yield over government money-market funds.”
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What is Splitting Pennies all about?
Splitting Pennies - Understanding Forex is a book about our global financial system and its direct impact on every human being on this planet Earth. Every day, our money is worth less and less. Splitting Pennies explores why, through the prism of its mechanism; Forex. Forex is the largest business in the world and the least understood. This is not taught in school - start your journey, and just read. Splitting Pennies displays practical examples of how many have profited in Forex, the history of Forex, and practical examples of strategies to use for your portfolio. Readers of the book will know more than a Harvard MBA about Forex, and can consider themselves Sophisticated Forex Investors (SFI). Complex topics such as currency swaps are broken down in digestible form, for the average investor or for financial professionals. Splitting Pennies is a must read for those in investment banking, securities, fund management, accounting, banking & finance, and related fields. But it’s written for the layman, the worker, the average investor – the student in us.
Seven public U.S. university endowments with assets of more than $1 billion including the University of California reported fiscal 2016 investment losses as lackluster economic growth and volatility drubbed markets.
College endowments are poised to take the worst slide in performance since the 2009 recession. Funds with more than $500 million lost a median 0.73 percent in the year through June 30, according to the Wilshire Trust Universe Comparison Service. The Wilshire data, from fund custodians, excludes fees while most schools report returns net of fees.
“It was a bit of a bloodbath,” as swings in the markets challenged stock pickers, Jagdeep Bachher, chief investment officer at the University of California system, said at an investment committee meeting on Sept. 9, according to a webcast of the meeting. “Last year was a bad year for active managers all around.”
Ohio State University and California had the largest declines through June 30 among the seven at 3.4 percent each while the University of Virginia fell 1.5 percent. It’s shaping up to be the worst year for endowment returns since 2009, when the richest schools had a loss of 21.8 percent, according to the Wilshire service. For fiscal 2016, a benchmark 60/40 portfolio of the Wilshire 5000 Total Stock Market Index for U.S. equities and the Wilshire Bond Index returned 4.5 percent.
The value of the University of California’s endowment rose 2.2 percent to $9.1 billion from the prior year due to inflows from shifting cash from short-term funds to the endowment and royalty payments, Bachher said. The investment losses were driven by poor returns from public equity fund managers and hedge funds, he said.
Market volatility was due to “central bank actions, slow-to-no growth worldwide, the oversupply of oil on a worldwide basis resulting in prices collapsing and the unexpected Brexit vote,” John Lane, chief investment officer at Ohio State’s endowment, said in an e-mail.
Virginia’s best-performing strategies -- private real estate and domestic buyouts -- couldn’t offset losses in its public and growth equity sectors and its resources portfolio, the school said. The fiscal 2016 investment loss follows gains of 7.7 percent and 19 percent in the previous two years, showing how even the best-performing funds are saddled with a new reality of low returns.
The University of Virginia Investment Management Co. is committed to its long-term philosophy, Lawrence Kochard, the chief investment officer, wrote in a report.
“We expect a wide variety of investment challenges going forward and believe macro-level factors will continue to have a significant impact on markets,” Kochard wrote.
Kochard said the school is finding “pockets of opportunity” in areas such as non-U.S. equities.
“We also continue to observe an investment community fixated on global macro risks -- including a slowing Chinese economy, the implications of Brexit, the U.S. presidential election and central bank policies -- which provides a good environment in which our global public managers can identify mispriced securities,” Kochard wrote.
The fund has made changes to its asset allocation over time, according to the report. Public equities were increased in fiscal 2016 to 24.6 percent from 20.5 percent in 2012; and marketable alternatives and credit went to 14 percent from 9.3 percent. The management company decreased its allocation to resources to 4.5 percent from 7 percent, and real estate to 6.6 percent from 8.6 percent.
Despite the investment loss, the value of the long-term pool increased to $7.6 billion from $7.5 billion because of contributions in excess of distributions and investment losses.
Ohio State’s biggest loss came from its global equities portfolio. The state’s flagship public school’s 7.2 percent loss in the allocation dragged down a 10.8 percent gain in real assets, according to the school.
The University of Washington’s fund lost 1.6 percent. The drop was led by declines in its “capital appreciation” bucket, which includes a 20 percent asset allocation to emerging markets equity; 38 percent in stocks of developed markets; and 12 percent in private equity, according to the school.
The University of North Carolina at Chapel Hill’s endowment posted a 2 percent decline. The University of Iowa endowment’s investments fell 1.8 percent in fiscal 2016, with global equities leading the decline. The investment loss reflects the portion of the endowment managed by the foundation.
The University of Colorado’s investment fund, which is managed by Perella Weinberg Partners, lost 2.6 percent, according to the school. The value declined to $1.06 billion from $1.09 billion a year ago. About 43 percent of the fund’s holdings are in private capital, real assets and hedge funds, with 6 percent in cash and fixed income, according to a report.
While the annual returns were hurt by Brexit at the end of June, the fund was up almost 3 percent in July, Mike Pritchard, vice president and chief financial officer of the University of Colorado Foundation, said in an interview.
“This is a time for all universities to consider what does the future look like,” Pritchard said. “Endowments are long term. You want to meet the short-term needs -- scholarships, professorship chairs -- and you also want to sustain the long-term spending power. That’s the balance were all looking at right now.”
For years we have wondered why Wells Fargo, America's largest mortgage lender, is also Warren Buffett's favorite bank. Now we know why.
On Thursday, Wells Fargo was fined $185 million, (including a $100 million penalty from the Consumer Financial Protection Bureau, the largest penalty the agency has ever issued) for engaging in pervasive fraud over the years which included opening credit cards secretly without a customer’s consent, creating fake email accounts to sign up customers for online banking services, and forcing customers to accumulate late fees on accounts they never even knew they had. Regulators said such illegal sales practices had been going on since at least 2011.
In all, Wells opened 1.5 million bank accounts and "applied" for 565,000 credit cards that were not authorized by their customers.
Wells Fargo told to CNN that it had fired 5,300 employees related to the shady behavior over the last few years. The firings represent about 1% of its workforce and took place over several years. The fired workers went to far as to create phony PIN numbers and fake email addresses to enroll customers in online banking services, the CFPB said.
How Wells perpetrated fraud is that its employees moved funds from customers' existing accounts into newly-created accounts without their knowledge or consent, regulators say. The CFPB described this practice as "widespread" and led to customers being charged for insufficient funds or overdraft fees, because the money was not in their original accounts. Additionally, Wells Fargo employees also submitted applications for 565,443 credit card accounts without their knowledge or consent, the CFPB said the analysis found. Many customers who had unauthorized credit cards opened in their names were hit by annual fees, interest charges and other fees.
According to the NYT, regulators said the bank’s employees had been motivated to open the unauthorized accounts by compensation policies that rewarded them for drumming up new business. Many current and former Wells employees told regulators they had felt extreme pressure to expand the number of new accounts at the bank.
And, since it is US government policy never to send a banker to prison, they thought that engaging in criminal behavior was not such a bad idea.
Federal banking regulators said the practices reflected serious flaws in the internal culture and oversight at Wells Fargo, one of the nation’s largest banks.
"Today's action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences," said CFPB Director Richard Cordray. He added that “unchecked incentives can lead to serious consumer harm, and that is what happened here."
"Consumers must be able to trust their banks. They should never be taken advantage of," said Mike Feuer, the Los Angeles City Attorney who joined the settlement.
On its behalf Wells fargo issued a statement saying it “is committed to putting our customers’ interests first 100 percent of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request,” the bank said in a statement adding that "at Wells Fargo, when we make mistakes, we are open about it, we take responsibility, and we take action."
As the NYT puts it, "this is an ugly moment for Wells Fargo, one of the few large American banks that have managed to produce consistent profit increases since the financial crisis." Now we know one of the reasons why.
As CNN redundantly adds, "the scope of the scandal is shocking."
And since nobody will go to prison, in a few months we will read another such "shocking scandal" perpetrated by another bailed-out bank.
We see from time to time articles from investment groups talking about how they believe that the US Dollar will be strong for the next 18 months blah blah blah. It's always positive to hear investment managers learning about FX. Unfortunate...
Here's the big irony for the markets. As we explain in Splitting Pennies book, Forex is the largest market in the world and the least understood. Corporate America certainly doesn't understand Forex. Well, according to this report, about 50% do:
Forty-eight percent of nonfinancial companies listed on U.S. stock exchanges remained exposed to volatility in foreign exchange rates, commodity prices and interest rates in 2012 because they did not hedge them, according to a new study by Chatham Financial. The interest-rate and currency risk adviser studied a sample of 1,075 companies ranging from $500 million to $20 billion in revenue. The nearly half that did not use financial instruments to hedge their exposures demurred despite the threat the risks posed to both the balance sheets and reported earnings (see chart at bottom). “That was surprising, knowing the pressure senior management teams and treasury feel around identifying ways to reduce risk to factors within their control so business can focus on other areas,”Amol Dhargalkar, managing director for corporate advisory at Chatham, says.
Many analysts have pointed to the fact that the new excuse of "Currency Headwinds" (accountant code word for "Don't Understand Forex") to define earnings in 2016:
Companies that do business outside of the USA have substantial forex exposure. This exposure can be an asset, if properly managed - but often it is a liability. Recently, the trend in corporate accounting has been to blame "currency headwinds" which can be a good excuse for up to $10 billion in losses. Did these executives ever hear about hedging?
So what does this data mean? It means that half of Corporate America is speculating BIG in Forex. Not hedging, when you have FX positions, is speculating. For example, imagine you're a big US multinational like McDonalds (MCD). McDonalds (MCD) is a great example because they are one of the companies that lives off their FX hedges. Without FX hedging, it's questionable if MCD could survive, because more than 60% of their revenue comes from non-US Dollar (USD). That means their revenue, without FX hedging, would be nearly an exact function of the FX markets (which is the case for these companies that don't hedge). Companies that lose billions of dollars due to 'currency headwinds' - they are losing huge in Forex.
Here's the irony. Pension Funds and many institutions are reluctant to invest in Forex strategies because they are 'risky'. But they invest in the stock of companies that lose billions in Forex! And that's OK. Well, everyone is losing, so why not us too. Heck, I don't want to be singled out as the one state pension fund that's actually MAKING money for our retirees, that might cause me to get promoted, or lose my job.
Why don't these companies hedge you ask? Isn't it their fiduciary duty to their shareholders? Here's one perspective from PWC:
When a publicly held company engaged in a multi-billion dollar investment in an overseas location
recently, the firm considered using a hedge — or swap — contract to reduce the risk that a big currency
swing would impact costs and financial results. The plan was sound financially. Yet, management had
concerns about the reaction of investors to this approach and decided to drop the hedging plan, says
Chris Rhodes, accounting advisory services partner at PricewaterhouseCoopers (PwC). Why? Because the CFO determined that,
although the hedge would protect all the cash
spent in the foreign jurisdiction against currency
exposure, the cost of capital — in this case
borrowing in external markets — “would be
negatively impacted by the inability of some
analysts to understand the reporting issues
involved,” Rhodes explains. “The concern is that,
although many analysts would immediately grasp
the sophisticated currency-hedging procedures
that were key to the plan, others might not.”
So you see, according to this perspective, CFOs understand Forex, but they understand that others such as analysts don't understand, and think that there's a negative perception problem, to closing a big gaping hole in their FX exposure.
One year in the 90's, Intel Corporation made more money on their FX positions than they did selling processors. Not all of Corporate America is completely stupid. There are some savvy FX managers out there, that do a great job. But for the other half, one has to wonder if FX volatility will finally drive these unhedged companies out of business.
Here's what you see on every street corner in Russia:
At least, some humans are prepared for potential financial catastrophe, even if it's as simple as FX volatility.
To learn more about Forex Hedging, checkout Splitting Pennies - your pocket guide designed to make you an instant Forex Genius! Or checkout Fortress Capital Forex Hedging.
While the trading world was focused on the latest news involving Deutsche Bank, namely that the troubled German bank had beencontemplating a merger with Germany's other mega-bank, Commerzbank as part of a strategy to sell all or part of a key business to speed up its flagging overhaul, a more troubling report emerged in a German gold analysis website, according to which Deutsche Bank was unable to satisfy a gold delivery request when asked to do so by a client of Germany's Xetra-Gold service.
But first, what is Xetra-Gold?
According to its website, the publicly traded company "provides investors with an efficient instrument to participate in the performance of the gold market. Xetra-Gold’s combination of features – cost-efficient trading and the right for physical delivery of gold - makes it an attractive product."
Among its highlights, Xetra-Gold lists the following:
Cost-efficient trading: No mark-up fee, no transportation or insurance costs such as those incurred when purchasing physical gold. Only the standard transaction fees that are charged for on-exchange securities trading are payable at the time of acquisition. The spreads that apply to purchase and sale correspond to the standard conditions on the global market and are considerably lower than those for traditional gold-based financial products. Furthermore, management or administration fees relating to Xetra-Gold are not incurred. The investor pays the amount of custody fees which he/she has agreed upon with the depository bank.Physically backed: The issuer uses the proceeds from the issue of Xetra-Gold to purchase gold. The physical gold is held in custody for the issuer in the Frankfurt vaults of Clearstream Banking AG, a wholly-owned subsidiary of Deutsche Börse AG. In order to facilitate the delivery of physical gold, the issuer holds a further limited amount of gold on an unallocated weight account with Umicore AG & Co. KG.Transparent: Xetra-Gold tracks the price of gold on a virtually 1:1 basis, and is always up to date.Tradeable in euros per gram: While in the past, gold was mainly denominated in US dollars per troy ounce, you trade Xetra-Gold in euros per gram.Stable/Constant holdings: The investor’s right to receive delivery of the certificated amount of gold is not reduced by management costs or other fees, unlike other investments in gold. 1,000 units of Xetra-Gold will still represent a kilogram of gold in 30 years' time.
The company makes the following promise:
Redemption for gold: Investors always have the possibility of demanding delivery of the securitised amount of gold per bearer note against the issuer. If the investor is not able to exercise this right due to legal restrictions effective for him/her, he/she can demand the cashing of Xetra-Gold from the issuer. In this case, a settlement fee of EUR 0.02 per Xetra-Gold bond will be charged.Delivery of gold: If an investor asserts his/her right to the delivery of the certificated volume of gold from the issuer, the gold will be transported to the respective point of delivery by Umicore AG & Co. KG, which is responsible for all physical delivery processes. The issuer will also have delivery rights of gold from Umicore AG & Co. KG, as the gold leaf debtor. Investors can find information on delivery and the alternative payment claims that are relevant for investment and insurance companies in the PDF document entitled 'Information on the process for exercising Xetra-Gold'.
And yes, Deutsche Bank is involved, as the fund's Designated Sponsor.
In other words, Xetra-Gold is an Exchange-Traded Commodity which differentiates itself by "representing that every gram of gold purchase electronically is backed by the same amount of physical gold" and its principal bank is none other than Deutsche Bank.
And with Germans recently rushing to buy safes or find sound money alternatives in a country where the interest rate is negative, the ETC, it is not surprising that the population has flocked to its offering.
According to recent report by LeapRate, the gold held in custody by Deutsche Borse Commodities for the purpose of physically backing the Xetra-Gold bond has risen to a new record high of 90.67 tons, an increase of more than 50% since the beginning of the year. "For each Xetra-Gold bond, exactly one gram of gold is deposited in the central vaults for German securities in Frankfurt" the report parrots the company's website.
Among all exchange-traded commodities (ETCs) tradable on Xetra, Xetra-Gold is by far the most successful in terms of turnover. During the first seven months of the year, order book turnover on Xetra stood at approximately €1.5 billion. The assets managed by Xetra-Gold currently amount to €3.5 billion.In September 2015, the German Federal Fiscal Court (Bundesfinanzhof) had ruled that after a minimum holding period, any profits from the sale or redemption of Xetra-Gold are not subject to the capital gains tax. From a fiscal point of view, the purchase, redemption or sale are thus to be treated equal to a direct purchase or sale of physical gold, such as in bullions or coins.
But what is most notable, is that, as noted above, Xetra-Gold investors are entitled to the delivery of the certified amount of physical gold at any time, and adds that "since the introduction of Xetra-Gold in 2007, investors have exercised this right 900 times, with a total of 4.5 tons of gold delivered."
However, something appears to have changed.
As Oliver Baron reports, those who ask for gold delivery at this moment, "could encounter difficulties." The reason is that according to Baron, a reader of GodmodeTrader "sought physical delivery of his holdings of Xetra-Gold. For this he approached, as instructed by the German Borse document, his principal bank, Deutsche Bank."
At that point then he encountered a big surprise: the Deutsche Bank account executive informed the investor that "the service", is no longer offered, namely exercising physical delivery at Xetra-Gold, for "reasons of business policy" and therefore the order form provided by Clearstream Banking AG for exercising Xetra-gold is no longer available.
Baron writes that since Deutsche Bank is no longer serving the physical exercising of delivery request of Xetra-Gold is remarkable, as Deutsche Bank is the "designated sponsor" as well as fiscal, principal and redemption agent of Xetra-Goldaccording to its prospectus, and as the explainer of how to exercise physical delivery also reveals. Even if one is a customer of another bank, Xetra-Gold should - at least on paper- guarantee delivery by way of Deutsche Bank, as the Deutsche Borse Commodities GmbH explains in its "process description for exercising units"
Step-by-step description of exerciseTogether with a representative of his principal bank, the investor creates the transaction and sends it to the principal bank's custodian with the relevant process data described above. The custodian in turn instructs its custodian, stipulating all process-relevant data, until a bank which is a customer of Clearstream Banking is authorised.The customer may use the attached exercise form to instruct the designated sponsor (here Deutsche Bank AG, Frankfurt) to deliver a specified number of gold bars to the point of delivery. The process is similar to that for the delivery of physical certificates.The customer should send the original exercise form to the following address:Deutsche Bank AG
"Ausübung Xetra-Gold" CIB-Global Banking
Trust & Securities Services
Grosse Gallusstrasse 10 – 14
60311 Frankfurt am Main
GermanyTo transfer the required amount of Xetra-Gold units to the blocked account of Deutsche Börse Commodities, the customer should also place an FoP instruction via CASCADE or File Transfer/SWIFT.Delivery will be initiated if Deutsche Bank receives the securities and the application form by 10:00 CET. As a rule it takes one to two weeks to deliver retail gold bars and four days for London Good Delivery gold bars from date of ordering. As soon as the delivered gold arrives at the point of delivery, the Xetra-Gold® units are removed and recovered from the "Ausübungskonto DBCo" (DBCo exercise account).Due to the provisions of the Money Laundering Act (Geldwäschegesetz) only the branch of a bank may be used as point of delivery. Investors expecting a large delivery of gold should contact their principal bank to discuss the transfer of the gold to the point of delivery.
The article goes on to note that it was not clear whether the exercise and physical delivery at other banks is actually still possible. Baron said that Deutsche Borse Commodities advised to transfer the Xetra-Gold shares in a cooperative/Raiffeisenbank since physical delivery is allegedly still possible here. The Deutsche Borse also announced that it is currently working on the "possibility of delivery regardless of bank branch." However, since this process was not described in the prospectus of Xetra-Gold, it would have to be legally tested, which could take considerable time.
The article's conclusion: anyone who wants to easily convert their Xetra-Gold holdings into physical gold - at least for clients of Deutsche Bank - can do so only by selling their shares, and then buying gold coins or bars directly elsewhere. Which leads the author to the logical question: what is the worth of the Xetra-Gold service, which certifies the right to redeem physical gold, if said delivery is no longer possible?
In other words, what was supposedly an ETC which promised physical delivery upon demand, is nothing more than yet another "paper only" play.
We, on the other hand, have a more focused question: is the inability to deliver physical gold an incipient issue with Xetra-Gold, or with the company's "designated sponor" Deutsche Bank, and if the latter is suddenly unable to satisfy even the smallest of delivery requests by retail clients, just how unprecedented is the global physical gold shortage?
(ANTIMEDIA) Hundreds of kilos of cocaine were found in a Coca-Cola plant in France last Friday, making the seizure of the drug one of the largest ever on French soil.
French officials say the cocaine was discovered in backpacks among a shipment of orange juice concentrate that originated in Costa Rica. The 370 kg of literal coke uncovered at the factory is reported to have a street value of €50 million Euros ($55m) and was referred to as a “very bad surprise” by a local prosecutor.
Authorities are currently unaware of who was behind the cocaine, but an investigation is now underway in Signes, a village in the south of France. Employees of the plant have already been ruled out as suspects.
“The first elements of the investigation have shown that employees are in no way involved,” according to Jean-Denis Malgras, the regional president of Coca-Cola.
Coca-Cola was originally called Pemberton’s French Wine Coca and contained a mixture of Peruvian coca leaves, kola nut, damiana, and cocaethylene (cocaine mixed with alcohol). Druggist John Stith Pemberton invented his French Wine Coca in Atlanta, Georgia, and it became very popular across the southeastern United States.
The Coca-Cola recipe was a closely guarded secret, but in 1891, an Atlanta newspaper reported what many had already suspected: Coca-Cola contained cocaine. Coke was forced to change its marketing strategy and began referring to their product as “refreshing,” rather than promoting any medicinal benefits. Coca-Cola began taking cocaine out of its soft drink in 1903 because of racially-promoted fears among white society.
According to the New York Times:
“Anyone with a nickel, black or white, could now drink the cocaine-infused beverage. Middle-class whites worried that soft drinks were contributing to what they saw as exploding cocaine use among African-Americans. Southern newspapers reported that ‘negro cocaine fiends’ were raping white women, the police powerless to stop them.”
Cocaine was eventually made illegal in the United States in 1914, but it wasn’t until 1929 that Coca-Cola perfected its formula. Before that year, the psychoactive components of the coca leaf could still be found in the soda in small amounts.
The Coca-Cola soft drink became completely cocaine-free in 1929, but coca leaf extract is still used to this day as an active ingredient in the internationally popular soda. The ecgonine alkaloid, which gives cocaine its accelerating effect on the brain, is extracted from the coca leaf before processing.
The Stepan Corporation, a New Jersey-based chemical processing company, performs the extraction on the coca leaves for Coca-Cola. Stepan has an arrangement with the DEA and is the only group allowed to import the coca leaf into the United States. One hundred and seventy-five thousand kilograms of coca leaves are imported into the United States each year by Stepan. That is a street value equivalent to roughly $21 billion of cocaine,according to the United Nations.
So what happens to the actual cocaine processed by Stepan? It is hauled away from the facility in armored trucks and then sold to Mallinckrodt, a pharmaceutical company whose United States headquarters are based in St. Louis, Missouri.
The coca leaf extract is referred to as Merchandise No. 5.
This article ($55 Million in Cocaine Was Just Discovered at a Coca-Cola Plant) is free and open source. You have permission to republish this article under a Creative Commons license with attribution to SM Gibson andtheAntiMedia.org. Anti-Media Radio airs weeknights at 11pm Eastern/8pm Pacific. If you spot a typo, email@example.com.
Global Supply Chains Paralyzed After World’s 7th Largest Container Shipper Files Bankruptcy, Assets Frozen
After years of relentless decline in the Baltic Dry index...
... today the largest casualty finally emerged on Wednesday when South Korea's Hanjin Shipping, the country's largest shipping firm and the world's seventh-biggest container carrier, filed for court receivership after losing the support of its banks, leaving its assets frozen as ports from China to Spain denied access to its vessels.
For those unfamiliar with the company, here is a brief overview from its website:
Hanjin Shipping is Korea's largest and one of the world’s top ten container carriers that operates some 70 liner and tramper services around the globe transporting over 100 million tons of cargo annually. Its fleet consists of some 150 containerships and bulk carriers.With 4 regional headquarters in the U.S., Europe, Asia and South East & West Asia, approximately 5,000 global staffs as well as container terminals in world’s major ports contribute to Hanjin Shipping’s world-class logistics network around the world.
As Reuters reports, banks led by state-run Korea Development Bank withdrew backing for the world's seventh-largest container carrier on Tuesday, saying a funding plan by its parent group was inadequate to tackle debt that stood at 5.6 trillion won ($5 billion) at the end of 2015.
Suk Tai-soo, president and chief executive officer of Hanjin Shipping Co, arrives
at a court in Seoul, South Korea, August 31, 2016.
at a court in Seoul, South Korea, August 31, 2016.
South Korea's biggest shipping firm, announced the filing for receivership and a request to the court to freeze its assets, which the Seoul Central District Court planned to grant, a judge told Reuters.
As part of the company's insolvency process, the court will now decide whether Hanjin Shipping should remain as a going concern or be dissolved, a process that usually takes one or two months but is expected to be accelerated in Hanjin's case, the judge said.A bankruptcy for Hanjin Shipping would be the largest ever for a container shipper in terms of capacity, according to consultancy Alphaliner, exceeding the 1986 collapse of United States Lines.
Coming as no surprise to anyone who has followed the persistent decline in worldside trade, global shipping firms have been swamped by overcapacity and sluggish demand, with Hanjin booking a net loss of 473 billion won in the first half of the year.
South Korea's ailing shipbuilders and shipping firms, which for decades were engines of its export-driven economy, are in the midst of a wrenching restructuring. According to Reuters, KDB's decision to stop backing Hanjin Shipping shows the government is taking a tougher stance with troubled corporate groups.
The fallout from the country's unprecedented bankruptcy invoked a statement from South Korea's Finance Minister Yoo Il-ho, who said that "the government will swiftly push forth corporate restructuring following the rule that companies must figure out how to survive and find competitiveness on their own while taking responsibility."
To be sure, this decision is a fresh breath of air in a world in which mega-corprations across the globe have become "too big to fail" by default, and in many cases anticipate a government bail-out.
According to South Korea's Financial Services Commission, Hyundai Merchant Marine, the country's second-largest shipping line, will look to acquire its rival's healthy assets, including profit-making vessels, overseas business networks and key personnel, A Hyundai Merchant Marine spokesman told Reuters nothing had been decided about the potential acquisition of Hanjin assets and that the firm will hold talks with KDB. Hyundai Merchant Marine is also in the process of a voluntary debt restructuring.
The question now is whether as a result of the bankruptcy process there will be an unexpected failure in the global supply-chain:South Korea's oceans ministry estimates a two- to three-month delay in the shipping of some Korean goods that were to be transported by Hanjin Shipping, and plans to announce in September cargo-handling measures which could include Hyundai Merchant Marine taking over some routes, a ministry spokesman said on Wednesday.
Making matters worse, Reuters adds that KDB's move to pull the plug was already having an impact on Hanjin's operations, with the company's various shipping assets already frozen. Ports including those in Shanghai and Xiamen in China, Valencia, Spain, and Savannah in the U.S. state of Georgia had blocked access to Hanjin ships on concerns they would not be able to pay fees, a company spokeswoman told Reuters.
Another vessel, the Hanjin Rome, was seized in Singapore late on Monday by a creditor, according to court information. "Now Hanjin must do everything it can to protect its clients' cargoes and make sure they are not delayed to their destination, by filing injunctions to block seizures in all the countries where its ships are located," said Bongiee Joh, managing director of the Korea Shipowners' Association.
Finally, while jarring Hanjin's bankrtupcy was inevitable: shipping industry economics have deteriorated. Charter rates for medium-sized container ships have dropped from around $26,000 a day in 2010 to $13,000 per day now. Container rates from Shanghai to the U.S west coast have more than halved since then, from around $2,000 per 40-foot container in January 2010 to $596 per 40-foot box last week, data from the Shanghai Shipping Exchange shows.
Shares in Hanjin Shipping have been suspended after plunging 24% on Tuesday.
The global implications from the bankruptcy are unknown: if, as expected, the company's ships remain "frozen" and inaccessible for weeks if not months, the impact on global supply chains will be devastating, potentially resulting in a cascading waterfall effect, whose impact on global economies could be severe as a result of the worldwide logistics chaos. The good news is that both economists and corporations around the globe, both those impacted and others, will now have yet another excuse on which to blame the "unexpected" slowdown in both profits and economic growth in the third quarter.