World's One-Time Largest FX Hedge Fund On Verge Of Shutdown

There is a reason why John Taylor of FX Concepts, founded in 1981 and which once upon a time was the world's largest FX hedge fund, has kept a very quiet profile lately despite his often bombastic prognostications in 2011 and 2012: the firm may be on the verge of shut down following a recent surge in redemptions resulting from woeful performance in the past three years. FX Week reports that AUM at FX Concepts "have continued to fall and the fund's chief strategist confirms the board's ideas haven't worked so far." It adds that the hedge fund is in "dangerous territory after the departure of several major clients and falling assets under management, prompting the firm's board to rethink its strategy, officials have confirmed." As a result of a surge in redemptions, assets under management have declined from a peak of $14.2 billion in 2007 to less than $1 billion this year, having been at $4.5 billion in early 2012.
Earlier this year, FX Concepts saw the exit of two major clients – the Pennsylvania Public School Employees' Retirement System and the Bayerische Versorgungskammer pension fund – but further clients are understood to have left in recent weeks.
The culprit: the same affliction that is currently impairing all other hedge funds in a centrally-planned market - underperformance. FX Concepts' flagship multi-strategy fund is down 11.35% this year through August. It was down 14.47% in 2011 and down 3.11% in 2012. Overall, the fund's annualized returns since January 2002 are a paltry 3.74%, CNBC reports.
It also fell 14.47 percent in 2011 and lost 3.11 percent in 2012. The fund produced net annualized returns of 3.74 percent from January 2002 through this August.
FX Week adds:

"FX Concepts has lost a number of investors. We're still an ongoing business, but there is clearly a lot of pressure on us to rethink our strategy and come up with a way out. The performance of our headline fund has been very frustrating this year," says Bob Savage, chief strategist at FX Concepts in New York.

Savage, who joined FX Concepts a year ago after selling his research business to the firm, declined to name the latest client to leave, but confirmed that a number of major clients have been closing out their positions with FX Concepts. "We're winding down some positions in the headline fund in an organised and professional fashion," he says.

But while Savage is hopeful that a rebound may take place and the firm will bounce back, the firm's fate may have been all but sealed when one of its last remaining large institutional clients, the San Fran Employees' Retirement System, voted on September 11 to pull its funds. CNBC's Lawrence Delevingne reports:

 "The Board approved reducing its currency overlay program target to zero percent," Huish said in an email to CNBC.com. "There is no intention at this time to redeploy the currency overlay mandate to any new currency managers."

San Francisco had more than $450 million with New York-based FX Concepts, a majority of the $661 million the firm reported managing overall in its latest Securities and Exchange Commission filing.

That redemption may have been fatal.

The sad but inevitable conclusion follows:

According to two people familiar with the situation, FX Concepts is in the process of liquidating its hedge funds and laid off most employees in recent weeks.

Sadly as more and more HFT algos move from the barren wasteland that is now stocks to dominate FX trading, yet another old-school, carbon-based investor is pulling out, meaning all those ridiculous moves we have grown to know and loathe in stocks land are about to dominate FX. The only problem is that 1000 pip moves in FX are not quite as easy to undo as a flash crash taking down any one individual stock, ETF or index to 0 or alternatively sending it to infinity.
The good news: the circus that are capital markets under Ben Bernanke is about to get that much funnier.

http://www.zerohedge.com/news/2013-10-07/worlds-one-time-largest-fx-hedge-fund-verge-shutdown

Germany’s Merkel Is Key to Currency-Trading Levy

German Chancellor Angela Merkel’s choice of coalition partner will play a key role in deciding how far the foreign-exchange market is burdened by a proposed financial-transactions tax in 11 European Union states.
Merkel, who last year backed a European Commission plan for a broad-based tax on trades in stocks, bonds, derivatives and other assets, is due to start talks on forming a government with the opposition Social Democrats today. The SPD has pledged to make the delayed levy a high priority if a coalition with Merkel’s Christian Democratic bloc emerges. Currency traders are seeking an exemption from the tax, saying it would reduce liquidity and push up costs for companies and pension funds.
“Merkel is the key player and I think we’ll see Germany pushing their agenda and the other countries probably following suit,” Mark Persoff, a financial services tax partner at Ernst & Young LLP, said at the Bloomberg FX13 summit in London two days ago. “The impact on the foreign-exchange markets will obviously depend very closely on the political agreement on what the shape and scope of the FTT will be.”
The tax may increase some trading costs by as much as 4,700 percent, according to the London-based currency unit of the Global Financial Markets Association, which represents 22 firms responsible for 90 percent of the turnover in the $5.3 trillion-a-day foreign-exchange market.

Staggering, Terrifying

“The numbers are staggering,” Mark Johnson, global head of foreign-exchange cash trading at HSBC Holdings Plc, said at the event. Were the tax applied to currency derivatives called swaps, “the prospect of what it would do to people’s ability to fund is terrifying,” he said.
Under the proposals, a levy of 10 basis points would be applied to stock and bond trades and 1 basis point on derivative transactions, with some exemptions for primary-market sales and trades with the European Central Bank.
While foreign-exchange trading for immediate delivery, so-called spot transactions, would be excluded from the levy to avoid restricting the movement of capital, the commission has not extended this exemption to other forms of currency trade. The tax, which is still under development, may be applied to forwards, swaps, non-deliverable forward contracts and options that make up two-thirds of the market.
The tax would typically increase transaction costs for currency-market participants by between 300 percent and 700 percent for corporates, and 700 percent to 1,500 percent for pension fund managers, the GFMA said. It based its estimates on a simulation of the proposed tax using last year’s currency activity by 15 end users, both within and outside the tax zone, and with annual transaction values varying between $4 billion and $400 billion. It assumed currency transaction costs to be the difference between an offer to buy a currency and an offer to sell it.

‘What Benefit?’

“It’s another piece of regulation that throws sand into a very efficient, well-oiled process,” said Edward Davey, managing director for strategic planning and development at CLS Bank, the operator of the world’s largest currency-trading settlement system. “You introduce new risks as well as incremental costs, and to what benefit?”
The EU Commission, the architect of the levy, says it may generate as much as 35 billion euros ($47 billion) annually. Implementing the tax was delayed six months to mid-2014 after its EU proponents failed to agree on which products to exclude.
Merkel’s Christian Democratic bloc needs a coalition partner to govern in Germany after falling short of an absolute majority as it won Sept. 22 elections with the highest share of the vote since 1990. Initial talks on a possible union with the Greens will be held on Oct. 10, Merkel’s party spokesman said on Oct. 2.

‘Rational Action’

“Politics rather than rational action is crucial in this and one has to follow the politics extremely closely over the next few months,” said Oliver Harvey, a strategist at Deutsche Bank AG (DBK) in London. “The comments that come out from the next German government and the French government will begin to give us a very good idea of what sort of products will be covered.”
The proposals are a threat to the euro-area recovery because they may cramp businesses’ ability to hedge currency-market positions and act as a levy on trade into and out of the euro area, the GFMA says. Deutsche Bank estimates a direct cost of as much as 2.4 billion euros per year to importers and exporters in Germany, the region’s largest economy.
Lawyers for the Council of the European Union, which represents the executives of EU member states, say the tax plan goes too far and would discriminate against countries that don’t participate, according to an EU document. The legal service of the European Commission, which proposed the levy, stands by the plan and will offer a rebuttal, Emer Traynor, a spokeswoman for EU Tax Commissioner Algirdas Semeta, said on Sept. 10.

Revenue Generation

The 11 nations planning to apply a common FTT are: Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia and Slovakia and Spain, according to the commission’s website. The U.K, Denmark and Luxembourg and Sweden rejected the plan.
The FTT may not generate any revenue for the EU because of the damage to financial markets, ECB Governing Council member Christian Noyer said in May.
“The politicians, with the greatest of respect, need a little more education,” said Gavin Wells, chief executive officer of LCH.Clearnet Group Ltd.’s ForexClear service. “They’ve tried to raise money in a way that they don’t see the repercussions of.”

http://www.bloomberg.com/news/print/2013-10-03/merkel-is-key-to-currency-trading-levy-hsbc-says-is-terrifying.html

Columbia Economist Dr. Jeffrey Sachs speaks candidly on monetary reform

"Everybody, sooner or later, sits down to a banquet of consequences." Robert Louis Stevenson

"They don't have intelligence. They have what I call thintelligence. They see the immediate situation. They think narrowly and they call it 'being focused.' They don't see the surroundings. They don't see the consequences." Michael Crichton

The Fed is faced with a problem that is best represented by the first two charts below.

Velocity of money is a simple ratio measure of money supply and GNP. It intends to represent the number of times a unit of money is exchanged in a transaction over a period of time.

As you can see, the velocity of the two broad money supply measures is dropping to historic lows.

Is this because the great mass of people are 'hoarding money,' which implies that one should lower real interest on savings, even taking them more deeply into the negative through monetary inflation in order to encourage spending through fear of de facto confiscation?

The third chart gives some insight into the true nature of the economic problem. Most of the income gains this century and for the past two or three decades of the past have been flowing to the top few percent of US households. The median household, the middle if you will, has been steadily losing ground in large part to Fed and political policy decisions driven by a mistaken ideology and a top down or trickle down approach to prosperity.

If the Fed pursues monetary inflation, without taking strong steps, even through the use of its bully pulpit and actions as regulator, to correct the severe policy imbalances that lopsidedly favor the wealthy financiers, it will drive the US middle class over an economic cliff and destroy the very system which it is attempting to save.

That is the basis of the tragic policy error of the Fed and the ruling class. Jeffrey Sachs has noted it in a recent talk to the Philly Fed shown below, and Bill Black has some particularly scathing words today for the 'Hyper-meritocracy Led by Criminal Morons.' I might have said self-delusional narcissists or even sociopaths rather than morons. The majority of those who enable the abuse of power are merely careerists.

One can make the strong case that the primary responsibility for this is in the political leadership. But one cannot also deny that as policy influencer and regulator the Fed has favored, quite actively, the growth of imbalances and social and economic injustice by pursuing a blind allegiance to a mistaken theory of deregulation and oligopoly of banking capital.
An audacious oligarchy needs someone to rescue them from themselves. And this will not be an easy task because the system is corrupted and the powerful have been blinded by greed. The current political deadlock in Washington is a symptom of the problem. There is always an element that believes in a long range plan consisting of repression as required, disinformation, and plundering the weak.

The monied class do not 'create jobs.' Genuine organic and systemic demand for good and services creates jobs, and those who have the means respond to that demand. It is a virtuous cycle that begins with consumer demand, and the willingness and the ability to pay for it. Yes there may be a role for inorganic demand such as stimulus to 'kick start' an economy caught in a policy error trap, but it is the reforms that allow for organic growth that make it sustainable.

Moving offshore to find new demand for markets while abandoning one's domestic base to decline and failure, in the true colonial fashion of past economic empires, is a form of neurotic failure. It often lights a fire in men's minds, and becomes a sort of self-fulfilling cultural suicide. And perhaps this is embodied in the latest corporatist deal which is the infamously secretive Trans-Pacific Partnership.

How fitting that, having overturned most of the financial reforms of the past century, we stand here now on the brink, on the 75th anniversary of the New Deal, with essentially the same set of problems facing us that brought the world down so low in The Great Depression, and opened the door to the madness that followed.





"I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I’m going to put it very bluntly. I regard the moral environment as pathological...

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I’m afraid to say, and no party is – I mean there's – if not both parties are up to their necks in this. This has nothing to do with Democrats or Republicans. It really doesn’t have anything to do with right wing or left wing, by the way. The corruption is, as far as I can see, everywhere.
But what it's led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it's very very unhealthy, I have waited for four years, five years now to see one figure on Wall Street speak in a moral language.
And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not going to happen any time soon, it seems...

The final point, of course, is separating the politicians from the crooks, but maybe that’s so close together that they can’t actually be separated. Maybe it’s just the same community."

Jeffrey Sachs, Fixing the Banking System For Good, Philadelphia Fed, April 17th, 2013

United States v. $35,651.11 (The cash in the account of Schott's Supermarket) Feds Seize Family Grocery Store’s Entire Bank Account

Can the government use civil forfeiture to take your money when you have done nothing wrong—and then pocket the proceeds?  The IRS thinks so.

For over 30 years, Terry Dehko has successfully run a grocery store in Fraser, Mich., with his daughter Sandy.  In January 2013, without warning, the federal government used civil forfeiture to seize all of the money from the Dehkos’ store bank account (more than $35,000) even though they’ve done absolutely nothing wrong.  Their American Dream is now a nightmare.

Federal civil forfeiture law features an appalling lack of due process:  It empowers the government to seize private property from Americans without ever charging, let alone convicting, them of a crime.  Perversely, the government then pockets the proceeds while providing no prompt way to get a court to review the seizure. 

On September 25, 2013, Terry and Sandy teamed up with the Institute for Justice to fight back in federal court.  A victory will vindicate not just their right to be free from abusive forfeiture tactics, but the right of every American not to have their property wrongfully seized by government.

http://ij.org/miforf

The Obamacare Deception: A manual

The article below is the most comprehensive analysis available of “Obamacare” – the Patient Protection and Affordable Care Act. The author, a knowledgeable person who wishes to remain anonymous, explains how Obamacare works for the insurance companies but not for you.
Obamacare was formulated on the concept of health care as a commercial commodity and was cloaked in ideological slogans such as “shared responsibility,” “no free riders” and “ownership society.” These slogans dress the insurance industry’s raid on public resources in the cloak of a “free market” health care system.

http://globalintelhub.com/obamacare-deception/

Greece Considering Confiscation Of Private Assets

The last time we opined on the possibility of a Cyprus-style "bail-in" in Greece, which is essentially a legally-mandated confiscation of private sector assets held hostage by the local financial system, until such time as the balance sheet of said financial system is viable, we were joking [9]. Well, not really joking.
But not even we thought that a banking sector "bail in", in which unsecured bank liabilities, which include bonds and of course deposits, are used as a matched source of extinguishment of non-performing bad debt "assets" could spread to the broader economy, and specifically to unencumbered private sector assets. Alas, this is precisely what Greece, which is desperately to delay the inevitable and announce it needs not only a third but fourth bailout, appears keen on doing.
As Kathimerini reports [10], the Greek Labor and Social Insurance Ministry is "seriously considering drastic measures in order to obtain the social security contributions owed by enterprises and to avoid having to slash pensions and benefits." What drastic measures? "The ministry is planning to force companies to pay up or face having their assets seized, so that the 14 billion euros of contributions due can be recouped."
After all, it's only "fair."
Kathimerini is kind enough to layout the clear-cut problems with this plan which will further crush any potential rebound in the Greek economy:

While this amount – equal to 8 percent of the country’s gross domestic product – may be easy to calculate on paper, it is virtually impossible to collect even if the state attempts to confiscate all the real estate properties of debtors and the debts of third parties to them.

The ministry has been forced to consider asset repossessions as a result of the very poor state of social security funds. The fiscal gap expected at the end of the year from social security will at best be equal to 1.06 billion euros. This also constitutes a bad start for next year, too, when the budget will also provide for a reduction in state subsidies to social security funds by 1.8 billion euros.

Aside from the obvious, namely that this "plan" will be merely the latest disaster to hit the long-suffering Greek economy, now caught in the worst depression in history, and where greedy and corrupt politicians will promptly "confiscate" whatever benefits there are to have been made from this confiscation plan (however instead of accusing corruption all blame will be once again fall on (f)austerity), the greater problem is that any entrepreneurial confidence that Greece just may be a sound place to do business, has just gone out of the window as nobody will know if they are safe from arbitrary persecution, and subject to a wholesale asset confiscation at any moment in time.
However, none of the above gives us more confidence that things in Greece are about to go from horrifying to nightmarish, than the following FT story [11]: "John Paulson and a clutch of bullish US hedge funds are leading a charge into Greek banks, confident that Greece, long seen as the weakest economy of the eurozone periphery, is on the turn."
Right. A 360-degree turn.
The good news: at least the Greek government will have a lot of "greater fool" assets to pick and choose from when the confiscation hammer hits.

Welcome to the Era of Unlimited Government!

This article appeared at The Daily Beast on Tuesday, October 1, 2013. Read it there.
It’s a telling coincidence that the latest scandalous revelation about the National Security Agency (NSA) is hitting the front pages just as the enrollment period specified by the Affordable Care Act (ACA, a.k.a. Obamacare) is getting started.
Each of these things underscores different but related aspects of the virtually unlimited state that has ruined the peaceful slumber of libertarian-minded Americans for decades. Whether we’re talking about surveilling citizens without any sort of serious legal oversight or forcing them to participate in economic activity in the name of health care über alles, the answer always seems to favor the growth and power of the state to control more and more aspects of our lives. Is it any wonder that a record-high percentage of Americans think the federal government is too powerful?
In an explosive story, The New York Times detailed the ways in which the NSA, which was originally supposed to spy on communications among foreign agents and provide intelligence on threats posed by noncitizen actors and governments, is increasingly focused on domestic activities. Since 2010, according to an NSA memo obtained by the Times, “The agency was authorized [by officials in the Obama administration] to conduct ‘large-scale graph analysis on very large sets of communications metadata without having to check foreignness’ of every e-mail address, phone number or other identifier.”
Through a process known as “contact chaining,” the NSA is able to suck up all sorts of email addresses, phone numbers, social-media-network information, and more without regard to the physical location or citizenship of each data point. The agency, reports the Times, then “enriches” that metadata “with material from public, commercial and other sources, including bank codes, insurance information, Facebook profiles, passenger manifests, voter registration rolls and GPS location information,” and more. The result, as George Washington University law professor Orin Kerr puts it, is “the digital equivalent of tailing a suspect.”
The only restriction on the practice appears to be that the NSA must make a claim that their data-gathering serves a foreign-policy justification. Which is never a problem for the agency since, as a spokesperson told the Times, “All of NSA’s work has a foreign intelligence purpose.” While it’s clear that the contact chaining results in vast webs of information that rope in Americans completely uninvolved in terrorism, the NSA refuses to divulge any relevant numbers or incidents.
The NSA originally sought such unrestricted use of metadata and other information involving Americans back in 1999 but was rebuffed due to concerns that it was not legal under the Foreign Intelligence Surveillance Act (FISA), which governs the agency. Legal opinions within presidential administrations—and after the 9/11 attacks—change, though, and there’s some indirect evidence that the NSA may have engaged in contact chaining during the Bush years. Despite his stated interest in protecting civil liberties, Barack Obama has disappointed even his staunchest defenders when it comes to constitutional limits on executive power and the surveillance state. Indeed, he has upped the ante from the Bush administration by claiming not simply the right to hold U.S. citizens indefinitely without charging them but the right to unilaterally kill them.
The one thing we know from past experience is that the NSA has consistently abused its powers. During the Vietnam War, for instance, the agency routinely intercepted communications outside its legal purview and ran an illegal operation known as “Minaret” that spied on anti-war figures ranging from boxer Muhammad Ali to syndicated humorist Art Buchwald to Sen. Frank Church (D-ID). The latter would chair hearings in the 1970s exposing massive illegal and improper actions by the NSA, FBI, and CIA, giving rise to FISA, which was passed in 1978. In 2008, ABC News reported on NSA operatives listening in on and sharing recordings of phone-sex calls between U.S. troops and their spouses in the States and routinely listening in on Red Cross and other relief workers as well.
The legal justification for the NSA’s actions, according to the Times, is the 1979 Supreme Court ruling that found “no expectation of privacy about what numbers they had called.” A more recent yet equally unfortunate Supreme Court decision—the 2012 one upholding President Obama’s health-care-reform plan—is the reason that the Obamacare exchanges are theoretically going to be up and running come October 1 (pay no attention to the massive and mounting delays with the program).
The clearest argument against Obamacare was always the specifically libertarian one against the individual mandate, or the idea that the government could force you not only to follow certain rules if you engaged in commercial or economic activity but that it could force you to engage in commercial or economic activity in the first place.
Like most federal laws dealing with powers specifically enumerated in the Constitution, the legislative reasoning behind the mandate is derived from the commerce clause, which gives Congress the right to “regulate commerce ... among the several states.” Once interpreted by legislators and courts alike in a narrow sense, at least since the 1942 ruling Wickard v. Filburn, the commerce clause has been interpreted to allow the federal government virtually unlimited power. Indeed, during her confirmation hearing, Justice Elena Kagan granted that she believed Congress could legitimately pass a law mandating that people buy broccoli. While it would be a “dumb law,” she said it would be constitutional. (This short video,“Wheat, Weed, and Obamacare” is a concise and engaging discussion of differing views regarding the commerce clause.)
In the decision affirming the individual mandate, John Roberts effectively rewrote the legislation by saying it could be enforced through Congress’s taxing power rather than on commerce-clause grounds. Some libertarian-minded observers took solace in that fact, but the net result is the same: When the government tells you to jump, we’re legally bound to say, “How high?”
Conventional politics in terms of Team Red versus Team Blue offer little insight into the current situation, since by and large Republicans and Democrats are fine with a massive and growing state as long as most of the spending and edicts work to the benefit of each group’s favored constituencies. Whatever lip service they pay to the individual, neither party betrays much interest in limiting the size and scope of government. Indeed, it’s not an accident that Obamacare—including the individual mandate—was inspired by a proposal floated back in the ’90s by the GOP front group the Heritage Foundation. And it’s not an accident that when it comes to spending, regulating, sidestepping executive branch limits, and dropping bombs, Barack Obama resembles no one so much as George W. Bush.
Which is something to think about come tomorrow, when a new fiscal year starts without a budget because House Republicans want to spend $3.5 trillion and Senate Democrats want to spend $3.7 trillion (spending in 2001 came in at about $1.9 trillion in nominal dollars). Indeed, it’s something to think about whether you are excited to check out Obamacare’s insurance exchanges or you view their very existence as simply the latest mile marker on the road to serfdom.
And here’s something else to think about: there’s a reason why a record-high 60 percent of Americans agree that the government has too much power and why libertarian attitudes are on the rise (even among GOP legislators, of all places!). It must be because people are actually following the news, most of which is pretty appalling, even (especially?) when you get past the partisan spectacle of it all.
This article appeared at The Daily Beast on Tuesday, October 1, 2013. Read it there.

An Insider Exposes The Algo Secrets Of The FX Market

A Depressed Bank Of America Predicts "Agreement Is Almost Impossible As Long As Obamacare Is On The Table"

Bank of America's latest forecast on the resolution, or lack thereof, of the government shutdown, which now seems virtually certain to last at least one week into Monday night, when the House and Senate return to work, is hardly encouraging. The bank's base case now calls for "either a two-week shutdown or for multiple shutdowns." Additional, BofA has now cut its Q3 GDP forecast from 2.0% to 1.7% and from 2.5% to 2.0% for 4Q. It gets worse: "Much worse outcomes are possible. In our view, agreement is almost impossible as long as the Affordable Care Act is on the table." Finally, and what ties it all together, is that as a result of the lack of "government data", BAC now expects the Fed to delay tapering to their January meeting, or later. Which may well have been the much needed alibi all along to delayed tapering until 2014.
From Bank of America
The shutdown of the government has created a double dose of uncertainty. It comes at a time when the economy may be about to shift from second gear into third gear, triggering the beginning of a Fed exit. The longer the shutdown and the longer the games of brinkmanship, the longer the delay in that growth pick up. At the same time, the shutdown means almost no official data releases. In the face of this uncertainty, the Fed’s motto is: when in doubt, do nothing.
Our base case is now for either a two-week shutdown or for multiple shutdowns. We have cut our forecast for GDP growth from 2.0% to 1.7% for 3Q and  from 2.5% to 2.0% for 4Q. We also expect the Fed to delay tapering to their January meeting, or later.
Much worse outcomes are possible. In our view, agreement is almost impossible as long as the Affordable Care Act is on the table. The President is very unlikely to agree to cuts in his proudest legislative achievement. Moreover, in our view, he is in a strong negotiating position vis-à-vis House Republicans. He does not have to run for office again, while they are all up for reelection next fall. Surveys show Americans strongly disapprove of the shutdown and put more blame on Republicans than Democrats. Surveys also show that Americans think it is not worth shutting the government down as a means to end the ACA. On the other hand, most Republicans strongly oppose the ACA and many support shutdowns as a means to an end. Ultimately we expect Republicans to drop the effort to weaken the ACA, but this could take a while.
It is very hard to measure the impact of the shutdown on the economy, although every economist has to come up with numbers. Most of the press reports seem very much on the low side, in our view. The direct impact is easy to calculate. The Clinton-Gingrich shutdown directly reduced GDP by about 0.3% in 4Q 1995 and a two-week shutdown today would have a similar impact. However, we think these narrow estimates are wishful thinking. There will likely be numerous spillover effects and, even if the shutdowns are brief, multiple brinkmanship moments will take a toll on confidence. We hear a lot of talk about buying on dips, but getting the timing right could be very tough.
[7]

Swiss regulator investigates banks over foreign exchange deals

Switzerland's financial regulator is investigating possible manipulation of foreign exchange rates at several Swiss financial institutions.

The regulator, FINMA, said several banks, including some from outside Switzerland, could be implicated.
It is coordinating the investigation closely with authorities in other countries.
It would give no further details on the investigations or the banks potentially involved.
Swiss Banking, the group that represents the nation's banks, said it had no further information.
The Swiss announcement follows reports in June that the British regulator, the Financial Conduct Authority (FCA), was looking into whether traders manipulated benchmark foreign-exchange rates to increase profits.
This followed an investigation by Bloomberg News that found that dealers shared information and used client orders to move the rates.
The FCA, which does not announce its investigations, only its enforcement actions, said: "We are aware of the allegations and we have been speaking to relevant parties."
London is by far the world's biggest market for foreign currency trading, with 41% of global turnover, according to the Bank for International Settlements.
New York has a 19% share, followed by Singapore, Tokyo and Hong Kong.
Switzerland accounts for 3.2% of foreign exchange trading.

http://www.bbc.co.uk/news/business-24397525

Shots fired at capital as US government furloughs continue

Barricade rammed at White House...
Suspect pursued to Capitol...
Officer down...
REPORT: Female suspect dead at scene...
ORDER: 'Stay away from windows'...
POLICE: Shooter in custody...
LIVE FEED...
DEVELOPING...




SHOTS FIRED AT CAPITOL

Government Called Privacy Office "Terrorists"

Former DHS Privacy Officer Mary Ellen Callahan: DHS Privacy Office was accused monthly of being "terrorists" by DHS, IC
"DHS" stands for the Department of Homeland Security; "IC" stands for the intelligence community [8].
This is not an isolated or melodramatic statement.  Rather, it is how the homeland security and intelligence communities look at privacy.
For example, former NSA and CIA boss Michael Hayden compared privacy advocates to terrorists [9]:

“If and when our government grabs Edward Snowden, and brings him back here to the United States for trial, what does this group do?” said retired air force [10] general Michael Hayden, who from 1999 to 2009 ran the NSA and then the CIA, referring to “nihilists, anarchists, activists, Lulzsec, Anonymous, twentysomethings who haven’t talked to the opposite sex in five or six years”.

“They may want to come after the US government, but frankly, you know, the dot-mil stuff is about the hardest target in the United States,” Hayden said, using a shorthand for US military networks. “So if they can’t create great harm to dot-mil, who are they going after? Who for them are the World Trade Centers? The World Trade Centers, as they were for al-Qaida.”

Hayden provided his speculation during a speech on cybersecurity to a Washington group, the Bipartisan Policy Center, in which he confessed to being deliberately provocative.

Similarly, Slate reported [11] last year:

If you’ve ever cared about privacy while using the Internet in public, you might be a terrorist. At least that’s the message from the FBI and Justice Department’s Communities Against Terrorism initiative. The project created flyers to help employees at several types of businesses—including military surplus [10] stores, financial institutions, and even tattoo shops—recognize “warning signs” of terrorism or extremism. An admirable goal, perhaps, but the execution is flawed—particularly for the flyers intended to help suss out terrorists using Internet cafes.

The flyers haven’t been publicly available online, but Public Intelligence, a project promoting the right to access information, collected 25 documents [12] that it found elsewhere on the Web. As Public Intelligence puts it [13], “Do you like online privacy? You may be a terrorist.”

Sadly, in its paranoid bunker mentality, the government considers just about all Americans [14] to be terrorists.
Postscript (Irony Alert):  University of Washington Law School professor Ryan Calo [15] points out an amusing irony [16] in this story:

Former DHS chief privacy officer says # of privacy officers at NSA, including the chief privacy officer, was zero.

(Calo was reporting on a statement made by former chief DHS Privacy Officer Mary Ellen Callahan at a recent talk [17].)
Tech Dirt explains [18]:

Mary Ellen Callahan [19] was the Chief Privacy Officer (and the Chief Freedom of Information Act Officer) at the Department of Homeland Security from 2009 until 2012 (though, don't tell DHS, since they still have a page on their website about her [20] claiming she still has that role -- even though she left over a year ago [21]).

In other words, the DHS considers government privacy officers to be terrorists, doesn't have any ... and yet - in blatant propaganda - pretends it does.

Have We Reached Peak Government?

Submitted by Charles Hugh-Smith of OfTwoMinds blog [4],
If we are not yet at Peak Debt, we are getting close, and that means we are also getting close to Peak Government.
Have we reached Peak Government? That is, a structural point beyond which government can no longer grow sustainably?
To help answer the question, I've assembled charts of the foundations of growth: population, gross domestic product (GDP), private employment and output per person (i.e. productivity). These have grown 28%, 75%, 28% and 58% respectively. (I have used 1990 as a baseline, as the past 23 years gives us a reasonably accurate clue as to the long-term trendlines of the current economy.)
In other words, if growth depended entirely on population growth, the real (inflation-adjusted) economy would have grown 28% since 1990. Instead, the GDP rose by 57%. This is the result of rising output per person, i.e. an increase in productivity.
U.S. population:

GDP: ( US Real GDP by Year [5]: 1990: $8 trillion, 2013: $14 trillion; the $9 trillion and $15.7 trillion shown on this chart yield the same results)

Private employment:

Output per person:

Since the state (government) depends on the economy to generate its tax revenues, government cannot grow sustainably at a rate that exceeds the expansion of the economy. Thus we expect government to grow at around the same rate as the economy and productivity, i.e. around 60% to 75%.
But Federal government expenditures have risen by 317% and state/local government spending has leaped by 328% since 1990. In other words, government has expanded at roughly four or five times the underlying growth rate of the economy.

State/local government spending:

How can government expand 300+% while the underlying economy that supports it expanded by 75%? Answer: borrowing money, i.e. debt--lots of it. Federal debt has skyrocketed by 600% since 1990.

This is simply part of a vast, unprecedented expansion of debt in both public and private sectors since 1990:

So the question of Peak Government is ultimately a question of Peak Debt: how much money can the government borrow to sustain its current spending? Can public and private debt expand at rates four or five times that of the underlying economy? If so, for how long?
If we are not yet at Peak Debt, we are getting close, and that means we are also getting close to Peak Government.

Wonderful President of USA and Munchkins

The Chief Economist at Citi Willem Butler has said today on CBC in an interview that the fiasco over the US budget and the lack of money is nothing more than irresponsible on all political wings and that the country is being run by Munchkins in the Land of Oz.  Most of us will agree that he has got it spot on with the second label and all we can wonder is if President Obama [11] will be wearing the red shoes in Judy-Garland fashion, banging out an old tune of theStar Spangled Banner even if it is on an untuned piano. Will he be clicking those heels together and wishing he were at home with Aunt Em and Uncle Henry or will the Wicked Witch of the East come along and gobble him and the US up because the country is being run by cowardly darragh duffy the Lion? The first statement made by Butler about the irresponsibility of not voting the budget is largely an open debate and must be questioned.

[12]

OZ-bama or Obama?

The Land of Oz

The Wonderful Wizard of Oz may have been written more than a century ago, but it is such a fitting tale of today’s sorry state (in more ways than one) of affairs in the USA. Butler was right more than he probably thinks when he spoke of the Land of Oz, the land where the ounce of gold will now shoot through the roof because of the irresponsibility of all political parties that have held power in the USA in the past decades. Investors will seek a safe haven in gold from today onwards and the price of gold will inevitable increase. Politicians can never be trusted to do the right thing (if there is a right thing to do in the circumstances) and that means that the markets will be volatile. The partial shutdown has happened today as hundreds of thousands of Americans stay at home because the government spent too much money. Will the Senators and the Representatives and the government aides or evenPresident Obama take a cut in their salaries in steadfast solidarity for the nation? They should, but they won’t. We all know that.

• According to analysts, gold will possible fall marginally and then rise this week.
• That’s exactly what is happening today with COMEX gold ready for delivery in December that has fallen by 2.3%(down -30.5 to $1.296.5).
• It is suggested that gold will increase to between $1, 500 and $1, 575 in the coming weeks as investors move into a safe haven.

The Dollar is not worth investing in as that will drop as it already has done against the Yen, the Euro and most major currencies today:

• The Euro is up against the Dollar by 0.22% (+0.0031 to 1.3557)
• Sterling is also up by 0.32% (to 1.6237, +0.0051)
• The Australian Dollar increased also by 0.79% (up +0.0074 to 0.9391)
• The Dollar fell against the Japanese Yen by 0.41% (down -0.4 to 97.87).

The Dollar had been on an up-trend. Now, that is well and truly over as it has been falling since this summer in July. That will continue again now to decline in coming weeks.

Irresponsibility of the US Government(s)

For those out there that believe this is nothing, for those that think that this has happened for the 18th time in the history of the USA today, think on and think again. It may be nothing, but then you are probably not a federal government worker that has been sent home without pay. This is not just hyperbole. It’s happening. You are probably not one of the guys that has to look for a way to pay your bills this month because the government hasn’t been able to pay the bills and because successive governments have been winging it on both a prayer and on the evil credit that we are told not to live on day in and day out. Certainly, it’s nothing much to write home about in the I’m-alright-Jack-couldn’t-give-a-damn-world, but what about the 700, 000 federal workers from the national parks and the monuments that are joining the soup kitchens and the breadlines [13] today because they aren’t getting a paycheck (and it happens to more than you think)?
Think about the knock on effects. The tourists that won’t be visiting those sights, that won’t be spending their hard-earned cash in the parks and at the national sites. It’s not because something has happened endless times that it becomes more acceptable. It’s not because that’s the only thing that the media is talking about today that it makes it less prominent in your everyday life. The knock-on effect will filter through. It always does. The only way it won’t be going is up. But, it will be going down and sideways and that’s where the people are. If that’s not important, then what is? Maybe when it comes down to the fact that you won’t be able to get a passport because that department will be closed, or you won’t be able to get a gun permit because the workers there will have been sent home. Maybe that will start to affect everyone else.

Federal-Government Shutdowns

Today is just a long line of shutdowns in the history of the USA. The others have all taken place since 1976:

• 10 days                between September 30th and October 11th 1976

Out-of-control spending under the Presidency of Gerald Ford when Congress vetoed the funding bill for the Department of Labor and the Department of Health, Education and Welfare.

• 12 days between September 30th and October 13th 1977

This was due to the House of Representatives refusing to allow Medicaid Dollars to pay for abortions (the Senate believed that this should be allowed in the case of rape and incest). The dispute between the House and the Senate caused a funding gap and an ensuing rift with the government.

• 8 days between October 31st and November 9th 1977

A funding agreement enabled to bide for time to discuss the funding gap, but when this expired and a solution had still not been reached there was another shutdown that came about. Jimmy Carter was President.

• 8 days between November 30th and December 9th 1977

The second temporary funding agreement was also not good enough and the Senate and the House were still in dispute over the funding of abortions via Medicaid. The Senate eventually got funding for rape and incest cases.

• 18 days between September 30th and October 18th 1978

President Jimmy Carter decided to veto the funding of a nuclear-powered aircraft carrier and also public works bills, stating that they were unnecessary.

• 11 days between September 30th and October 12th 1979

Two reasons led to government shutdown in 1979. The first was because the House of Representatives wanted a 5.5% pay increase and they wished also to restrict the possibility of abortion to mothers whose lives were in danger. Both were opposed by the Senate.

• 2 days between November 20th and November 23rd 1981

President Ronald Reagan ordered that the spending bill include 50% of the budget cuts he had intended to do (amounting to $8.4 billion). The Republican Senate agreed, but the Democratic House demanded more military and defense cuts and approved only $2 billion less than Reagan had asked for. The President vetoed the bill and shut down government until he got what he wanted.

• 1 day between September 30th and October 2nd 1982

The spending bill was held up by one day. But, it was passed.

• 3 days between December 17th and December 21st 1982

Both the House and the Senate (the first was controlled by the Democrats and the second by the Republicans) wanted to include funding for jobs in the budget. President Reagan refused and vetoed the bill.

• 3 days between November 10th and November 14th 1983

The Democratic House wished to increase the budget for education and to reduce defense. Reagan refused and vetoed the budget again.

• 2 days between September 30th and October 3rd 1984

Ronald Reagan wanted to link the budget to a water-supply project but the House (despite agreeing to do this) also wanted to link it to the fight against crime (which Reagan refused). The President vetoed the budget yet again and shutdown government.

• 1 day between October 3rd and October 5th 1984

There was an extension granted on the budget but when it expired, government shut down. Reagan stood his ground and the House backed down on the crime package.

• 1 day between October 16th and October 18th 1986

There was a dispute between the Democratic House, President Ronald Regan and the Republican Senate. Reagan shut down government yet again.

• 1 day between December 18th and December 20th 1987

This was related once again to a dispute between the House and the senate that were controlled by the Democrats and President Reagan over the funding of the Contras.

• 4 days between October 5th and October 9th 1990

President G. W. Bush shut down government at this time since he demanded that if there were a continuing resolution (legislation to fund government where a formal bill has not been signed), then it would have to be accompanied by a deficit-reduction plan. Otherwise he would veto it and close down government, which is exactly what happened.

• 5 days between November 13th and November 19th 1995

President Bill Clinton decided to veto the continuing resolution of Congress (controlled by the Republicans).

• 21 days between December 16th 1995 and January 6th 1996

President Clinton was forced to provide a seven-year schedule to balance the state budget. But, he was asked to use the Congressional Budget Office figures and not the Office of Management and Budget of his own making. He refused and so government was closed down.

• ? (unknown so far) days as from October 1st 2013

Due to a dispute over the Affordable Care Act and the fact that the government has not passed a funding bill. How long it will continue is another matter.
If there’s one thing that runs through all of these shutdowns, it’s the feuding between the Senate and the House of Representatives or both that are against the President. Is that the crux of the matter? The real cause behind all of this? Three parties vying for power and pulling the bed sheets to their side so that they can keep themselves warm? But, they are not the ones that suffer, are they? They just vote the bills or veto and it’s as easy as all that.

[14]

Wizard of Oz and the US Government Shutdown

Oz and the USA

The Wizard of Oz was a satirical parody of money and politics. But, the Munchkins were the ordinary people that were enslaved and held in the bondage of the Wizard. The ordinary federal workers and the average Americans are those Munchkins and it’s not the US that is being run by them. But, the US is the flawed utopic Land of Oz where every man would make it rich. Yes, that was possible while the credit line was there. Now is ancient history and fairytale material.
Washington is the Emerald Green City with the greenbacks the line the walls of the offices of the lawmakers and Congress. That fake charlatan, the Wizard? You decide who he might well be. Looks as if we might just be needing a new scarecrow to replace that Wizard. But, scarecrows are just dummies too, anthropomorphic personifications of man, made just to scare the birds away.

The irresponsibility of the governments that have done nothing but spend since Ronald Reagan jacked in acting to play the role of President of the USA, there has been nothing but a successive line of Presidents that have been playing a role-game for the entire country. It’s about time that all that changed.

Originally posted: Wonderful President of USA and Munchkins [15]

Goldman's Global Leading Indicator Plunges Back To "Slowdown"

Everything looked so good in August. Goldman's global leading indicator (GLI) "swirlogram" had recovered quickly from a 'growth scare' in Q1 and was holding firmly in "expansion" territory. Then reality hit as new-orders-less-inventories worsened, various manufacturing surveys rolled over, industrial metals gave up gains, and Korean exports provided no help. Among the few factors holding up the index from already plunging levels was the Baltic Dry Index (which has collapsed now in the last few days) and Consumer Confidence (which appears to also be rolling over). September's plunge into "slowdown" for the GLI is the biggest drop in 8 months.

[7]

Chart: Goldman Sachs

http://www.zerohedge.com/print/479649