The Life You Grew Up With Has Become a Cheap Masquerade

“It’s one of the hardest habits to break.

We begin pledging our allegiance to the state before we even know what that means. We learn to sing bombastic, patriotic songs of praise at an age when we don’t understand the vocabulary of the lyrics.

And after years of repetition and social reinforcement, the idealistic devotion to country becomes profoundly ingrained in our personalities.

It’s a lifelong indoctrination underpinned by a deep instinct to belong to something greater than ourselves.

Human beings are not meant to exist in isolation. We strive for inclusion and acceptance of our peers. And the forming of social groups, whether families, tribes, dynasties, and kingdoms is as old as human civilization itself.

Over the centuries, though, the social constructs have changed dramatically. It used to be closely knit, smaller groups with shared values and dedication to the other members. Now our loyalty is manipulated towards a political union… and the government which represents it.

In other words, we’re inculcated to have an unquestioning allegiance to the system.

The combination is so powerful that even in the face of overwhelming evidence, the sentiment is difficult to shake.

It’s clear now that the system has turned on the very people who invest their faith and confidence in it.

We can see the obvious effects of decades of morbidly destructive policy.

We can see how the way of life we grew up with has become a distant memory, replaced by a cheap masquerade.

We can see the debt, the money printing, the police state, the utter collapse of justice and rule of law… and the shiny facade of mindless entertainment and wanton consumerism as an attempt to cover it all up.

And yet… it’s still so hard to turn one’s back. Deep within ourselves there’s still a quiet voice that says “This can be fixed. It’s going to get better.”

This is the voice of hope. And despite all the rational arguments which point to a very conspicuous trend, this voice is very difficult to silence.

Hope, along with loyalty, is one of the most admirable traits of humanity. And it’s certainly honorable to want to rebuild what has been lost. But please consider these few points:

1) The trend is clear. And in the West, it’s negative. We routinely discuss in this column that history has an almost unblemished track record of once-great nations and empires collapsing into tyranny as their economic fundamentals deteriorate.

 

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The West has long passed the historical point of no return where degenerate governments have to borrow more money simply to pay interest on the money they’ve already borrowed.

If the trend holds, history shows that we can expect capital controls, banking controls, direct wealth confiscation, oppressive taxes, military conflict, rising crime rates, social unrest, etc.

None of these is a particularly rosy outcome….”

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“The tectonic plates of the world economy are shifting, moving the yield on the 10-year Treasury to the highest level in more than a year and shaking financial markets from Tokyo to Mumbai and Johannesburg to São Paulo.

For the past few years, the global economy, struggling to recover from a financial crisis, has relied on a few constants: The U.S. would print plenty of money and keep interest rates very low. China would provide a lot of demand and vacuum up commodities from around the world. And Japan was largely irrelevant.

Suddenly, all three of those are being questioned in markets, triggering paroxysms in stocks, bonds, commodities and—particularly, in the past couple days—the currencies of emerging markets.

The big questions hanging over markets and the global economy now: Is this is the inevitably bumpy beginning of a welcome return to normal—a world in which the U.S. economy doesn’t need big and repeated doses of monetary stimulus, Japan grows again and China’s economy gently slows to a sustainable speed?

Or is it a harbinger of more volatility in financial markets—perhaps the result of a misreading of the Federal Reserve’s policy intentions by the markets or a premature move by the Fed to cut back on easy money—that yields an unwelcome increase in market interest rates before the U.S. economy achieves what Fed Chairman Ben Bernanke once called “escape velocity”?…”

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“A closely watched consumer confidence number that routinely moves markets upon release is accessed by an elite group of traders, for a fee, a full two seconds before its official release, according to a document obtained by CNBC.

A contract signed by Thomson Reuters, the news agency and data provider, and the University of Michigan, which produces the widely cited economic statistic, stipulates that the data will be posted on the web for the general public at 10 a.m. on the days it is released.

Five minutes before that, at 9:55 a.m., the data is distributed on a conference call for Thomson Reuters’ paying clients, who are given certain headline numbers.

But the contract carves out an even more elite group of clients, who subscribe to the “ultra-low latency distribution platform,” or high-speed data feed, offered by Thomson Reuters. Those most elite clients receive the information in a specialized format tailor-made for computer-driven algorithmic trading at 9:54:58.000, according to the terms of the contract. On occasion, they could get the data even earlier—the contract allows for a plus or minus 500 milliseconds margin of error.

In the ultra-fast world of high-speed computerized markets, 500 milliseconds is more than enough time to execute trades in stocks and futures that would be affected by the soon-to-be-public news. Two seconds, the amount promised to “low latency” customers, is an eternity.

For exclusive access to the data, Thomson Reuters pays the University of Michigan $1 million per year, according to the contract, in addition to a “contingent fee” based on the revenue generated by Thomson Reuters. The contract reviewed by CNBC was signed in September of 2009. It expired a year later. Thomson Reuters and the University Michigan confirmed that the relationship still exists.

In a statement, Thomson Reuters said, “Through an agreement with University of Michigan, Thomson Reuters is the exclusive distributor of the Thomson Reuters/University of Michigan Surveys of Consumers to its clients through various subscription services as well as to the general public via a press release. Details of the tiered release of this data are provided openly to Thomson Reuters customers and the wider public and anyone wishing to trade on this data can pay for the service that best meets their data needs.” …”

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“……”There are simply too many (ugly) charts we could stick inside [of this note] and so we stopped short of doing so,” says Wilkinson. “It is hard not to feel as though we are watching out for the lead domino to topple – the one that could set off a chain reaction.”

Here’s Wilkinson’s take:

The pain continues across the Emerging Globe. Having fallen to a two-year low earlier in the week, Brazil’s benchmark Ibov index is lower again today. Mexico’s stocks slid by 2.00% in the face of rising volatility in US stocks. The CBOE Vix index is fast-approaching last week’s peak and the highest since mid-April.

And then there is the little matter of the yen, whose vacillations continue to trip-up US equity prices. As we noted late on Tuesday the Japanese unit was closing stronger than when it snapped the dollar’s grip last week. And more problematic was a broadening of the yen’s advance against the euro currency, British pound and the Aussie dollar. The dollar index just snapped to a two-month low midweek indicating a decidedly risk-off mood and one that hardly supports the earlier return for risk-appetite signaled by a move higher for equity prices.

Finally, the S&P 500 has slowly returned to beneath Friday’s low – the low supported by an above consensus payroll reading. Failure to hold that level could arguably cause stocks to have a stab at the fear-inspired lows of last week at 1598….”

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From Mad Money last night

[youtube://http://www.youtube.com/watch?v=O72jfzVczxQ 450 300]

A closely watched consumer confidence number that routinely moves markets upon release is accessed by an elite group of traders, for a fee, a full two seconds before its official release, according to a document obtained by CNBC.

A contract signed by Thomson Reuters, the news agency and data provider, and the University of Michigan, which produces the widely cited economic statistic, stipulates that the data will be posted on the web for the general public at 10 a.m. on the days it is released.

Five minutes before that, at 9:55 a.m., the data is distributed on a conference call for Thomson Reuters’ paying clients, who are given certain headline numbers.

But the contract carves out an even more elite group of clients, who subscribe to the “ultra-low latency distribution platform,” or high-speed data feed, offered by Thomson Reuters. Those most elite clients receive the information in a specialized format tailor-made for computer-driven algorithmic trading at 9:54:58.000, according to the terms of the contract. On occasion, they could get the data even earlier—the contract allows for a plus or minus 500 milliseconds margin of error.

In the ultra-fast world of high-speed computerized markets, 500 milliseconds is more than enough time to execute trades in stocks and futures that would be affected by the soon-to-be-public news. Two seconds, the amount promised to “low latency” customers, is an eternity.

For exclusive access to the data, Thomson Reuters pays the University of Michigan $1 million per year, according to the contract, in addition to a “contingent fee” based on the revenue generated by Thomson Reuters. The contract reviewed by CNBC was signed in September of 2009. It expired a year later. Thomson Reuters and the University Michigan confirmed that the relationship still exists.

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“The amount of money banks have at the Fed recently reached 13 digits, for the first time ever.

FORTUNE — U.S. banks now have $1 trillion at the Federal Reserve. It’s far more than they have ever had before, and it could be a big problem.

And it’s a new one. Before the financial crisis, the amount of cash banks kept idle at the Fed rarely topped $25 billion, which in terms of a multi-trillion dollar banking system is peanuts. But shortly after the start of the financial crisis, as a move to help the banks and save the economy (or perhaps the other way around), the Fed began paying interest on money banks deposited at the Fed.

Money flowed in. It has been rising ever since, but the rate of increase has picked up recently. In the first three months of this year, bank reserves at the Fed rose nearly $200 billion, or 25%, after barely budging in 2012. The amount passed the trillion dollar mark for the first time in April. Still, all that extra cash has done little to boost lending, which dropped in the first quarter.

MORE: Ultra-low interest rates are making bonds unsafe

“Many institutions have still seen deposits at the central bank balloon as more liquidity has piled up on their balance sheets in recent years,” analysts Marshall Schraibman and Robb Soukup of bank research firm SNL Financial wrote in report last week.

In the past month or so, interest rates have begun to rise, mostly driven by concern of what the Fed might do and when, now that the economy is improving. But most of that discussion has been around quantitative easing and the Fed’s $3.3 trillion bond portfolio. But what’s not talked about too often is the other hurdle the Fed faces in exiting its stimulus program — how to deal all the cash the banks have parked at the Fed, and what happens to that money.

In part, the two issues — the bond portfolio and the bank cash — are sides of the same coin. When the Fed buys bonds, it’s handing over money to someone, be it a bank or investors. And some of that money undoubtedly ends up deposited at a bank, which has to put it somewhere. When the Fed decides to sell off its bond portfolio it will be essentially taking that cash back, and, poof, the bank deposits will disappear.

MORE: Jamie Dimon’s $5 billion bet against bonds

That’s why some see it as a nearly a non-issue. “Reserves don’t even factor into my model,” says Laurence Meyer, a former Fed governor and head of economic forecasting firm Macroeconomic Advisers. “That’s not what causes inflation and not how the Fed stimulates the economy. It’s a side effect.”

Nonetheless, Meyer says Fed economists have drawn up plans to deal with the growing cash hoard. Many think a massive sell-off of the Fed’s bond portfolio might be too disruptive to the bond market, causing rates to skyrocket, slow the economy and potentially do massive damage to the banks. As such, the Fed is likely to hang onto its bonds until they mature, which could take years. That means the extra cash at the Fed could be around for long after the economy has fully improved.

That may make it harder to rein in inflation with future interest rate hikes. The Fed currently pays banks an interest rate of 0.25% on their deposits, which now amounts to $2.5 billion a year. Some have already called that a back-door bailout for the banks. Although the banks have to pay some of that money out to the FDIC in order to cover their higher deposit insurance….”

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“MUMBAI (Reuters) – Fitch Ratings returned India’s sovereign outlook back to “stable” from “negative” a year after its initial downgrade, surprising markets with a validation of the government’s efforts to contain the fiscal deficit and revive economic growth.

The upgrade is likely to be a welcome relief to the government, coming during a period when the rupee had slumped to a record low, and be seen as a reward after months of efforts to cut spending, passing fiscal reforms, and wooing foreign investors.

Analysts, however, were sceptical about the upgrade, reflecting their pessimism about economic growth prospects at a time when inflation, although easing, remains high while the current account deficit remains a thorn to policy makers.

Prime Minister Manmohan Singh’s minority coalition also faces important state votes due before a national election next year, putting into doubt whether it can keep fiscal discipline and pass additional reforms in a gridlocked parliament.

“Challenges remain on the macro economy front, with the weakening rupee and the uncontrollable current account deficit,” said Jagannadham Thunuguntla, equity head at SMC Global Securities in New Delhi.

“There is still a long way to go for a rating upgrade.”

The rupee extended gains on the news, ending up at 57.79/80, well above its Tuesday close of 58.39/40 and its record low of 58.98, also on Tuesday.

The benchmark 10-year bond yield recovered from earlier falls, ending down 1 basis point at 7.29 percent. Stock markets were closed when Fitch made its statement….”

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“Traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice.

Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years.

The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, the two traders said. The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, according to a person briefed on the matter.

“The FX market is like the Wild West,” said James McGeehan, who spent 12 years at banks before co-founding Framingham, Massachusetts-based FX Transparency LLC, which advises companies on foreign-exchange trading, in 2009. “It’s buyer beware.”

The $4.7-trillion-a-day currency market, the biggest in the financial system, is one of the least regulated. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges.

Benchmark Investigations…”

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“WASHINGTON—Some of biggest banks on Wall Street will get an additional two years to comply with a post-financial crisis rule requiring they move risky swap activities into separate affiliates.

The Office of the Comptroller of the Currency said it granted extensions to seven banks, giving them until July 2015 to comply with so-called “swaps push-out” rules required by the 2010 Dodd-Frank law.

While the move was largely expected, the OCC’s action could further inflame criticism that much of Dodd-Frank remains undone nearly three years after its passage. As of June 3, just 38% of rules required by Dodd-Frank had been finalized, while 63% of rule-writing deadlines have been missed, according to law firm Davis Polk.

The OCC notified Bank of America Corp., BAC -1.37% J.P. Morgan ChaseJPM -1.63% & Co., Citigroup Inc., C -3.96% Wells Fargo WFC -1.50% & Co., HSBC Holdings HSBA.LN +0.33% PLC, Morgan Stanley MS -4.06% and U.S. BancorpUSB -0.51% that they were granted a 24-month extension in response to their requests for a longer transition period.

The banks declined to comment.

The move comes less than a week after the Federal Reserve said foreign banks also will be eligible for the two-year delay in complying with the rule, which is slated to take effect July 16.

The rule is intended to move some of the banks’ riskiest activities to affiliates that aren’t eligible for access to the federal safety net, including federal deposit insurance and the Fed’s discount window. The provision, pushed by then-Senate Agriculture Chairman Blanche Lincoln (D., Ark.), requires banks to spin off some derivatives trading operations into separate units….”

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“Pfizer Inc. PFE +0.18% and Takeda Pharmaceutical Co. 4502.TO -1.36% have reached a $2.15 billion settlement with Teva Pharmaceutical Industries Ltd.TEVA -0.43% and Sun Pharmaceutical Industries Ltd. 524715.BY -0.17% for patent-infringement damages resulting from their launches of generic Protonix in the U.S.

The settlement comes after a nearly 10-year legal battle in which Pfizer and Nycomed—now part of Takeda—sought to enforce the patent for the blockbuster acid reflux medicine.

Pfizer will get 64% of the settlement’s proceeds, while Takeda will get the remainder….”

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In Play 

On the Wires 

SOURCE
NYSE

NASDAQ

AMEX

Upgrades – AMRI, MDRX, AEP, AWK, APO, AMAT, SAM, CRL, HMA, LEN, MDAS, SE, TXRH,

Downgrades – BIIB, DF, KGC, LM, MPLX, ORIG, PRU, Q, USB, WFC,

“Here are some bullish insights from an unlikely source – David Rosenberg:

“First, sentiment has come down from recent lofty levels.  That is encouraging.

Second, earnings estimates have stopped going down.  That is good news.

Third…”

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“LONDON (Reuters) – If currency turbulence in emerging markets escalates into full-scale investor flight, the Federal Reserve may have a fresh headache in deciding when to slow its dollar printing policy.

Given all the obvious influences on Fed policy – domestic inflation, jobless youths, long-term unemployment, stuttering credit creation or banking stability – gyrations on markets from Turkey to South Africa or South Korea may seem tangential.

But an enmeshing of the United States and the economies of the developing world since the turn of the century means the link between U.S. monetary policy and currency runs on the other side of the world could be tighter than many assume.

Another financial shock now in emerging economies that use vast holdings of U.S. Treasury bonds as capital insurance buffers could complicate a Fed exit from quantitative easing.

“As with so many previous emerging crises, although the Fed often triggers the withdrawal, it’s then forced to turn more accommodative by default as a result of the fallout,” said Simon Derrick, strategist at Bank of New York Mellon.

“MA(f)D”

To avert the sort of protracted and devastating investment freeze they suffered in the late 1990s, economies across Asia and around the globe have built up huge hard-cash buffers as protection against future ‘sudden stops’ in foreign financing….”

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“High debt levels have raised the chances of a global recession in the next three to five years to more than 60 percent, said Pimco, which manages the world’s largest bond fund.

The world economy goes through a recession about every six years and the frequency of global recessions tends to rise when global indebtedness is high and falling compared with when indebtedness is low and rising, Pacific Investment Management Co (Pimco) said in a note published on its website late Tuesday.

“Given that the last global recession was four years ago, and also given that the global economy is significantly more indebted today than it was four years ago, we believe there is now a greater than 60 percent probability that we will experience another global recession in the next three to five years,” Saumil H. Parikh, a managing director and generalist portfolio manager at Pimco said in the note.

The U.S. had a debt to GDP ratio of about 101.6 in 2012, up from 99.4 in 2011. Japan, the world’s third largest economy after China and the U.S., has a debt to GDP ratio of more than 200 percent….”

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