Swiss & Chinese Central Banks Enter Swap Agreement

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The Swiss National Bank and the People’s Bank of China reached a currency swap agreement on Monday. While this is not a huge trend changer in the near-term, it demonstrates that our forecast for China to become the largest economy and to be the next financial capital of the world when Europe and the USA blow themselves apart with defaulting socialism is on track. This agreement will allow the two central banks to buy and sell their currencies up to a limit of 150 billion renminbi, or 21 billion Swiss francs ($23.4 billion). This is nothing major, but it demonstrates the further distinction between RUssia and China whereas the former is still functioning old world idea of empire and the latter comprehends its the economy stupid.

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The deal will also allow the Swiss central bank to invest some of its huge accumulation of foreign exchange reserves in the Chinese bond market. The Zurich-based SNB said the agreement will further strengthen collaboration between it and its Chinese counterpart and is a “key requisite for the development of a renminbi market in Switzerland.” It could also facilitate trade and investment between the two countries, the PBOC said. This demonstrates that China is moving in the correct direction. Russia still thinks that its power is determined by territory – a very old 17th century idea by the Physiocrats.

 

Law = Just Opinion – Obamacare is Illegal As Applied

ObamaCare-CadillacTax

When a court issues a ruling it is actually called its “opinion”. In religious circles, many of the Protestants revolted against the Catholic Church because they did not like the fact that if the Pope decreed something, it was considered to be infallible – the Sacred Magisterium. Well American judges take the same position.

Papal infallibility is a dogma of the Catholic Church which states that, in virtue of the promise of Jesus to Peter, the Pope is preserved from the possibility of error only “When, in the exercise of his office as shepherd and teacher of all Christians, in virtue of his supreme apostolic authority, he defines a doctrine concerning faith or morals to be held by the whole Church.” This formal doctrine was defined dogmatically in the First Vatican Council of 1869–1870, but had been defended before that, existing already in medieval theology and being the majority opinion at the time of the Counter-Reformation. What people do not appreciate that this is actually how even the all federal court rules function – by OPINION and they too are infallible.

There has been a very dramatic and important split decision between two federal appeals panels – the Washington DC Appealet Court and the notorious goose-stepping Fourth Circuit in Virginia who has never seen a law they did not like since they have always followed their own interpretation – whatever government desires is infallible.

This split decision concerns the legality of Obamacare subsidies that gave billions of dollars to help 4.7 million people buy insurance on HealthCare.gov while the rest of us have seen rocketing healthcare costs that Obama will start to tax in 2016.

A panel of the Washington DC Court of Appeals ruled 2-1 that the subsidies were and are illegal if issued through that federal exchange, as opposed to one set up by a state. A state only needs to be fair within its boarders, but at the federal level, the real issue is discrimination based upon work.

The notorious Fourth U.S. Circuit Court of Appeals panel of course ruled 3-0 in another case that the subsidies are legal for people who buy plans on HealthCare.gov, which the federal government operates in 36 states. No surprise there. The only other court hopelessly corrupt in opinion is New York’s Second Circuit.

The two decisions now should force the Supreme Court to issue its OPINION based upon their personal desires and perspective. This is how law works – it’s just opinion. There is no real guide here. It was in the Supreme Court decision of 1803 known as Marbury v. Madison, 5 U.S. 137 (1803), which became a landmark United States Supreme Court case in which the Court formed the basis for the exercise of judicial review in the United States under Article III of the Constitution. The landmark decision helped define the boundary between the constitutionally separate executive and judicial branches of the American form of government.

It is emphatically the province and duty of the Judicial Department [the judicial branch] to say what the law is. Those who apply the rule to particular cases must, of necessity, expound and interpret that rule. If two laws conflict with each other, the Courts must decide on the operation of each.

For now, the subsidies will remain in effect. The stakes are immense for this is a law that economically is undermining everything because its approach was a disaster covert act intended to merely increase taxes. If we are really concerned about 5 million people, they could have easily expanded a current program. Obama altered health insurance for 300 million people under the pretense of helping 5 million. He wanted to tax all benefits any employee gets. This was also to allow healthcare for hospitals who do not get paid for whatever reason be it no insurance or illegal aliens. They could not give you Social Security without introducing the payroll tax. This is how it functions. Pretend to care on one hand and stab the knife in the back with the other.

The subsidies are also the linchpin to Obamacare’s three mandates. The first mandate now requires people to obtain affordable health insurance or pay a fine.The other, beginning in 2015, will require mid- to large-sized employers to offer such insurance to workers or pay a tax penalty. The third show hits in 2016 with the Cadillac Tax – the first taxation of benefits.

If the subsidies aren’t legal in HealthCare.gov-served states, the employer mandate would be eliminated in those states and the individual mandate would be effectively crippled. The subsidies to HealthCare.gov enrollees were authorized by an IRS rule that was issued after the Affordable Care Act was passed. Yes – just a RULE! Not even a pretended democratic law passed by the representatives of the people.

The plaintiffs in several of these federal lawsuits claim that rule is not legal because the ACA only explicitly authorizes subsidies to enrollees on state-run exchanges. The ACA does not explicitly authorize subsidies being issued to enrollees on a federal exchange, although it does discuss the creation of such an exchange as HealthCare.gov if a state doesn’t set up its own marketplace.

Consequently, the Washington D.C. circuit court looked at the plain language and failed to see any such authorization agreeing that only state-exchange enrollees can legally be granted such subsidies. The stated: “Section 36B plainly makes subsidies available in the Exchanges established by states.”  The court further stated:

“We reach this conclusion, frankly, with reluctance. At least until states that wish to can set up their own Exchanges, our ruling will likely have significant consequences both for millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly.”

Judge Harry Edwards who is a Democrat dissented clearly on politics writing that this was a “not-so-veiled attempt to gut” Obamacare, and said the ruling “portends disastrous consequences.” But therein lies the problem Are we ruling on the plain language of the law or politics?

The Obama administration said it will ask the full U.S. Court of Appeals for the District of Columbia Circuit to reverse the panel’s decision, which for now does not have the rule of law in what would be an En Banc decision meaning every judge has to participate on the Washington DC Appellate Court..

The notorious Fourth Circuit said that the language detailing how those tax credits are awarded is “ambiguous and subject to multiple interpretations.” That is clever judge language for dodging the plain language and is ethically dishonest. But the panel found that it is “clear that widely available tax credits are essential to fulfilling the Act’s primary goals and that Congress was aware of their importance when drafting the bill.” In other words, well it might now be correctly written, but we think had Congress been aware they would have corrected the error. That is pure speculation and denies the Democratic principles of the entire country.

The Forth Circuit goose-stepped as always and wrote “The IRS Rule advances this understanding by ensuring that this essential component exists on a sufficiently large scale,” but that is a rule and not even voted on by the people. So now they rely upon an unelected bureaucrat to write a rule and that is called dictatorship.

The clever language of the Fourth Circuit reveals that Obamacare is illegal as applied. You do not argue would-haves, could-haves, and probabilities and pretend you are a judge of law. This is political opinion and nothings more. An absolute disgrace.

The Sum of our Future – He who Makes the Laws never goes to Jail for Breaking them

Detroit Bankruptcy Unions

Working for the government was always pitched as somehow being better guaranteed than risky corporations. However, he who makes the laws never goes to jail for breaking them - a plain fact of life. The problem with government pensions has been they promised whatever sounded nice, with zero accountability. The presumption that tax revenue was an endless pit is one of those fallacies that nobody ever investigates.Mainz

It was the city of Mainz where the Gutenberg printing press was invented. This created an economic boom and everyone wanted to be in Mainz. The politicians saw the boom and presumed the potential tax revenue was linear and would be endless – judging tomorrow by today’s trend. They began to borrow against what they anticipated would be there forever. As they needed interest to pay for borrowing and they became addicted to debt, they raised taxes. The taxes kept rising so they killed the economic boom and people began to leave. Mainz followed the typical path as we are doing today. They were no longer paying off debt, they entered the Ponzi scheme – issued new debt to pay off the old in a revolving bond auction. Taxes kept rising and people migrated. The printing press was no longer unique to Mainz. The rich left town taking their capital and entrepreneurship with them. When Mainz lost confidence of the bond buyers and could no longer sell new debt to pay for the old, the collapse unfolded. Mainz, like Detroit, defaulted. The creditors sacked the city and it was burned to the ground.

The same precise pattern unfolds every time - WITHOUT EXCEPTION. Why? Human nature never changes. Create career politicians and they will always seek to expand government for that is their power-base. I do not know who is more brain-dead be it the government workers who believed this pensions were endless, or the really insane insurance companies who insured any government debt. For now, the companies that insure Detroit bonds and stand to lose millions will have to pay out on insurance to bond-holders who will get less as government tried to pay its workers over the pension crisis that will not possibly work anyhow.

Syncora and Financial Guaranty Insurance company are now poised to challenge the city’s bankruptcy plan, after retirees endorsed pension cuts and qualified for a bailout led by the state, another group of taxpayers going to be screwed. The deal agreed upon by the Detroit pensioners gives them special treatment that’s unfair to other creditors in a court of law if law really mattered. In general retirees would get a 4.5 percent pension cut and lose annual inflation adjustments. Some also have to repay a portion of generous annuity earnings from the last decade – the minority oppressed by the majority of union retired pensioners. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise. The state of Michigan is chipping in $816 million in aid from the foundations and the Detroit Institute of Arts. Money from the so-called grand bargain would prevent the sale of city-owned art and avoid deeper pension reductions.

Thrasymachus Quote

The legal problem comes from the fact that no other creditors qualify for the money. Judge Steven Rhodes presides over this issue and we will see how law really works – the self-interest of always the stronger as Thraymachus warned Socrates. In bankruptcy, ALL creditors are legally supposed to be treated fairly. This is obviously not the case here. We have the illegal diversion of highly valuable assets going to the very creditors who voted yes, and are part of the entire reason Detroit has collapsed. We will see how law survives or is Thrasymachus simply always correct.

Either the court distributes the assets fairly, or the court cannot legally confirm this plan under such discrimination against all other financial creditors. The point is that other creditors are getting zero recovery at the benefit and unfair advantage of Detroit’s pensioners. It is not a question of make the bankers pay. The bond holders are not bankers – they sold it to guess who – other pension funds.

The ramifications of what happens in Detroit will ripple through the entire debt structure nationally for if this will be the new game plan to follow, WHY SHOULD PEOPLE BUY any government debt whatsoever if not even bankruptcy laws apply? Insurers will stop insuring municipal debt without a rule of law and the entire debt structure will be undermined. This of course is a good thing, but the state workers who thought they were getting guaranteed pensions – sorry, its called fraud. As I said – he who makes the laws never goes to jail for breaking them. 

The Euro

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The Euro continues to sink lower as the dollar has risen to eight-month highs on worries over tougher sanctions to be imposed upon Russia and their potential impact on the seriously weak Eurozone growth. The tax rates in Europe are simply insane and now even the German population must work MORE than half the year just to pay taxes. Governments are consuming way too much of everyone’s income and this is seriously causing the living standards to decline and the collapse in any new business development. The EU Commission is into everything. Austria and Germany are now rejecting the EU Commission’s plans to control the strict organic farming. According to the plans, farmers can no longer switch between organic and conventional farming in the future. Agriculture Minister Schmidt fears the closure of small and medium-sized organic farms denying them the ability to follow the demand of the consumer. With every step they take, the EU Commission simply destroys jobs and raises taxes. With every regulation, they hire more bureaucrats to then go out and audit. It just never ends.

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The euro/dollar has broken down and there seems not much hope in sight. It is breaking the uptrend line and the oscillator has been turning down for weeks now. The plan is to just flood the market with Euros. France wants the Euro devalued sharply to be able to sell their products. Between that and any further escalation in of tensions between Russia and USA could weigh seriously on the euro. Europe is distinctly exposed to Russia through trade, especially Germany in particular. Putin has already ordered to get rid of all German cars in government so sanctions could potentially have a negative impact on the euro moving forward. However, since trade is a tiny part of the problem, the real issue seems that even Russians prefer to buy property in London rather than continental Europe. That capital inflow helps Britain – not Euro based countries.

IBEUUSFOR-W 7-23-2014

 

From a cyclical perspective, the week of August 4th is shaping up as a turning point in many markets. A weekly closing below 13400 will signal this is starting to turn down on a broader sustained basis. There is some support at the 13298 level, but after that, the important support lies at the 13150 area. A monthly closing BELOW 13298 will signal we should eventually drop back to the 12700-129.00 level. A monthly closing BELOW 12750 will signal a bear market is in full bloom.

Plus, the Fed meeting is still poised to raise interest rates in the broader term compared to lowering them in the Eurozone.This is also more likely to add a firm support for the dollar. The US economy is still doing OK. Just try to make reservations for dinner on a weekend – really hard in New England area these days.

The Australian dollar was the largest mover of the major currencies, gaining 0.69 percent to US$0.9455 after a higher-than-expected reading of a key gauge of underlying inflation in June in Australia dented market speculation of future rate cuts Downunder as well. Meanwhile, the dollar did gain slightly against the British pound to US$1.7034, only after Bank of England minutes failed to boost expectations of an interest rate hike by year-end. Nevertheless, the Bank of England is more likely than not inclined to raise rates.

 

No Economic Decline in Washington – EVER

Obama-Earings

 

Housing in Washington never collapsed because it is supported by your tax dollars. Good or bad, the money flows to Washington. The very same hotel chain charges $200 in Philadelphia, $300 in New York City and $400 in Washington. It ain’t for the tourist. It’s for the sea of lobbyists. Since 2001, the president has earned a $400,000 annual salary, along with a $50,000 annual expense account, a $100,000 nontaxable travel account, and $19,000 for entertainment. Gee – forget what he seems to be making on the side, he is within that 1% he pretends to hate so much.

 

Preparing for War

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The propaganda machine is in full force. Everything is used for political purposes regardless of the truth. Within mere days after the crash of a Malaysian Airlines flight over eastern Ukraine, US politicians and the government media joined together to spin the story that it was Russia who shot down the plane or their Russian supported rebels. It just had to be Putin everyone has declared. Obama even held a press conference to claim before any investigation Russia was responsible. His stooges, like ambassador to the UN Samantha Power, repeated the conclusion at the UN Security Council only one day after the crash showing this was predetermined. Moreover, it seems like Colin Powell telling the UN about the weapons of mass destruction. The only difference – Powell had integrity and when he found out he was lied to, the line was crossed.

Caesar-War

Any new claims that the Malaysian Airlines flight was shot down with a Russian missile means absolutely ZERO since the Ukrainian forces had the same weapons. Obama needs war because of the Sovereign Debt Crisis. The pensions are collapsing. Europe is screwed economically. The powers that be simply need war to hold on to power and they all know it. I would not believe a single word Obama has to say about anything. I see no difference between him. McCain, Lindsey Graham, or any other cold-hearted politician regardless of their party affiliation.

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A Market Recap

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The Markets are being bombarded from every direction fundamentally. The confusion is rising and so will the volatility. The euro is gradually declining, the stock market keeps holding, gold really cannot get out of its own way, and the 10 year rates remain low even in Germany. Capital is confused every which way from Sunday. Within Europe, people are buying the Germany assuming they get Deutsche marks when the Euro goes kaput. Others are still shifting to the States for diversification. Then we have rising bank fears so many in the big money crowd are also shifting to equities, and we have central banks buying equities to diversify from purely US government debt in dollars.

In Gold the Weekly Reversals define the trading range 142399 and 135500 on the upside and 124120 followed by 118870 on the downside.