Things that make you in the morning....

Note that we have done nothing to solve that problem here either, by the way, and are still trying to generate "GDP" by increasing lending.  It's not working as there are only two groups left willing to lever up -- the government and corporations that are borrowing money to pay dividends and buy back their stock, neither of which increases production.

We have learned nothing, and yet we have been unwilling to dial back our own stupidity into the maw of everyone else levering up at the same time.

This is going to end extraordinarily badly.

How do you destroy capital formation?

Make saving funds, the foundation of capital formation, come with a negative interest rate.

In other words, charge people on a compunded, continuing basis to form capital.

This piece of crap came out of Draghi this morning post-ECB.  There is nothing in such a statement that sounds good, and market realization appears headed straight for the gut on what is looking more-and-more like an all-on market strike.

That is, a crash.

Cramer and his pals over on CNBS continue to put forward the position that this selloff is a "good time" to buy back in, basically.  Yeah, ok.  The reality of the situation is that the profit picture is shifting; companies have been gaming their balance sheets and earnings reports by borrowing not to expand their business but to "machine" their earnings reports and fund buybacks.

"Great mangement" and "great asset bases" depend on a macro environment that supports a reasonable expansion of operations and honest asset prices that reflect reality.  If the latter is false nothing else matters.  If the former is false any deception in the latter will compound the damage from a deteriorating macro picture.

There isn't any deterioration in the macro picture evident when people are talking about destroying capital formation in a last-gasp desperate attempt to find more "food" for the leverage monster that is consuming Europe, is there?

There's dumb.

There's really dumb.

And then there's the Pentagon.

A report prepared for the Defense Department by the Defense Science Board found that Chinese cyber spies have uncovered U.S. designs for combat aircraft and ships, as well as missile defense systems around the globe.

Designs for the advanced Patriot missile system, the Navy's Aegis ballistic missile defense, the F/A-18 fighter jet, the V-22 Osprey, the Black Hawk helicopter and the F-35 Joint Strike Fighter were among the advanced U.S. weapons listed by the report as having been hacked.

But the Chinese are our friends!

Uh huh.  They "compete" by poisoning the air and water along with violating intellectual property rights for breakfast, lunch and dinner.  This nation is one of locusts who will strip you bare, and what's worse they are doing their level best to be able to fight in the old-fashioned way as well.

If you fail to understand the risks associated with all of this you're not very bright.  

But when it comes to "dumb" among the definitions must be placing sensitive (or even classified!) data on computer networks that are reachable over The Internet -- and don't give me this crap about firewalls and "security measures", given the history of same in actually preventing such hacks.

The simple fact of the matter is that the air gaps are the right measure for this sort of thing, along with tightly-controlled and audited access.  But that's hard.  It's very hard when you have people in government running these networks, many of whom have IQs that are smaller than your shoe size.

We will never deal with this problem effectively until we recognize the Chinese for what they are.  This nation is not our friend; at best it is a competitive nation that will take every bit of advantage it can obtain for itself at our expense, using their status as a sovereign nation to ignore laws and treaties when it suits them.

We are being serially and intentionally assaulted, and it's not just commercial entities being bent over the table.

Utterly outrageous.

If you remember in the UK last week a pair of "gentlemen" hacked the head off a member of the military who was peacefully walking down the street (really!) in his own nation.

The UK has thus far refused to call this "terrorism" or even more-accurately, Muslim terrorism, despite the attackers yelling "Allah Akbar!" while committing the act.

Now we find out that MI5, the rough equivalent of our FBI, knew he was a terrorist because he was arrested in Kenya on suspicion of planning to fight as a member of a terrorist group.

Kenya deported him -- to the UK.

It gets better.

In the UK, of course, the people are generally unarmed, because the government "can take care of anything that might arise."  Except, of course, two sharp-instrument wielding Muslims who decide to hack the head off a UK citizen on the streets of London.

Over the weekend war memorials were desecrated in London as well.  From the article in the Telegraph:

The RAF Bomber Command War Memorial and the Animals in War Memorial, both in central London, were covered in red paint.

The Metropolitan Police have not yet made any arrests, so the motivation behind the damage remains unclear.

Really?

The motivation is unclear when the graffiti that is scrawled on the memorials reads "ISLAM"?

The first duty of any civilized people is to call things what they are.  A man who hacks the head off another man on the streets of a major city for no reason other than his presence there and screams "Allah Akhbar!" while doing so is a Muslim terrorist and he self-declared a "religious" motivation for his actions.  We need not try him first to determine why he did what he did; he has declared that.  Similarly, a person who defaces a war memorial with the word "ISLAM" has declared the reason for their actions.

There are, quite-clearly, those who see Islam as simply a religion, which the civilized world broadly defines as a means of communication with and reverence for a higher power.  In the United States we respect the right of people to worship as they see fit.

But there also is a multi-hundred-year history, including but not limited to references in the youth of our nation, to Muslim "faith" not as a faith but as a war-mongering political force that has as its common goal the overthrow of established civil order in order to establish itself as the political arm of government complete with its own legal standard known as Sharia without regard to geographical boundaries.

This is not religion; it is the military arm of a political subdivision that has no particular geographic boundary and dates to at least Colonial times and arguably well prior!

We often argue that "military" power must be state-attached to a fixed piece of dirt and that other expressions of that are nothing more than "criminal" elements. Indeed, some of the most-staunch alleged "Libertarians" I know take exactly this sort of position.  

Nothing could be further from the truth.  

Political subdivisions are associated with people; the dirt that collection of people hold (or not) is a historical accident.  This sort of nonsense is promulgated by those who want you to believe in the "power" of a State, as if somehow a line on a map somewhere delineates political power or cohesive thought in action.

Anyone with a hint of intelligence knows better.

... do not listen to the gold bugs who have been screaming about HKMEx for the last week.

Police began probing the Hong Kong Mercantile Exchange Ltd. at the request of the Securities and Futures Commission, which said it found “serious” suspected financial irregularities at the shuttered commodities market.

The usual cadre of gold buggeries began running their usual line of garbage that the exchange was forcibly defaulting on delivery contracts and that this would finally lead to the sort of dislocation between paper and physical commodity markets they have been predicting for decades but which never comes to pass.

I called on this last week on the forum and issued a couple of rather stern warnings about the risk of the ban hammer showing up if this sort of nonsense wasn't confined to the "Tinfoil Hat" area. The reason is simple: Exchanges do not have positions; their job is to match orders and monitor markets for compliance.  Customers of exchanges have positions and may, in the case of commodities, have physical inventory behind said positions.

Therefore the insinuation that the exchange was massively short metals contracts and "decided" to "default" (since the contracts were to be closed by financial settlement rather than physical delivery), without proof, was almost-certainly pure bilge.

And now we get this:

The exchange stopped trading and handed back its operating license because revenue wasn’t sufficient to support running costs, the SFC said on May 18. Cheung is the largest single shareholder in the exchange, with a 56 percent stake, according to Hong Kong’s Ming Pao newspaper.

There may well be some sort of problem with why the firm had insufficient revenue to support operating costs.  Since police are involved it's reasonable to assume that there is suspicion of something unlawful that led to the closure  For example, simple embezzlement of the firm's funds could lead to such an event -- although there is no particular reason to believe that this, or any other particular event, has occurred.

When an exchange is closed like this because it goes bankrupt, either because of some sort of improper action or simply due to the owners being bad business people and spending more than they take in via fees the only proper thing to do is to financially settle the open contracts or transfer them to somewhere else.  There is a clean argument to be made that settlement in cash is the right course of action since a forced transfer might be to an exchange the members in question would rather not deal with.  Cash settlement leaves the members able to immediately roll the contracts to another firm if they wish at their discretion.  The costs to the members of that transfer are reasonably small; a commission would of course be charged by the new exchange they select and there may be some slippage if there is a major price move in the interim.  An orderly process is thus important so as to minimize any such disruption.

For those who have been making claims for the last week that the exchange had short positions open it could not deliver against, let's see your evidence that documents that the exchange did something that no exchange, operating properly in its role as a place for buyers and sellers to meet, ever does.