Skënderbeg Alternative Investments AG, Bahnhofstrasse 100, 8001 Zurich, Switzerland T +41 43 535 77 52, info@skenderbeg.ch, www.skenderbeg.ch

Put into perspective Ahead of the mainstream

October 2015 Written by Bruno J. Schneller, CAIA & Miranda Ademaj Contents:

Hedge funds (page 3)

Markets (page 6)

Think tank (page 12)

Time out (page 16)

Put into perspective – October 2015

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“Markets stop panicking when policy makers start panicking.” – BofA strategist Michael Hartnett

Put into perspective – October 2015

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Pension funds to shift hedge fund allocations to low-volatility, low-beta strategies

Defined benefit plan executives in the US, Canada and the UK are likely to shift allocations within their hedge fund portfolios in response to the near-term prospect of rising interest rates, interest rate volatility and higher equity beta, said researchers from J.P. Morgan’s capital in-troduction division in their monthly prime brokerage report.

Pension fund chief investment officers are „likely to move away from directionally oriented hedge fund strategies and to strategies with lower correlation, less volatility and minimal beta,” said the report, which was released Wednesday.

Specifically, J.P. Morgan analysts predict that within the long/short equity strategy arena, pension fund officials will decrease allocations to directional hedge funds that have higher net long exposures and increase investment in low-beta/market-neutral equity strategies.

In the event-driven hedge fund category, directional/activist equity-focused strategies will see redemptions, while more money is rotated into low-volatility/correlation approaches, the report said.

J.P. Morgan’s report indicates that plan sponsors will hold their positions at current levels in global macro strategies, while increasing invest-ment in both multistrategy and fixed-income relative-value hedge funds.

Pensions & Investments

Public pension plans now major allocators to hedge funds

The decision by the California Public Employee Retirement System („CalPERS”) to divest its hedge fund program made quite a media splash in 2014, and caused some pundits to predict the imminent decline of hedge funds. On the contrary, alternative investment data specialist Preqin says public pensions have increased their allocations to hedge funds since last year, and despite generally being later to the game than endowments and foundations, public pensions have become „major allocators of capital” to the hedge fund industry, accounting for 16% of all hedge fund investments.

According to Preqin, pension funds have increased their mean allocations to hedge funds from 7.2% in 2010 to 8.8% at present. Pensions differ with endowments, foundations, and other hedge fund investors in terms of their investment preferences, with 90% of pensions citing North America as their favorite market; with only 33% favoring Europe and 32% liking emerging markets. In terms of favorite strategies, pen-sions like long/short equity, multi-strategy, macro, and event-driven the best; and commodities and distressed strategies the least.

A post at the Preqin blog speculates that „public pension funds will be a major source of institutional capital in the hedge fund industry for years to come,” should their desire to reduce risk and volatility in their overall portfolios persists. Typically, investors are most interested in alternatives when they fear the outlook for traditional assets, such as stocks and bonds.

HEDGE FUNDS

Put into perspective – October 2015

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Reporting on this trend, Chief Investment Officer cited the results of a March survey by KPMG, which was in line with Preqin’s findings. „The days of hedge funds simply being an investment tool for high net worth individuals are over,” said Richard Baker, CEO of the Managed Fu-tures Association, as quoted by Chief Investment Officer. „Institutional investors like pension plans, university endowments, and charitable organizations now make up nearly 65% of the industry’s assets.”

DailyAlts

Why hedge funds and why now – Revisited

Back on March 26, we featured an article titled Why Hedge Funds and Why Now. The article was written at a time when there were a num-ber of media articles questioning the performance of the hedge fund industry as a whole after the average hedge fund was unable to surpass the returns of the S&P 500 in 2014. We tried to explain how when the market goes straight up, as it did in 2013 and 2014, any strategy that hedges is very likely to lag the overall market.

We even featured the following chart and pointed out how the S&P had been contained by a tight trend channel for those two years with last October being the only time the index moved outside of the channel and how it was the only time during the two-year period that the index got anywhere near its 52-week moving average.

The following is an excerpt from the article that captures the essence of the article and it is also the reason why we wanted to revisit the article.

„When an overall market gauge like the S&P 500 moves up almost 50% in a two-year period and it does so without much volatility or with only one sizable pullback, yes hedge fund strategies are likely to lag behind the overall market. But what happens when the volatility in-creases and the market drops sharply? That is when investors get the benefit of hedge fund strategies.”

Here we are a little over five months later and volatility has increased and the market has dropped pretty sharply. Have investors benefitted from hedge fund strategies? According to industry research firm HFR, the average hedge fund lost 2.2% during the month of August com-pared to the loss of over 6% for the S&P and double digit losses for other world indices. Giving us an answer of yes, investors did benefit from hedge fund strategies in August.

One of the other things we did in the article from March was to compare the slope of the bull markets of the late 90s, from 2003-2007 and the one from the bottom in 2009 through March. The slope of the most recent bullish phase was the steepest of the three.

Another excerpt from the article stated:

The point isn’t to scare investors with the valuations and the comparison between the slopes, the point is that the market is likely closer to another bear market than it is another bullish run. No one knows when or why the next bear market will start, but we also never know when an accident is going to happen and yet we still pay our insurance every month.

Why do we pay for car insurance, homeowners insurance and medical insurance? To protect against the downside risk of being in a car acci-dent or having our house catch fire or burglarized. We would all have more disposable income if we didn’t have to pay for insurance each month, but we do it because it gives us peace of mind. Hedge fund strategies can be viewed in the same manner. The performance would be better if they weren’t protecting against a downside move, but then they also wouldn’t be protected from a downside move in the market and they wouldn’t provide the peace of mind that they offer.

Investor sentiment is an amazing thing. The market goes up for six years and investors forget that they go down as well as up. Since the bot-tom of the most recent bearish phase in 2009 through August, there were only six out of 79 months where the S&P saw a monthly loss greater than 5%. During the financial crisis from October 2007 through February 2009, the S&P experienced monthly losses in excess of 5% six times in 17 months.

We have tried to persuade investors to not let their guard down. Look at these articles from the last few months:

– July 20 – Are investors bailing on active strategies too soon?

– June 26 – Wrong time to abandon hedging strategies

– June 19 – Pension funds behaving like individual investors

All of them are emphasizing how markets go up and markets go down and how you have to protect the downside and yet investors, institu-tional and individual investors alike, seem to get caught up in the up cycles and then forget there are down cycles. They get greedy and want to capture upside, but they don’t want to protect the downside any longer because it is costing them money. When the sentiment hits that level, that is when the market usually turns.

HedgeCoVest

Put into perspective – October 2015

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3 reasons why women make great portfolio managers

by Doug Hirschhorn, PhD

As a Peak Performance Coach, my number-one priority is helping my clients improve their performance. Wall Street talks a lot about gender equality, but I think that’s sort of dumb, because the markets (at least the last time I checked) do not pay you any more or less because you’re a man or a woman. The markets pay those who make money. Here are the three main reasons why I think Women Make Great Port-folio Managers:

1. Men let pride/ego get in the way of their decision-making processes; women DON’T.

Ask any guy the following: “Before you had a GPS, when you got lost while driving, would you stop and ask for directions?” Virtually every guy out there will quickly answer, “No way.” Yet almost every woman will respond, “Of course I would.” For men, being lost or confused trig-gers some kind of territorial, caveman-ego thing that makes us want to solve the problem on our own rather than show any sign of weakness by asking for help. It’s not our fault. We are just wired that way.

Therefore, to avoid driving around aimlessly for hours, we have to recognize when we’re becoming ego-driven and make a conscious effort to stop ourselves and make a correction. That means expending a lot of mental energy just to be able to get to the same place most women would have been from the start, quite naturally and effortlessly.

From a trading perspective, this could mean women are less likely to trade for revenge and turn one bad trade into two, three or four, whereas men might do that—just as they would choose to drive around for hours getting more lost, hoping things work out. Can you say „rogue trading”?

2. Self-awareness is the single most important characteristic among elite portfolio managers.

Many women keep diaries. I don’t know why. I am a guy. For whatever reason, we just don’t do stuff like that. Have any of you guys ever written in a diary about your emotions, friendships, relationships and feelings just because you felt like doing it? Yeah, that’s what I thought. And if you did, I am pretty sure you wouldn’t admit it.

The single most important part of my Peak Performance Coaching practice is requiring my clients to keep a daily trading journal. I work with the PM to create a customized list of questions to answer each day about his or her trade ideas, game plans, trade sizes, what they did well, what they did poorly and so on. Then I hold them accountable by having them email their responses to me each and every day.

The journaling process is similar to an athlete watching game film so he or she can learn from their mistakes and continue to improve their performance. It’s not fun, but it’s effective, because in the end, athletic greatness is about discipline, and so is great trading. My clients con-stantly tell me how valuable they find this daily journaling. It helps them to organize their thinking. It keeps them on top of their trades. It reduces the number of sloppy trades they make. It helps to decrease the amount of time they stay in a slump when it happens occasionally throughout the year. It also keeps them in the „Zone” longer—improving their risk management by helping them get bigger in their highest- conviction trades and smaller in their lowest-conviction ones.

3. When men get into arguments, they throw punches or start wars. Women pause, reflect, plan and then unleash well-calculated mental warfare.

My 12-year-old daughter told me that when her younger brother makes her mad, instead of hitting him (which she realized results in his hitting her back harder), she has found that she can hurt him more by just saying mean things to him. Look at that—12 years old and she is already on her way to becoming an expert in mental warfare! She didn’t go through any secret military training to learn this skill; it came naturally and intuitively to her. In your world, the market is frequently telling you that you are wrong and taking money away from you. The automatic male response is to get angry and fight back by „trading for revenge.” This is not the case for women. When the market proves them wrong, they will get upset just like the men, but instead of trading for revenge, they tend to quickly cut back their risk. Then, once they have done damage control and before they make their next trade, they take the time to reflect on what happened, why it happened, and what they will do differently the next time.

Process Leads to Profits.

Dr. Doug’s Blog

Citadel to pay priciest rent in city history, if not the world

A new king has been crowned at the top of Manhattan’s office market.

The developer of 425 Park Ave., a 900-foot-tall luxury office tower under construction between East 55th and 56th streets, has signed a deal with the hedge fund Citadel to take over 200,000 square feet at the property for a record-breaking sum. The lease includes the building’s penthouse, which Citadel has agreed to pay $300 per square foot to rent. That’s about 50% more than previous peak rents in the city, which had topped out at about $200 per square foot.

By comparison, rent in a Class A midtown office building averages about $80 per square foot.

Crain’s New York Business

Put into perspective – October 2015

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Hedge fund leader bets on emerging market rout

The world economy is locked on a course towards an emerging markets crisis and a re-newed slowdown in the US, despite the Federal Reserve’s decision last week to hold off on a rise in rates, according to one of 2015’s most successful hedge fund managers.

John Burbank, whose Passport Capital has placed lucrative bets against commodities and emerging markets this year, forecast that the Fed would eventually be forced into a fourth round of quantitative easing to shore up the economy.

In an interview with the Financial Times, Mr Burbank said years of QE had caused a misallocation of capital across the world, while the end of QE last year triggered a dol-lar rally with consequences that were only now beginning to be realized.

„The wrong people got the capital — emerging markets countries and corporates and a lot of cyclical companies like mining and energy, par-ticularly shale companies — and this is now a major problem for the credit markets,” he said.

The Financial Times

China reserve accumulation is equivalent to Fed QE programs, now unwinding

Deutsche Bank Research

Once again the Fed’s bite has failed to live up to its bark

By Peter Schiff

Once again the Fed’s bite has failed to live up to its bark. Despite months of expectations that it would finally raise rates for the first time since 2006, the Fed continued to sit on its hands while pointing to some unspecified date in the future when all the economic and financial stars will align in a way that makes a 25 basis point increase appropriate. Am I the only one getting bored by the repetition?

Just like it has in prior statements, the Fed’s Open Market Committee painted a picture of a stable and growing economy that was just about ready for a tightening cycle to begin. Its decision to hold off for now was positioned as a temporary concession to largely overseas develop-ments. But the Fed, and the rest of the economic establishment for that matter, continues to ignore the steady torrent of negative data that reveals a slowing economy. Based on the manufacturing, business investment, productivity, and consumer confidence numbers, the Fed could be preparing a fresh round of stimulus, not readying its first economic sedative in nine years.

Today’s surprisingly dovish statement was notable for the introduction of „international developments“ as an ongoing input into the Fed’s rate deliberation process. To many, this refers to the current uncertainty in China. But, in reality, this shift offers the Fed a gallery of new excuses to choose from to explain away its failure to raise rates down the road. Now weakness at home and abroad is sufficient to keep the Fed on the sidelines. The last thing we needed was more excuses.

As I have maintained continuously, rate hike talk from the Fed is just a bluff to disguise its inability to tighten, as even small increases could be sufficient to prick the biggest bubble it has ever inflated. It is no coincidence that the stunning 170% increase in the Dow Jones, that occurred between March 2009 and the end of 2014, happened while the Fed was stimulating the economy almost continuously with QE, and that the rally came to an abrupt end when the QE stopped in December 2014. The recent 10% correction on Wall Street confirms to me just how sensitive the markets remain to the prospect of any rates higher than zero.

MARKETS

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When the year began, opinion was divided between those who thought the Fed would move in March, and those who thought it wouldn’t happen until June. When June came and went, September became the odds-on favorite. Now those same experts are once again divided be-tween December and sometime in 2016. When will these „experts“ finally connect the real dots and discover that the monetary medicine that the Fed has doused over the economy since 2008 has only created a weak and utterly dependent economy. A rate hike is supposed to be a signal that the economy has a clean bill of health. But as the patient fails to recover, another dose of QE will be just what the doctor orders.

Euro Pacific Capital

The „Economissed” track record revisited: Last month, 82% of „experts” expected a September Fed hike

Zero Hedge

Legendary investor Crispin Odey goes to cash as stocks are „overextended”

One of Europe’s most brilliant investment managers is warning of a new global financial crisis on the horizon and has moved a huge chunk of his portfolio into cash. Crispin Odey, who founded London-based Odey Asset Management in 1991, says the turmoil that began last month has only just begun, and that equity markets could fall much further. „Our overriding conviction is that we are nearer the beginning of this process than the end,” the hedge fund manager warns clients in his latest report. Stock market valuations worldwide „are so overextended that they will need to fall 30%-40%” before they offer a compelling bargain, he argues.

Astonishingly, Odey now holds 29% of his retail investment fund, Odey Opus, in cash — even though the fund is typically oriented toward growth. The firms manages about $11.7 billion in as-

sets. It’s easy to take prognostications with a pinch of salt. There’s always someone somewhere predicting doom. The British seem to special-ize in it. I’ve been lunching and dining with a variety of accomplished money managers in London in the past few days, and each one has been even more terrifying than the last. But Odey is no ordinary money manager. He is a living legend in London financial circles, and is usu-ally bullish as well. His Opus fund is up 270% since it was launched in 2001, three times as much as its benchmark.

Odey argues that China’s devaluation augurs an era of financial crisis across emerging markets, including currency wars, tariffs and the for-mation of trading blocs. China’s ailing economy, he says, will be the new US housing crash. Meanwhile, the world is struggling under debt burdens that have not been eased by years of so-called monetary easing.

There is a recession every decade and „we are now due ours.”

Yikes!

MarketWatch

WSJ survey: China’s growth statements make US economists skeptical

China says its economy grew 7% in the second quarter. Economists in the US don’t buy it.

More than 96% of respondents to the latest Wall Street Journal survey of 64 economists–not all of whom answered every question–said China’s gross-domestic-product estimates don’t accurately reflect the state of the world’s second-biggest economy.

„Official data are manufactured to fit the government’s narrative,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

In the Journal’s survey, none of the respondents said China’s GDP was expanding 7% or more.

Put into perspective – October 2015

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More than half estimated annual growth in 2015 at somewhere in the 5% to 7% range. About a third estimated growth would come in from 3% to 5%. Forecasts for growth next year covered a wide range, from as low as 2% to above 7%.

The Wall Street Journal

China consumes mind-boggling amounts of raw materials

Visual Capitalist

The richest Americans are winning the economic recovery

Bloomberg

Number of bonds experiencing more than 10% price loss in a month – it’s not just commodities

BofA Merrill Lynch Global Research

The BLS just „revised” away one full month of job gains for year ending March 2015

As if there was not enough negative data for the Fed to contend with, and make the case for a rate hike delay already, moments ago the BLS released the preliminary estimate of its „annual benchmark revision to the establishment survey employment series“ for the 12 month pe-riod ended March 2015. While the final report will not be released until February 5, 2016, with the publication of the January 2016 Employ-ment Situation news release, today’s release will give the Fed yet another reason for concern as the BLS just admitted that at least 208K total jobs (and 255K private jobs) were overestimated in the year ending March 2015.

This is equivalent to eliminating nearly one full month of job gains in the specified 12 month period, and spread across the various months, would have meant a constant series of NFP headline misses instead of consensus beats, likely leading to a far more adverse algo kneejerk reaction on the first Friday of every month.

Zero Hedge

Put into perspective – October 2015

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Year-to-date relative performance

@Not_Jim_Cramer

Vix ETFs contributed to August turmoil

The upsurge in stock market turmoil during August was exacerbated by specialized exchange traded funds that track volatility and use leverage to magnify investor returns, according to some analysts.

Some analysts argue that the magnitude of the move in the Vix was fueled by certain types of ETFs, and similar exchange traded notes, that track the index but use futures contracts to multiply investor’s returns.

There is rising concern over the bigger role played by passive or systematic trading strategies in equity mar-kets — given the current uncertain global economic and financial backdrop — with some fund managers arguing that their techniques are aggravating market movements.

Four products, two run by ProShares and two run by VelocityShares, totaling $2.8bn in assets, bought close to 35,000 Vix futures contracts on August 24, according to calculations from public data by Macro Risk Advisors, a broker dealer. Total trading volume in the futures con-tracts that day reached 569,000.

The Financial Times

Are central bankers losing credibility and ammunition?

RBS Macro Credit Research

Put into perspective – October 2015

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US lacks ammo for next economic crisis

Money has been Washington’s primary weapon in the decades since British economist John Maynard Keynes proposed aggressive govern-ment spending to battle the Great Depression. The US generally injects cash into the economy through interest-rate cuts, tax cuts or ramped-up federal spending.

Those tools could be hard to employ when the next dip comes: Interest rates are near zero, and fiscal stimulus plans could be hampered by high levels of government debt and the prospect of growing budget deficits to cover entitlement spending on retired baby boomers.

Japan’s economy contracted in the second quar-ter and Europe recorded lackluster growth. China’s slowdown, meanwhile, appears more se-vere than global policy makers initially realized and a currency devaluation there might spur trade frictions.

With the US expansion entering its seventh year, policy makers are planning how to re-spond to the next downturn, which history shows is inevitable. The current expansion is now 16 months longer than the average since World War II, and none has lasted longer than a decade.

„The world economy is like an ocean liner with-out lifeboats,” economists at HSBC Bank wrote in a recent research note.

The Fed, for example, could experiment with negative interest rates. A recession also could force Congress and the White House to bridge Washington’s partisan divide to strike a deal that pairs short-run stimulus with long-run plans to reduce the deficit.

„This is a very live question,” said Douglas Elmendorf, the recently departed director of the Congressional Budget Office. „Policy makers are thinking about their backup, backup plans.”

At issue is how much the US can afford to bor-row and spend to goose the economy out of the next recession. The experience of the past recession has set off sharp disagreement among economists.

„If there’s another recession, there will be pressure to expand the deficit fairly rapidly to a level that is unprecedented in modern time,” said Stephen King, senior economist at HSBC and author of the report on the global economy’s lack of fiscal lifeboats. No one knows how much US debt can grow without triggering an increase in inflation and interest rates that would hobble investment and growth. „We don’t have that much experience with countries carrying debt like the level the US has right now,” said Mr. Elmendorf, the budget analyst.

Even if it were clear that the US could afford to boost spending or cut taxes, partisan disagreements over Mr. Obama’s 2009 stimulus spending stand in the way of a consensus on the benefits of fiscal policy in a downturn.

Compromise has been elusive. After Republicans won control of the House in 2010, the White House sought, unsuccessfully, a deal to raise revenues and curb long-run growth in spending, in exchange for a short-run stimulus.

The next downturn could return the two sides to the bargaining table. But lawmakers will have less room to maneuver „because the entitle-ment side hasn’t been addressed,” Mr. Corker said. „We haven’t dealt with even the most basic elements.”

The Wall Street Journal

Put into perspective – October 2015

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Video of the month

Carl Icahn: Danger ahead

Carl’s views on markets, stocks and politics

Click to watch

Carl Icahn

Joke of the month

A traveler asks an Irishman the best way to his destination. After some thought, he replies: „If I were going there, I wouldn’t start from here.”

Cartoon of the month

Put into perspective – October 2015

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Supervisors should not tell whole truth about bank health – BuBa economist

Banking supervisors should withhold some information when they publish stress test results to prevent both bank runs and excessive risk taking by lenders, according to a paper co-authored by a Bundesbank economist.

[…]

Richard Reid, a research fellow in finance and regulation at the University of Dundee, agreed that giving extensive details could lead to even bigger problems and rob regulators of a window to rectify problems, or make it harder for policymakers to deal with wider issues like sluggish growth. „It’s an age-old problem for regulators, how much transparency there should be,“ Reid said. „There is an argument of ‘let’s flush it out,’ but in the current situation the weak upturn is a key concern to central bankers, and if you spook markets about banks, then it might further complicate the provision of credit to the economy.“

Reuters

Two in every five US children spend at least a year in poverty

Childhood poverty is far more prevalent than annual figures suggest, a new paper says, with nearly two in every five US children spending at least one year in poverty before they turn 18 years old.

The findings from Caroline Ratcliffe, a senior fellow at the Urban Institute, show particularly stark divides along racial lines. Black children fare much worse. Some 75% are poor at some point during their childhood, compared to 30% of white children.

The Census Bureau is set to release its annual statistics next week on household incomes and poverty for 2014. Last year, the report showed that one in eight adults live below the poverty line, compared to one in five children.

The Wall Street Journal

Should prison sentences be based on crimes that haven’t been committed yet?

Criminal sentencing has long been based on the present crime and, sometimes, the defendant’s past criminal record. In Pennsyl-vania, judges could soon consider a new dimension: the future.

Pennsylvania is on the verge of becoming one of the first states in the country to base criminal sentences not only on what crimes people have been convicted of, but also on whether they are deemed likely to commit additional crimes. As early as next year, judges there could receive statistically derived tools known as risk assessments to help them decide how much prison time — if any — to assign.

FiveThirtyEight

UN plan to save earth is „fig leaf” for big business: insiders

UN records reveal that the intergovernmental body has already marginalized the very groups it claims to be rescuing from poverty, hunger and climate disaster.

At the end of this month, the UN will launch its new 2030 Sustainable Development agenda for „people, planet and prosperity” in New York, where it will be formally adopted by over 150 world leaders.

The culmination of years of consultations between governments, communities and businesses all over the world, there is no doubt that the agenda’s 17 Sustainable Development Goals (SDGs) offer an unprecedented vision of the interdependence of global social, economic and environmental issues.

But records from the SDG process reveal that insiders at the heart of the UN’s intergovernment engagement negotiations have criticized the international body for pandering to the interests of big business and ignoring recommendations from grassroots stakeholders repre-senting the world’s poor.

Formal statements issued earlier this year as part of the UN’s Post-2015 Intergovernmental Negotiations on the SDGs, and published by the UN Sustainable Development Division, show that UN „Major Groups” representing indigenous people, civil society, workers, young people

THINK TANK

Put into perspective – October 2015

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and women remain deeply concerned by the general direction of the SDG process — whereas corporate interests from the rich, industrial-ized world have viewed the process favorably.

Among the ‘Major Groups’ engaged in the UN’s SDG process is ‘Business and Industry.’ Members of this group include fossil fuel companies like Statoil USA and Tullow Oil, multinational auto parts manufacturer Bridgestone Corporation, global power management firm Eaton Corpo-ration, agribusiness conglomerate Monsanto, insurance giant Thamesbank, financial services major Bank of America, and hundreds of oth-ers from Coca Cola to Walt Disney to Dow Chemical.

Despite claims that the UN’s previous Millennium Development Goals (MDG) have succeeded in halving global poverty since the 1990s, there is good reason to question this narrative.

Today, 4.3 billion people live on less than $5 a day. Although higher than the World Bank poverty measure at $1.25 a day, the development charity ActionAid showed in a 2013 report that a more realistic poverty measure would be under $10 a day.

Yet far from decreasing, since 1990 the number of people living under $10 a day has increased by 25%. Global poverty has not reduced — it’s got worse.

Medium

The City’s stranglehold makes Britain look like an oh-so-civilized mafia state

To an extent unknown since before the First World War, economic relations in this country are becom-ing set in stone. It is not just that the very rich no longer fall while the very poor no longer rise. It’s that the system itself is protected from risk. Through bailouts, quantitative easing and delays in interest-rate rises, speculative investment has been so well cushioned that – as the Guardian economics editor, Larry Elliott, puts it – financial markets are „one of the last bastions of socialism left on Earth”.

Public services, infrastructure, the very fabric of the nation: these too are being converted into risk-free investments. Social cleansing is transforming central London into an exclusive economic zone for

property speculation. From a dozen directions, government policy converges on this objective.

Property in this country is a haven for the proceeds of international crime. The head of the National Crime Agency, Donald Toon, notes that “the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK.”

It’s hardly surprising, given the degree of oversight. Private Eye has produced a map of British land owned by companies registered in off-shore tax havens. The holdings amount to 1.2m acres, including much of the country’s prime real estate. Among those it names as benefi-ciaries are a cast of Russian oligarchs, oil sheikhs, British aristocrats and newspaper proprietors. These are the people for whom govern-ment policy works – and the less regulated the system that enriches them, the happier they are.

The speculative property market is just one current in the great flow of cash that sluices through Britain while scarcely touching the sides. The financial sector exploits an astonishing political privilege: the City of London is the only jurisdiction in the UK not fully subject to the authority of parliament. In fact, the relationship seems to work the other way. Behind the Speaker’s chair in the House of Commons sits the Remembrancer, whose job is to ensure that the interests of the City of London are recognized by the elected members. (A campaign to rescind this privilege – Don’t Forget the Remembrancer – will be launched very soon.)

The City is a semi-offshore state, a bit like the UK’s crown dependencies and overseas territories, tax havens legitimized by the Privy Council. Britain’s financial secrecy undermines the tax base while providing a conduit into the legal economy for gangsters, kleptocrats and drug barons. Even the more orthodox financial institutions deploy a succession of scandalous practices: pension mis-selling, endowment mortgage fraud, the payment protection insurance con, Libor rigging. A former minister in the last government, Lord Green, ran HSBC while it engaged in money laundering for drug gangs, systematic tax evasion and the provision of services to Saudi and Bangladeshi banks linked to the financ-ing of terrorists. Sometimes the UK looks to me like an ever so civilized mafia state.

The government also insists that there is no link between political donations and seats in the House of Lords. But a study by researchers at Oxford University found that the probability of so many major donors arriving there by chance is 1.36 x 10-38: roughly „equivalent to enter-ing the National Lottery and winning the jackpot 5 times in a row”. Why does the Lords remain unreformed? Because it permits plutocratic power to override democracy. Both rich and poor are kept in their place.

Governed either by or on behalf of the people who fleece us, we cannot be surprised to discover that all public services are being re-engi-neered for the benefit of private capital. Nor should we be surprised when governments help to negotiate, without public consent, treaties such as the Transatlantic Trade and Investment Partnership and the Comprehensive Economic and Trade Agreement, which undermine the sovereignty of both parliament and the law. Aesop’s observation, that „we hang the petty thieves and appoint the great ones to public office”, remains true in spirit, though hanging has been replaced by community payback.

Wherever you sniff in British public life, something stinks: I could fill this site with examples. But, while every pore oozes corruption, our task, we are told, is merely to trim the nails of the body politic.

To fail to confront this system is to collaborate with it.

The Guardian

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Janet Yellen translated from Fedspeak

For those of you who don’t want to take the time reading through the ponderous 7000-word transcript of the recent FOMC press confer-ence, we bring you the shorter Janet Yellen, translated from Fedspeak into plain English. Enjoy!

YELLEN: Good morning. I realize that everyone in this room has already read our monetary policy statement, but for the boobs out there in the general public who weren’t tipped off by us two hours in advance about what our decision was going to be, let me explain it to you even though you’re perfectly capable of reading it for yourself. In summary, we don’t have any clue what we’re doing or what’s going on in the economy. We’ll continue foolishly targeting a 2% increase in prices, and we’ll blame all sorts of ex-ternal factors when that target can’t be met. Our projections about the economy are complete shots in the dark, but we’ll make a few minuscule changes to our projections from the June meeting just so that it looks like we know what we’re doing and are reacting to market conditions. So now let’s turn it over to questions.

QUESTION: This idea of uncertainty in global markets, isn’t this going to play out over many months, so that the Fed isn’t ever going to hike rates?

YELLEN: Well, global uncertainty definitely is worrisome, and some FOMC members have pushed their projections for rate hikes into next year. But in the end, we expect all of this to be transitory. I mean, it’s not like we’ve created a huge bubble in the US economy, or that China is going to see a huge correction in its markets. Who would actually believe that?

QUESTION: Is the next meeting in play with regards to a rate hike? And what kind of data would you need to see in order to hike rates?

YELLEN: As I’ve said before, a rate hike is possible at every meet-ing. And we haven’t told anybody before, but we’ve brought you guys in to prep you on how to react if we hike rates at a non-press conference FOMC meeting. After all, we don’t want any journalists to stray from the party line and ignore our propa-ganda.

QUESTION: There have been some people protesting a Fed rate hike out of a concern that there still aren’t enough jobs. What im-pact has that had on you?

YELLEN: Yes, I hate those annoying little s***s, but I have to pre-tend that every peon’s opinion is important. But let’s the cut BS: we make the decisions and we’re going to do it regardless of what anyone on the outside thinks, okay? And we still don’t think the labor market has quite reached the amorphous goal we’ve pretended to set for ourselves, so until we hit that ever-changing goal, we’re not going to hike rates.

QUESTION: Do you think you’ve gotten closer to your inflation goals, and have you complied with the Congressional subpoena regarding the September 2012 leak?

YELLEN: B****. How dare you ask me about the subpoena. Do you remember what happened to the last guy who asked a question like that? He hasn’t been seen or heard from since. So I’m going to give you the longest, wordiest answer of the after-noon, repeating myself three or four times and basically rehash-ing everything I’ve already said about our inflation targets. That should give the Federal Reserve police enough time to identify which car in the lot is yours and install the tracking device. And now that I’m winding up my answer, the folks upstairs should have also had enough time to permanently revoke your press

pass. Next question. Oh, wait, you asked about a subpoena? Yes, we are fully complying with Congress’ request for information, just like we always have throughout our history.

QUESTION: The projections you release basically show a low-in-flation environment over the next three years, coupled with an unemployment rate that sits at your view of maximum unem-ployment. Doesn’t that seem a little unrealistic?

YELLEN: Look, as I’ve said before, we really don’t have a clue what maximum employment looks like. And we can’t predict the future. But we have to keep up a facade of knowing what it looks like we’re doing. So we’re going to keep pulling numbers out of our a** for as long as we can and hope for the best.

QUESTION: I want to piggyback on the last guy and point out that your old targets for the unemployment rate and the inflation rate were both higher. What has changed?

YELLEN: Well, we decided that 2 sounded like a nice number. We don’t like decimals and fractions. So our target is 2%. 2, 2, 2, 2, 2. Got that? But that’s not our ceiling. We don’t really care what the ceiling is, but we want to break through that 2% ceiling. The sky’s the limit, but if we can’t break 2% then it makes us look incompetent, as though we can’t actually cause prices to rise. There hasn’t been a central bank in history that’s been incapable of causing a hyperinflationary crisis, and we don’t intend to be the first.

QUESTION: So, like, you mentioned uncertainty, and, like, uncer-tainty caused you not to hike rates this month. And, like, so, what are the kinds of uncertainty that cause you not to raise rates, and what kind of uncertainty can you ignore?

YELLEN: That’s a tough question. But you should trust us that we’re carefully evaluating all the data. But the most important data are the unemployment rate and the inflation rate, and eve-rything is viewed through how it’s going to affect those rates. Or at least that’s what we want the public to believe.

QUESTION: Could you talk a little bit more about the foreign de-velopments that you’re discussing? We’re assuming it’s China, so are you concerned about the Chinese markets? And how about US markets, what do you think about them?

YELLEN: Yes, we’ve focused on China, but we’re convinced that their central planners know what they’re doing. After all, our central planning here is working wonders, right? But we’re also looking at declining oil prices and how that’s going to affect a number of countries and what the spillover effects might be. And yes, we s*** bricks every time the Dow drops a few hundred points. That’s why we have the Plunge Protection Team, but we can’t admit that we intervene to prop up markets, so I’ll just give you a BS statement about how we’re purely focused on the US economy and not at all reacting to market turbulence. Oh, and the economic outlook is peachy keen.

QUESTION: Given global interconnectedness and low inflation rates around the world, are you concerned about not being able to escape the era of zero interest rates?

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YELLEN: No, of course not. We don’t take into account the possi-bility or likelihood of any extreme scenarios, and I can guaran-tee you that when the s*** hits the fan we will be completely blindsided and unprepared.

QUESTION: If the economy improves along the lines of your pro-jections, and you still predict low inflation, what’s the big hurry in raising rates?

YELLEN: We’re going to keep printing goo-gobs of money, and we’re hoping that will start driving prices up. We know every central bank in history that has tried to engage in monetary pol-icy has had to deal with lags in response to monetary policy, and we don’t want to engage in a pattern of trying to fine-tune by tightening, then loosening, etc. Despite the fact that that’s what’s going to end up happening anyway, because there’s no way for 12 people to possibly plan an entire economy, we’re go-ing to pretend that we can do things smoothly and just try to bluster our way through any difficulties.

QUESTION: One of your colleagues wanted negative interest rates. I’m more interested in the cute reporter chick sitting next to me than I am in listening to anything President Kocherlakota says, so I was completely blindsided by something this obvious. Is the Fed going to move to negative interest rates?

YELLEN: Well, we’re a little embarrassed about Kocherlakota too, so we tried to ignore him. And even though the whole world knows that we’re going to have to launch QE4 at some point in the future, we want to publicly state that we would never need any extra stimulus. But in the event that we do need some more stimulus, we would carefully evaluate all the tools in our toolbox, even something as stupid as negative interest rates.

QUESTION: Do you still expect a rate hike before the end of the year? And some people have blamed global turbulence on the possible Fed rate increase. What do you think of that?

YELLEN: I don’t want to give you my own personal opinion, but I think it’s fair to say that the Committee as a whole expects a rate hike before the end of the year. And I think global turbulence is due to concerns about the global economy, not due to anyone getting upset that the Fed might hike rates.

QUESTION: You talked about the strong dollar, do you see your policy decisions affecting the dollar?

YELLEN: Despite the fact that our policy actions are the strong-est factor influencing the dollar’s value, I’m going to downplay it and redirect the focus of your question by stating that monetary policy doesn’t necessarily affect the exchange rate? See what I did there? Yes, we devalue the dollar and reduce its purchasing power, but if other countries do the same to their currencies and exchange rates stay relatively constant, then we can say that

we’re not really devaluing the dollar. I love the floating fiat money regime.

QUESTION: Can you talk about the housing market? How much are you counting on the housing market for future growth?

YELLEN: We’re hoping it continues to rebound, because there’s still some weakness. But it’s a very small sector of the economy. I mean, if you got rid of the entire housing sector and nobody had a place to live, the effects would be minuscule, right? We’re re-ally focused on boosting consumer spending. Come on people, start buying cars that you don’t need and ringing up tons of debt on your credit cards. That’s the path to prosperity.

QUESTION: There are some people who think that ultra-low in-terest rates have exacerbated economic inequality and mainly benefit the wealthy, what do you say about that?

YELLEN: I disagree. Sure, savers and people on fixed incomes are hurt by low interest rates. Sure, low interest rates benefit capi-tal-intensive industries, big banks, and hedge funds. Sure, the interest paid on excess reserves is lining the pockets of Wall Street. Sure, quantitative easing has boosted stock prices. Sure, easy money allows big banks to borrow and buy up all sorts of assets that they can then try to sell or rent at exorbitant prices to the hoi polloi. Sure, the continued devaluation of the dollar drives up the cost of living, leading to price increases that hurt the poor more than the rich. But we paid some Fed economists to produce a paper showing that the Fed’s monetary policy doesn’t worsen income inequality, so that proves that we’re not doing anything harmful.

QUESTION: What role did a possible government shutdown play in your decision today? And what would you say to Congress about „shutting down” the government?

YELLEN: Thank you for that softball that allows me to deflect blame from the Fed and redirect it to Congress. Ignore the $4.5 trillion balance sheet we’re carrying, ignore the continued easy money we funnel to Wall Street, ignore the fact that we’re go-ing to drive this country into the ground. Congress is doing really bad stuff. If they don’t increase the debt ceiling and spend tril-lions more dollars that they don’t have, how are we supposed to monetize that debt by funneling trillions of dollars to the primary dealers?

QUESTION: If you delay rate hikes, doesn’t that also mean that you’re going to delay reducing the size of your balance sheet?

YELLEN: Yes, we can’t start reducing the size of the balance sheet until we start to hike rates. But who are we trying to kid? Does anybody really think we’re going to reduce the size of our bal-ance sheet down to a more „reasonable” level? Come on, peo-ple, we’re in perma-QE mode here. Turn down for what?

Carl Menger Center for the Study of Money and Banking

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Hacker remotely crashes Jeep from 10 miles away

In his disturbing account Greenberg described how the air vents started blasting out cold air and the radio came on full blast when the hack began.

The windscreen wipers turned on with wiper fluid, blurring the glass, and a picture of the two hackers appeared on the car’s digital display to signify they had gained access.

Greenberg said that the hackers then slowed the car to a halt just as he was getting on the highway, causing a tailback behind him - though it got worse after that.

He wrote: ”The most disturbing maneuver came when they cut the Jeep’s brakes, leaving me frantically pumping the pedal as the 2-ton SUV slid uncontrollably into a ditch. The research-

ers say they’re working on perfecting their steering control - for now they can only hijack the wheel when the Jeep is in reverse. Their hack enables surveillance too: They can track a targeted Jeep’s GPS coordinates, measure its speed, and even drop pins on a map to trace its route.”

The hack was possible thanks to Uconnect, the Internet connected computer feature that has been installed in fleets of Fiat Chrysler cars since late 2013. It controls the entertainment system, deals with navigation and allows phone calls. The feature also allows owners to start the car remotely, flash the headlights using an app and unlock doors.

But according to Miller and Valasek, the on-board Internet connection is a „super nice vulnerability” for hackers. All they have to do is work out the car’s IP address and know how to break into its systems and they can take control.

The Telegraph

Girl traces US presidents’ family tree, all related but one

Their political party lines maybe different but one thing United States presidents could share is their family line.

A young girl in California has put together a Presidential Family Tree. Twelve-year-old BridgeAnne d’Avignon found that all the presidents but one are related to King John of England through a common ancestor.

„They are all cousins and all grandsons of John Lackland,“ BridgeAnne told KCOY News. The girl searched more than a half million names for months. She started with George Washington, then traced both the male and female family lines to make the connection.

KCOY reports that before this, historians were only able to link 22 presidential family trees.

The teen also found out that she is the 18th cousin of President Barack Obama. She even wrote him a letter to let him know.

The only president not linked to King John: the eight president, Martin Van Buren.

WFMY News 2

Chinese factory replaces 90% of humans with robots, production soars

In Dongguan City, located in the central Guangdong province of China, a technology company has set up a factory run almost exclusively by robots, and the results are fascinating. The Changying Precision Technology Company factory in Dongguan has automated production lines that use robotic arms to pro-duce parts for cell phones. The factory also has automated machining equipment, autonomous transport trucks, and other automated equipment in the warehouse.

There are still people working at the factory, though. Three workers check and monitor each production line and there are other employees who monitor a computer control system. Previously, there were 650 employees at the factory. With the new robots, there’s now only 60. Luo Weiqiang, general manager of the company, told the People’s Daily that the number of employees could drop to 20 in the future.

The robots have produced almost three times as many pieces as were produced before. According to the People’s Daily, production per per-son has increased from 8,000 pieces to 21,000 pieces. That’s a 162.5% increase.

The increased production rate hasn’t come at the cost of quality either. In fact, quality has improved. Before the robots, the product defect rate was 25%, now it is below 5%.

TechRepublic

TIME OUT

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United Airlines CEO’s exit package includes $21 million in cash, free flights for life

When Jeff Smisek stepped down as United Airlines’ chief executive last week amid a federal corrup-tion probe, he didn’t walk away empty-handed. He will receive at least $21 million in cash and stock, fly free for the rest of his life and keep his company car.

Then there is the parking.

He can park free in downtown Chicago and at airports in Houston and Chicago for the rest of his life.

The full value of Smisek’s exit package could be even higher — he’s still eligible for the incentive pay that accumulated before his resignation. In all, Bloomberg estimates he will walk away with $28.6 mil-

lion. That’s more than double his pay last year, which reached $12.8 million.

Smisek’s resignation was tied to a federal investigation into whether the air carrier launched a money-losing flight from Newark, New Jersey, to Columbia, South Carolina, to benefit the influential then-chairman of the Port Authority of New York and New Jersey, who owned a vaca-tion home near Columbia.

Smisek’s tenure was also pockmarked by technical glitches that briefly grounded United’s fleet this year, and a difficult merger with Conti-nental.

„This is very, very typical,” said Charles Elson, chairman of the University of Delaware’s Weinberg Center for Corporate Governance.

Less typical: Smisek’s non-cash compensation, including the company car, health insurance and the lifetime of free flights (and companion tickets), compensation experts say. United is even picking up the tax bill for the free flights, which the company has estimated could come to more than $437,000.

„From the worker’s perspective, it’s obviously a different mentality,” said Molly Sheerer, a spokeswoman for the union, which is in the midst of contract negotiations with the airline. „We believe there’s something wrong when an executive is awarded over $25 million for failing to do his job.”

„The way that CEO employment agreements are written, you really have to commit a felony before they can fire you and not pay you anything,” said Paul Hodgson, a partner at BHJ Partners, a compensation research firm. „Just being bad at your job or immoral or unethi-cal or whatever is not enough usually.”

Omaha.com

Muslim boy, 14, arrested for making clock mistaken for bomb

A 14-year-old Muslim boy became a sensation on social media Wednesday after word spread that he had been placed in handcuffs and suspended for coming to school with a homemade clock that teachers thought resembled a bomb.

Police declined to seek any charges against Ahmed Mohamed, but that did little to tamp down criticism of police and school officials or suspicions that they had overreacted because of the boy’s religion.

Ahmed was pulled from class Monday and taken to a detention center after showing the digital clock to teachers at his suburban Dallas high school.

Irving Police Chief Larry Boyd said the clock looked „suspicious in nature,“ but there was no evidence the boy meant to cause alarm at MacArthur High School. Boyd considers the case closed.

ABC News

Finnish politician suggests tracker implants for welfare recipients

A politician from Finland’s conservative Finns Party suggested implanting welfare recipients with satellite-tracking chips following news that some recipients continued receiving payments after leaving the country to join ISIL.

A member of Finland’s right-wing Finns Party, Pasi Maenranta, has suggested implanting all recipients of gov-ernment assistance with satellite-tracked chips if they choose to leave the country.

Maenranta made the proposal after Finnish media revealed that some recipients of government assistance continued to receive payments after leaving the country to join ISIL in Syria and Iraq.

„The law should be changed: To receive payments from Kela [the Social Insurance Institution], one has to tell exact data about your location using your personal code, read by a satellite. It is also possible to implant electronic chips to all going abroad, who for example receive medi-cal welfare from Kela,” Maenranta wrote on his Facebook page.

Sputnik

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Fox presenter sues over „Lookalike” toy hamster

A TV journalist in the US is suing a toy company for $5m, claiming a plastic hamster was given the same name and features as her.

Sky News

Chinese sperm banks seduce donors with promise of iPhone 6s

Xinhua

Kerry picks Clinton donor to be State Department „email czar”

The new „email czar” appointed by Secretary of State John Kerry to oversee the burgeoning Hillary Clinton email scandal is a Clinton cam-paign donor who recently made a generous contribution, according to federal records obtained by Judicial Watch.

Her name is Janice Jacobs, a former career diplomat assigned by Kerry this week to be the State Department’s „Transparency Coordinator,” according to a mainstream news report. Jacobs will be in charge of responding to public-record requests involving the secret email account that Clinton used exclusively to conduct official government business. She will also handle congressional requests „faster and more effi-ciently,” and will improve the State Department system for keeping records.

Kerry reportedly assigned an „email czar” in an effort to ensure that the State Department promptly responds to an onslaught of record requests without directly undercutting Clinton and the Democratic Party’s presidential front-runner. Ego also played a role in the appoint-ment because aides cited in the story said Kerry has been annoyed at the distraction the Clinton email controversy has caused for his agency, which has at times „overshadowed his diplomatic efforts.”

Kerry could not have picked a better team player. Jacobs is a big Clinton fan who contributed $2,700 to the Hillary for America presidential campaign fund, Federal Election Commission records obtained by JW show. Can we really expect her to be fair and objective as the new gatekeeper of Clinton’s records? Besides being an admirer and campaign donor of the former Secretary of State, Jacobs has a long history as a State Department insider serving as Deputy Assistant Secretary for Visa Services and Assistant Secretary for Consular Affairs until retiring last year.

No cabinet secretary has ever established their own external communication system in an effort to circumvent both the unclassified and classified government systems. Judicial Watch has been a leader in exposing the Clinton email scandal and has a number of lawsuits pending in federal court. JW was also the first to report that Clinton likely also used unauthorized electronic equipment—an iPad and an iPhone—as Secretary of State after being warned not to. A veteran State Department official told JW in March that on at least half a dozen occasions Clinton’s top aides asked the State Department’s Office of Security Technology to approve the use of an iPad and iPhone. Each time the request was rejected for security reasons.

Judicial Watch

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Bruno J. Schneller is the CIO of Skën-derbeg Alternative Investments AG. Prior to establishing the company, Bruno worked at investment bou-tique and fund of hedge funds pio-neer BrunnerInvest AG.

Prior to BrunnerInvest AG, Bruno worked at AXA Private Equity in 2007 and at Zurich-based hedge fund Naissance Capital Ltd. in 2006.

Bruno holds a M.A. from University of St Gallen (HSG) and earned the CAIA designation in 2012. Further-more, he is a CFA Level II candidate.

Miranda Ademaj is the CEO and Chairwoman of Skënderbeg Al-ternative Investments AG.

Prior to establishing the com-pany, Miranda worked at Brun-nerInvest AG and Sallfort Privat-bank AG. Before that, she worked at Credit Suisse for sev-eral years.

Miranda is a CAIA candidate (Chartered Alternative Invest-ment Analyst) and member of the global association „100 Women in Hedge Funds”.

Bruno J. Schneller, CAIA Miranda Ademaj

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