Month: November 2016

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Submitted by Charles Hugh-Smith via OfTwoMinds blog,

If there is any lesson to be learned from the ghosts of Watergate, it is that the big-money support of a leader who has lost the ability to deliver the goods crumbles very quickly as the endgame unfolds.

The parallels between Hillary Clinton and Richard Nixon are not legal–they are political: specifically, how can a leader crippled by scandal and cover-ups govern?

In even blunter terms: how can a crippled politico deliver the goods to the special interests who bet their cash and political capital on the politico's ability to deliver favors?

Among the many ghosts of Watergate, one specter especially haunts Hillary: once the special interests and party stalwarts who defended you through every scandal and every cover-up–month after month and year after year, on the promise that you would deliver the goods upon ascending to the presidency–realize you are too damaged to deliver anything of value to anyone, why would they continue supporting you?

Once a politico has to declare "I am not a crook" based on legalese rather than a moral foundation, that politico's ability to lead has vanished. Hillary and her supporters rely entirely on legalese parsing of wrong-doing rather than on a self-explanatory, basic moral foundation of right and wrong.

Declaring "I am not a crook" because the wrongdoing escapes prosecution is the same as declaring "I am above the law." If the foundation of one's ability to lead is a reliance on legal parsing and allies in the Department of Justice squashing investigations while handing out immunity like candy on Halloween, the political capital required to lead no longer exists.

Ultimately, the President leads by moral suasion. Even the political act of delivering the goods to the special interests that funded your campaign and your wealth must be backed by the moral authority of personal integrity and a morally grounded appeal to the common good.

A politician who has effectively zero personal integrity is only as viable as his/her ability to deliver favors to the few (i.e. special interests) over the objections of the many. A reliance on cold-blooded horse-trading only works if the leader has enough political capital to arm-twist everyone into granting favors to allies and special interests.

But this political capital rests on moral suasion and support earned not by issuing promises but by leading the nation through thorny thickets to solutions that work for the many, not just the few.

Once the ability to lead has been lost, special interests can forget about getting favors. And once they realize their politico is a liability rather than an asset, self-preservation requires abandoning the liability as quickly as possible.

It's nothing personal, it's just business. Anyone who thinks Hillary has the personal integrity to build sufficient political capital to lead is delusional. Anyone who believes Hillary has the moral foundation to deliver the goods to the myriad special interests that have funded her campaign and her personal wealth is equally delusional.

Are Goldman Sachs et al. delusional? If there is any lesson to be learned from the ghosts of Watergate, it is that the big-money support of a leader who has lost the ability to deliver the goods crumbles very quickly as the endgame unfolds.

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In today’s, 25th, Wikileaks release, one of the notable highlights is a March 2, 2015 email from John Podesta to Clinton aide Cheryl Mills in which he says “We are going to have to dump all those emails.” The email was sent just days before the NYT story revealing the existence of Hillary’s email server, and Hillary’s press conference addressing what was at the time, the surprising revelation that she had a personal email account, and server, in her home.

Mills’ response: “Think you just got your new nick name.”

It is unclear for now which emails Podesta is referring to in the thread, but Podesta adds: “better to do so sooner than later.” We can hope that a subsequent response, yet to be leaked by Wikileaks, will provide more color.

If the exchange is shown to disclose intent to mislead, it will negate the entire narrative prepared by Clinton that she merely deleted “personal” emails and will reveal a strategic plan to hinder the State Department and FBI “investigation.”

This is the first time that particular exchange has emerged among the Podesta emails.

And in a separate email sent out just days later by communications director Jennifer Palmieri, we get yet another confirmation that the president actively mislead the public when he said he didn’t know Hillary was using a private email address:

Suggest Philippe talk to Josh or Eric. They know POTUS and HRC emailed. Josh has been asked about that. Standard practice is not to confirm anything about his email, so his answer to press was that he would not comment/confirm. I recollect that Josh was also asked if POTUS ever noticed her personal email account and he said something like POTUS likely had better things to do than focus on his Cabinet’s email addresses.

Perhaps while the DOJ is looking into the Huma Abedin emails, it can also take a repeat look at some of these, especially the ones involving POTUS.

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Suddenly, it appears the markets have woken up to the uncertainty of next week’s election…

The Peso and Stocks are back atpre-Debate 2 levels…

As goes the mexican peso, so goes America!

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In an unexpected reversal of (mis)fortune, this morning Sentix writes that the Eurocrisis creeps back into the heads of the investors in a new way: it is no longer Greece, but Italy which is now the country that is most likely to leave the Eurozone within the year from the perspective of the more than 1,000 investors surveyed. “This development underscores the importance of the referendum to the Constitution in Italy on December, 4th.”

Sentix adds that while it looked as if a “castle peace” had been concluded a few months ago, the euro concerns are gradually rising again among investors. But this time it is not Greece that dominates the agenda. Although for example the pension funds in Hellas are collapsing, the euro exit probability has fallen to 8.48% – the lowest level since 2014.

Italy is now the focus country number 1 in the Eurocrisis! The precarious situation of the Italian banks, the political questions surrounding the Constitutional Treaty at the beginning of December, and the economic turmoil of the past have placed the country south of the Alps at the center of investor interest.

The above graph shows the historical dimension that is inherent in this signal. And it shows that this is not a one-off event, due to an up-to-date message, as we observed in the Netherlands, for example, after the Brexit decision.

Besides Italy, Sentix also measure a disadvantageous trend in Portugal. While the exit probability is not very high here, the EBI value worsens in small but steady steps. Thus, the risk of contagion as measured in the “Contagion Risk Index” also come back to the agenda.

And with the Italian referendum coming up fast, scheduled for December 4, the market is starting to noticed. Earlier today, Italy’s borrowing costs hit eight-month highs with investors focused on political risks and stuttering banking sector reforms there as anxiety about other lower-rated euro zone nations has eased, Reuters writes.  The formation at the weekend of a minority Spanish government after a 10-month political stalemate has prompted markets to throw the spotlight east to Italy instead for what could be a nervy year-end.

The gap between Italian and Spanish 10-year borrowing costs – viewed as a key indicator of political risk – rose on Monday to 41.4 basis points, its highest since 2012. It hovered close to that level at 39.5 bps in early trade on Tuesday. 

Concern about Italy centres on a referendum on Dec. 4 in which voters will decide whether to approve Prime Minister Matteo Renzi’s programme of constitutional reforms to reduce the role of the Senate and the powers of regional governments. Polls suggest Renzi may lose the referendum, “and that would be very bad news,” said DZ Bank strategist Daniel Lenz. “Since Portugal passed the DBRS ratings test and Spain now has a minority government, Italy is where the risks lie,” he said.

Last month, Portugal came through a DBRS sovereign credit review with its sole investment grade rating intact. Losing that would have made it illegible for the European Central Bank’s bond-buying programme.

Meanwhile back in Italy all but one of 26 opinion polls published this month have put the “no” camp ahead, with a lead ranging from one to nine percentage points.  Renzi earlier this year said he would step down in the event of a “no”. While he has stopped making that promise in recent months, he would come under huge pressure should he lose the vote.

With the outcome of next week’s U.S. presidential election uncertain, the direction of the next ECB policy move on Dec. 8 unclear and a U.S. interest rate rise likely on Dec. 14, the timing of the Italian referendum alone could magnify market volatility.

In addition, and adding to the pressure facing Italian banks, Reuters also reported today that Veteran Italian banker and former industry minister Corrado Passera withdrew his rescue plan for the insolvent Banca Monte dei Paschi di Siena on Tuesday, accusing the bank of obstruction and ignoring the interests of its own shareholders. Passera’s withdrawal leaves Monte dei Paschi, the country’s weakest major lender, tied to a plan drawn up and backed by investment bank JP Morgan to sell some 28 billion euros ($31 billion) in bad loans and raise 5 billion euros in new capital.

Monte dei Paschi, which failed the European stress test over the summer, is desperate to complete the 5 billion euro cash call by the end of December, an ambitious target given that Italians are to vote on Dec. 4 in a constitutional referendum which could unseat the government and sour market sentiment. The attempted turnaround of Monte dei Paschi is the first big test of a state-backed campaign to steady Italy’s banking sector and clean up 360 billion euros in problem loans.

“Ours was a serious proposal to turn around and relaunch the bank that would have given a key role to current shareholders,” Passera said in a letter to the bank which was released to media. “We were denied the minimum conditions for proceeding.”

 

Passera said in his letter that he had assembled investors willing to invest around 2 billion euros in the bank. He did not name the investors, saying he had been prepared to identify them if Monte dei Paschi signed a confidentiality pact.

 

But a spokesman for Passera said the bank had asked for so many restrictions to be included in the pact they had not got round to signing it.

Finally, as reported before, and adding to the country’s troubles, another powerful earthquake struck over the weekend in the same central regions that have been rocked by repeated tremors over the past two months. The government recently cited earthquakes and the influx of migrants as reasons for submitting a budget plan to the European Union that would increase Italy’s structural deficit. 

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For the first time since Dec 2012, US Construction spending declined for two consecutive months (sliding 0.4% in October versus an expectation of a 0.5% rise). But, perhaps rather shockingly for many, US Construction Spending declined 0.2% year-over-year for the first time since 2011, with public construction outlays at ther lowest since March 2014.

Not a good sign (but time to raise rates?)

Chart: Bloomberg

The last time US construction spending decline on an annual basis, the economy entered recession…

Chart: Bloomberg

Both private and pubic construction spending declined (-0.2% and -0.9% respectively) with US public construction outlays at their lowest since March 2014.

Time to raise rates, borrow loads of debt (at higer rates), hike taxes, and spend it on bridges and tunnels?

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Despite a final October print for PMI at 53.4 (highest since Oct 2015), US manufacturers remain skeptical and, as Markit notes, "hiring is also being subdued partly by worries about escalating costs, with the October survey recording the largest monthly rise in factory prices for five years." Following disappointments from regional Fed surveys (Dallas and Chicago notably), ISM Manufacturing rose to 51.9 (with prices paid rising and new orders tumbling).

Both ISM and Markit surveys of US manufacturing improved in October…

ISM Breakdown shows prices rising and orders falling (and a drop in inventories is not helpful for Q4 GDP). Overall, four components declined, among which New Orders, while 6 rebounded, including Prices, suggesting to potential stagflation should growth not follow:

• New orders fell to 52.1 vs 55.1
• Employment rose to 52.9 vs 49.7
• Supplier deliveries rose to 52.2 vs 50.3
• Inventories fell to 47.5 vs 49.5
• Customer inventories fell to 49.5 vs 53.0
• Prices paid rose to 54.5 vs 53.0
• Backlog of orders fell to 45.5 vs 49.5
• New export orders rose to 52.5 vs 52.0
• Imports rose to 52.0 vs 49.0

Asal, New Orders fail to show a sustained rebound.

Meanwhile Inflation fears soar:

Amid reports of rising commodity prices, average input costs increased for the seventh month in a row. The rate of inflation was also the greatest recorded by the survey for two years, and encouraged companies to pass on these higher costs to clients in the form of increased output charges. The net result was a solid pace of charge inflation that was the strongest seen since November 2011.

And the rising costs of inflationary inputs is weighing on employment…

The ISM respondents were very cheerful, as usual:

• Domestic business steady. Export business trending higher." (Chemical Products)
• "Very favorable outlook in the market." (Computer & Electronic Products)
• "We are looking at a considerable slowdown for October and November. Production is down 20 percent." (Primary Metals)
• "Business is much better." (Fabricated Metal Products)
• "Strong economy driving steady sales." (Food, Beverage & Tobacco Products)
• "Due to the hurricane and other storms, our business is up significantly." (Machinery)
• "Ongoing strength seen in 2016 — it’s a good year." (Miscellaneous Manufacturing)
• "Customers continue to press price reductions." (Transportation Equipment)
• "Our business remains strong." (Plastics & Rubber Products)
• "Hard to predict oil price dynamics, but there seems to be a consensus that the market is stabilizing, at least above USD 50 bbl this month." (Petroleum & Coal Products)

Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“October saw manufacturing enjoy its best performance for a year. Factories benefitted from rising domestic and export sales, driving output higher to mark an encouragingly strong start to the fourth quarter.

“The survey also picked up signs of manufacturers and their customers rebuilding their inventories, often filling warehouses in anticipation of stronger demand in coming months.

“However, a widespread reticence to take on extra staff highlights lingering caution with respect to investing in capacity, at least until after the presidential election.

“Hiring is also being subdued partly by worries about escalating costs, with the October survey recording the largest monthly rise in factory prices for five years.

“While output growth is accelerating, so too are inflationary pressures, which will further fuel speculation that the Fed will hike interest rates again in December.”

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Just last week we wrote about the seemingly desperate move of the democrats to file a lawsuit against the RNC alleging that its efforts to “ensure ballot integrity” were nothing more than another alt-right attempt to “intimidate minority voters” (see “Desperate? – Democrats Sue RNC Over Trump’s “Rigged Election” Comments Alleging ‘Minority Voter Intimidation’“). 

In a move that wreaks of desperation, and certainly beneath a campaign that is apparently coasting toward a 12-point blowout victory in just over a week, the DNC has sued the RNC over efforts to “ensure ballot integrity” alleging “intimidation of minority voters.”  Since when did working with “secretaries of states all over the country to ensure ballot integrity” become a crime?  And, why exactly are democrats so fearful of any measure that attempts to ensure the integrity of our federal elections?  Is it because such efforts to “ensure ballot integrity” might just prevent the massive voter fraud that we all know exists?  Just a guess.

Ironically, Trump and the RNC aren’t the only ones ramping up efforts to oversee polling stations around the country.  As Bloomberg points out, team Hillary is also “assembling a voter protection program that has drawn thousands of lawyers” and is readying “election observers” that will be deployed to a number of swing states.  We’re not legal experts but that certainly sounds like the democrats are preparing to do the same thing that they just sued republicans for doing.  Though none of this is terribly shocking given that we’re in the midst of the most bizarre election in U.S. history.

Clinton is assembling a voter protection program that has drawn thousands of lawyers agreeing to lend their time and expertise in battleground states, though the campaign isn’t saying exactly how many or where. It is readying election observers in Florida, North Carolina, Pennsylvania, Ohio, New Hampshire, Iowa, Nevada and Arizona to assess any concerns — including the potential for voter intimidation — and to verify normal procedures.

 

The Republican National Lawyers Association, which trains attorneys in battleground states and in local jurisdictions where races are expected to be close, aims to assemble 1,000 lawyers ready to monitor polls and possibly challenge election results across the country. Hedge fund manager Robert Mercer, one of Trump’s biggest backers, has sunk $500,000 into the group, its biggest donation in at least four presidential elections, Internal Revenue Service filings show.

 

“We are fighting for open, fair and honest elections,’’ the association’s Executive Director Michael Thielen said in an e-mail.

Of course, Trump has made quite clear his views that the election is being rigged by everything from voting fraud to a corrupt media that’s in the tank for Hillary.  And, with numerous reports of dead voters popping up around the country and WikiLeaks emails revealing mass media collusion with the Clinton campaign, many voters are starting to see that he has a point.

Of course there is large scale voter fraud happening on and before election day. Why do Republican leaders deny what is going on? So naive!

— Donald J. Trump (@realDonaldTrump) October 17, 2016

Voter fraud! Crooked Hillary Clinton even got the questions to a debate, and nobody says a word. Can you imagine if I got the questions?

— Donald J. Trump (@realDonaldTrump) October 17, 2016

The election is absolutely being rigged by the dishonest and distorted media pushing Crooked Hillary – but also at many polling places – SAD

— Donald J. Trump (@realDonaldTrump) October 16, 2016

Hillary Clinton should have been prosecuted and should be in jail. Instead she is running for president in what looks like a rigged election

— Donald J. Trump (@realDonaldTrump) October 15, 2016

Meanwhile, the Trump campaign has been recruiting “election observers” on their website for months now calling on supporters to “help me stop Crooked Hillary from rigging this election.”

But, as Bloomberg points out, each state has varying statutory provisions governing partisan election observers that may limit each party’s efforts to oversee polling stations.

Trump has been encouraging people at his rallies to “go out and watch’’ at polling places as part of his contention that the election could be “rigged,’’ despite the lack of any evidence of widespread voter impersonation. He also has a sign-up page on his website for volunteers to be election observers to “help me stop Crooked Hillary Clinton from rigging this election.’’

 

Almost all states have statutory provisions for partisan election observers, and at least 35 states and the District of Columbia allow nonpartisan citizen observers, according to NCSL. Rules and provisions for who can be observers and what they are allowed to do at the polls vary by state, but federal and state laws prohibit discriminating against or intimidating voters, according to the Brennan Center for Justice.

But who knows if any of this will actually be necessary.  While polls suggest a tight race, the only thing we can say with relative certainty is that pollsters have never encountered a race like this and are, therefore, almost certainly very wrong about their assorted predictions.

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