The Bond Bloodbath Is Back: US, Chinese Yields Soaring

Following the worst month for risk-parity funds since 2015, we suspect month-end redemptions are driving both stocks and bonds (4x levered on average) lower out of the gate in November. Extending yesterday's losses, US Treasury yields are explding higher once again (long-end underperforming) following China's bond market's biggest yield spike in years overnight.

China bond yields hit 2016 highs overnight as the liquidity crisis grows…

 

But the long-end of the UST curve is now up 15bps from yesterday's lows…

 

Notably, the 10Y Yield is now just 15bps away from Goldman Sachs' "equity-worrying levels"

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OPEC Deal Sends Crude Curve Into Backwardation For First Time Since 2014

Following OPEC’s agreement to cut prodiction for the first time in 8 years, front-end prices have spiked (above $50) but perhaps more notable is the unusual ‘stability’ in the crude curve around $54 from July 2017 to Nov 2019.

For the first time since October 2014, the belly of the crude curve is in backwardation (far-months cheaper than near-months).

WTI Dec. 2017 contract was trading at -$1.35 discount to Dec. 2018 at market open yesterday; has now flipped to premium, or backwardation…

 

Perhaps of note is that the backwardation in Oct 2014 seemed to catalyze an acceleration in the plunge in crude prices but for now we note that hopeful bulls eying a return to old norms may be disappointed as so much of the medium-term appears hedged and wedged.

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Ohio State Knife Attacker Abdul Artan Was Taking a Class About Microaggressions

ArtanBefore he was shot dead while attempting to murder a bunch of people with a car and a butcher’s knife, Ohio State University student Abdul Artan—a Pakistani immigrant who reportedly became radicalized after learning about injustices committed against fellow Muslims—was enrolled in a class called “Crossing Identity Boundaries.”

In fact, he had a group project on “microaggressions” due later this week. The assignment, worth 15 percent of his grade, required students to find a dozen examples of microaggressions on social media and explain which identity groups were the victims, according to the syllabus.

The purpose of the class is to promote “intercultural leadership” and transform students into “actively engaged, socially just global citizen/leaders.” It seems to go well beyond merely educating students, though—it actually requires them to become social justice activists.

One of Artan’s classmates who was part of his microaggressions group tweeted a screenshot of the assignment and the names of her group’s members, which included Artan. None of these students responded to a request for comment.

But I was able to confirm that the microaggressions assignment is indeed a component of the “Crossing Identity Boundaries” class. The course’s instructor didn’t respond to a request for comment, either.

According to the syllabus, the point of the microaggressions project is to make students “recognize the role of social diversity” and “demonstrate an appreciation for other points of view and cultures.”

How awkward.

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Kellogg’s Pulls Ads From Breitbart for ‘Not Aligning’ With Their Values; Amnesty Intl Accuses Them of Child Labor Violations

Let’s put this into perspective. The maker of poisonous breakfast cereals pulled their ads from Breitbart, a very popular news site associated with the Trump campaign, because it didn’t align with their values — set forth in their advertising guidelines.

They said associating with brands like Breitbart wasn’t ‘consistent with their brand or corporate image.’

In a scathing report on child labor violations for procuring palm oil in Indonesia, Amnesty International lays waste to corporate giants like Unilevel, Colgate, Proctor and Gamble and you guessed it Kellogg’s.

Amnesty has testimony and video of children as young as 8 years old, pulled from school to work on a slave plantation to endure ‘back breaking labor’,  exposed to harsh chemicals and very heavy materials.

Let’s be clear, placing ads on pro Trump site is not conducive with Kellogg’s corporate image, but buying palm oil from a slave plantation that works 8 year old children is.
 

The human rights organisation traced a range of well-known products back to the palm oil company Wilmar, which it alleged employs children to do back-breaking physical labour on refineries in Indonesia.
 
Singapore-based Wilmar counts multinational companies including Kellogg’s, Unilever, Colgate-Palmolive, Reckitt Benckiser and Nestlé among its major clients, according to Amnesty.
 
In a 110-page report accompanied by a video, Amnesty alleged products sold by those companies were “tainted by appalling human rights abuses … with children as young as eight working in hazardous conditions”.
 
“There is nothing sustainable about palm oil that is produced using child labour and forced labour. Something is wrong when nine companies turning over a combined revenue of £260bn in 2015 are unable to do anything about the atrocious treatment of palm oil workers earning a pittance.”
 
She said allegations of child labour at Wilmar were not “isolated incidents but are systemic and a predictable result of the way Wilmar does business”.
 
In the report, Amnesty alleged that children aged from eight to 14 were carrying out dangerous work without safety equipment, were exposed to toxic pesticides and regularly carried sacks of palm fruit weighing 25kg.
 
One 10-year-old boy, who claims he started working for a Wilmar supplier aged eight, said he gets up at 6am to gather fruit and works every day but Sunday. “I don’t go to school … I carry the sacks with the loose fruit by myself but can only carry it half full. My hands hurt and my body aches,” he said.

 
In response to this report, Kellogg’s said “any supply chain violations of our global palm oil principles, we work with the supplier to understand corrective actions and ensure they understand our commitments. If the concerns are not adequately addressed, we take action to remove them from our supply chain.”

The joys of globalism.

#DumpKelloggs

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“Shell-Shocked” Democrat Donors Concerned At Rudderless DNC: “I May Well Be Done With Political Giving Entirely”

"The feeling I get from big donors out here in California is that… they’re shell-shocked," warns investor Marc Nathanson, who spent big in 2016, adding that he has no interest in participating in the party’s rebuilding efforts. As The Hill reports, many Democratic donors still feel burned by the party’s 2016 election losses and what they see as dysfunction in the DNC. "They’re tired," said one DNC official fingering the blame elsewhere, "they’re upset about the election, and there was significant trauma surrounding the Russians."

As The Hill's Jonathan Easley writes, Democratic donors stung by Hillary Clinton’s upset loss in the presidential race feel like they just set their money on fire.

The sore feelings are a huge problem for the Democratic National Committee (DNC), which is trying to rebuild its image and reinvigorate a defeated party in time for challenging midterm elections in 2018.

 

It’s also a worry for top liberal activists as they prepare for war with President-elect Donald Trump and a GOP Congress that is hell-bent on rolling back President Obama’s accomplishments.

 

Adding insult to the injury: The names of many donors were released in the WikiLeaks hack of Democratic emails, believed to have come at the hands of Russian intelligence. It was a mortifying development that has rattled some of the party’s big-money men and women.

Democratic investors went in on Clinton to the tune of more than $550 million, believing she would dispatch Trump, deliver Democrats the Senate and help the party make inroads into the GOP’s House majority.

Many liberal donors also viewed the election as an opportunity to cement Obama’s legacy.

Instead, Democrats find themselves in the throes of a full-scale and expensive rebuilding project punctuated by a rudderless DNC that won’t elect a new leader until more than a month after Trump is sworn into office.

 

Investor Marc Nathanson, who spent big in 2016, says he has no interest in participating in the party’s rebuilding efforts.

 

Nathanson, who was one of Clinton’s top donors and fundraisers in 2016, told The Hill he’d continue to give money and support to Democratic candidates in gubernatorial and mayoral races in his home state of California. But beyond that, the frustration over the party’s 2016 debacle will keep him on the sidelines.

 

“The feeling I get from big donors out here in California is that they’re not only extremely disappointed, but they’re shell-shocked,” he said. “So to turn around and say, now it’s time to rebuild the national party and the DNC, I just don’t see it.”

 

“I may very well be done with political giving entirely,” said John Morgan, an Orlando attorney and one of Clinton’s top fundraisers in Florida. “My message to anyone reading this is, ‘Don’t call me, I’ll call you.’ From here on out, I’m giving to charities. I’d much rather give money to build a new Boys & Girls Club than to give to the [Democratic Senatorial Campaign Committee].”

However, some Democrats believe the fundraising panic is being overblown, arguing that in Trump, the party has a fearsome boogeyman that will keep horrified donors in a giving mood.
 

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Gartman: “Clearly We Were Wrong To Short Crude The Day Before The OPEC Meeting”

Gartman has done it again, and luckily, the following “advice” does not require much in terms of commentary. It was, as Gartman might perhaps say, to be expected in self-explanatory terms.

From yesterday’s, November 30, Gartman letter:

In all, it is a guessing game what shall eventually come out of today’s final meetings, but as noted above some sort of agreement has to be put forth or OPEC is indeed finished, if it is not finished already in light of the US shale industry’s advances. We are short of crude oil from yesterday; we’ll have stops on those positions on a closing basis this afternoon here in the States, with the intention of adding to those short positions once the OPEC meeting is behind us. We’ll wait until at least tomorrow to add to the positions and we may wait until Friday perhaps.

And then the follow up, from today, December 1:

Crude oil prices have rather obviously soared and we were rather obviously wrong in having sold crude oil short the day before the “official” OPEC meeting. We are still egregiously suspicious of the ability on the part of the various OPEC members to truly adhere to the production cuts announced, but time only shall tell if our concerns/expectations for OPEC’s ability to remain unified in its intent shall prove correct. For the moment, there is unity… with the operative words here being “for the moment.”

 

Clearly we were wrong/early/ill-advised in being short of crude one day before the official OPEC meeting but clearly too we remain suspicious of the cartel’s ability to keep its members aligned. Clearly we shall err bearishly of crude, but not for the moment, but perhaps later this month… perhaps.

As a reminder, WTI soared over 9% yesterday, its biggest one day move since February. To all those who “erred bearishly” alongside Gartman, and were suckered into going short just as we warned on November 29…

… our condolences.

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Another False Flag? “Destructive Iranian Hackers” Allegedly “Wreak Havoc” With Saudi Computer Systems

In what may soon emerge as the latest middle-east diplomatic scandal, not to mention roil the just concluded OPEC deal, Bloomberg reports that state-sponsored hackers have conducted a “series of destructive attacks on Saudi Arabia over the last two weeks, erasing data and wreaking havoc in the computer banks of the agency running the country’s airports and hitting five additional targets.” Additionally, “several” government agencies were also targeted in attacks that came from outside the Kingdom, according to state media.

However, according to early reports from a Saudi probe, “digital evidence” suggests the attacks emanated from Iran. While Bloomberg believes that this could present President-elect Donald Trump with a major national security challenge as he steps into the Oval Office, it also threatens to destabilize the recent detente between the two countries, which granted Iran bragging rights to be the only country allowed to boost output as part of the Venna OPEC production cut deal. 

To be sure, one can’t discount the possibility of a false flag attack, with the intentional purposes of destabilizing relations. According to Bloomberg, unlike a 2012 attack on Saudi Aramco or the one by North Korea against Sony Pictures in 2014, “the latest was perpetrated by detonating a cyber weapon inside the networks of several targets at once. Concerns over a broader campaign set off a search in computer networks throughout the Gulf for more traces of the digital bomb.” It is unclear whether Iran has the technological wherewithall to engage in such a complex cuberattack.

If confirmed that Iran is behind the attack, an angry Saudi response is guaranteed: thousands of computers were destroyed at the headquarters of Saudi’s General Authority of Civil Aviation, which was caught completely by surprise, “erasing critical data and bringing operations there to a halt for several days, according to the people familiar with the investigation.” 

The people familiar with the probe didn’t identify the other targets but one said they were all inside Saudi Arabia and included other government ministries in the kingdom, a country where information is highly controlled. Extensive damage occurred at four of the entities but the virus was halted by defensive measures at the other two.

Just like Russia, which the US has blamed repeatedly for engaging in cyberattacks against the US, most recently to destabilize the US election without providing any evidence, and an overture that the Russian FM yesterday told Italy’s Corierre della Sera was a “myth”, the U.S. considers Iran a major cyberwar adversary. In 2012, U.S. officials accused Iran of being behind months of strikes in 2012 against the websites of major U.S. banks and the infiltration of a small dam 20 miles north of New York City the following year. They also said Iran was behind the attack on Aramco, the world’s largest oil company, which destroyed 35,000 computers within hours.

Then again, perhaps it is just retaliation: Iran itself has been the victim of cyberstrikes, with experts saying that the U.S. and Israel were behind an attack that used the so-called Stuxnet virus to disable operations at an Iranian nuclear enrichment plant at the start of the decade.

While tensions appeared to ease after the Iranian government reached a nuclear-nonproliferation deal last year with the five members of the United Nations Security Council, an accord shepherded by the Obama administration, worries have emerged that Donald Trump may tear up the deal “on day one”, as he has threatened to do during his presidential campaign.

Meanwhile, Bloomberg adds that investigators piecing together the computer destruction are trying to determine a motive for the attacks, which occurred in the last three weeks: between Trump’s election and key OPEC meetings. “Anyone who did this attack knows it has implications for the nuclear deal,” said James Lewis, director of the strategic technologies program at the Center for Strategic and International Studies in Washington.

According to Lewis the attacks “could be a shot over the bow by Iran.” He also admitted that the attack could “possibly the work of another country mimicking Iran in hopes of derailing the accord with a provocative act” however so far, investigators have found no evidence to suggest a country other than Iran was involved in the attacks, as one would expect from a sophisticated false flag operation, perhaps one initiated by Israel which did tremendous damage with the Stuxnet attack on Iran’s nuclear infrastructure. However, it’s also possible that attacks of these kind can be mimicked to make them look like they come from a particular country.

“Some of these are signaling operations, testing the threshold. Is the response going to be just a speech or is it going to be something more?” asked Melissa Hathaway, a senior adviser at Harvard University’s Belfer Center and former cyber official in both the Obama and Bush administrations. Like Lewis, she spoke generally and without direct knowledge of the Saudi incident.

To be sure, if it was indeed a false flag, the one country that would stand to benefit the most from impairing relations between Iran and Saudi Arabia would be Israel: the legacy nemesis of Iran has long made it clear that Iran being perceived as an object of stability in the region is against its national interest; several years Netanyahu was allegedly close to launching a campaign to prevent Iran from developing its nuclear program, and was one of the catalysts for the subsequent imposition of sanctions against Iran, which were removed last year as part of Obama’s landmark deal.

However, the person who will most likely be left to find a resolution should another middle-east scandal erupt as a result of this hack, will be Donald Trump.

“The next president and his team will have to grapple with these questions probably in the first month, maybe even the first 72 hours,” Hathaway said.

The attacks were conducted with the same malware, known as Shamoon, that devastated Saudi Aramco in 2012. Although hackers usually add enhancements to malware to advance its capabilities and make it harder to detect, they used exactly the same file as in the Aramco incident, the people familiar with the investigation said. Shamoon overwrites files and renders the infected computers inoperable by destroying the master boot record. It spreads quickly throughout a network, causing destruction like the digital version of a wildfire.

In a similar move in 2014, Iranian hackers managed to destroy most of the computer network of Sheldon Adelson’s Sands Corp., after the casino magnate angered Iranian leaders by publicly suggesting the use nuclear weapons against the country. The U.S. publicly cited Iran as the culprit.

Concerned there might be additional targets, investigators working the latest case began alerting governments and companies last week. They quietly distributed digital indicators that can be used to determine if the Iranian malware is hiding in other networks. The first samples of the malware used in the latest attack were uploaded on Nov. 16, likely indicating the date of the first attack, according to records from VirusTotal, a malware library.

Finally, should a scandal erupt between the two nations – although we are confident Iran will deny it was the source of the hack –  it is likely that the just concluded OPEC production cut, in which implementation and enforcement of production levels is already questionable, will be put in jeopardy. However, if nothing else, at least Saudi Arabia will have a basis to back out of the deal if and when it so chooses – an outcome many oil experts have said is very likely – having a convenient scapegoat on which to blame the collapse of the “historic” agreement.

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Buying Panic Resumes As Stocks Erase November Closing Dump

Worst initial jobless claims data in 5 months… no problem. After spending the night in the red, following the closing dump yesterday, futures are panic-bid again into the US open, erasing the losses…

 

 

How long before we hear “Santa Claus” rally as the reason?

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Ask Jacob Sullum All Your Questions About Drugs, Policy, and Drug Policy

We need to talk about Jacob Sullum. This Reason senior editor plays it low key, but he’s pretty amazing. Our beardy drug guru is the author of two critically acclaimed books: Saying Yes: In Defense of Drug Use (Tarcher/Penguin) and For Your Own Good: The Anti-Smoking Crusade and the Tyranny of Public Health (Free Press). He knows everything there is to know about pretty much any illicit substance you can imagine. And everybody likes him: Saying Yes has been praised by both sides of the political spectrum. National Review called it “a highly effective debunking,” and Mother Jones described it as “a healthy dose of sober talk in a debate dominated by yelping dopes.”

Just in the last couple of weeks he’s delivered killer reporting and analysis on ecstasy, marijuana, kratom, cannabis candy, booze, and even soda. Plus flag burning and criminal justice reform.

So ask him anything over at his Twitter account using the #askalibertarian hashtag. And then donate!

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A.M. Links: Trump Heads to Indiana, Putin Addresses Russia, Tennessee Wildfires ‘Likely to Be Human-Caused’

  • President-elect Donald Trump is headed to Indiana today, where he will visit the Carrier plant in Indianapolis.
  • Sarah Palin is reportedly under consideration to serve as the secretary of veteran affairs in the Trump administration.
  • Senate Democrats are planning to make the confirmation of Trump nominees “as painful as possible for the new president.”
  • In his annual state-of-the nation speech, Russian President Vladimir Putin said Russia is “not seeking conflict with anyone.” But “we will not permit harm to our interests.”
  • The Tennessee wildfires that killed at least seven are “likely to be human-caused.”
  • “Oil swept to a six-week high on Thursday after OPEC agreed to cut crude output to help clear a glut, while sterling hit a three-month peak after traders interpreted comments from a senior UK official as a crack in the government’s ‘hard Brexit’ line.”

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