Month: April 2017

Authored by Daniel Moscadi via GEFIRA,

Vallombrosa is a unique place in Tuscany. Its founder, Saint Giovanni Gualberto, a Benedictine monk, chose this secluded place in the mountains 40 km east of Florence to lead a hermit-like existence, right after the year 1000, and with a restricted group of monks started his own monastic order, the Vallombrosani.

John Milton among many other travellers – found inspiration in Vallombrosa while traveling across Italy in 1638, and a marble inscription reminds tourists that here Milton put into writing his Paradise Lost. Vallombrosa is not a place for crowds; rather a place where to seek meditation and inspiration.

To me Vallombrosa represents memories from my childhood. It could be called a piece of my personal heimat, if you wish. Back in the 60’s, when a car was still a far-flung luxury for many Italian families of the working class, we would take the Sunday morning bus from the train station in Florence with some frugal lunch, and we were back in the city with the same bus in time for dinner. For me, as a child, that was the highlight of the week – or the month – as it was all that we could afford at the time as a holiday.

It was with these memories that I rode my motorcycle along the winding road through the national forest that is part of Vallombrosa. But when I shut off the engine it wasn’t the silence that I had expected as usual but an eerie cacophony that got my attention. A crowd of young Africans, all in their 20’s, were standing and sitting around the area of the monastery, all of them doing the same thing: shouting at their i-phones, evidently talking to their folks back home.

Welcome to the new Italy, where the replacement of the original population, once known as Italians, is in full swing. Only a few years ago this affirmation would have caused sarcastic disbelief, now is the reality in front of our eyes.

It happened overnight (literally), during the winter, when over 100 “migrants” from Africa fresh from their landing in Sicily, were unloaded in this oasis of peace and tranquility. Now, you would think the location was chosen because the benedictine monks were ready to open their doors as a sign of charity and compassion. Far from it.

In reality, and without any help from the monks, what was accomplished was business at its best: minimum effort for maximum profit.

Take a group of local entrepreneurs to take over an old, abandoned hotel near the monastery, one of those hotels that attracted travelers once upon a time. Restore it to make it (more or less) look again like a semi-decent hospice so that you can amass in it as many Africans as possible. Make as much as 25/35 euro a day per person, courtesy of the Italian taxpayers. Welcome to Italy’s fastest growing and most profitable business.

The example of Vallombrosa is not an exception, rather the rule of what is happening in Italy, or what it could otherwise be called “profitable invisibility”.

Until now local governments – especially the ones where elections are approaching – have been very careful in “disposing of” the migrants in secluded, peripheral areas, so that the locals would not notice their presence in their daily lives. Now, at an estimated rate of arrivals/replacements of over 250.000 a year it is going to be a (serious) problem to keep this “profitable invisibility”.

In fact, as migrants are not confined to their housing and are therefore free to move around, by whatever public transportation is available the hard-to-hide consequence is that a city like Florence resembles every day more and more an African suk, with a young African man outside every commercial establishment begging for money or trying to sell useless Chinese knickknacks.

If you talk to them, they will all tell you the same thing: they did not know that it was going to be “this bad”. They “were told” back in Nigeria, Ghana, Mali, Senegal, Ivory Coast, Burkina Faso, and the list could continue, that “once here they had it made”. How? I asked, again, who told them these fairy-tales?

I couldn’t get a convincing answer, and I got the feeling I shouldn’t have asked that question. Considering that on average each migrant pays to get to Europe between 2.000 to 4.000 euro, that sum for most is seen as a lifetime investment that should ensure a better future not just for them but for their families back in Africa.

If you invest all your savings plus a potential future debt to arrive in the land of prosperity you are not going to plan on leaving that place anytime soon. After all, even if you are found as an illegal alien on Italian soil, all you will receive is a foglio di via (expulsion warrant) in which Italian state authorities “summon” the illegal alien to leave Italian territory within – normally – a week or so. And after that the illegal alien is left free to go, so long, goodbye till next time when he’s caught again perhaps as a result of a crime, and then he will be given another foglio di via, just to refresh his memory that he’s an illegal alien. By then, he knows he is dealing with a banana republic.

The refugees receive a daily allowance of 2.50 EUR as pocket money, but obviously they want more. They are not legally allowed to work – thanks to Italy’s mind-boggling bureaucratic system – but can participate as “unpaid volunteers” in social projects such as cleaning of parks, streets, and the like, but, given the fact that it is on a volunteer basis only, the “volunteers” are few and far between, and they certainly prefer to spend the day sitting around or begging for money so that at the end of the day they will have rounded up a few euros.

The only real possibility of work is “low paid” farm labor, and the average pay ranges between 2 to 4 EUR/hr, especially in the south. Young Italians, even if unemployed, are not interested in hard and tedious farm labour, or washing dishes in a restaurant. So the “migrants” come handy and useful for many potential employers who have at their disposal a virtual endless supply of next to slave labour.

Inevitably, due to these massive arrivals, Italy is under an unprecedented financial strain. Inevitably, those who are bound to suffer the most from this shift in resources are the growing numbers of Italians – now approaching the 5 million mark – who are rapidly declining into the official category of povertà assoluta or absolute poverty, as classified by ISTAT (the National Bureau of Statistics and Census) who would be willing and forced to accept even as little as a few euros per hour just to get by, except that a potential employer doesn’t even consider hiring an Italian for he knows that a legal employee could easily report an unlawful working condition, therefore potentially exposing the employer to heavy fines.

The millions of Italians – especially elders with no families – who have ended up in this category have little or no help from the state, especially when it comes to housing and specific medical care such as dental care. If you are a single adult with no children, chances of getting subsidized housing are next to zero. And that has a quite simple explanation: all the available subsidized housing goes to families with children, and most of them are foreigners with an average of 2/3 children.

Finally, it is Mother Nature who knows no morals, at least not as humans conceive them, and Nature always wants its toll. Just like in the animal world the invasion of alien species in a new environment often causes a severe reduction – or extinction – of native species, in human societies the massive and sudden moving of people from one continent to the other causes – inevitably – infectious diseases to reappear where they were eradicated or increase dramatically, and of course unexpectedly.

Tuscany sets a perfect example. Traditionally friendly and hospitable, thanks to its post -communist local governments, Tuscany has been welcoming sub-Saharan Africans for at least a couple of decades by now, and Tuscany now stands apart in Italy for a dramatic rise in meningitis cases.

Once again, the local government of Tuscany carefully and skillfully plays down the numbers, avoiding – God forbid if Mass Tourism hears about this – the word “epidemic”, but the numbers are out there and are becoming hard to hide.

Of course, the consequential negative effects for local populations facing what is hard to disguise as “humanitarian crisis”, but in reality a planned forced replacement of Europeans, was taken into account when all this was carefully planned by the “movers and shakers behind the curtains”. Nothing could be left to chance.

In order to accomplish this MP (Master Plan), regardless of the name you want to call it, a fundamental ingredient is essential, namely, the complete readiness of a subservient oligarchy, holding key positions in the countries you want to subdue. This oligarchy must be composed of key figures ready to be disposed of whenever necessary or no longer usable. In other words, as perfectly stated by Gaetano Mosca, a political scientist of the late 19th century, “a well organized minority will always have its way over a disorganized majority.” And, shall we add, for an organized minority to reach its goals another essential is to get rid of all potentially powerful obstacles.

Silvio Berlusconi may have been ultimately unfit to lead Italy, but he had some points to his favour, one of them his personal friendship with Muammar Qaddafi. Thanks to that friendship, and as long as Qaddafi was in power, Libya had not become a major jumping point for Italy for sub-Saharan Africans. In 2011, in a matter of months, both leaders are out of the picture, one resigns and one is dead. Libya plunges into a civil war, and chaos in the country is the result, with no recognized central authority any more.

Two years later, in October 2013, one of the things that you would have certainly called “impossible” to happen in life actually does happen: the Pope resigns from his post. In his resignation statement delivered in Latin he calls himself physically overwhelmed thus unfit to lead the Catholic Church. So long, goodbye.

Of course, it is just one of those weird coincidences, but the Vatican State had been cut off for days prior to Pope Benedict’s resignation from all international banking transactions via SWIFT, just like other evil nations such as Iran and North Korea. Within hours of Benedict XVI’s departure from the Vatican, bound for the residence of Castel Gandolfo outside Rome, Vatican’s connections with SWIFT are reestablished and all banking transactions are possible again. Talk about providential timing.

A new and quite different Pope is elected by the cardinals, certainly, we like to believe, inspired by the Holy Ghost. A Pope that soon, like a broken record, will remind – on a daily basis – Catholics worldwide, but especially Italians that “migrants are not just welcome, they are absolutely welcome”. Now, for a devout Catholic, that must be accepted, and cannot be questioned, even if you have (many) doubts, deep down in your conscience: after all, a Pope is always right, and we, as Catholics, must obey.

Until 2013 the numbers of arrivals from Africa are high, but always below 50.000 a year. 2014 marks the first year of biblical numbers, with over 170.000 arrivals, mostly from sub-Saharan Africans. Since then, the numbers are rising and 2017 is due to pass the 200.000 mark. Never mind that Italy is – literally – running out of places to hold – and feed – these masses. The Pope for many Italians remains the ultimate voice of truth so if THEY come, we must welcome THEM.

History repeats itself.

At least in Sicily. In January, 1943 the Casablanca conference in Morocco attended by Churchill and Roosevelt proved to be a turning point of the war. No longer on the defensive, with the Axis forces of Italy and Germany driven out of Africa, Churchill was anxious to attack Hitler’s “fortress Europe” through its “soft underbelly” as he called Italy. And so Operation Husky was decided. The allied forces landed in Sicily in July 1943, which led, in a matter of weeks, to the fall of Mussolini and the surrender of Italy in September, with the country effectively divided in two until the end of the war in April 1945.

As with any carefully prepared military invasion, reliable domestic contacts providing eyes and ears on the ground were essential. Rather than relying on virtually non-existent “resistance groups” like it was going to be the following year for the landing in Normandy, the US and Britain knew they were to take advantage of a different – yet formidable – power: the Mafia.

A number of US intelligence agencies had already been in contact during the war with the New York “underworld” essentially in order to protect the port of New York from highly possible acts of sabotage especially by the Germans.

As Operation Husky received the green light, all possible useful contacts in Sicily were recruited by US intelligence agencies, but the key figure was by no doubt top Mafia mobster Lucky Luciano. Serving a 30 to 50 year sentence in a NY correctional facility since 1936, Luciano provided the US Navy with many Sicilian contacts which proved to be extremely useful in aiding allied forces to establish a secure foothold in Sicily. The all-too-obvious consequence was that the Mafia, on the run since Mussolini’s arrival, was back in power, and it was there to stay.

It must be admitted that Sicily provides an outstanding presence in the Italian government. In January, 2015 the first Sicilian President of Italy, Sergio Mattarella, is elected by the parliament. At that point Sicilians hold the top 3 positions in the Italian government: The President, the President of the Senate (Pietro Grasso, a former prosecutor), and the essential Minister of Interior Angelino Alfano. It needs to be reminded that while the former two are honorific figures and are no decision makers, the Ministry of the Interior is the direct supervisor and coordinator of the whole immigration affaire.

This list would not at all be complete without the President of the Chamber of Deputies, Laura Boldrini. (Although not sicilian: she is in fact from the Marche region in Central Italy). Before being elected at this post in 2013 (the third in importance in the government) she spent -according to her biography – between 1998 and 2012 working for UNHCR in prominent roles.

In her whole career, professional and political, she has made no mistery on whose side she stands for, and that side is certainly NOT the average italians who live from paycheck to paycheck (provided they have one) despite the fact that italian taxpayers reward her with over 100.000 euro a year for her position.

Being from an affluent family, she really never had to worry about making ends meet, devoting her whole life to the underpriviliged ones. Just as long as they are NOT italians. We could call her expertise on this whole matter just like the cherry on the cake, or, better stated, the right person in the right place at the right time.

Getting back to Sicily, and speaking of affari (italian for business) immigration -biblical or not- has been a fantastic, unprecedented affare for Sicily as untold billions of euros have kept a steady flow to the island. Sicily has Europe’s biggest migrant reception center, the C.A.R.A. (Centro Accoglienza Richiedenti Asilo), located in Mineo near Catania where many “irregularities” were found out by local prosecutors, leading to the indictment of at least 17 people including a high level politician of the same political party as Angelino Alfano, (NCD)

One of the wistleblowers of the many “irregularities” that were the norm at the C.A.R.A. in Mineo is a middle level police officer from Rome, Daniele Contucci. Contucci has worked for years “in prima linea”, as he states, being among the first ones to receive -and interview -migrants just unloaded on sicilian shores after having been rescued at sea.

When asked if there’s any hope this biblical invasion will slow down any time soon Contucci is highly skeptic. “Not as long as there’s so much money involved. The profits to be made are just staggering, by far surpassing any other illegal activity”, he says. He admits that -perhaps a bit naive- he thought he could find help and attention to his cause from politicians that rewarded him with lots of shoulder padding and praises but no concrete action of any sort, regardless of the political orientation, leaving him “highly convinced” that despite all the official claims and drama, no party in Italy is willing to do anything serious about this. “It’s the money. There’s simply too much money involved. It’s the kind of money that can buy any politician.”

Last, but by all means not least, the “traghettatori”, italian for ferrymen. Just like Operation Husky,this biblical task could not be accomplished without a fleet – or a flotilla – of well equipped, well payed, well maintained vessels.

Of course they are all humanitarian organizations, and they devote all their lives and their (huge) resources to the safe transporting of migrants to the all too willing and cooperating (or – shall we say – receiving orders from above?) the Marina Militare, or the Italian Navy. One tiny detail: if you want to take “part of the action” as a volunteer, and become a crewmember on one of the NGO’s vessels, get ready for a good series of vaccination shots as a mandatory condition to be taken onboard. As the saying goes: “better be safe than sorry”.

Now the Italian Ministry of Public Health wants “everybody” to get vaccinated in Italy, and that -soon- is probably not going to be an option, especially for schoolchildren. Profitable businesses often go hand in hand. You start with immigration, and you end up with vaccination. It must be the Law of Attraction.

This monumental endeavour of changing Italy’s demographics has found its admirers. One gentleman in particular is willing to open his wallet and shower this gracious flotilla with the insignificant gift of 500 million euro.

We wonder what may be behind all this generosity. Perhaps, as the man wants to be remember by future generations of dark skinned italians, as he is getting a little aged and has little time left, he wants to push the final population replacement of Italy to the fullest.

Back in 1943 they were called GI’s. In 2017 they will be called GSB’s (George Soros Boys). Welcome boys, to your future home. The Banana Republic of Italy.

via http://ift.tt/2nuN9qh Tyler Durden

Since not a day passes without someone opining on the biggest witch hunt since the days of Senator Joe McCarthy to keep the “Trump is Putin’s agent” media narrative going, and keeping at least half of America engaged with the “evil empire” plotline (we didn’t say it was original), today it was Mark Cuban who decided to engage in some freestyle twitter narrative-shaping on whether Trump is involved some grand Russian hacking conspiracy.

Cuban’s conclusion: “No chance this is a DJT led conspiracy. He isn’t detail oriented, organized or big picture enough to pull off any time of conspiracy” and instead he puts Trump in the role of Putin’s useful idiot: ” Putin recognized trumps greed and took advantage by back channeling coordinated misinformation in an attempt to influence voters.”

Meanwhile “because he didn’t recognize or understand as it was happening he has no idea what to do now or how to respond. So he turns to Fox News.”

Of course, since this website – highly critical of both the US government, the financial sector, and the real source of financial power, the Federal Reserve – has been accused on numerous occasions as being on Moscow’s payroll or “influenced” by Russia for spreading “conspiracy theories” and better yet, “arming hecklers with content“…

… and since that is patently false, we remain amused by the daily stupidity coming out of otherwise supposedly intelligent people, even as the narrative has recently crossed all propaganda boundaries and now merely being anti-Hillary is equivalent to being “influenced by Russia” as a former Clinton advisor tweeted last night…

It is becoming increasingly clear that Bernie’s diehard supporters, those who became avowed Hillary haters, were influenced by #Russia.

— Peter Daou (@peterdaou) March 31, 2017

… in what, while potentially one of the dumbest things ever said, also exposes the entire “anti-Russia narrative”, which boils down to one simple thing: anyone who criticizes, is skeptical of, or merely questions the status quo or “establishment” is a subversive Russian agent, period, and will eventually have to be put away for U.S. society’s sake.

Maybe it hasn’t gone that far yet, but eventually it will.

Until we wait, here is Cuban’s tweetstorm, keeping the anti-Russia flame alive one more day.

1. Here is my take on Trump and Russia
2. Russians have made him a lot of money buying condos and investing in his bldgs and hosting his beauty pageant.That makes them his friends
3. He ignored their backgrounds. But that’s not unusual.  Starbucks takes anyone’s money and so do most businesses including mine.
4. He spoke favorably about Putin to get his approval for Russians to get $ out of Russia and into Trump deals.  He saw it as easy money
5. When Manafort was recommended, he didn’t vett him. He saw it as a win win. Win the election or open the door for more Russian business
6. As people with Russian connects came into the campaign he had no clue that those connections were possibly being influenced by Russia
7. His lean campaign took direction from people he trusted and he followed those directions. He had no clue where the Russians fit
8. when Manafort got “hot” he got rid of him but the campaign approach had been established. Bannon took it to the next level FTW
9. No chance this is a DJT led conspiracy. He isn’t detail oriented, organized or big picture enough to pull off any time of conspiracy
10. I think Putin recognized trumps greed and took advantage by back channeling coordinated misinformation in an attempt to influence voters
11. Trump had no idea this was happening. He was doing what he was told to do. Stick to the script and read what was written for him
12. Because he didn’t recognize or understand as it was happening he has no idea what to do now or how to respond. So he turns to Fox News
13. That’s what I think happened. Feel free to agree or disagree

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Authored by Raul Ilargi Meijer via The Automatic Earth blog,

The true face of the EU is presently on display in Greece, not in Germany or Holland or France. Brussels must first fix what’s going wrong in Athens and the Aegean, and there’s a lot going wrong, before it can move on towards the future, indeed towards any future at all. It has a very tough job in Italy as well, which it’s trying hard to ignore.

You can’t say ‘things are fine in Germany’ or ‘Finland is recovering’ and leave it at that. Not when you’re part of a political -and to a large degree also economic- Union, let alone when you’re preaching tightening -and deepening- that Union. Not when parts of that Union are not only doing much worse than others, but are being thoroughly gutted. Then again, they’re being gutted by the very Union itself, so Brussels -and Berlin, The Hague, Paris- can’t very well feign surprise or deny responsibility.

Of course the European continent needs a ‘body’, some form of organization -and it needs it badly- that will allow its nations to cooperate, in 1000 different ways and fields, but the EU is not it. The EU is toxic. It is turning nations against each other as we speak. So much so that it’s crucial for these nations to leave the union and dismantle the entire operation before that happens, because there will be no opportunity left to do it once the toxicity takes over. The UK should count itself lucky for getting out while it did.

In its present setting, the EU has no future. And, more importantly, there is no mechanism available to change that setting. It should have been insisted on when the Union was founded, or in one of its various treaties after. This never happened, though, and that’s no coincidence, it was always about power. It’s therefore very hard -if not impossible- to see how the EU could be altered in such a way that it has a chance of survival.

Changing or tweaking a few rules is not going to do it. It’s the very Brussels power structure that is inherently faulty, and those parties that under this structure have the power, are the same ones who would have to change it (against their own interests). There is not a single decision concerning important -for instance economic- EU policies that can be taken against the wishes of Berlin. And Berlin demands what’s good for Germany, even if that is bad for other member states.

In order to save the EU, German representatives would have to vote against their own national interests. But they were elected specifically to protect those interests. There is no better way to illustrate the fatal flaw in the -construction of- the EU. Politicians are elected to protect the interests of their member states, and no member state can possibly prevail but Germany, because it’s the biggest. You can put any label you want on that, but democratic it’s not.

Germany and Holland are doing great, according to the most recent economic data. But how is that a reason to celebrate when Greece and Italy, among others, are not doing great at all? Why the difference? It’s not because they spend their money on “Schnaps und Frauen” as Eurogroup president and Dutch demissionary FinMin Dijsselbloem so poetically suggested.

It’s because the Eurogroup has not acted in their best interests. Because when their interests differed from the Dutch and German ones, the latter won out. Easily. And they always will under the present terms. As head of the Eurogroup, Dijsselbloem should represent the best interests of all member nations, not just Holland and Germany.

So should Angela Merkel as the de facto head of the EU. And it’s a very simple fact, easy to explain as well, that these interests can conflict. Obviously, that Merkel can call all the important shots in the EU should be a red, flashing, blinding and deafening alarm sign to start with. Germany should have taken a step back, back in 1960 or so, or even 1999, but for obvious reasons didn’t, and got away with that. It’s about power, it was never about Union other than to increase Power.

European politicians have not been able to make the ‘shift’ from nation to Union. Once they are faced with decisions that may harm their national interests, but benefit those of the EU as a whole, they must revert back, by default, to their own respective nationalistic priorities. Even if they are the ones who complain loudest about rising nationalism and protectionism.

And they’re -kind of- right, or justifiable. German, French, Dutch politicians are not accountable to Slovakian or Slovenian interests. That’s just extra, nice if it happens to coincide with what Berlin or Paris want, but not a priority in any sense of the word. Understandable, but lethal to the idea of a Union.

There is your fatal EU flaw. The whole common interest idea is just a sales pitch, always was. Which worked fine in times of growth. But take a look now. There’s nothing left. The rich north has used the poorer south to transfer its losses to. It’s not a union, it’s old-fashioned colonialism.

Europe’s political problem can perhaps best be expressed by comparing it to the US. Germany, plus to a lesser extent Holland, and France, have so much power that it would be like California and New York could call all important shots in America. But they can’t. Trump’s election shows that they cannot. Europe doesn’t even have that escape valve.

Delving a bit deeper, Kansas and California may be different cultures, but their people speak the same language, they watch the same TV shows, read the same news. Different cultures, but also part of the same culture. In Europe, most people have no idea who EU head Juncker is, or care, or how he got where he’s at.

Most likely know who Angela Merkel is, but they don’t know that she takes all the important decisions about their lives now. If they did, the pitchforks would be out in minutes. Luckily for Merkel, the EU is as opaque as can be,

90% of Europeans need subtitles to understand Juncker and Merkel. Or for some journalist to translate for them. Everyone in Kansas and California understands what Trump says, no matter how confused he may sound or what they may think of him. He’s American, and so are they. He’s one of them.

Needing subtitles to understand Juncker and Merkel may work in times of plenty. But in lean years, people don’t take kindly to that kind of thing, that someone you can’t even understand, and that you can’t hold to account, makes important decisions that impact you directly, as you see your jobs and savings and homes vanish and the future of your kids disappear.

That is asking for trouble. The EU has that trouble, and it will have much more of it. The only way out of that trouble is for the Union to dismantle itself. But as we can see in the whole Brexit story, that would involve so many interested parties giving up on so many perks that feed them, politicians, businesses, what have you, that none of it would ever happen voluntarily.

The EU has become a farcically intricate web of policies and laws and regulations, all built on fatally flawed foundations, that no citizen of sound mind feels connected with. The only way out of that is to literally get out. The UK got it right, whether they meant it or not.

The EU cannot be reformed because the only people -and the countries they represent- who could do the reforming, profit hugely from the present state of affairs, from not reforming. Fatal. Flaw.

As any builder can tell you who’s ever seen a structure on the verge of collapse: some can be saved and some of them you just have to let go. Raze ’em and start from scratch. Which in many cases, as builders know, is simply the best choice.

Please don’t get me wrong: of course there are tons of things the EU has done that are great, and right, and all that. But it’s the power structure that will inevitably kill it no matter what else it does that actually works. And that structure is beyond redemption.

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One glance at the shocking headlines over the first quarter of 2017 and one would imagine intense volatility in the world’s capital markets – from the leader of the free world being ‘managed’ by Putin to North Korean Nukes; and from Fed rate hikes to the rise of populism in Europe. But that would be entirely wrong – Q1 2017 was the calmest for US stocks since 2006…

Just a week ago, it looked as if the dormant CBOE Volatility Index was awakening.

 

Fast-forward five days, as Bloomberg reports, VIX is closing in on its lowest quarterly average since the final months of 2006.  The measure has lost 18 percent this year through Thursday as the S&P 500 Index climbed 5.8 percent.

 

Given the epic flows of retail money chasing any and everything higher, one wonders how prophetic the timing of the last nadir of this level was…

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Eric Townsend and Patrick Ceresna, the people behind the weekly Macro Voices podcast, have released an extended, hour-long interview with Julian Brigden founder of Macro Intelligence 2 Partners, in which among the various topics discussed (see the attached slidespack for supporting materials and charts) were: 

• U.S. Dollar impact on the U.S. shale bubble
• Peak acceleration in ISM manufacturing
• Headline inflation peaking
• Fed tightening going to start to impact data
• Bond shorting opportunity is over
• Risks to the reflationary trades
• Wage trends in the U.S.
• Perspective on European growth and inflation
• Relative pricing between U.S. and European bunds

Bridgen, who until recently was aggressively bearish Treasuries since June, is now confident that the “time to be out of US fixed income shorts for now.” The reason for that is that he anticipates the recent surge higher in economic indicators (all of them of the survey, or “soft” kind), is now rolling over, and it “doesn’t get any better.”

Furthermore, adding to the downward pressure will be the upcoming inflation peak, as the energy base effect will in several months start to exert a downward influence, the same way it boosted inflation in the late part of 2016 and early 2017.

Furthermore, the ongoing tightening of financial conditions via higher interest rates across everything from Libor to mortgages, will start to impact the data.

Making matters worse, all of this will take place as expectations are near their highs, and all this puts the recent reflationary trades at risk.

And while Bridgen says that he is not changing his overall secular outlook on the US economy  – the upcoming deflationary wave is merely a temporary blip until wage growth catches up – he is shifting his investing decisions and attention to Europe, where he believes growth is set to accelerate as there has been no tightening of financial conditions yet as the ECB’s QE train continues to chug along, and where after a lag, European inflation is expected to more higher (we are not so confident, especially now that the base effect just lead to a big disappointment in the latest European CPI print just yesterday).

In any case, if Bridgen is right and the next inflationary wave hits Europe as the US is deflating, however briefly, it would have major implications for both relative bond pricing (10Y TSYs vs 10Y Bunds and US vs Eurozone output), as well as FX: USD vs EUR.

Some notable quotes from Bridgen:

• Obviously, we’ve all seen it in energy prices and how oil prices are percolating through into inflation. But I think what’s also not quite as well understood is how that also manifest itself via that same sort of essentially base effect into the economic data, the growth data.
• When we typically look at growth data we very rarely look at the level of growth. What we typically discuss is the speed or the acceleration of growth and by that, I mean, month on month, quarter on quarter, year on year
• So, to a large extent what we’ve seen is that in terms of some of these PMI data and that’s what we were playing all of last year and what we said in December, we will come to a point where this thing will just naturally run its course. It just doesn’t get any faster.
• The model suggesting that maybe we can punch out one further higher number which I think comes out next week in May, we can clip at 60 on ISM manufacturing
• you’re already starting to get some signs of disappointment in some of these PMI. So, if you look at say the Dallas Fed survey which came out I think last week the previous number had been 24.5. It was supposed to come in at 22 and it came in at 16.9 and all of this makes us believe that we are approaching not only this sort of cyclical high in terms of the inflation story which we’ll talk about in a second but also the cyclical high in terms of the speed of the growth story.
• That has important ramifications I think for markets. it’s not super bearish. We’re not trying to say that we think the U.S. is going back into recession. We just think that the data is going to start to essentially disappoint.
• we’re going to settle on I think into a much more normal level of inflation. Essentially the same sort of level of inflation that we saw prior to oil’s drop and now for central banks that’s going to create bigger problems but that comes. Initially we’re going to get peak, initially we’re definitively going to get that peak.

However the most interesting part of the entire interview is Bridgen’s take on the so-called “Armageddon scenario”, or rather what he calls the “edngame for markets”, which as he correctly points out is not in the context of a deflationary episode – after all central banks can always paradrop money, political considerations notwithstanding, but when inflation is running hot. Below is the key excerpt:

Erik:    Let me just ask a question there because we’ve had quite a few guests express a view that Europe is in really serious trouble of course the Brexit article 50 trigger occurred this week a lot of guests have said that they think it’s the beginning of the end. That soon several other countries will exit Europe. The economy will fall apart. They’re in big trouble. Obviously, you’re expecting European growth to accelerate. So, does that imply a different view about European exit risk contagion or how do you see this?

 

Julian:   Structurally no. One of the things that I often disagree with friends and peers of mine is whenever you get weak data, you have a lot of people that sort of run around and say oh my goodness look ISM is going to drop below 46. The whole experiment has failed. The world is going to blow up. The equity market is going to implode. My base case is always been that you don’t get to the Armageddon scenario with weak data. You actually get to the Armageddon scenario when you actually get strong data. Because in weak data – the ISM dropping to 46, European growth failing to materialize, inflation sitting on the lows of 2014, 2015 – you can get vast swathes of accommodative central bank policy.

 

They can print, they can do all the other distortive measurements and steps that they’ve taken and they can essentially inflate the market. They can do what the Japanese are doing they can buy equities they can do whatever they want to Erik that’s never the end game. You can get a wobble in that scenario but it’s not the end game. The end game for markets, the most dangerous toxic scenario for markets, comes when you’ve got vastly inflated prices and central banks actually need to hike.

 

So, imagine a scenario later this year where they say look, obviously the French election could be a heart attack, but let’s say we have continued deterioration in Italian economy which is our base case but everywhere else in Europe is booming and inflation pressures are coming through and the ECB whether Draghi likes it or not, he’s facing a full revolt with everyone in Northern Europe including the French because the French economy looks to us like it’s absolutely barring as I said Marie Le Pen about to explode in terms of growth and Europe’s second largest economy growing will have a material, material  impact.

 

But let’s say for instance that that’s what happens Draghi’s actually forced to hike. In a bizarre way because he’s created such a bubble in the bond market as that thing blows he’s actually going to be responsible for sinking Italy because if the equity markets go south as that bond market blows, he can’t come in with more QE because he has ingrained inflation and they have a singular mandate. So, the end game doesn’t occur by weakness it actually occurs by strength.

All this and much more in the full, free, hour-long interview below.

 

And the associated slide deck below:

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The beautiful thing about data visualization is that it can appear deceptively simple, writes VisualCapitalist's Jeff Desjardin. The world is infinitely complex and burgeoning with all kinds of information. As a result, it seems counterintuitive that things can be reduced to a basic bubble chart or a graph – and to be fair, most things can’t. When the opportunity does arise, however, the results can be very compelling and thought-provoking. A distilled story can help create insight around a subject that wasn’t possible when looking at it with more nuance and complexity.

THE POPULATION OF EVERY COUNTRY IN BUBBLES

Today’s visualization comes from Datashown, and it helps to give some perspective on world population.

It’s a deceptively simple visualization, but the story that gets distilled is loud and clear:

The beauty lies in the simplicity – and although all countries are represented, only the labels of the biggest are shown.

If you want to dive into the granular data, here is an interactive version of the same diagram, with all countries and population statistics embedded.

ZOOMING IN ON THE UNITED STATES

On the above bubble chart, envision “zooming in” on the circle representing the United States, which is located just below China and India.

Here’s the population of every U.S. county. Click the image for an interactive version, from Overflow Data.

 

Feeling small yet?

Just for fun – here’s a video that notches it up to a more universal level:

 

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Once upon a time Washington was simple: on one hand you had Republican interests, on the other: Democrats, and inbetween them perhaps, the occasional independent or “green.” Now… it’s less simple. At last check, DC currently boasts at least nine different parties, groups, factions or ideologies. Which is why keeping track of who wants what, and how the various groups allign, in US politics has become quite complicated.

So, for all those confused, here is a table from Deutsche Bank which summarizes how the different groups within the White House, House and Senate align on key issues.

In the table above, Y=Yes, N= No, ? = Don’t know; ?N = bias is No.

Some notes: as DB’s Alan Ruskin writes, the table above is a very rough schematic, on how various groups are perceived to lean on key issues. Political positions are obviously fluid. Some observations include:

i) Perhaps reflective of past political positions, the perceived approach of Cohn and Treasury Secretary Mnuchin are in some respects better aligned with the Democrats than the GOP on individual taxes, although more in favor of supply side, corporate tax reform than the Democrat establishment.

 

ii) There may be serious ambivalences about specific tax cuts among some parties, but middle class tax cuts have cross party support, and would be harder to reject than anything on the expenditure side, like infrastructure spending. Middle class tax cuts is a better starting point than infrastructure spending for encouraging GOP support, before the President goes down the risky route of courting Democrats. As Table 2 indicates, the range of estimates on multipliers slightly favors infrastructure spending, but only modestly over tax cuts for the poor and middle class.

 

iii) Similarly, there is limited material opposition to a net fiscal stimulus in principle, if Meadows latest comments are an accurate reflection of the Freedom caucus; although the likely process of  reconciliation will constrain ‘the permanence’ of any net stimulus.

And now that the main actors’ desires have been identified, how does the Trump reform path look like from here? Some additional observations on the “conventional long haul”, and the “alternative” route facing Trump, and everyone else in Washington, and how these would impact the US economy, market, the Fed’s “reaction function”, and last but not least, global risk appetite.

From DB:

Gary Cohn met with President Trump on Thursday to give the President an outline of Tax Reform possibilities. The options vary widely, but from a market perspective are best thought of as a choice of two very different tracks: A long, ambitious and conventional path of comprehensive tax reform; or, a populist, possibly bi-partisan quick fiscal stimulus, with very limited “reform”. Both paths are fraught with political risks, but have their own allure, and each approach could have profoundly different market implications over the coming year.

i) There’s the conventional long haul, with tax bill developed in the House, enabled and support with direction from the White House. In this approach some past reform initiatives could be resuscitated. One example is meshing the 2014 Camp plan with many of the Brady-Ryan tax simplification tenets. This could allow for more focus on individual tax reform and exclude the controversial border adjusted tax. After all, BAT has many of the characteristics that sank the ACA repeal and replace, including extreme complexity, big winners and losers resulting in aggressive push back from entrenched interests, and, House leadership backing with questionable Senate support. It would be surprising, if BAT was high on Trump’s agenda, even if its exclusion means dramatically scaling back corporate tax reform ambitions.

ii) One alternative, is a much less ambitious route for a President to notch up a quick ‘legislative win’, by looking for measures that secure the greatest chance of fast passage, if necessary by reaching across the aisle. This approach would be driven by the White House in keeping with the latest administration comments that it ‘is driving the train’ and fits with a direct, unconventional, non-ideological approach. Of the measures that have most cross party appeal ‘middle class tax cuts’ best fit the description, even if both parties will find plenty to argue over what constitutes ‘middle-class’. Actions to encourage corporate foreign earnings repatriation and possibly some infrastructure spend would also be on the list of asks. ‘Reform’ and in particular the broadening of the tax base, by removing deductions would be kept to an absolute minimum to facilitate easy passage. The measures could be advertised as a tasty hors d’oeuvre before a main course, that may never arrive!

Economic impact

Neither the conventional path, nor the alternative route would have any material impact on the long-term natural rate of growth of near 2%. Small changes to the corporate tax would not fundamentally change the US status as a relatively high corporate tax country. Other possible changes like the full expensing of Capex is expensive, and would likely fall by the way side in a very limited corporate tax reform bill. For tax cuts, the growth impact will be dependent on the PCE channel; here the short-term cyclical boost to demand could still be substantial. As per Table 2, the estimates of multipliers on middle income tax cuts vary enormously, but the high estimate multipliers (1.5) are on the higher side of tax and spend multipliers. Infrastructure spending is also widely seen as having one of the higher multipliers.

Market implications.

There is nothing simple in the simplification of taxes. Simplification is deeply complicated and the removal of deductions has many of the characteristics of entitlements, with entrenched interests fighting hard for the status quo. Given the political uncertainties, the time value of money is enormous. Extending the time before any enactment, adds to the risks that nothing gets done; likely dilutes the stimulus; and, time adds to the uncertainty about the economic circumstances when the measures hit! In that light it appears as if the market is currently pricing in very little in the way of a fiscal stimulus, which helps explain the markets tepid reaction to the ACA repeal and replace failings.

Without a significant reduction in the corporate tax rate it is difficult to make strong arguments that Tax reform will impact trend growth, Corporate bond and equity inflows, and net FDI into the US. Instead, all the FX market’s emphasis will be on any cyclical growth stimulus, resultant monetary policy, and the portfolio flow channel.

The Fed.

Because of the way the market values time, the prevailing view for 2017 runs something like this:

If President Trump goes down the conventional, long and winding road toward tax reform, the Fed may tighten twice more this year, but the risks are if anything tilted to less, rather than more hikes. This is what is currently priced in.

If the President goes for a quick ‘legislative win’, the market will have to think in terms of the risks tilting quickly toward three more rate hikes this year.

Arguably 2018 Fed expectations should be even more profoundly impacted. Dec 2018 is also pricing in very little material fiscal stimulus given that only 44bps of funds tightening is priced in for 2018. If the market can see a 1% of GDP fiscal stimulus for each of 2018 and 2019, a minimum of an additional 25bps should be priced in for next year.

Most other asset classes will take their short-term directives from this broad outline on the impact of fiscal alternatives, although the FX market seems less sensitive to short-term Fed expectations, and more inclined to take its cue from Fed expectations beyond 2017; and, longer-term rates, like 10yr yield spreads.

Global Risk Appetite

Global Risk appetite was very resilient in the face of recent Washington events. The reasons include: i) The US economy is not in need of a stimulus, and may even do better in the long-term, if there is Washington gridlock. ii) less US growth means less Fed tightening, especially in 2018/19; and, iii) Outside the US, global growth is much more than a Trump reflation story. Global risk resilience in the face of US political uncertainties can continue, at least while political turmoil discourages US overheating, even if the US equity market will be less ebullient in the shorter-term.

In contrast,, if the President pursues the alternative ‘quick win’ approach and there is signs of House and Senate support, the market will go back to a view that meaningful stimulus will show up directly in the economy come Q1 2018 at the latest, and indirectly via financial conditions well before then. It is that kind of scenario that is needed to reinvigorate the bullish USD view. For dollar bulls there should be no equivocation – the fiscal hors d’oeuvres, are much preferred to risking starvation on the long & winding road.

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A month ago, Maryland Attorney General Brian E. Frosh wrote to federal authorities asking that they declare the state's courts, schools and hospitals off limits to immigration agents. Frosh, a Democrat, wrote that he was sending the letter in response to new immigration guidelines issued by the Trump administration that greatly expand the number of people considered a priority for removal from the country.

"I am concerned that the Administration's aggressive new policies will discourage the most vulnerable immigrants from seeking judicial protection and medical care, which will cause avoidable injuries and potentially even deaths," Frosh wrote.

 

"I ask that you take action to remove this immediate threat to the health and safety of immigrants in Maryland by declaring our courts and hospitals to be safe locations, where U.S. Immigration and Customs Enforcement and Customs & Border Protection authorities will not be allowed to identify and seize potential deportees."

Frosh's request mirrored efforts by jurisdictions led by Democrats in Maryland and around the country to declare themselves sanctuaries, meaning they won't use local resources to aid efforts to seize immigrants.

However, all that was before AG Sessions surprise press conference last week in which he detailed the administration was stepping up its push back against cities that break the law by not enforcing actions against illegal immigrants.

"Today, I'm urging states and local jurisdictions to comply with these federal laws.  Moreover, the Department of Justice will require that jurisdictions seeking or applying for DOJ grants to certify compliance with 1373 as a condition for receiving those awards."

 

"This policy is entirely consistent with the DOJ's Office of Justice Programs guidance that was issued just last summer under the previous administration."

 

"This guidance requires jurisdictions to comply and certify compliance with Section 1373 in order to be eligible for OJP grants.  It also made clear that failure to remedy violations could result in withholding grants, termination of grants and disbarment or ineligibility for future grants."

 

"The DOJ will also take all lawful steps to claw back any fines awarded to a jurisdiction that willfully violates Section 1373."

Sessions also called on states like Maryland and California to scrap their plans for becoming a sanctuary state.

"That would be such a mistake." 

 

"I would plead with the people of Maryland to understand this makes the state of Maryland more at risk for violence and crime, that it's not good policy."

And, as Fox Baltimore reports, it appears the administration is cracking down on Maryland already…

Three Maryland counties have been identified as protecting illegal immigrants in their custody.

 

Homeland Security has identified Baltimore, Montgomery and Prince George's counties as non-cooperative jurisdictions after defying a federal request to hold immigrants in their custody.

 

In an emailed statement Baltimore County spokesperson Ellen Kobler says, “Regarding the detainer listed in the Declined Detainers Outcome Report, we cannot identify any individual in Baltimore County Detention Center records that matches any of the information in the ICE report."

 

On a weekly basis, jurisdictions that fail to co-operate with detainer requests have started to be identified by Homeland Security.

 

An executive order requires it.

Prepare for more tears from Schumer, and more pained expressions from Pelosi who appear quite comfortable supporting people breaking America's laws.

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Judging by recent market action, it is becoming apparent that traders and investors are getting if not tired, then displeased with having to trade what boils down to one of two narratives: Trump Reflation Trade On, and – as has been the case recently – Trump Trade Off. As much is apparent in the latest weekly kickstart note from David Kostin who writes that with the market struggling to readjust its expectations for US government policy following the move away from health care reform, client conversations make clear that investors fall into two camps:

• The first group worries that the failure to “repeal and replace” the Affordable Care Act is a sign that other items on the policy agenda are less likely to be enacted than they had hoped.
• The second group is encouraged about the shift in focus to tax reform as the new top priority for the administration.

Here Goldman notes, that despite the recent stumble by the Trump administration, its D.C. economist Alec Phillips continues to expect legislation late this year through the FY2018 budget resolution that will use dynamic scoring and some deficit expansion to reduce the statutory corporate tax rate. He views many of the additional reforms that have been proposed as less likely.

However, as Kostin cautions, from an equity market perspective, recent performance reflects an ongoing transition from post-election hope to an acceptance of political reality. Below, Kostin explains why the bank is increasingly souring not only on stocks (recall it downgraded global equities two weeks ago), but also on the broader economy:

Our S&P 500 outlook this year argued that the index  would rally to 2400 in 1Q on hopes for earnings-friendly policy changes, but gradually decline to 2300 as investors recalibrate expectations to reflect the challenges of current politics in Washington. Although the S&P 500 has retreated from its record highs at the start of the month, it rose by 6% in 1Q 2017; its riskadjusted return (return/realized volatility) was the best since 2013.

 

Even more than the modest decline at the market level, performance below the surface highlights a moderation of investor policy optimism. Our basket of S&P 500 stocks with the highest effective tax rates – the most likely beneficiaries of potential tax reform – has unwound all of its sharp post-election gains in the last two months. Similarly, small-caps, which rallied by 16% in the month post-election on hopes of faster growth, lower taxes, and less regulation, have lagged the S&P 500 by 390 basis points this year (+6% vs. +2%). Both the tax basket and small-caps rebounded this week.

 

 

Infrastructure beneficiaries have also retreated, but remain above their pre-election levels, and well above levels before both candidates advocated increased spending on the 2016 campaign trail. Despite their 10% decline in the last two months, Construction Materials stocks trade at a 28x forward P/E multiple and remain 20% above their prices one year ago.

 

Skeptical investors have also withdrawn most of the “deregulation premium” from the share prices of banks stocks and other financials. Hopes for less regulation, which our Banks analysts estimate could boost their 2018 earnings estimates by nearly 20%, lifted share prices more than 10% higher than justified by the rise in Treasury yields. This deregulation premium has collapsed sharply in the last two weeks (Exhibit 2).

 

 

Despite the political uncertainty, the backdrop of strong economic data has helped drive and sustain the equity market rally. Our economists’ MAP index of data surprises broke into positive territory in mid-November and this week reached the highest level since 2013. The data reflect the pace of real US economic growth rising from 2.1% in October to 4.3% in February. This marked the strongest reading of our Current Activity Indicator (“CAI”) since 2006 and alone could explain the rise in equities to record highs (Ex. 3).

 

 

The contribution of “soft” data to the recent economic surge suggests that the Trump trade and growth trade are not truly independent. Survey data such as the ISM and regional Fed manufacturing surveys have driven most of the CAI improvement in recent months. In contrast, “hard” data have improved much less and generally continue to reflect the 2%-3% pace of growth they exhibited prior to the election. This divide suggests that rising policy uncertainty may also pose a risk to the economic data. 

 

Although the pace of economic activity remains strong, both the macro data and the performance of growth-sensitive equities suggest the acceleration is behind us.

 

The CAI rose sequentially in each month from Oct. through Feb., but preliminary data show a modest step down in March. Recently our basket of cyclical industry groups and our sector-neutral Dual Beta basket have each lagged peers, apparently also reflecting a modest economic slowing. Our economists’ 2017 real GDP growth forecast of 2.2% suggests this deceleration will likely continue unless policy tailwinds emerge or nascent “animal spirits” lead to self-sustaining spending and investment.

What does all of the above mean for near-term market dynamics? As Kostin concludes, supply/demand dynamics add uncertainty to the near-term outlook. Goldman’s sentiment Indicator currently reads 86 (out of 100), signaling less stretched positioning than in recent weeks.

The good news: the resilience of intraday equity prices and the still-low level of implied volatility suggest that investors remain eager to “buy the dip.”

The not so good news: the first major week of the 1Q reporting season will start April 17, and more than 75% of S&P 500 companies are now in their buyback blackout windows. With the largest source of demand for US equities – corporates – barred from discretionary repurchases for the next few weeks, there will be less support for share prices if disappointing economic or political news triggers market weakness.

And with overall economic data rolling over rapidly….

…. it is only a matter of time before that other Goldman warning, about a sharp drawdown in equities, is confirmed as well.

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