Wilbur Ross: Trump’s Syria Strike Was “After Dinner Entertainment”

In a statement that has sent shockwaves across the diplomatic establishment, Donald Trump’s decision to launch 59 Tomahawk cruise missiles against Syria last month was just “after-dinner entertainment,” which “did not cost the president anything,” US commerce secretary Wilbur Ross said, shortly after President Trump called the attack a “tough decision.” Ross delivered the controversial comment while speaking at the Milken Institute Global Conference on Monday, according to Variety.

This is how Ross recalled Trump’s April 6 meeting with Xi at the President’s Mar-A-Lago luxury resort in Palm Beach:

“Just as dessert was being served, the president explained to Mr. Xi he had something he wanted to tell him, which was the launching of 59 missiles into Syria,” Ross said. “It was in lieu of after-dinner entertainment.”

As the crowd laughed, Ross added: “The thing was, it didn’t cost the president anything to have that entertainment” despite unofficial estimates that the cost of the strike ranged from roughly $60 million to $100 million depending on which Tomahawk missile modification was used.

Ross, a former billionaire hedge fund manager, is new to government service as his remarks suggest. In the Milken lunchtime conversation with David Rubenstein, co-CEO of the Carlyle Group, Ross reflected on his first impressions of public service.

“I’ve been heartened,” he said. “I thought the quality of people in the government was not as high as it has turned out to be. There are actually quite a lot of very good, very serious, very intelligent people wanting to do their best. It’s just they’ve been trapped in a fundamentally dysfunctional system.” Like blowing up people for fun, for example.

Ross’ comments were delivered shortly after President Trump described his decision to attack Syria as a “tough” choice, since the “wrong people” could be killed. Trump made the comments during an interview with CBS’ Face the Nation host John Dickerson.

“But most importantly, you know, the decisions. Like, when I make the decision to go with Syria, the 59 Tomahawk missiles. Unbelievable technology. We have unbelievable talent. But those are tough decisions. Those aren’t, like, decisions that I’m going to buy a building…”

“Tough, why?” Dickerson interrupted.

“Because it’s human lives,” Trump continued. “You’re killing people. And you can kill the wrong people, too,” he added. It was not immediately clear if civilian casualties would double the entertainment value.

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Italy’s National Carrier Alitalia Files For Bankruptcy

As was widely expected, on Tuesday Italy’s national carrier Alitalia filed for its second bankruptcy in 9 years, after its board decided to formally ask the ministry of economic development to put the money-losing carrier, the partly owned by UAE’s Etihad Airlines, under special administration after workers rejected its latest rescue plan meant to unlock much-needed financing.

As discussed previously, a majority of the company’s workers last week voted against a restructuring plan that envisaged cuts to jobs and salaries, making it impossible for the loss-making airline to secure funds to keep its aircraft flying. In retrospect, many more workers will now lost not only much of their compensation but also their jobs, even if for the time being the airline’s flight schedule would remain unchanged.

Once Alitalia is put under administration, the Rome government will appoint one or several commissioners who will assess whether it can be overhauled – either as a standalone company or through a partial or total sale – or should be wound up.

A worst-case scenario was presented by Italy’s Economic Development Minister, who on Sunday said that a sudden collapse of the loss-making national carrier “would be a great shock for Italy’s economy.” Rome has given the crisis-hit airline a short-term lifeline, a bridge loan of up to €400 million to see it through a process whereby an administrator will decide if it can be sold as a going concern or should be liquidated.

However, it is the worst case outcome that has Italian government officials spooked. “A [sudden closure] would be a shock for GDP much greater than the scenario that we are looking at: a brief period of six months covered by a bridging loan from the government so as to find a buyer who could provide services that Italians need as travelers,” he said in an interview with Sky TG24 television.

Making matters worse, rival airlines have shown little interest in buying Alitalia and creditors have refused to lend more money after workers last Monday rejected the abovementioned rescue plan that would have reduced pay and cut 1,700 jobs. It is unclear how yet another “shock” to Italy’s GDP would reverberate across Europe, although even without this adverse development, Italy’s unemployment rose from 11.5% to 11.7% in March according to government data released earlier.

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“There Was White Smoke”: Greece Reaches Deal With Lenders, Promising Even More Austerity

Greek government bond yields fell after Greece and its lenders said they reached a long-awaited deal on reforms required to release further bailout funds. With a promise to further cut pensions and give taxpayers fewer breaks, Greece paved the way for the disbursement of further rescue funds from international lenders and possibly opened the door to reworking its massive debt Reuters reported.

The deal was reached early on Tuesday morning, when officials from both sides said they had agreed on a package of bailout-mandated reforms, ending six months of staff-level haggling. Greek Finance Minister Euclid Tsakalotos announced it with a term associated with papal elections. “There was white smoke,” he told reporters.

As part of the reforms, Athens has promised to cut pensions in 2019 and cut the tax-free threshold in 2020 to produce savings worth 2 percent of gross domestic product. If Greece outperforms targets, it will be allowed to activate a set of measures offsetting the impact of the additional austerity, which includes mainly lowering taxes. Athens also agreed to sell coal-fired plants and coal mines equal to about 40% of its dominant power utility Public Power Corp’s capacity.

On the budgetary target level, the lenders are now likely to decide among themselves on Greece’s medium-term primary surplus targets, a key element for granting further debt relief.

 

In a draft document seen by Reuters, the IMF says Greece can reach a primary surplus – the budget balance excluding debt repayments – of 2.2 percent in 2018 and aim at 3.5 percent annually in 2019-2021. It suggests the primary surplus target be reduced to 1.5 percent of GDP thereafter.

Euro zone lenders, however, believe Greece must sustain a 3.5 percent GDP primary surplus target over a longer period.

Last year’s Greek primary surplus was 4.2 percent, according to the lenders. Whether that can be maintained is unclear.

Now comes the hard part, however, as Greece needs to put the new measures, which also include opening up the energy market to competition, into law before euro zone finance ministers approve the disbursement of loans, probably at the next scheduled Eurogroup meeting on May 22. Athens needs the funds urgently to repay €7.5 euros in debt maturing in July.

The Eurogroup meeting, meanwhile, may mark the first formal discussion of debt relief for Greece, an issue that means different things to each side. As has been the case for the past two years, the IMF believes that Greek debt is unsustainable at 179% of gross domestic product and is reluctant to participate in further funding without a debt relief agreement. EU lenders, on the other hand, have ruled out forgiving the debt and refused to discuss such things as cutting repayment rates until after a reform-for-cash deal is cut. Both groups of lenders have differed markedly about what Greece’s budget is capable of sustaining.

Which means that the still “deal” remains a blank check. Nonetheless, the Greek government hailed Tuesday’s agreement as now allowing the yet-to-be-defined relief go ahead. “The government believes that this road, despite the difficulties, will lead to the country’s exit from bailouts,” Interior Minister Panos Skourletis told ERT TV. “What’s important after closing the bailout review is to have a roadmap for debt relief.”

Skourletis repeated Greece’s mantra that demanding increasing amounts of austerity risks alienating great swathes of EU citizens. “The consequences for every government, including ours, that is obliged to implement bailout measures, is the risk of damaging the relationship with society, particularly the groups that you want to represent,” he said, well aware of the risks of promising more austerity and being unable to deliver.

Should the Greek population revolt at even more austerity imposed upon it, the current government may face a turbulent summer in which labor strikes once again drag down the depressed economy, potentially ushering in the New Democracy party back in power, and reseting the Greek process back to square one.

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What’s the Deal With Presidential Foreign Policy Doctrines Anyway?: New at Reason

As the Trump administration begins to talk about a “Trump doctrine,” it’s worth remembering that presidential foreign policy doctrines paper over the fact that America enjoys extraordinary latitude when choosing how to interact with the rest of the world.

Marian Tupy writes:

We have been hearing a lot about the Trump Doctrine, lately. A week ago, for example, Reince Priebus, the White House Chief of Staff, said that “President Trump’s decision to launch cruise missiles at Syria in response to a deadly chemical attack was part of a new ‘Trump doctrine’ governing his foreign policy.” The president, Priebus continued, “is really establishing… a Trump doctrine in setting some certain lines of where we’re not going to allow people like [Syrian President Bashar] Assad to go, but at the same time making it clear that we’re not interested in long-term ground wars in the Middle East.”

Whether Trump’s foreign policy views amount to a coherent doctrine is doubtful. Let’s not forget that candidate Trump railed against bombing of Syria when President Obama occupied the Oval Office. Similarly, Trump promised to declare China to be a currency manipulator on “day one” of his presidency, only to reverse himself later. Other flip-flops include Trump’s attitude to Russia. The president, famously, wanted a good relationship with Putin, but soured on the Russian strongman following the U.S. bombing of Syria—Russia’s ally. He also changed his view on the relevance and utility of the North Atlantic Treaty Organization, which he once saw as “obsolete,” but now considers a “bulwark of international peace.”

Of broader relevance, I think, is the existence of presidential doctrines in the first place. Since the Truman Doctrine at the start of the Cold War, America’s foreign policy establishment, not to mention the rest of the world, awaits with baited breath the permutations of U.S. foreign policy each time America swears in a new Commander in Chief.

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Global Stocks Hit All Time High As Fed Meeting Begins

With the Fed set to begin its latest 2-day meeting (no rate hike is expected), S&P futures are little changed with European and Asian stocks higher after the VIX dropped to a 10 year low and the Nasdaq rose to record highs, sending the MSCI All-Country Index back to all time highs, as global markets reopen after holiday with investors focusing on stronger corporate earnings, while ignoring weaker than expected “hard” economic data and geopolitical concerns. The yen extended losses, with the USDJPY rising to the highest since March 21; gold slid and WTI crude futures rose while Treasury yields climbed after Steven Mnuchin said it “could absolutely make sense” for the U.S. to sell ultra-long bonds.

The MSCI All-Country World Index was poised for another all time high, as global market cap once again rose above $50 trillion. European shares advanced after the May 1 holiday, as BP jumped after posting stronger than expected earnings. European government bonds fell across the board. The Nasdaq Composite index hit a record high on Monday as the world’s five largest companies by market capitalization — Apple, Alphabet, Microsoft, Amazon and Facebook — all hit intraday or closing highs.

“Risk assets are performing well and investors are clearly bullish,” Claudio Piron, strategist at Bank of America Merrill Lynch wrote in a client note. “Nevertheless, we advise caution and this month is especially notorious for its refrain to ’Sell in May’,” he added, although lately it appears that nothing can dent the bullish mood on Wall Street, where the VIX “fear gauge” closed at its lowest since before the global financial crisis on Monday.

The MSCI All-Country World Index rose 0.1 percent as of 10:35 a.m. in London.

The Stoxx Europe 600 Index increased 0.2 percent, with BP climbing 1.6 percent, and the banking sub-index was up 0.4 percent, showing no reaction to comments from U.S. President Donald Trump, who told Bloomberg Television he was actively considering breaking up big banks.

The Topix index rose 0.7 percent to the highest since March 21 as the yen weakened. Japanese markets will be closed for holidays over the next three days.  MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.5 percent to its highest level since June 2015, as many of the region’s markets also reopened after a long holiday weekend. Japan’s Nikkei rose 0.7 percent after some robust earnings. South Korea paced gains, with the Kospi briefly topping its 2011 peak.

Much of the market’s attention has fallen on forecast-beating corporate earnings which have helped push shares higher across the globe this year. First-quarter profits at S&P 500 companies are expected to rise 13.6 percent, the strongest rise since 2011, according to Thomson Reuters I/B/E/S. European equivalents are seen up 13.9 percent.

“Higher corporate earnings and tax reform seem to be more important to the market than any off-the-cuff remark from Trump. That means people are not buying protection in the options market to protect themselves from a drop in the market,” said Neil Wilson, senior market analyst at ETX Capital.

Strong earnings have outweighed concern over patches of weak economic data. An official survey on Tuesday showed Chinese factory activity growth slowed more than expected in April.

The ISM measure of U.S. manufacturing activity also undershot forecasts on Monday.

“Soft” data in Europe was better with Euro-area factories expanding output at the fastest pace since 2011. The Markit Manufacturing PMI gauge rose to 56.7 in April from 56.2 the previous month, IHS Markit reported on Tuesday. An April 21 preliminary estimate was for an increase to 56.8.  “Companies are benefiting from the historically weak euro, improved growth in key export markets, rising domestic demand and ongoing central-bank stimulus including record-low interest rates,” said Chris Williamson, chief economist at IHS Markit. “Optimism about the year ahead, meanwhile, appears unaffected by political worries.”

The dollar hit a one-month high against the safe-haven Japanese yen on some signs of easing tensions over North Korea and as U.S. bond yields rose after U.S. Treasury Secretary Steven Mnuchin said the government was looking into issuing ultra-long debt of maturities in excess of 30 years. Greek government bond yields fell after Greece and its lenders reached a long-awaited deal on reforms required to release further bailout funds.

U.S. 30-year Treasury yield were 1 basis point higher at 3.02 percent, just below Monday’s three-week high, after Mnuchin told Bloomberg issuing ultra-long bonds “can absolutely make sense”. “Mnuchin’s comments have at least stabilized the long end of the curve,” said Lee Hardman, a currency economist with Japan’s MUFG. “But the dollar is still on the defensive in the near term. The data from the U.S. has been coming in on the disappointing side and the Fed is likely to acknowledge that at this week’s meeting.”

The yield on 10-year Greek government bonds fell 30 basis points to 6.18 percent, their lowest since October 2014, after the deal with its lenders, which followed half a year of talks. Oil prices rose as investors weighed rising production in Libya and elsewhere and expectations that the OPEC producers group and others will extend output curbs. Brent crude last traded 29 cents higher at $51.81.

Companies due to report earnings include Apple, Pfizer, Merck and Aetna. Wards total vehicle sales may rise.

Global Market Snapshot

  • S&P 500 futures down 0.1% to 2,384.75
  • MXAP up 0.4% to 150.04
  • MXAPJ up 0.6% to 490.83
  • Nikkei up 0.7% to 19,445.70
  • Topix up 0.7% to 1,550.30
  • Hang Seng Index up 0.3% to 24,696.13
  • Shanghai Composite down 0.4% to 3,143.71
  • Sensex up 0.02% to 29,924.82
  • Australia S&P/ASX 200 down 0.1% to 5,950.37
  • Kospi up 0.7% to 2,219.67
  • STOXX Europe 600 up 0.2% to 387.44
  • German 10Y yield rose 1.2 bps to 0.329%
  • Euro up 0.2% to 1.0915 per US$
  • Brent Futures up 0.6% to $51.81/bbl
  • Italian 10Y yield rose 3.7 bps to 1.987%
  • Spanish 10Y yield rose 2.2 bps to 1.67%
  • Brent Futures up 0.6% to $51.81/bbl
  • Gold spot down 0.1% to $1,255.34
  • U.S. Dollar Index down 0.02% to 99.05

Bulletin Headline Summary from RanSquawk

  • European equities trade modestly higher with BP earnings helping to lift the FTSE 100
  • GBP finds support after surprise rise in UK Mfg. PMI
  • Looking ahead, highlights include US vehicle sales data

Top Overnight News From Bloomberg

  • Trump Says He’d Meet North Korea’s Kim If Conditions Right
  • Trump Weighs Breaking Up Wall Street Banks, Raising Gas Tax
  • Barclays Falls for Third Day as Trump Suggests Bank Breakup
  • IAC to Buy Angie’s List in Deal Valued at Over $500 Million
  • Soros Says It’s ‘Disappointed’ by Terms of Proposed KWE Deal
  • Euro-Area Manufacturing Expands at Fastest Pace in Six Years
  • Monsanto Abandons Deal With Deere as Merger With Bayer Looms
  • Boeing Had 15 Orders Incl. 13 for 737s in Week Ended April 30
  • McDonald’s Japan Says ‘Gran’ Burger, McFlurry Drove April Sales
  • Discovery, ProSiebenSat.1 Start Joint German Streaming Service
  • Infosys Plans to Hire 10,000 American Workers Over Next 2 Years
  • AstraZeneca Approval Unlikely a Big Commercial Opportunity: JPM
  • Liberty Interactive Buying HSN May Lead to 10% Accretion: BofAML

Asian equities traded mixed as the majority of the region returned from public holiday and digested the weaker than expected Chinese PMI data. ASX 200 (-0.3%) was led lower by miners and financials after gold prices declined and following earnings from Big 4 bank ANZ Bank which missed expectations despite showing H1 cash earnings rose 23%. Nikkei 225 (+0.7%) traded positive on a weaker currency, while Shanghai Comp. (-0.3%) and Hang Seng (+0.3%) were mixed with the mainland bourse pressured after the PBoC refrained from open market operations and as participants mulled over the latest PMI data in which the Official and Caixin Manufacturing PMIs missed estimates to print 6-month and 7-month lows, respectively. 10yr JGBs traded flat with slightly weaker demand seen in today’s enhanced-liquidity auction for 2yr, 5yr, 10yr and 20yr JGBs, while the curve was mixed with mild underperformance seen in the long-end. RBA kept the Cash Rate unchanged at 1.50% vs. Exp. 1.50% (Prey. 1.50%), while it reiterated that unchanged policy is consistent with sustainable growth and achieving inflation target. RBA also commented that higher commodity prices give significant support to Australia’s national income and that a broad-based pick up was seen globally since last year.

Top Asian News

  • China’s $11 Trillion Economy and Markets Are in a Tug of War
  • DBS Profit Beats Forecasts, Helped by Wealth-Management Fees
  • Pimco Warns of Credit Risks as Asia Bond Sales at Record
  • Guangzhou R&F Halted Pending 1Q Results Release
  • Hong Kong Stocks Fluctuate; Belle Surges While Developers Drop
  • India’s Sensex Holds Close to Record; Reliance, Tata Motors Fall
  • Asia’s FX Laggards Turn Leaders of Pack as Ringgit Rebounds
  • Modi Adviser Says Bad Bank Not Needed to Solve Loan Mess
  • Japan Stocks Rise to 6-Week High as Yen Weakens Before Holiday
  • RBA Statement’s Unwritten Line: Baton Handed to Fiscal Stimulus

European equities have started the holiday-shortened week on the front-foot in the wake of the largely positive sentiment seen on Wall Street yesterday. More specifically, the FTSE 100 (+0.5%) outperforms its peers as a positive earnings update from BP (+1.4%) props up energy names across the continent with gains otherwise relatively broad-based in what has otherwise been a relatively light morning for stock specific newsflow. Fixed income markets trade modestly lower alongside some of the upside seen in European bourses with prices also relatively unreactive to the latest slew of largely in-line core Eurozone manufacturing PMIs. More specifically, French paper has been relatively steady as Macron continues to maintain his lead over Le Pen ahead of tomorrow’s televised debate and Sunday’s election results. Elsewhere, peripheral focus has been on Greece with a notable decline in yields after the Greek government has managed to strike a deal with creditors regarding austerity measures.

Top European News

  • Greek Debt-Relief Talks Move Closer After Late-Night Athens Deal
  • May Says Juncker Clash Shows Brexit Talks Will ‘Not Be Easy’
  • Italian Joblessness Unexpectedly Increases as More Seek Work
  • U.K. Manufacturing Growth Surges to Fastest in Three Years
  • Soros Says It’s ‘Disappointed’ by Terms of Proposed KWE Deal
  • Macron Tells Le Pen, Melenchon Voters He Hears Their Anger
  • A $1 Trillion Asset Management Boom Is a Guide to Nordic Banking

In currencies, the yen slid 0.3 percent to 112.21 per dollar, the lowest since March 21, following a 0.3 percent slide on Monday. The euro rose 0.2 percent to $1.0917, while the British pound was little changed. The Bloomberg Dollar Spot Index was flat.  The early price action in London this morning favoured the USD despite some data misses reported in yesterday’s holiday thinned markets. USD personal income and spending and ISM manufacturing PMIs all came in softer than expected, buy we saw the greenback on the front foot against a selection of currencies. USD/JPY was standout as we broke above 112.00, with some suggesting this was partly in the short term plug in the US finding gap, though we prefer the correlation to equities. UST yields still looking buoyed to maintain support through the figure, but upside momentum is clearly lacking. Gains also seen against the CAD and GBP, but Oil prices have recovered modestly to fend off a move to 1.3700 for now, but the spot rate remains poised for another push higher. GBP was trading on the backfoot as all things Brexit are back at the fore. Cable had slipped below 1.2880 from the mid-upper 1.2900’s seen late last week, but was given a boost this morning from the much better than expected UK manufacturing PMIs — at 57.3.

In commodities, West Texas Intermediate crude rose 0.4 percent to $49.04, erasing earlier losses. Oil fell 1 percent Monday as Libyan output surged, more rigs were added in the U.S. and Saudi Arabia cut prices to Asian customers. Oil prices initially took another dip, and any support coming in for WTI and Brent at predominantly based on hopes of the production cut agreement being extended into H2. Plenty of talk that there is strong intent, but we are unlikely to see a notable pick up until this is rubber stamped. Copper prices have risen on fresh strikes in Indonesia, with supply concerns outweighing demand issues emanating from the softer China PMIs. Nickel and Zinc keeping up with Copper this morning. Gold will likely find some support as the market looks to the French election this weekend, but little negative impact on the EUR as Le Pen softens her tone on the single unit.

Looking at the day ahead, this morning in Europe we’ll get the final April manufacturing PMI readings along with a first look at the data for the UK and the periphery. We’ll also get the Euro area wide unemployment rate for March. The only data due out in the US this evening is vehicle sales data for April. Away from the data the ECB’s Nouy is set to speak at two separate events today while Nowotny also speaks this evening. Germany’s Merkel is also due to meet Russia’s Putin which might be worth keeping an eye on. On the earnings front we’ve got 43 S&P 500 companies reporting including Merck, Pfizer (both at the open) and Apple (after the close).

US Event Calendar

  • Wards Total Vehicle Sales, est. 17.1m, prior 16.5m
  • Wards Domestic Vehicle Sales, est. 13.3m, prior 13m

DB’s Jim Reid concludes the overnight wrap

Perhaps the highlight of a light US session last night was the VIX closing at the lowest level since February 16th 2007, a span of nearly 123 months. The index closed at 10.11 which compares to the close on Friday of 10.82. It did actually touch an intraday low of 9.90 yesterday which is only the second time this year that the index has fallen below 10.00 (it touched 9.97 intraday in early February). To put yesterday’s closing level in context, in the 6871 business days since the inception of the VIX (going back to 1990) we have only ever seen the index close lower than last night’s level on 14 occasions. Quite impressive stats.

Given the holidays around the globe it won’t come as a surprise to hear then that price action in US equities wasn’t hugely exciting yesterday. The S&P 500 (+0.17%) and Dow (-0.13%) both faded into the close despite the Nasdaq (+0.73%) notching up a new record high. Initially sentiment was boosted by that news of a tentative agreement by Congress on a near $1.2tn spending bill, which is likely to be voted on in the coming days. In fact politics largely dominated yesterday’s session with banks under the spotlight after President Trump said in an interview with Bloomberg News that he is actively considering a breakup of Wall Street Banks and specifically calling for a “21st century” version of the 1933 Glass-Steagall law. Any weakness in bank stocks was short lived however with JP Morgan (+0.10%), Morgan Stanley (+0.88%) and Bank of America (+1.24%) all finishing up. In addition to the bank comments, Trump also added that he is open to increasing the US gasoline tax rate with additional revenues to be used to fund infrastructure development.

Away from this Treasury yields crept higher as the session progressed with the curve steepening too. 10y yields finished the day up 3.8bps at 2.319% while 30y yields rose a little over 5bps to close back above 3.000% again. Much of that move reflected comments from Treasury Secretary Steven Mnuchin who said that ultralong bond issuance “could absolutely make sense”. He added that the Treasury currently “have a working group looking at it”. Meanwhile, following the soft Q1 GDP print last week the Atlanta Fed released their initial first estimate of Q2 growth which they have pegged at 4.3%.

Staying with the macro, the main focus of the data yesterday was the ISM manufacturing reading which came in at a slightly disappointing 54.8 for April (vs. 56.5 expected) from 57.2 in March. At face value the index still remains firmly in expansion territory and points to much stronger growth than what the initial Q1 real GDP figures suggest. However there were some disappointing aspects within the details of the report. Ahead of payrolls this week the employment component tumbled 6.9pts to 52.0 which is essentially the biggest one-month decline since July 2011 when there were concerns about the US debt ceiling. The new orders component was soft too, falling 7.0pts to 57.5, albeit still at an elevated level. There was however some improvement seen in components for production and exports.

In terms of other data, the final manufacturing PMI for April was confirmed at 52.8 which was unchanged relative to the flash reading. Away from that personal spending in March came in flat after consensus was for a +0.2% mom rise. The February reading was also revised down a tenth while personal income was also below market (+0.2% mom vs. +0.3% expected). Meanwhile, as expected the PCE deflator (-0.2% mom) fell while the PCE core (-0.1% mom) was also down and in line with expectations. That has pushed the YoY rate down two-tenths to +1.6%.

This morning in Asia and with the exception of China we’ve seen most major bourses advance in early trading. The Nikkei (+0.70%), Hang Seng (+0.27%) and Kospi (+0.84%) are all up with the latter briefly edging above its all time record close at one stage. In China the Shanghai Comp (-0.35%) is in the red perhaps in response to a disappointing run of data in recent days. After the official PMIs were confirmed as weakening in April over the weekend this morning we saw the Caixin manufacturing PMI come in at 50.3 for April which is both down from 51.2 the month prior and also well below expectations for 51.3. Meanwhile in Australia the Aussie Dollar (+0.34%) is firmer after the RBA left rates on hold as expected.

Moving on. Today brings the latest monthly ECB purchasing data where hopefully we’ll get a much better guide to how the ECB is splitting their taper between corporate and government bonds. April was full of holidays which distorted the weekly data but viewed over the month we should get some guidance. Given the bank holidays yesterday in Europe we thought it would be worth quickly recapping some of the main news from the weekend which we touched on in yesterday’s EMR. In Italy former PM Renzi won the Democratic Party Primary with over 70% of votes which will likely be seen as a strong mandate ahead of next year’s general election. In France recent polls still point to a 20pp lead for Macron over Le Pen ahead of this weekend’s second round election. Finally the European Council released the guidelines intended to govern the EU’s Brexit negotiations with the UK after they were unanimously backed in Brussels. EU President Tusk noted that the unanimous support gives the EU a “strong political mandate for negotiations”. We also had a wrap up of what has been a decent earnings season so far on both sides of the pond.

Looking at the day ahead, this morning in Europe we’ll get the final April manufacturing PMI readings along with a first look at the data for the UK and the periphery. We’ll also get the Euro area wide unemployment rate for March. The only data due out in the US this evening is vehicle sales data for April. Away from the data the ECB’s Nouy is set to speak at two separate events today while Nowotny also speaks this evening. Germany’s Merkel is also due to meet Russia’s Putin which might be worth keeping an eye on. On the earnings front we’ve got 43 S&P 500 companies reporting including Merck, Pfizer (both at the open) and Apple (after the close).

In terms of the remainder of this week, kicking things off tomorrow will be Germany where the April unemployment numbers are due to be released. Shortly after that we’ll get Euro area PPI for March and then the advanced Q1 GDP report for the Euro area. In the US tomorrow we’ll get the ADP employment change report in April and the final April PMIs and ISM non-manufacturing reading. In the evening on Wednesday all eyes then turn over to the Fed meeting. In Asia on Thursday the early data is out of China with the remaining April Caixin PMIs. In Europe we’ll also get the remaining April services and  composite PMIs as well as Euro area retail sales in March and UK money and credit aggregates data. In the US on Thursday the data includes initial jobless claims, Q1 nonfarm productivity and unit labour costs, March trade balance, March factory orders and the final revisions to March durable and capital goods orders. With little of note in Europe on Friday the main focus will be on the US where we’ll get the April employment report including nonfarm payrolls.

Away from the data, this week’s Fedspeak is reserved for Friday when we’ll hear separately from Fischer, Williams and Yellen, as well as a panel debate with Rosengren, Evans and Bullard. Over at the ECB, in the remainder of this week we are due to hear from Lautenschlaeger, Praet, Draghi and Mersch on Thursday. Other important events this week include Wednesday’s live televised debate between French presidential candidates Macron and Le Pen, Wednesday’s meeting between President Trump and Palestinian Authority President Abbas and UK local elections on Thursday. Finally, on the earnings front a total  of 131 S&P 500 companies report this week and 85 Stoxx 600 companies report. Amongst those still to report from tomorrow are BNP Paribas, Facebook, Tesla, Time Warner, HSBC, BMW, Shell and VW.

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“Technology Has Changed The Game”: Why The Rise Of Robots Will Be A Permanent Deflationary Force

Back in 2015, BofA put together a simple equation trying to explain the pervasive deflationary wave around the globe when it said that “Deflation = Debt plus Disruption plus Demographics.”

In his overnight take on recent events, Bloomberg macro commentator Mark Cudmore took another look at this underlying assumption, and specifically the “disruption” part, or the role played by technology, and machines, both of which are reducing the need for labor (and implicitly pressuring the global labor force growth), and concluded that “while those with specialized skills can continue to earn more in a wealthier world, the rise of robots provides a significant disinflationary force on the median wage globally. This effect will be most extreme in developed economies where labor costs are already elevated. (And as an aside, is the reason why increasing inequality and populism isn’t going away any time soon).”

Adding demographics into the mix, Cudmore notes that “the growth rate of the global population continues to slow, further relaxing consumer demand pressures over the long-term. All this means that, excluding isolated and idiosyncratic flare-ups, consumer prices won’t ramp higher in real terms” even and as “a lack of CPI growth doesn’t prevent financial-asset inflation.”

However, the implication is that “bond curves should remain flatter than we are used to, equity valuations will look distorted relative to history due to a sustainable paradigm shift in discount rates, and many financial operations will have to adjust their whole business model.”

His full Macro View note below:

Macro View:

Rise of the Machines Keeps World Inflation In Check:

 

There’s little risk of global consumer price inflation running away to the topside, even as financial asset inflation persists. While the 30-year bull market in global bonds may have ended, there’s little chance of a severe bear market any time soon, if ever.

 

There won’t be a sustainable large increase in yields for as long as inflation-targeting is the primary goal of monetary policy. Global convergence of risk premiums will also be a long-term, if slow-moving, theme.

 

The acceleration in inflation has been almost parabolic since the global deflation scare of 2015. However, it’s important to consider the move in context of the low starting base and realize the average rate in major economies still isn’t high.

 

Technology provides a powerful disinflationary force on both wages and commodity prices, which are arguably the two key fundamental inputs to long-term consumer inflation levels.

 

The detection, extraction, production and distribution of commodities are becoming cheaper and more efficient all the time. That’s exerting a strong downward pull on prices over the long term, meaning demand-driven spikes will be short- lived.

 

Similarly, technology is reducing the need for labor. While those with specialized skills can continue to earn more in a wealthier world, the rise of robots provides a significant disinflationary force on the median wage globally. This effect will be most extreme in developed economies where labor costs are already elevated. (And as an aside, is the reason why increasing inequality and populism isn’t going away any time soon).

 

It’s also worth noting that the growth rate of the global population continues to slow, further relaxing consumer demand pressures over the long-term.

 

All this means that, excluding isolated and idiosyncratic flare-ups, consumer prices won’t ramp higher in real terms.

 

However, as has been perfectly clear in recent decades, a lack of CPI growth doesn’t prevent financial-asset inflation.

 

And, in fact, it makes sense for this divergence to widen while global wealth increases but interest rates stay contained and liquidity remains abundant.

 

The knock-on effects of this are profound: bond curves should remain flatter than we are used to, equity valuations will look distorted relative to history due to a sustainable paradigm shift in discount rates, and many financial operations will have to adjust their whole business model.

 

Something to think about next time you want to fight current financial valuations purely on the basis that they look historically anomalous. Technology has changed the game.

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Does The Reality Of “It’s Different This Time” Get Tested This Week?

Authored by Mark St.Cyr,

If you were one of the myriad analysts, next-in-rotation fund managers, tech commentators, et al paraded across the financial/business media over this past week – you had a good week. The narrative of “earnings beats” together with the so-called “relief rally” emanating via the French elections helped propel the argument.

However, if one (once again) peered passed the headlines of Non-GAAP reporting alchemy that would make Issac Newton envious one could clearly see that all was not “gold.”

Both Amazon™, and Alphabet™ (aka Google™) beat handily, and yet, a few questions emerged via my reasoning. First:

Has Google Ad revenue benefited from an increasing advertising pie? Or, are we seeing the first hints of rotation from platform to platform as advertisers dump one for another in a desperate attempt to obtain some form of return for their social or digital ad dollars?

It’s possible it could be the latter, and if so it spells “it’s different this time” just like it has before. i.e., circa early 2000.

The reasoning for this is simple: Twitter™.

As I have stated on more occasions than I can count, the one company to watch for clues into what is the entire “tech” or “Silicon Valley” health of the “ads for eyeballs” model is Twitter. And this once songbird of everything that was/is “The Valley” did something that is the anathema of what is presumed to be the “holy of holies” metric for the entire genre. To wit:

But not too worry, for this is reported as an earnings “Beat” when using Non-GAAP metrics. Yes, declining (again – declining!) ad revenue is reported as “Good News!” The only person I can see with more wonderment across his face than the ghost of Sir Issac is that of Bernie Madoff as he watches all this from a cell wondering “And I’m in here for what precisely?”

Then, of course, there’s Amazon.

After disappointing reports over the past two quarters Amazon (once again) rocketed to new heights as the headlines of “Beat”, “Smashed” and every other exclamation known-to-man was used to report it raced across the media. And yet, if you looked closely, again, there are a few issues contained within that should make those who are closing their eyes and hitting the “Buy” button horns-over-hooves concern.

  1. Guidance for operating income in Q2 is expected to be between $425 Million and $1.075 Billion compared with the $1.3 Billion in the same quarter last year.
  2. Amazon’s total operating income was $1 Billion for this Qtr. AWS (i.e., their web services) made up $890 Million of this. That means nearly all of Amazon’s operating income was generated via the division most people who use Amazon haven’t even a clue exists. (I’ll add to that most 401K holders also.)
  3. This puts their Current P/E ratio at near 190 times earnings (187.4 via Morningstar™ as of 4/27/17)

Moreover, as I posed the idea of “What if?” into the “ads for eyeballs” assumptions earlier; what does one takeaway when viewing the current rocket ship ride of Amazon? For if personal spending is supposedly DOA as was reported via the latest GDP report (e.g., worst since 2009) and GDP is now reported to be an abysmal 0.7% (not a typo) what’s fueling this?

Hint: It’s an outlier, or said differently: It’s nothing but what’s known as a “Momo Play.” To view it as anything representative, or as a “gauge” of current economic health (As I heard many a talking-head try) is as I’ve stated before – an abject lesson for wanting to be blissfully, ignorant. (Always remembering this is my opinion, for who knows where this “rocket ship” can travel.)

So with the above for context the issue at hand is: “Now what?”

The real trouble, in my estimation, lies with precisely where we might be in regards to “the markets.” By all rational objective reasoning, backed with the lessons which should be held front-and-center from not just the dot-com crash, but also the financial crisis of ’08. One can’t shake the feeling that we’re precisely (once again) on that knife’s edge. And just the mere fact of the “markets” precariously balancing on that “edge” is beginning to draw blood. The tell-tale signs are everywhere. Below are only a few of the ever-growing list…

  • How does a GDP report of less than 1% allow any sane person to state, “Improving economy?” Trick question, it doesn’t unless you work on, or report on/for Wall Street.
  • How does the reflation trade transfer into a better economic outlook when all of the proposals so far have resulted in DOA status?
  • Explain the reasoning why U.S. “markets” rally off the news of a French primary, all the while its own Navy has sent an armada to the Korean peninsula threatening a nuclear standoff? “Bueller?”
  • What data (or better yet – logic) is the Federal Reserve using that warrants hiking rates twice in 90 days into an abysmal GDP report when its main reasoning for any/all monetary policy protocols are supposedly “data dependent?”
  • If one of the reasonings behind the Fed. hiking was to allow for the cutting if (or when) there was another emergency: How does that happen when the $Dollar is currently going in the exact opposite direction than it should as it hikes? Does that not imply the Fed. could by that very fact be the catalyst of a run n the $Dollar?
  • And if so? What then?

These are just a few of the very real questions that are now permeating the once “it’s different this time” argument for belief. The problem with it is – that’s what always gets said right before reality comes roaring back with a vengeance.

I can’t make this point enough: Only since the election of Donal Trump the “markets” have been on a rocket ride straight up. Before that moment (i.e., October) the Fed. Chair herself was musing the idea that the only way to heal the lasting effects still within the economy was to possibly run a “high pressure” policy stance. (i.e., uber-dovish)

That “ride” has (once again) allowed for the proclamation of the NASDAQ™ hitting never before seen in human history highs. (e.g., 6000+) All against a backdrop of declining GDP, along with declining revenue and more from many of its once star players. All while not accounting for (in my opinion) the effects of those 2 rate hikes. These have yet to be both factored, as well as felt, in the current “market.”

As of right now the “hopium” trade that is a direct result of the Trump “reflation” trade is still self-propelling – but it’s quickly running out of fuel as evidenced by not only none of the campaign promises being passed (i.e., Obamacare repeal and others) but a 1 week resolution was needed as to not shut the government down.

And the “markets” closed where?

Hint: Right back to where they were before when I stated “You are here.” And things have not gotten better, as a matter of fact, they are worse – far worse. (e.g., Unless you are one of those who like to buy-the-potential-nuclear-war-dip that is. And if so, take solace in your decisions, because the President keeps suggesting the idea is closer by the day.)

What the Fed. has unleashed into the “markets” via their ever evolving iterations of QE and its ever grateful HFT frontrunning brethren (see the now resigned Richmond Fed. president Lacker for clues) has been the only fuel as to power the markets where they now stand. What they’ve also done in unison is make everyone oblivious to the inherent dangers within.

Hedging and more has been a fool’s errand, and for many, an abject lesson in not only losing money, but status. (See the Hedge Fund industry for clues.) However, what might be even more indicative of that intervention is none other than the tech space, with all its unicorns, deca-corns, and even super-corns (yes, that’s now an actual term in “The Valley”) suddenly coming up lame in the unicorn stables of “Cha-ching!” Not to mention the IPO disasters and disappearance of those “Crushing it!” stock valuations. (See Snapchat™ for clues.)

This is where the beginning signs for caution are raised for anyone paying attention. And they are there – in spades. But there are also other areas to watch that help back up the hypothesis. And one of the first to show stress when things are not going as well as planned in “tech” land is: The Russell 2000™ e.g., the small business index.

The Russell is not only not showing the exuberance of the others, it’s beginning to show all the signs of rolling over. That is something to take notice in conjunction with the tech sector as it hits ever higher highs. How that dichotomy resolves is anyone’s guess at this moment. But trying to ascertain any clues is of a paramount importance in my opinion.

Another key earnings report that may give far more light than anyone estimates is coming up on Wednesday. That, of course, is Facebook™.

As of today all the estimates are that they’ll handily beat and some analysts are raising their targets. It’s very well they could, especially in today’s world of earnings reporting alchemy. However, one thing which caught my attention was the sudden touting a few weeks back that they had hit “5 Million advertisers.” Small businesses noted as the “key driver.”

“Sound great!” many are saying, and, in-truth, it is a worthy milestone. However, I see the timing as possibly a little suspect, here’s why… (I make this point for it has become near laughable how nearly all upcoming “tech” earnings reports now suddenly coincide with an ever-growing list of preceding announcements of grandiose ideas that are alluded to be right around the corner (like next week!) of flying cars, self driving trucks, rocket rides to space, virtual reality, just to name a few.)

Facebook as of late has been in the news with nothing but negative reports with a slew of horrendous acts being broadcast via their platform. e.g., Rape, kidnapping, beatings, and others. One of the concerns over all this (apart from the issue itself) was a possible backlash from potential advertisers. And who could blame them, and there lies the possible rub…

As I implied with the sudden “5 million” hoopla, what I’m asking is this: Is the addition of these stated 1 million plus new small business advertisers a replacing (therefore a diversion as to squash attention) for the potential of 1 or 2 (or more) large buyers who may have pulled ads?

In other words, if they’ve added so many “new” small business users – shouldn’t the ad revenue explode this report with all things being equal? I believe this is the metric to watch for.

How the numbers break down should be interesting. Google showed its own problem (via Youtube™) seemed to have been a one-off with no real impact. That said, I don’t think that comparison is the same for Facebook should the numbers show otherwise.

We shall see.

If there is a “hiccup” in Facebook’s reporting, coinciding with a realization that the reflation trade is all but DOA along with much of the legislation that was supposed to make it so. I believe we could be in for a very, very, interesting week ahead.

Then again, if a nuclear showdown does persist even more so than today?

I guess the “Buy The Nuclear Annihilation Dip” nonsense is back on.

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Central Banks Are Talking More Than Ever

Authored by Samuel Rines via AvalonAdvisors.com,

This note takes a brief look into "narrative economics" and the link to central banks.

In the wake of the financial crisis, central banks have stepped up their communications, whether in the form of speeches, press conferences, or the like.

While not a quantitative style of understanding economics, it may prove a useful tool to understanding broad shifts in the economy.

Robert Shiller, in a discussion paper earlier this year, laid out the argument for economists paying closer attention to the "narratives" surrounding economics. To Shiller, popular narratives drive more of the fundamental economic outcomes than economists are typically willing to admit.

For example (one provided by Shiller), the 1921 recession following the end of World War I was, in part, driven by narrative. In contrast to the typical explanation of why it occurred (a central banker went on a long vacation), there are more fundamental reasons for the downturn, including a 50% increase in the price of oil (with wide-spread fear that oil production would peak in a few years) and-probably the most important-deflation expectations. Because consumers believed that prices would fall, they held back from making purchases.

This was the era of the "profiteer", the word used to describe price gouging. Thrift became a virtue, and there were calls to avoid buying anything other than the essentials. Consumer spending plummetted, leading Shiller to describe the recession as a "consumer boycott" lead by narrative, not by a traditional business cycle.

While the example above is buried deep in history, there is applicability to the present. Specifically, the rise in central bank communications. There have never been more speeches given by representatives of central banks than today. In a recent speech given by the Chief Economist of the Bank of England Andrew Haldane,  he calls for less complex and more accessible communication of monetary policy. Ostensibly, this is to increase transparency and trust with the public and describe their actions and intentions to markets.

Being clear and transparent about the goals and sought after outcomes is a legitimate strategy being pursued by central banks around the world, the "forward guidance" policy tool. That is meant to build trust and utilize that trust to instruct outcomes. In some ways, build and maintain a narrative of economic conditions.

This is where it becomes interesting for modern central bankers.

First, it is not quite that simple to construct a narrative. Note that the accessibility of monetary policy is low. The primary piece of material used by the Fed to communicate its strategy, the FOMC minutes, has an exceedingly low accessibility. This makes the communication outside of it far more important to the broader public and the maintenance of a given narrative.

 

Second, while the Fed (or other central banks) may wish to control the economic narrative, it may not be capable of doing so. Narratives, as pointed out by Shiller, have a life of their own.

What does this have to do with anything? One of the critical elements embedded within both the "narrative economics" theory and "forward guidance" is that the ability to avoid a repeat of a 1921 style, narrative driven retreat. It also shines a light on the need to carefully deconstruct popular narratives for their potential economic consequences. Further, it points to the potential consequences of shifts in the efficacy of forward guidance from central banks.

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Brickbat: A Line Too Far

BarberOfficials with Cedar Bayou Junior High School in Texas threatened Xavier Davis with in-school suspension for having two lines in his hair. School rules permit no more than one line. His father says Davis had that haircut for six months before the school said anything to him. His mother took a Sharpie to one line, and now he confirms to school rules.

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The Existential Question Of Who To Trust

Authored by Robert Parry via The Strategic Culture Foundation,

The looming threat of World War III, a potential extermination event for the human species, is made more likely because the world’s public can’t count on supposedly objective experts to ascertain and evaluate facts. Instead, careerism is the order of the day among journalists, intelligence analysts and international monitors – meaning that almost no one who might normally be relied on to tell the truth can be trusted.

Secretary of State Colin Powell addressed the United Nations on Feb. 5. 2003, citing satellite photos which supposedly proved that Iraq had WMD, but the evidence proved bogus. CIA Director George Tenet is behind Powell to the left

The dangerous reality is that this careerism, which often is expressed by a smug certainty about whatever the prevailing groupthink is, pervades not just the political world, where lies seem to be the common currency, but also the worlds of journalism, intelligence and international oversight, including United Nations agencies that are often granted greater credibility because they are perceived as less beholden to specific governments but in reality have become deeply corrupted, too.

In other words, many professionals who are counted on for digging out the facts and speaking truth to power have sold themselves to those same powerful interests in order to keep high-paying jobs and to not get tossed out onto the street. Many of these self-aggrandizing professionals – caught up in the many accouterments of success – don’t even seem to recognize how far they’ve drifted from principled professionalism.

A good example was Saturday night’s spectacle of national journalists preening in their tuxedos and gowns at the White House Correspondents Dinner, sporting First Amendment pins as if they were some brave victims of persecution. They seemed oblivious to how removed they are from Middle America and how unlikely any of them would risk their careers by challenging one of the Establishment’s favored groupthinks. Instead, these national journalists take easy shots at President Trump’s buffoonish behavior and his serial falsehoods — and count themselves as endangered heroes for the effort.

Foils for Trump

Ironically, though, these pompous journalists gave Trump what was arguably his best moment in his first 100 days by serving as foils for the President as he traveled to Harrisburg, Pennsylvania, on Saturday and basked in the adulation of blue-collar Americans who view the mainstream media as just one more appendage of a corrupt ruling elite.

The photograph released by the White House of President Trump meeting with his advisers at his estate in Mar-a-Lago on April 6, 2017, regarding his decision to launch missile strikes against Syria

Breaking with tradition by snubbing the annual press gala, Trump delighted the Harrisburg crowd by saying: “A large group of Hollywood celebrities and Washington media are consoling each other in a hotel ballroom” and adding: “I could not possibly be more thrilled than to be more than 100 miles away from [the] Washington swamp … with much, much better people.” The crowd booed references to the elites and cheered Trump’s choice to be with the common folk.

Trump’s rejection of the dinner and his frequent criticism of the mainstream media brought a defensive response from Jeff Mason, president of the White House Correspondents’ Association, who complained: “We are not fake news. We are not failing news organizations. And we are not the enemy of the American people.” That brought the black-tie-and-gown gathering to its feet in a standing ovation.

Perhaps the assembled media elite had forgotten that it was the mainstream U.S. media – particularly The Washington Post and The New York Times – that popularized the phrase “fake news” and directed it blunderbuss-style not only at the few Web sites that intentionally invent stories to increase their clicks but at independent-minded journalism outlets that have dared question the elite’s groupthinks on issues of war, peace and globalization.

The Black List

Professional journalistic skepticism toward official claims by the U.S. government — what you should expect from reporters — became conflated with “fake news.” The Post even gave front-page attention to an anonymous group called PropOrNot that published a black list of 200 Internet sites, including Consortiumnews.com and other independent-minded journalism sites, to be shunned.

The Washington Post building in downtown Washington, D.C. (Photo credit: Washington Post)

But the mainstream media stars didn’t like it when Trump began throwing the “fake news” slur back at them. Thus, the First Amendment lapel pins and the standing ovation for Jeff Mason’s repudiation of the “fake news” label.

Yet, as the glitzy White House Correspondents Dinner demonstrated, mainstream journalists get the goodies of prestige and money while the real truth-tellers are almost always outspent, outgunned and cast out of the mainstream. Indeed, this dwindling band of honest people who are both knowledgeable and in position to expose unpleasant truths is often under mainstream attack, sometimes for unrelated personal failings and other times just for rubbing the powers-that-be the wrong way.

Perhaps, the clearest case study of this up-is-down rewards-and-punishments reality was the Iraq War’s WMD rationale. Nearly across the board, the American political/media system – from U.S. intelligence analysts to the deliberative body of the U.S. Senate to the major U.S. news organizations – failed to ascertain the truth and indeed actively helped disseminate the falsehoods about Iraq hiding WMDs and even suggested nuclear weapons development. (Arguably, the “most trusted” U.S. government official at the time, Secretary of State Colin Powell, played a key role in selling the false allegations as “truth.”)

Not only did the supposed American “gold standard” for assessing information – the U.S. political, media and intelligence structure – fail miserably in the face of fraudulent claims often from self-interested Iraqi opposition figures and their neoconservative American backers, but there was minimal accountability afterwards for the “professionals” who failed to protect the public from lies and deceptions.

Profiting from Failure

Indeed, many of the main culprits remain “respected” members of the journalistic establishment. For instance, The New York Times’ Pentagon correspondent Michael R. Gordon, who was the lead writer on the infamous “aluminum tubes for nuclear centrifuges” story which got the ball rolling for the Bush administration’s rollout of its invade-Iraq advertising campaign in September 2002, still covers national security for the Times – and still serves as a conveyor belt for U.S. government propaganda.

New York Times building in New York City. (Photo from Wikipedia)

The Washington Post’s editorial page editor Fred Hiatt, who repeatedly informed the Post’s readers that Iraq’s secret possession of WMD was a “flat-fact,” is still the Post’s editorial page editor, one of the most influential positions in American journalism.

Hiatt’s editorial page led a years-long assault on the character of former U.S. Ambassador Joseph Wilson for the offense of debunking one of President George W. Bush’s claims about Iraq seeking yellowcake uranium from Niger. Wilson had alerted the CIA to the bogus claim before the invasion of Iraq and went public with the news afterwards, but the Post treated Wilson as the real culprit, dismissing him as “a blowhard” and trivializing the Bush administration’s destruction of his wife’s CIA career by outing her (Valerie Plame) in order to discredit Wilson’s Niger investigation.

At the end of the Post’s savaging of Wilson’s reputation and in the wake of the newspaper’s accessory role in destroying Plame’s career, Wilson and Plame decamped from Washington to New Mexico. Meanwhile, Hiatt never suffered a whit – and remains a “respected” Washington media figure to this day.

Careerist Lesson

The lesson that any careerist would draw from the Iraq case is that there is almost no downside risk in running with the pack on a national security issue. Even if you’re horrifically wrong — even if you contribute to the deaths of some 4,500 U.S. soldiers and hundreds of thousands of Iraqis — your paycheck is almost surely safe.

President George W. Bush and Vice President Dick Cheney receive an Oval Office briefing from CIA Director George Tenet. Also present is Chief of Staff Andy Card (on right). (White House photo)

The same holds true if you work for an international agency that is responsible for monitoring issues like chemical weapons. Again, the Iraq example offers a good case study. In April 2002, as President Bush was clearing away the few obstacles to his Iraq invasion plans, Jose Mauricio Bustani, the head of the Organization for the Prohibition of Chemical Weapons [OPCW], sought to persuade Iraq to join the Chemical Weapons Convention so inspectors could verify Iraq’s claims that it had destroyed its stockpiles.

The Bush administration called that idea an “ill-considered initiative” – after all, it could have stripped away the preferred propaganda rationale for the invasion if the OPCW verified that Iraq had destroyed its chemical weapons. So, Bush’s Undersecretary of State for Arms Control John Bolton, a neocon advocate for the invasion Iraq, pushed to have Bustani deposed. The Bush administration threatened to withhold dues to the OPCW if Bustani, a Brazilian diplomat, remained.

It now appears obvious that Bush and Bolton viewed Bustani’s real offense as interfering with their invasion scheme, but Bustani was ultimately taken down over accusations of mismanagement, although he was only a year into a new five-year term after having been reelected unanimously. The OPCW member states chose to sacrifice Bustani to save the organization from the loss of U.S. funds, but – in so doing – they compromised its integrity, making it just another agency that would bend to big-power pressure.

“By dismissing me,” Bustani said, “an international precedent will have been established whereby any duly elected head of any international organization would at any point during his or her tenure remain vulnerable to the whims of one or a few major contributors.” He added that if the United States succeeded in removing him, “genuine multilateralism” would succumb to “unilateralism in a multilateral disguise.”

The Iran Nuclear Scam

Something similar happened regarding the International Atomic Energy Agency in 2009 when Secretary of State Hillary Clinton and the neocons were lusting for another confrontation with Iran over its alleged plans to build a nuclear bomb.

Yukiya Amano, a Japanese diplomat and director-general of the International Atomic Energy Agency

According to U.S. embassy cables from Vienna, Austria, the site of IAEA’s headquarters, American diplomats in 2009 were cheering the prospect that Japanese diplomat Yukiya Amano would advance U.S. interests in ways that outgoing IAEA Director General Mohamed ElBaradei wouldn’t; Amano credited his election to U.S. government support; Amano signaled he would side with the United States in its confrontation with Iran; and he stuck out his hand for more U.S. money.

In a July 9, 2009, cable, American chargé Geoffrey Pyatt said Amano was thankful for U.S. support of his election. “Amano attributed his election to support from the U.S., Australia and France, and cited U.S. intervention with Argentina as particularly decisive,” the cable said.

The appreciative Amano informed Pyatt that as IAEA director-general, he would take a different “approach on Iran from that of ElBaradei” and he “saw his primary role as implementing safeguards and UNSC [United Nations Security Council] Board resolutions,” i.e. U.S.-driven sanctions and demands against Iran.

Amano also discussed how to restructure the senior ranks of the IAEA, including elimination of one top official and the retention of another. “We wholly agree with Amano’s assessment of these two advisors and see these decisions as positive first signs,” Pyatt commented.

In return, Pyatt made clear that Amano could expect strong U.S. financial assistance, stating that “the United States would do everything possible to support his successful tenure as Director General and, to that end, anticipated that continued U.S. voluntary contributions to the IAEA would be forthcoming. Amano offered that a ‘reasonable increase’ in the regular budget would be helpful.”

What Pyatt made clear in his cable was that one IAEA official who was not onboard with U.S. demands had been fired while another who was onboard kept his job.

Pandering to Israel

Pyatt learned, too, that Amano had consulted with Israeli Ambassador Israel Michaeli “immediately after his appointment” and that Michaeli “was fully confident of the priority Amano accords verification issues.” Michaeli added that he discounted some of Amano’s public remarks about there being “no evidence of Iran pursuing a nuclear weapons capability” as just words that Amano felt he had to say “to persuade those who did not support him about his ‘impartiality.’”

U.S. Army Pvt. Chelsea (formerly Bradley) Manning

In private, Amano agreed to “consultations” with the head of the Israeli Atomic Energy Commission, Pyatt reported. (It is ironic indeed that Amano would have secret contacts with Israeli officials about Iran’s alleged nuclear weapons program, which never yielded a single bomb, when Israel possesses a large and undeclared nuclear arsenal.)

In a subsequent cable dated Oct. 16, 2009, the U.S. mission in Vienna said Amano “took pains to emphasize his support for U.S. strategic objectives for the Agency. Amano reminded ambassador [Glyn Davies] on several occasions that he was solidly in the U.S. court on every key strategic decision, from high-level personnel appointments to the handling of Iran’s alleged nuclear weapons program.

“More candidly, Amano noted the importance of maintaining a certain ‘constructive ambiguity’ about his plans, at least until he took over for DG ElBaradei in December” 2009.

In other words, Amano was a bureaucrat eager to bend in directions favored by the United States and Israel regarding Iran’s nuclear program. Amano’s behavior surely contrasted with how the more independent-minded ElBaradei resisted some of Bush’s key claims about Iraq’s supposed nuclear weapons program, correctly denouncing some documents as forgeries.

The world public got its insight into the Amano scam only because the U.S. embassy cables were among those given to WikiLeaks by Pvt. Bradley (now Chelsea) Manning, for which Manning received a 35-year prison sentence (which was finally commuted by President Obama before leaving office, with Manning now scheduled to be released in May – having served nearly seven years in prison).

It also is significant that Geoffrey Pyatt was rewarded for his work lining up the IAEA behind the anti-Iranian propaganda campaign by being made U.S. ambassador to Ukraine where he helped engineer the Feb. 22, 2014 coup that overthrew elected President Viktor Yanukovych. Pyatt was on the infamous “fuck the E.U.” call with Assistant Secretary of State for European Affairs Victoria Nuland weeks before the coup as Nuland handpicked Ukraine’s new leaders and Pyatt pondered how “to midwife this thing.”

Rewards and Punishments

The existing rewards-and-punishments system, which punishes truth-tellers and rewards those who deceive the public, has left behind a thoroughly corrupted information structure in the United States and in the West, in general.

Ukrainian President Petro Poroshenko shakes hands with U.S. Ambassador to Ukraine Geoffrey Pyatt as U.S. Secretary of State John Kerry shakes hands with Ukrainian Foreign Minister Pavlo Klimkin in Kiev, Ukraine, on July 7, 2016.[State Department Photo)

Across the mainstream of politics and media, there are no longer the checks and balances that have protected democracy for generations. Those safeguards have been washed away by the flood of careerism.

The situation is made even more dangerous because there also exists a rapidly expanding cadre of skilled propagandists and psychological operations practitioners, sometimes operating under the umbrella of “strategic communications.” Under trendy theories of “smart power,” information has become simply another weapon in the geopolitical arsenal, with “strategic communications” sometimes praised as the preferable option to “hard power,” i.e. military force.

The thinking goes that if the United States can overthrow a troublesome government by exploiting media/propaganda assets, deploying trained activists and spreading selective stories about “corruption” or other misconduct, isn’t that better than sending in the Marines?

While that argument has the superficial appeal of humanitarianism – i.e., the avoidance of armed conflict – it ignores the corrosiveness of lies and smears, hollowing out the foundations of democracy, a structure that rests ultimately on an informed electorate. Plus, the clever use of propaganda to oust disfavored governments often leads to violence and war, as we have seen in targeted countries, such as Iraq, Syria and Ukraine.

Wider War

Regional conflicts also carry the risk of wider war, a danger compounded by the fact that the American public is fed a steady diet of dubious narratives designed to rile up the population and to give politicians an incentive to “do something.” Since these American narratives often deviate far from a reality that is well known to the people in the targeted countries, the contrasting storylines make the finding of common ground almost impossible.

Syrian President Bashar al-Assad

If, for instance, you buy into the Western narrative that Syrian President Bashar al-Assad gleefully gases “beautiful babies,” you would tend to support the “regime change” plans of the neoconservatives and liberal interventionists. If, however, you reject that mainstream narrative – and believe that Al Qaeda and friendly regional powers may be staging chemical attacks to bring the U.S. military in on their “regime change” project – you might favor a political settlement that leaves Assad’s fate to the later judgment of the Syrian people.

Similarly, if you accept the West’s storyline about Russia invading Ukraine and subjugating the people of Crimea by force – while also shooting down Malaysia Airlines Flight 17 for no particular reason – you might support aggressive countermoves against “Russian aggression,” even if that means risking nuclear war.

If, on the other hand, you know about the Nuland-Pyatt scheme for ousting Ukraine’s elected president in 2014 and realize that much of the other anti-Russian narrative is propaganda or disinformation – and that MH-17 might well have been shot down by some element of Ukrainian government forces and then blamed on the Russians [see here and here] – you might look for ways to avoid a new and dangerous Cold War.

Who to Trust?

But the question is: who to trust? And this is no longer some rhetorical or philosophical point about whether one can ever know the complete truth. It is now a very practical question of life or death, not just for us as individuals but as a species and as a planet.

Illustration by Chesley Bonestell of nuclear bombs detonating over New York City, entitled “Hiroshima U.S.A.” Colliers, Aug. 5, 1950

The existential issue before us is whether – blinded by propaganda and disinformation – we will stumble into a nuclear conflict between superpowers that could exterminate all life on earth or perhaps leave behind a radiated hulk of a planet suitable only for cockroaches and other hardy life forms.

You might think that with the stakes so high, the people in positions to head off such a catastrophe would behave more responsibly and professionally. But then there are events like Saturday night’s White House Correspondents Dinner with self-important media stars puffing about with their First Amendment pins. And there’s President Trump’s realization that by launching missiles and talking tough he can buy himself some political space from the Establishment (even as he sells out average Americans and kills some innocent foreigners). Those realities show that seriousness is the farthest thing from the minds of Washington’s insiders.

It’s just too much fun – and too profitable in the short-term – to keep playing the game and hauling in the goodies. If and when the mushroom clouds appear, these careerists can turn to the cameras and blame someone else.

via http://ift.tt/2p3syKi Tyler Durden