Month: March 2018

The Illusion Of Free Trade

Authored by Valentin Schmid via The Epoch Times,

The current trading system was never free; Trump’s tariffs merely change who gets what…

Anything President Donald Trump does usually provokes a backlash from the status quo. In early March, the focus is on trade, as Trump walked the walk and slapped import tariffs on steel, aluminum, washing machines, and solar panels not just from China but also other countries.

The backlash from popular media and the affected countries’ politicians blames Trump for ruining the beautiful “free trade” system built up around the World Trade Organization (WTO) and its predecessor the General Agreement on Tariffs and Trade (GATT).

As with anything Trump says or does, it’s important to step back and look at the bigger context he’s acting within.

Not Free

The first big-picture news flash is that neither the WTO nor the GATT was “free.” Free trade is trade without government intervention.

One country or industry may produce and export a lot of steel, but if it doesn’t get any subsidies and doesn’t have protective import tariffs, then it deserves to capture global market share because it’s the most competitive. It uses the locally given resources of labor and capital in the most productive way.

Another country may be the best in producing solar panels, making it the world leader in solar panels. The two countries can swap steel and solar panels and balance their trade, with each country doing what it does best.

If—and this is a big “if”—there is no government interference in the marketplace for money itself—in other words, if there is a global, sound money standard—then trade surpluses in one country would lead to money inflows and goods outflows, thus raising the price level and making exports naturally less competitive. In the deficit country, money would leave and goods would enter, lowering the price level and making its exports more competitive. Therefore, there would be no persistent deficits as we have seen with the United States and the rest of the world.

However, the WTO works according to a complex system of rules and penalties—opposite to being a system free of government intervention, it provides a framework for how governments can micromanage their trade. The mismanagement of global fiat currencies and floating exchange rates further exacerbate imbalances.

And every type of government intervention in the marketplace, whether via taxation or tariffs and import quotas, creates winners and losers. These winners and losers are different from a competitive system, where the best steel manufacturer who has the cleanest furnace, consuming the least electricity, makes the most sales.

Winners and Losers

Winners by the diktat of government intervention are often less competitive and therefore need the help of the state to survive. The Chinese steel industry as a whole only continues because of massive government subsidies in the form of cheap loans, direct transfers, and state-subsidized electricity.

American steel companies didn’t get the same help and therefore many had to fold. They were the losers in this exercise of “free trade,” as well as millions of American manufacturing workers who could not compete with cheap labor and massive state subsidies in China.

But there were also winners on the American side. Multinational corporations like General Motors Co. and Caterpillar Inc. benefited from either exporting to China or from being allowed to set up shop in China and starting production. This is especially the case for tech companies like Apple who through proxies, produce most of their tech gadgets in China, where average tariffs are as high as 10 percent, compared to the average 3.5 percent of the United States.

Another winner of this lopsided free trade is the U.S. government, which could sell a lot of its debt to China through the aforementioned manipulated system of fiat currencies and fixed exchange rates. But the average U.S. consumer also benefited from cheaper import prices for his thousands of electronic gadgets and other goods.

The list of winners and losers goes on and on and it’s different for every tariff, every regulation, and every manipulation of the fiat currency system.

Trump Focus

Coming back to Trump and his tariffs, it’s only natural he would want to change the configuration of winners and losers in an already deeply manipulated system. Trump is an economic nationalist, and his goal is to benefit U.S. industry and domestic employment. Every policy from immigration to regulation to taxation reflects this philosophy.

So by raising tariffs on select products, he is picking the domestic winners who should be able to expand production in the face of less international competition and hire more local workers.

In a truly free trade system, this would have long-term disadvantages, because American workers and companies would expand their effort on something that foreign companies and workers could do better.

However, in the current trade regime, it merely levels the playing field for domestic producers while at the same time making life more uncomfortable for not only the American companies operating in China, but also in Europe and Canada.

And it comes with all the unintended consequences any kind of government intervention carries, probably even higher prices for domestic consumer goods.

However, if the people complaining right now had been truly interested in free trade and not just in collecting their own spoils, they would have long ago called on China to lower their average tariff rates and the European Union to stop their massive subsidies for agricultural products.

Alas, for them, free trade is only a one-way street leading to the United States, and they’re unhappy that Trump just put up a massive stop sign.

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Trump Doesn’t Understand How Tariffs Work, Brags About Making Up Trade Stats

In a speech to Republican donors on Wednesday, President Donald Trump bragged about making up fake statistics during a meeting with the Canadian prime minister and argued that tariffs on imported steel would stimulate domestic car manufacturing despite mounting evidence that the exact opposite will happen.

Trump’s comments, reported Thursday by the Washington Post, which says it received a recording of the address, suggest a disregard for facts and a level of economic illiteracy that is remarkable even by the president’s own standards. The Post described the 30-minute speech as a “blistering attack against major U.S. allies and global economies.”

In one part of the speech, Trump reportedly claimed that Japan used a bizarre gimmick to prevent American cars from being imported there. From the Post:

“It’s the bowling ball test. They take a bowling ball from 20 feet up in the air and drop it on the hood of the car,” Trump said of Japan. “If the hood dents, the car doesn’t qualify. It’s horrible,” he said. It was unclear what he was talking about.

Trump said he didn’t even want Japan to pay the tariffs but to build more automobiles in the United States, adding that Japan would do so if tariffs were imposed.

As crazy as the so-called “bowling ball test” is, what follows is actually more insane. Trump seems to be suggesting that tariffs on steel could make Japanese car companies manufacture more cars in the United States, but the 25 percent tariffs he signed last week will make it more expensive to build cars in the United States. That’s true for both domestic and foreign automakers.

The tariffs only apply to raw and unprocessed steel—in other words, they do not apply to imported items made from steel, like cars. Instead of encouraging more automobile manufacturing in the United States, Trump’s tariffs create incentives for cars (and anything else made with steel) to be built elsewhere and imported, tariff-free, here.

Toyota, a Japanese company that operates six manufacturing plants across the southern United States, has warned that Trump’s steel tariffs will jeopardize American workers’ jobs at those facilities.

The president’s remarks, as reported by the Post, suggest that he is either completely ignorant of how tariffs work, or that he does not care about the potential economic damage they could do.

Other comments made by Trump during Wednesday’s speech suggest the former.

Trump said that in a meeting with Canadian Prime Minister Justin Trudeau, he rebutted the claim that Canada has a trade surplus with the United States. Even after being told by one of aides that it was true, Trump maintained that “we lose $17 billion a year” when energy and timber are included in the calculation.

Trump made a similar claim on Twitter this morning.

He’s wrong. The United States has a trade surplus with Canada, according to the Office of the United States Trade Representative.

This sort of willful ignorance about the importance of trade, the distorting effects of tariffs, and basic economic facts might be humorous if Trump didn’t have the power to do such significant damage with the stroke of a pen. He was able to impose the steel tariff (and a similar one on aluminum) without congressional approval by claiming the maneuver was necessary for national security reasons. He has repeatedly threatened to pull the United States out of NAFTA and to tear up a trade deal with South Korea. According to the Post, Trump threatened to pull American troops out of various allied nations if he didn’t get what he wanted on trade.

Bringing our troops home sounds like a good idea, of course, but using them as leverage in a trade war after nearly two decades of actual war is obscene.

Likewise, what Trump wants on trade makes no sense. He wants tariffs, but also wants more cars manufactured in the United States. He wants to renegotiate trade deals between America and its top trading partners, but then brags about making up statistics during a meeting with a trusted foreign leader. How is any of that supposed to lead to better deals?

Some of Trump’s defenders have argued that the tariffs are only a tactic in the administration’s plans to renegotiate trade deals—as if setting fire to the economy is a strategic first step towards saving it. Trump’s comments on Wednesday night belie any claim of a master plan that results in the U.S. coming out on top. From “bowling ball tests” to tariffs, the president doesn’t know what he’s talking about, and his ignorance grows more dangerous each day.

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Kudlow’s “Killing It” On His First Day…

Shortly before concluding his first interview as NEC Director last night, Larry Kudlow told CNBC “buy king dollar and sell gold.” That has been a dismal trade since Trump was elected…

but since Kudlow spoke, things have changed…

Kudlow’s “killing it” on his first day of trading advice!

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Albert Edwards: “Trump Will Soon Turn His Protectionist Fire On Germany. That Will Be Messy”

We were wondering how long before one of our favorite “perma-skeptics”, Socgen’s Albert Edwards, would chime in on the global trade war that broke out in the past few weeks, especially since trade protectionism, tariffs and subsidies are the opposite side of the same “strategic” coin of currency devaluation which we have observed for the past decade, and both of which have one purpose: to make one nation’s goods and service (and stocks) cheaper to the outside world (curiously, in recent years, it has emerged that “soft” protectionism i.e. currency devaluation, is far more acceptable to the establishment than direct or targeted trade intervention via tariffs and trade protectionism).

We got the answer today when in a note, what else, warning what comes next, Edwards writes that whereas “a trade war and competitive currency devaluation was always going to be the end game in our Ice Age thesis as a global deflationary bust destroyed wealth, profits and jobs” and it now looks that this endgame “might be arriving  sooner than we had anticipated.”

The reason: central banks. The catalyst: Donald Trump.

As Edwards explains, while the world is all too quick to point the finger at Trump for daring to expose that the trading emperor is naked, the real culprit behind massive trade imbalances is elsewhere, usually inside a central bank building:

“Increasing trade tensions are an inevitable consequence of the side-effects of QE pursued by central banks – especially the ECB. In the near term, there are a couple of trade issues rankling the US Administration far more than steel and aluminium that could easily trigger a full-scale trade war. More immediate is the impending result of a US probe into China’s alleged theft of intellectual property. And boiling away in the background are Germany’s, and now too the eurozone’s, outsized trade surpluses.”

Edwards begins his analysis by pointing out something trivial: politicians lie.

In this context, Edwards claims that President Trump “is a most unusual politician. Like him or loath him, he seems to be doing something politicians seldom ever do: namely, attempting to fulfill his election promises. This is most unusual!” 

However, “Internationally, the US is by no means the laggard when it comes to broken political promises.” On the opposite end of the spectrum from Trump is Italy, which “easily wins the award of lying politicians” and which Edwards says is “perhaps the one reason electorate has turned its back on mainstream political parties” As a reminder, in the dramatic election outcome two weeks ago, euroskeptic, anti-establishment parties win a nominal majority, an unprecedented result for modern Europe.

And, as Edwards correctly points out, “economic stagnation has coupled with political disappointment to turn a disillusioned and angry electorate away from the mainstream. To a greater or lesser extent, you can see this sort of electoral revolt in almost every single European country as well as in the US.“

The SocGen strategist notes that Italians have more reasons to be angry:

since the inception of the euro at the start of 1999, Italian GDP has increased a paltry 8%. Contrast that with the UK and US, which have both grown around 45%, France and Germany at around 30%, and even Japan, which has grown around 20%! And Spain, despite seeing a gut-wrenching 10% decline in GDP between 2008 and 2013, has still enjoyed a massive 42% GDP rise since the euro’s inception. Italy’s economic performance is a disgrace for a G7 country and frankly intolerable. Against this backdrop, I’m amazed the vote for Italian radical parties wasn’t even higher!

Italy’s semi-permanent stagnation is also one of the main reasons why he remains confident that the eurozone will eventually fragment. “Italy will never grow on a sustainable basis within the eurozone straitjacket.”

But before the inevitable collapse, there are a few additional steps. 

First, what will emerge is that the next trade war – after US-China – will be Washington-Brussels – and almost exclusively due to Mario Draghi.

The incredible yield suppression in the eurozone has seen capital flows haemorrhage out of the region in search of yield. This is why the ECB is largely responsible for placing the eurozone in the crosshairs of Trump’s newly aggressive protectionist measures. (Actually as Reuters reports, although Trump’s rhetoric may have attracted the headlines, a recent study shows protectionism has been on the rise for some time now. The world has racked up 7,000 protectionist measures since the 2008 crisis, with the US and EU implementing around 1,000 each, followed some way behind by India at 400).

What happens next, according to Edwards, is troubling as it will be a recreation of World War II, initially in the trade arena: a trade war between the US and Germany.

I believe Germany’s gargantuan trade and current account surplus will soon attract Trump’s full attention. The US has not been alone in criticising Germany’s outsized external surplus – so too have the European Commission, the IMF and the OECD. To be sure, other countries have a bigger surplus as a % of GDP, like Switzerland, Holland and Singapore, but these countries are relatively small. Germany’s surplus is now, in dollar terms, the biggest in the world. The eurozone surplus has also been rising in recent years to stand at 4% of GDP.

Making matters worse, everyone knows that it is Germany’s FX subsidy courtesy of the EUR – which replaced the far stronger Deutsche Mark – that makes Berlin one of the biggest currency riggers in the world. In fact, “a Chinese official commented a few years back that Germany, not China, was actually the world’s biggest currency manipulator – in tying its currency to far weaker economies, the real DM is massively undervalued.“

Ironically, Germany is aware of what is coming, and as Edwards writes, he agrees with former German Finance Minister Schäuble, who correctly pointed out that it was the ECB’s QE policies that exacerbated the trade situation, in stimulating capital flight from the eurozone that (by identity) has increased the overall trade surplus by depressing the euro.

As a result, Edwards expects Trump to “soon turn his protectionist fire on both Germany and the EU. That will be messy.”

But first there’s China.

And as we explained yesterday, as a result of the ongoing Section 301 investigation which will culminate soon in dramatic a trade confrontation, “this is likely to be a far more explosive issue for China than recent tariffs on steel and aluminium” according to Edwards.

Watch this space. President Trump looks as if he wants to be a politician who is remembered for fulfilling his promises!

So what happens next? Using Japan as a template for the “economic and financial Ice Age unfolding in the west” Edwards made one major contrarian prediction: “to those in the noughties who said a bust in the US and Europe would be nothing like the 90s bust in Japan, I agreed. I thought it would be much worse because the west did not enjoy Japan’s high levels of equality and social cohesion.”

Looking at recent events, it appears that when confronted with Japanese-style pain, he’s been right: western electorates’ anger is boiling over… the only thing keeping social sanity in check are near record high stock prices. That, too, will go soon one central banks finally end their daily manipulation some time over the next year. 

In that context, Edwards concludes, he has “always viewed competitive devaluation and trade war as a likely endgame of the predicament we find ourselves in. It’s just coming sooner than I expected!“

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Larry Kudlow, Trump’s New Economic Adviser, Is a Longtime Advocate for Low Taxes and Free Trade: New at Reason

Veronique de Rugy has hope for Trump’s newest economics adviser:

On Thursday, economist and CNBC contributor Larry Kudlow was named the new director of the National Economic Council at the White House. Kudlow is a longtime advocate for low taxes, free trade, and looser immigration restrictions. Although he has softened slightly on the last two, I am hopeful he will use his new perch to continue to advocate forcefully for all of them.

To many in Washington and New York, Kudlow is known for being one of first supply-siders. He was a supply-sider when supply-side wasn’t even a thing. And he has remained loyal to that way of thinking. In other words, he likes his and everyone else’s taxes low—especially as they apply to capital.

Needless to say, he was happy with the tax reform plan passed and signed into law last December, especially the reduction of the corporate tax rate from 35 to 21 percent. Being more politically savvy than I, he probably had more tolerance than I for the whole “middle class tax relief” part of the plan. In my humble opinion, if Congress and the president won’t cut spending, they shouldn’t implement tax cuts with no apparent economic growth payoff.

When you are engaged in a tax policy battle, having Larry Kudlow on your side is an asset.

View this article.

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In “Cyber-Related Statement”, US Sanctions “Putin’s Chef”, Russian Troll Farm

The US Treasury’s Office of Foreign Assets Control has posted a new and improved list of cyber-related sanctions targeting several Russian individuals and entities.

Among those sanctioned are Yevgeniy Prigozhin, a Russian caterer known as “Putin’s Chef.”

As Bloomberg reports, The U.S. issued financial sanctions against two major Russian intelligence agencies along with a St. Petersburg-based “troll farm” and other Russian citizens and businesses indicted by Special Counsel Robert Mueller on charges of meddling with the 2016 U.S. presidential election.

The penalties listed Thursday on the Treasury Department’s website follow the February indictment and more than a year of criticism from Democrats and some Republican lawmakers that Trump has been too slow to act against Russia for intruding in the election.

The sanctions cover the Internet Research Agency and all other businesses and entities included in Mueller’s Feb. 16 indictment, which alleged a vast scheme to interfere with the campaign through social media and help President Donald Trump win.

Treasury also points to 2017 ‘NotPetya’ attack, which the U.S. says was “the most destructive and costly cyber-attack in history.”

NotPetya resulted in billions of dollars in damage across Europe, Asia and U.S., disrupted global shipping, trade and medicine production, and rendered several U.S. hospitals unable to create electronic records for more than a week.

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Specially Designated Nationals List Update

The following individuals have been added to OFAC’s SDN List:

AFANASYEV, Sergei (a.k.a. AFANASYEV, Sergey), Russia; DOB 16 May 1963; Gender Male (individual) [CAATSA – RUSSIA] (Linked To: MAIN INTELLIGENCE DIRECTORATE).

ASLANOV, Dzheykhun Nasimi Ogly (a.k.a. ASLANOV, Jay; a.k.a. ASLANOV, Jayhoon), Russia; DOB 01 Jan 1990; POB Azerbaijan; Gender Male (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

BOGACHEVA, Anna Vladislavovna, Russia; DOB 13 Mar 1988; Gender Female (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

BOVDA, Maria Anatolyevna (a.k.a. BELYAEVA, Maria Anatolyevna), Russia; DOB 21 Feb 1986; Gender Female (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

BOVDA, Robert Sergeyevich, Russia; DOB 27 Aug 1989; Gender Male (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

BURCHIK, Mikhail Leonidovich (a.k.a. ABRAMOV, Mikhail), Russia; DOB 07 Jun 1986; Gender Male (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

BYSTROV, Mikhail Ivanovich, Russia; DOB 21 Dec 1958; Gender Male (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

KAVERZINA, Irina Viktorovna, Russia; DOB 18 Jul 1986; Gender Female (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

KRYLOVA, Aleksandra Yuryevna, Russia; DOB 01 Jul 1986; Gender Female (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

MOLCHANOV, Grigoriy Viktorovich; DOB 01 Jan 1956 to 31 Dec 1956; citizen Russia; Gender Male (individual) [CAATSA – RUSSIA] (Linked To: MAIN INTELLIGENCE DIRECTORATE).

PODKOPAEV, Vadim Vladimirovich, Russia; DOB 01 May 1985; Gender Male (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

POLOZOV, Sergey Pavlovich, Russia; DOB 13 Oct 1987; Gender Male (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

VASILCHENKO, Gleb Igorevich, Russia; DOB 13 Apr 1991; Gender Male (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

VENKOV, Vladimir, Russia; DOB 28 May 1990; Gender Male (individual) [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

The following entity has been added to OFAC’s SDN List:

INTERNET RESEARCH AGENCY LLC (a.k.a. AZIMUT LLC; a.k.a. GLAVSET LLC; a.k.a. MEDIASINTEZ LLC; a.k.a. MIXINFO LLC; a.k.a. NOVINFO LLC), 55 Savushkina Street, St. Petersburg, Russia [CYBER2].

The following changes have been made to OFAC’s SDN List:

ALEXSEYEV, Vladimir Stepanovich; DOB 24 Apr 1961; Passport 100115154 (Russia); First Deputy Chief of GRU (individual) [CYBER2] (Linked To: MAIN INTELLIGENCE DIRECTORATE). -to- ALEXSEYEV, Vladimir Stepanovich; DOB 24 Apr 1961; Passport 100115154 (Russia); First Deputy Chief of GRU (individual) [CYBER2] [CAATSA – RUSSIA] (Linked To: MAIN INTELLIGENCE DIRECTORATE).

CONCORD CATERING, Nab. Lieutenant Schmidt D. 7, von Keyserling Mansion, St. Petersburg 119034, Russia; Ulitsa Volkhonka Dom 9, Moscow 119019, Russia [UKRAINE-EO13661]. -to- CONCORD CATERING, Nab. Lieutenant Schmidt D. 7, von Keyserling Mansion, St. Petersburg 119034, Russia; Ulitsa Volkhonka Dom 9, Moscow 119019, Russia [UKRAINE-EO13661] [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

FEDERAL SECURITY SERVICE (a.k.a. FEDERALNAYA SLUZHBA BEZOPASNOSTI; a.k.a. FSB), Ulitsa Kuznetskiy Most, Dom 22, Moscow 107031, Russia; Lubyanskaya Ploschad, Dom 2, Moscow 107031, Russia [CYBER2]. -to- FEDERAL SECURITY SERVICE (a.k.a. FEDERALNAYA SLUZHBA BEZOPASNOSTI; a.k.a. FSB), Ulitsa Kuznetskiy Most, Dom 22, Moscow 107031, Russia; Lubyanskaya Ploschad, Dom 2, Moscow 107031, Russia [CYBER2] [CAATSA – RUSSIA].

GIZUNOV, Sergey (a.k.a. GIZUNOV, Sergey Aleksandrovich); DOB 18 Oct 1956; Passport 4501712967 (Russia); Deputy Chief of GRU (individual) [CYBER2] (Linked To: MAIN INTELLIGENCE DIRECTORATE). -to- GIZUNOV, Sergey Aleksandrovich (a.k.a. GIZUNOV, Sergey); DOB 18 Oct 1956; Gender Male; Passport 4501712967 (Russia); Deputy Chief of GRU (individual) [CYBER2] [CAATSA – RUSSIA] (Linked To: MAIN INTELLIGENCE DIRECTORATE).

KOROBOV, Igor (a.k.a. KOROBOV, Igor Valentinovich); DOB 03 Aug 1956; nationality Russia; Passport 100119726 (Russia); alt. Passport 100115101 (Russia); Chief of GRU (individual) [CYBER2] (Linked To: MAIN INTELLIGENCE DIRECTORATE). -to- KOROBOV, Igor Valentinovich (a.k.a. KOROBOV, Igor); DOB 03 Aug 1956; nationality Russia; Gender Male; Passport 100119726 (Russia); alt. Passport 100115101 (Russia); Chief of GRU (individual) [CYBER2] [CAATSA – RUSSIA] (Linked To: MAIN INTELLIGENCE DIRECTORATE).

KOSTYUKOV, Igor (a.k.a. KOSTYUKOV, Igor Olegovich); DOB 21 Feb 1961; Passport 100130896 (Russia); alt. Passport 100132253 (Russia); First Deputy Chief of GRU (individual) [CYBER2] (Linked To: MAIN INTELLIGENCE DIRECTORATE). -to- KOSTYUKOV, Igor Olegovich (a.k.a. KOSTYUKOV, Igor); DOB 21 Feb 1961; Passport 100130896 (Russia); alt. Passport 100132253 (Russia); First Deputy Chief of GRU (individual) [CYBER2] [CAATSA – RUSSIA] (Linked To: MAIN INTELLIGENCE DIRECTORATE).

LIMITED LIABILITY COMPANY CONCORD MANAGEMENT AND CONSULTING (a.k.a. KONKORD MENEDZHMENT I KONSALTING, OOO; a.k.a. LLC CONCORD MANAGEMENT AND CONSULTING; a.k.a. OBSHCHESTVO S OGRANNICHENNOI OTVETSTVENNOSTYU KONKORD MENEDZHMENT I KONSALTING), D. 13 Litera A, Pom. 2-N N4, Naberezhnaya Reki Fontanki, St. Petersburg 191011, Russia; Registration ID 1037843002515 [UKRAINE-EO13661]. -to- LIMITED LIABILITY COMPANY CONCORD MANAGEMENT AND CONSULTING (a.k.a. KONKORD MENEDZHMENT I KONSALTING, OOO; a.k.a. LLC CONCORD MANAGEMENT AND CONSULTING; a.k.a. OBSHCHESTVO S OGRANNICHENNOI OTVETSTVENNOSTYU KONKORD MENEDZHMENT I KONSALTING), D. 13 Litera A, Pom. 2-N N4, Naberezhnaya Reki Fontanki, St. Petersburg 191011, Russia; Registration ID 1037843002515 [UKRAINE-EO13661] [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

MAIN INTELLIGENCE DIRECTORATE (a.k.a. GLAVNOE RAZVEDYVATEL’NOE UPRAVLENIE (Cyrillic: ГЛАВНОЕ РАЗВЕДЫВАТЕЛЬНОЕ УПРАВЛЕНИЕ); a.k.a. GRU; a.k.a. MAIN INTELLIGENCE DEPARTMENT), Khoroshevskoye Shosse 76, Khodinka, Moscow, Russia; Ministry of Defence of the Russian Federation, Frunzenskaya nab., 22/2, Moscow 119160, Russia [CYBER2]. -to- MAIN INTELLIGENCE DIRECTORATE (a.k.a. GLAVNOE RAZVEDYVATEL’NOE UPRAVLENIE (Cyrillic: ГЛАВНОЕ РАЗВЕДЫВАТЕЛЬНОЕ УПРАВЛЕНИЕ); a.k.a. GRU; a.k.a. MAIN DIRECTORATE OF THE GENERAL STAFF; a.k.a. MAIN INTELLIGENCE DEPARTMENT), Khoroshevskoye Shosse 76, Khodinka, Moscow, Russia; Ministry of Defence of the Russian Federation, Frunzenskaya nab., 22/2, Moscow 119160, Russia [CYBER2] [CAATSA – RUSSIA].

PRIGOZHIN, Yevgeniy Viktorovich (a.k.a. PRIGOZHIN, Evgeny), Russia; DOB 1961; Gender Male (individual) [UKRAINE-EO13661]. -to- PRIGOZHIN, Yevgeniy Viktorovich (a.k.a. PRIGOZHIN, Evgeny), Russia; DOB 01 Jun 1961; Gender Male (individual) [UKRAINE-EO13661] [CYBER2] (Linked To: INTERNET RESEARCH AGENCY LLC).

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One wonders if there are any Russians (or Russian entities) left to sanction?

Apparently there are – Treasury Secretary Stephen Mnuchin said that more Russian officials and oligarchs are to face sanctions.

And for now, the most obvious reaction to these new sanctions is further selling of the Ruble – to one-month lows…

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Larry Kudlow: Fed Should Let Economy “Rip” And Not “Overdo It” With Rate Hikes

The White House didn’t officially confirm that CNBC’s Larry Kudlow would replace Gary Cohn as director of the National Economic Council until this morning, but last night, Kudlow demonstrated that he’s already comfortable in the role during a wide-ranging interview with his (soon-to-be-former) colleagues on America’s No. 1 business news network.

To wit, Kudlow surprised investors by offering his views on certain topics that are typically left to the Treasury Secretary of Federal Reserve officials.

Kudlow

Investors were surprised to hear Kudlow declare, with little warning, that he would “buy the dollar and sell gold,” adding that he has “no reason to believe the president doesn’t support a strong, stable dollar.”

But given the centrality of a weak dollar to Trump’s trade-focused agenda, one Twitter user wryly pointed out that the comment was Kudlow’s first documented lie in his new job…

 

And although he doesn’t get his own “dot” on the Fed’s dot plot, Kudlow apparently felt comfortable offering his two cents on how the central bank should go about raising interest rates, cautioning that the Fed shouldn’t rush to hike rates four times this year.

We’d like to know: Does Kudlow realize that, 819 days into the hiking cycle, stocks actually love higher rates (despite all the chatter from market strategists)? …for now!

Fed

Given the “goldilocks” economy that we’re living in (though that perception is already unraveling) Kudlow says the Fed shouldn’t rush to hike rates, and should instead just “let it rip” when it comes to growth…

Evans: Guys, thanks for joining us we love this concept. Karen, whats your Larry trade now? No pressure cause it is not like he is listening or anything.

Karen Finerman: All right, yeah I mean, I love Larry I got to say, going into today, long a lot of puts, didn’t love the Gary Cohn change, but of everyone out there, im most excited about this choice, outstanding hell do a great job I think –

Kudlow: Thank you

Finerman: A very, very great job, not just on policy, but the other parts you talked about, communication. Which is maybe equally or sometimes more important. You have the skills to do both so I think you’re an outstanding choice.

Kudlow: Thank you, Karen, much appreciated.

Tim Seymour: Larry, congratulations, and major yes buyers as we say on Larry, mostly because if you look at the market over the last couple days, we’ve gone with being concerned about overheating to a place where now we question growth granted, there’s been a couple macro points, retail sales, PMIs around the world slowing a little bit, but bottom line is the world needs to understand, I should say markets need to understand what the world understands. Were in a better environment globally as Larry pointed out yes better to punish your enemies and not your friends at the same time we are learning this now, who is pro or against, fair deals or not. Regardless the momentum for corporate EPS and where are with in the country right now is still bullish.

Kudlow: Yes.

Seymour: The fact in three days we have sold to different places in the market, and sentiments, have caution on that view, and, therefore, Larry is a fresh voice in the equation, and if that takes us higher, I’m a yes buyer on Larry Kudlow.

Kudlow: thank you, thank you very much look, somebody said profits are the mothers milk of stocks. I cant remember who that was.

Evans: it could have been a wise guy on CNBC. I’m going to put him on the spot really now

Kudlow: the profit picture is good. It’s looking real good, and growth is not inflationary just let it rip for heaven’s sakes. The market is going to take care of itself. The story takes care of itself let it rip the fed will do what it has to do, but I hope they don’t overdo it.

Kudlow worked at the New York Fed early in his career. More recently, Kudlow had said that the Trump tax cuts would give the central bank more room to raise interest rates more quickly – to help ensure that the central bank is ready for the next crisis.

Gary Cohn, Kudlow’s predecessor was more circumspect. As Bloomberg reminds us, Cohn deferred to the Fed when asked for his views on the central bank’s policy.

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Trump’s Wall Is Performance Art, Not Border Security: New at Reason

Donald Trump loves the ceremonial parts of his job, writes Steve Chapman, and his trip to California to inspect prototypes for a border wall was pure theater. He got to project toughness, point to something tangible, make big promises, and take credit—without actually accomplishing anything. He’s not a president; he’s a performance artist.

Of all his campaign pledges, none was more appealing to those at his rallies than the border wall. And as Chapman observes, none was more harebrained.

View this article.

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“Curb Your Enthusiam!”

Authored by Kevin Muir via The Macro Tourist blog,

It’s 819 days since the start of the Fed tightening cycle. Why would I know that so precisely? Because I just finished creating a chart of the stock market performance before and after the first fed tightening.

Indexing the stock market performance around certain events like the first Fed hike is not novel. Tons of market strategists create these sorts of visuals. But Ned Davis created a chart I found so fascinating – what’s that line about good and great artists? Well, I am stealing it.

Actually, I just wanted to see it updated, so I thought it was worth recreating from scratch, but all the credit goes to Ned.

As I mentioned, in a lot of ways it’s just a regular piece of research. The truly insightful part of Ned’s chart was to divide the tightening cycles into slow and fast campaigns. For example, when the Fed began hiking in April of 1955, they raised rates at a gradual, slow pace. This was in contrast to November of 1967 when the Federal Reserve raised rates quickly.

Taking each Fed funds tightening cycle, Ned divided them into slow or fast campaigns. He then took the return of the S&P 500 around those periods. Day 0 represents the first hike and at that point, the S&P 500 is indexed to 100. Taking each bucket, an equal weighted average of the S&P 500 performance is created.

So without further ado, here is the chart of the performance of the S&P 500 before and after the first tightening, but grouped by the speed at which the Fed raised rates.

The fast tightening cycles have typically seen an initial underperformance. But then, they catch up, and by the third year, they actually outperform slower tightening campaigns.

The really interesting part? Today, we are sitting at the outperformance peak for the slow cycles. So if you accept that the current slow tightening cycle plays out like previous ones, then the stock market is about to drift lower in the coming year.

And what does the current stock market performance look like compared to previous ones? To no great surprise, this latest cycle has blown the doors off typical returns.

I would have thought the best development for the stock market would have been an economic pause that allows the Fed to slow down their hikes. Yet this data suggests that what we really should hope for is a rip-roaring economy that causes the Fed to tighten quickly.

There is no doubt that this cycle is different due to QE and other unusual factors, but history suggests it might be time to temper the enthusiasm as the slow cycle rally is about all played out.

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Broward County Sheriff Scott Israel Refuses to Explain His Office’s Failures to Congress

CommitteeScott Israel, the embattled sheriff of Florida’s Broward County, won’t answer Congress’s questions about a collective failure to prevent the mass shooting at Marjory Stoneman Douglas High School in Parkland, Florida.

Israel was asked to appear before the Senate Judiciary Committee’s hearing on school safety and gun control this week. Both Israel and Florida Department of Children and Families Secretary Michael Carroll refused the request, earning a stern rebuke from Sen. Chuck Grassley (R-Iowa), who chairs the committee.

“By thumbing their noses at Congress, Sheriff Israel and Secretary Carroll have let the American people down and also the citizens of Florida they serve,” said Grassley, according to The Hill. “[T]he Broward County Sheriff and Department of Children and Families are integral to the Parkland fact pattern.”

Perhaps it’s no surprise that Israel and Carroll were unwilling to subject themselves to Congressional criticism, but Israel was perfectly happy to appear on television in the immediate wake of the tragedy, before his own office’s mistakes became the story. Israel really does seem like a consummate media opportunist: eager to commandeer the spotlight when it makes him look strong and decisive, uninterested in being held publicly accountable for the numerous errors his officers committed. Recall Israel’s own appraisal of his leadership: “amazing.”

The Department of Children and Families, Florida’s version of child protective services, has plenty to answer for as well. In 2016, the agency mistakenly determined that Nikolas Cruz posed no threat to himself or others.

At the hearing on Wednesday, FBI Deputy Director Bill Bowdich took some responsibility for his agency’s missteps. The FBI had learned that Cruz was mutilating small animals, possessed a cache of weapons, had threatened other family members, and was planning to shoot up a school, but agents did not follow up on this information.

“We made mistakes here, no question about it,” said Bowdich, according to The Los Angeles Times. “That said, even if we had done everything right, I’m not sure we could have stopped the attack.”

It’s true that not every horrific tragedy can be prevented by law enforcement, even if everyone does their jobs. But the public entities involved in the Parkland incident did everything wrong: in the weeks leading up to the shooting, and even as it was unfolding. They should be held accountable; Israel, too.

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