Month: May 2018

Just hours after the White House revealed that it had extended exemptions on aluminum and steel import tariffs from the European Union, Canada, Mexico and several other countries, Nikkei reported Tuesday evening that China has presented the Trump administration with a plan to boost imports of aircraft, semiconductors and natural gas from the US to try and reduce its massive trade surplus.

However, Chinese officials are less enthusiastic about Washington’s demands that it scrap its “Made in China 2025” initiative to bolster high-tech manufacturing in several key sectors.

The report comes as Treasury Secretary Steven Mnuchin, top economic advisor Larry Kudlow, Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross and Trump advisor Peter Navarro head to Beijing later this week for the first round of face-to-face talks to try and end the trade war. They will meet with senior Chinese officials including President Xi and Vice Premier Liu He, China’s de facto economy czar.

Since shortly after announcing his candidacy for office, President Trump has railed against the US-China trade deficit, declaring that it was tantamount to handing billions of dollars to the Chinese every year.

The Trump administration’s demands regarding “Made in China 2025” could become a potential sticking point, as Chinese officials have expressed reservations about scrapping one of President Xi’s signature initiatives. The plan calls for building up 10 key high-tech areas of China’s manufacturing sector, including industrial robots and semiconductors.

China has presented the Trump administration with plans to boost aircraft, semiconductor and natural gas imports in response to American demands that the country reduce its trade surplus with the U.S. by $100 billion, according to the sources. Beijing is working to open its automotive and financial sectors further as well.

But trade frictions between the U.S. and China go even deeper. Washington’s greatest concern involves “Made in China 2025,” a senior White House official said, referring to Xi’s plan for building up 10 key areas of China’s manufacturing sector. They include industrial robots and semiconductors, an area in which China seeks to challenge the likes of Intel and Samsung.

“China increasingly threatens to dominate the industries of the future: artificial intelligence, autonomous vehicles, blockchain systems, robotics, high-tech ship manufacturing and more,” White House trade adviser Peter Navarro wrote in the Wall Street Journal last month. “Death by China” author Navarro, who thinks the country’s rise in high-tech manufacturing could lead to a military clash, was an influential voice behind the tariffs in response to alleged Chinese intellectual property abuses.

Navarro will accompany Mnuchin and the others to China this week. The U.S. wants Beijing to scrap the Made in China 2025 plan, a diplomatic source said.

With midterm elections looming in November, the Trump administration is eager to show progress on trade with China, a constant refrain during his run for the White House. But while Beijing is expected to offer ways to reduce the trade imbalance, it likely will refuse to reconsider its industrial self-sufficiency initiative.

As Nikkei points out, Beijing was initially reluctant to hold talks with the US. Beijing initially denied claims by senior Trump administration officials that informal talks had begun. But China has reluctantly agreed to participate to try and stave off a destabilizing trade war. 

The Trump administration’s plans for a historic summit with North Korea could complicate trade talks as China becomes increasingly worried about its former satellite state’s overtures to its Western rivals.

Trade problems with China also loom over the summit expected soon between Trump and North Korean leader Kim Jong Un, given that Chinese cooperation remains crucial to denuclearization of the Korean Peninsula. Some American officials think Beijing could link the North Korea nuclear issue to trade.

During an interview Thursday with CNBC from the Milken Conference, Ross confirmed that he’s optimistic about the talks – though he was careful not to prejudge the outcome. Ross added that the US is committed to holding China accountable both for its dumping of steel and aluminum, as well as its theft of US intellectual property. According to Nikkei, one reason the White House extended its exemption on tariffs for the EU is because it’s seeking the bloc’s help to hold China accountable for its IP practices.

Nikkei added that the EU and Japan intend to join the US in a WTO complaint regarding China’s institutionalized theft of intellectual property. Several American officials had advised Trump not to risk alienating the EU as it focuses on China, its primary target. The EU has also hinted at the prospect of a new trade deal with the US if it is granted a permanent exemption from the steel and aluminum tariffs.

Meanwhile, Lighthizer told the US Chamber of Commerce on Tuesday that the US isn’t seeking to change China’s state-controlled economic system. Rather, it’s merely hoping to open China’s economy to more foreign competition – something that Xi and He have committed to in recent talks where they declared that China would begin liberalizing its rules surrounding foreign automakers building and selling their wares inside China.

While trade concerns have largely receded over the past two weeks, investors will likely be watching closely for headlines from the talks. Furthermore, as the US seeks its detente with China, the Commerce Department is already preparing to open up yet another front in its international trade war. Case in point: Earlier today, the Commerce Department issued a preliminary determination to slap anti-dumping duties on imports of PET resin from Brazil, Indonesia, Taiwan, Pakistan and South Korea.

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Authored by Patrick Buchanan via Buchanan.org,

Saturday’s White House Correspondents’ Association dinner, billed as a celebration of the First Amendment and a tribute to journalists who “speak truth to power,” has to be the worst advertisement in memory for our national press corps.

Comedian Michelle Wolf, the guest speaker, recited one filthy joke after another at the expense of President Trump and his people, using words that would have gotten her kicked out of school not so long ago.

Media critic Howard Kurtz said he had “never seen a performance like that,” adding that Wolf “was not only nasty but dropping F-bombs on live television.” Some of her stuff was grungier than that.

The anti-Trump media at the black-tie dinner laughed and whooped it up, and occasionally “oohed” as Wolf went too far even for them, lending confirmation to Trump’s depiction of who and what they are.

While the journalistic elite at the black-tie dinner was reveling in the raw sewage served up by Wolf, Trump had just wrapped up a rally in Michigan.

The contrast between the two assemblies could not have been more stark. We are truly two Americas now.

“Why would I want to be stuck in a room with a bunch of fake-news liberals who hate me?” said Trump in an email to supporters, adding that he would much rather “spend the evening with my favorite deplorables who love our movement and love America.”

Her objective in arranging this year’s dinner, said WHCA president Margaret Talev, was “in unifying the country,” but “we may have fallen a little bit short on that goal.” The lady has a gift for understatement.

With revulsion at Wolf’s performance coming in strong on Sunday, journalists began to call for a halt to inviting comedians, with some urging an end to the annual dinner that Trump has twice boycotted.

These dinners are becoming “close to suicidal for the press’s credibility,” writes Margaret Sullivan in The Washington Post.

How did the White House Correspondents’ Association descend to this depth?

In 1962, along with friends at the Columbia Graduate School of Journalism, this writer hung out outside the dinner, as we talked to legendary Pulitzer Prize-wining investigative reporter Clark Mollenhoff.

A memorable evening and though most of the press there had probably been JFK voters in 1960, these journalists would never have sat still for Saturday night’s festival of contempt.

Nor has the older Gridiron dinner descended to this depth.

A white-tie affair at the Statler Hilton, it is put on by the Gridiron Club, one of whose rules is, “Women are always present.” Nothing is to be said from the podium that might affront a lady. And the jokes from the rival party speakers are to “singe, but not burn.”

What happened to the WHCA dinner? The evening has become less a celebration of the First Amendment than a celebration of the press themselves, how wonderful they are and how indispensable they are to our democracy.

Yet in the eyes of tens of millions of their countrymen, they are seen not as “speaking truth to power,” but as using their immense power over American communications to punish their enemies, advance their own agendas, and, today, bring down a president.

The press denounces Trump for calling the media “the enemy of the people.” But is there any doubt that the mainstream media are, by and large, enemies of Trump and looking to Robert Mueller to solve their problem?

Saturday’s White House Correspondents’ dinner recalls to mind T.S. Eliot’s insight that, “Things reveal themselves passing away.”

It was saturated with detestation of Trump, his people, and what they represent.

How did we get here?

Like our cultural elite in Hollywood and the arts, and our academic elite in the Ivy League, our media elite is a different breed than we knew in the Eisenhower-Kennedy era. Our institutions passed through the great cultural, social and moral revolution of the late 20th century, and they have emerged different on the other side.

Most of the Washington press corps at that dinner have next to nothing in common with the folks who voted for Trump and cheered him in Michigan. And Hillary Clinton surely spoke for many of the Beltway media laughing at Wolf’s jokes when she said:

“(Y)ou could put half of Trump’s supporters into what I call the basket of deplorables. … The racist, sexist, homophobic, xenophobic, Islamaphobic … (Trump) tweets and retweets their offensive hateful mean-spirited rhetoric. Now, some of those folks — they are irredeemable, but thankfully they are not America.”

It’s good to know what folks really think of you.

Perhaps, rather than seeking to create a synthetic unity, those who so deeply and viscerally disagree — on politics, morality, culture and even good and evil — ought peacefully to go their separate ways.

We both live in the USA, but we inhabit different countries.

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A day after the New York Times published a list of more than four-dozen questions that Special Counsel Robert Mueller had purportedly delivered to President Trump’s legal team, the Washington Post Tuesday evening sent US stock futures and the dollar lower when it reported that Mueller had raised the possibility of subpoenaing president Trump – something that would almost certainly trigger a constitutional crisis that would need to be resolved by the Supreme Court – should he refuse a meeting with investigators.

The threat was reportedly issued during a particularly tense meeting held on March 5. Robert Mueller reportedly made the threat after former Trump lead attorney John Dowd, who has since left the legal team, was arguing that Mueller didn’t have the authority to subpoena Trump. Until now, the notion that Mueller would subpoena Trump has been more conjecture; this is the first time a major media outlet has reported that the special counsel is considering such a drastic course of action.

The threat reportedly set in motion weeks of turmoil in the Trump legal team that eventually led to Dowd’s exit.

But the details buried inside the WaPo report are almost as interesting as the headline. Because WaPo recounts how Trump lawyer Jay Sekulow transcribed 49 questions that the Mueller team offered as examples of what the special counsel intended to ask the president.

In the meantime, Trump’s lawyers are also considering whether to provide Mueller with written explanations of the episodes he is examining. After investigators laid out 16 specific subjects they wanted to review with the president and added a few topics within each one, Sekulow broke the queries down into 49 separate questions, according to people familiar with the process.

This would seem to confirm our theory that Trump’s legal team leaked the Mueller questions to pressure the special counsel into backing off.

Which is unsurprising because, according to WaPo, Trump is so infuriated about the Cohen raid, that one aide reportedly told WaPo that he seems to talk about it “20 times a day.” Multiple media reports have claimed Trump soured on the prospect of an interview with Mueller after the raids on Cohen’s home, office and hotel room.

Trump’s anger over the Cohen raids spilled into nearly every conversation in the days that followed and continues to be a sore point for the president. One confidant said Trump seems to “talk about it 20 times a day.” Other associates said they often stand silent, in person or on the phone, as he vents about the Cohen matter, knowing that there is little they can say.

If this is true, it would suggest that Mueller’s team leaked the WaPo report to push back against Trump’s lawyers and pressure the president into agreeing to an interview.

Should a subpoena be issued, Trump’s legal team would likely argue that Trump’s communications and deliberations are protected by executive privilege, and that a subpoena would interfere with his ability to do his job. While it’s generally accepted that a sitting president could be subpoenaed, the issue has never been decided in court, since Special Prosecutor Ken Starr backed down from subpoenaing former President Bill Clinton.

Mueller’s team would likely argue that no American citizen is above the law, banking on the fact that judges are typically loathe to rule that somebody can’t be investigated.

Trump’s team could argue that Mueller was seeking information about the president’s private conversations that are protected by executive privilege or that a grand jury interview would place an unnecessary burden on the president’s ability to run the country.

Judges have generally held that the president is not above the law and can be subjected to normal legal processes — but the issue of a presidential subpoena for testimony has not been tested in court. Starr subpoenaed President Bill Clinton for grand jury testimony in 1998 but withdrew it after Clinton agreed to testify voluntarily. He was interviewed at the White House, appearing before the grand jury via video.

The news briefly sent stock futures and the dollar lower Tuesday evening, though they started to recover after traders likely accounted for the fact that this threat is nearly 2 months old, and predates the addition of Rudy Giuliani to Trump’s legal team. Giuliani has a decades-old relationship with Mueller and is widely viewed as a stabilizing force.

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Following unintended consequential chaos in the aluminum markets following Washington’s sanctions on Russian oligarchs, The Wall Street Journal reports the Trump administration on Tuesday amended its Russia sanctions program, paving the way for aluminum giant Rusal to escape from the blacklist.

In what could be argued is the first de-escalation with Russia, the U.S. Treasury is extending until June 6 the deadline for Russian billionaire Oleg Deripaska to divest from En+ and related entities.

As WSJ notes, facing delisting from the London Stock Exchange this week, Rusal’s owner, EN+ Group, sought the 11th-hour amnesty from the U.S. Treasury late last week by pledging that Deripaska – its majority shareholder and a primary target of the U.S. sanctions – would reduce his holdings and relinquish his board seat.

Of course – what this really does is force the oligarch into a firesale of his holdings, with the entire world knowing he needs to sell.

Bloomberg reports that last week, Deripaska agreed in principle to cut his stake in En+ to less than 50 percent and plans to resign from the company.

Treasury Secretary Steven Mnuchin said in a Bloomberg TV interview on Monday that Washington’s goal has not been to put Rusal out of business.

The U.S. said Tuesday it aims “to address difficulties blocked U.S. persons are having accessing funds needed for authorized wind-down and maintenance activities.”

This could well grant the metals market a reprieve from a supply scare that rocked markets over the last month…

Aluminum prices have whipsawed over the past several weeks as the initial sanctions in early April risked cutting off a major supplier from markets, but have started to fall back a little amid signals of de-escalation from Treasury.

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Meet Egyptian billionaire Naguib Sawiris, older brother of Egypt’s richest man…

Like many other big investors, Sawiris sees warning signs ahead and has taken action – putting half of his $5.7 billion net worth into gold.

Bloomberg reports that he said in an interview Monday that he believes gold prices will rally further, reaching $1,800 per ounce from just above $1,300 now, while “overvalued” stock markets crash.

“In the end you have China and they will not stop consuming. And people also tend to go to gold during crises and we are full of crises right now,” Sawiris said at his office in Cairo overlooking the Nile.

“Look at the Middle East and the rest of the world and Mr. Trump doesn’t help.”

However, as Bloomberg notes, Sawiris also has a major investment that President Trump could very much help him with…

If a North Korean peace deal can be reached, the Egyptian’s investments there may finally pay off. After 10 years of waiting to repatriate all his profits easily and control his mobile-phone company, Egypt’s second-richest man says an accord would let him reap some of his returns.

“I am taking all the hits, I am being paid in a currency that doesn’t get exchanged very easily, I have put a lot of money and built a hotel and did a lot of good stuff there,” said Sawiris, who founded North Korea’s first telecom operator, Koryolink. The North Korean unit’s costs and revenues aren’t currently recognized on the financial statements of Sawiris’ Orascom Telecom Media & Technology Holding SAE.

Sawiris over the years has been pressured by “every single Western government in the world” for his presence in the country hit by international sanctions for its nuclear threats, he said, but he considered himself a “goodwill investor.”

His advice for governments and to Trump ahead of his expected meeting with North Korean Leader Kim Jong Un: Don’t bully him, and promise prosperity in exchange for concessions on nuclear.

“I know these North Korean people. They are very proud, they will not yield under threat and bullying. You just smile and talk and sit down and they will come through,” he said.

Finally, and notably,  Bloomberg reports that  Sawiris is giving investment priority to his homeland after an International Monetary Fund-backed reform program that began in 2016, saying that his view of Saudi Arabia was negatively impacted by a corruption crackdown that led to the arrest of high-profile princes and billionaires in November. Authorities need to ensure there is rule of law and order and transparency, he said.

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Authored by Alex Kimani via SafeHaven.com,

Bitcoin’s secure payment system has been put into many legitimate uses, but like most technologies, it’s also a lucrative crypto space for cybercriminals who use it for a new game of extortion and ransomware attacks. And it’s a great business model because the majority of victims pay – and the rates aren’t all that bad.

In May 2017, hundreds of thousands of computer systems across the world fell victim to one of the most egregious ransomware attacks in recent times. The WannaCry cryptoworm, as it was called, exploited a vulnerability in Microsoft’s popular Windows OS, using a technique known as cryptoviral extortion to lock up data and demand ransom payment in Bitcoin.

Although the amount demanded to unlock a single device was a rather modest $300, the hackers still managed to collect a pretty penny due to the scale of the attack.

(Click to enlarge)

Source: The SSL Store

And now it appears as if the ghosts of WannaCry have refused to stay put.

A Massachusetts school district has been forced to fork over $10,000 in a Bitcoin ransom payment to cyber extortionists to have its systems unlocked following an April 14 attack.

The attack was a straight up decryption that crippled the school’s email system with no data mined.

The disheartening part is that the police have said it’s next to impossible to track down the hackers thanks to the inscrutability of Bitcoin transactions.

An Explosion in Ransomware Attacks

(Click to enlarge)

Source: Blockonomics

WannaCry and the Massachusetts school district attacks are by no means isolated incidents.

In 2016, Hollywood Presbyterian Medical Center, a hospital in L.A., paid nearly $17,000 in Bitcoin to hackers who held its computer network hostage. According to antivirus software vendor Kapsersky, more than 4,000 ransomware attacks occur every day, by far the most common type of malware.

The sharp rise in this particular type of cybercrime is being driven by the anonymity of Bitcoin transactions. In the case of WannaCry, the hackers asked the victims to send payments to three Bitcoin addresses. Bitcoin transactions are anonymous, only revealing the Bitcoin address of both the sender and the receiver.

The blockchain data itself resides in the public domain and it’s possible to track the activities of the sender and receiver. Still, the hackers were able to withdraw $150,000 worth of Bitcoin from their digital wallets about three months after the attack.

Bitcoin is also responsible for powering one of the largest underworld drug marketplaces – the Silk Road. The Silk Road was a large online drug market that operated in the dark web–an overlay of darknet networks that can only be accessed using special software configurations. It has thousands of listings for narcotics, fake drivers’ licenses, counterfeit currency and even hacking services with 600,000 Bitcoin changing hands on the site (worth $5.5 billion at current rates).

Companies Stockpiling Bitcoin

Perhaps what has been encouraging hackers to continue with their nefarious activities is the willingness of companies to pay up.

Nearly 70 percent of companies hit by ransomware give in to demands by the hackers and pay up citing importance of the encrypted data and low cost of ransom payments. 

According to figures by Trend Micro, the average ransom is $722, a reasonable amount to pay to get back potentially sensitive data.

In fact, many companies have been stockpiling Bitcoin in anticipation of future attacks. A Citrix study found that fully one-third of companies maintain a stash of digital currencies as part of their strategy to regain access to important business data and intellectual property.

These companies have a hand in the ongoing wave of cybercrime, with half of businesses that have suffered attacks in the past doing little to mitigate future attacks.

(Click to enlarge)

Source: Barkly

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Much ink has been spilled by analysts sounding the alarm over the rapid flattening in the US Treasury yield curve observed over the past year, as many have rushed to remind markets of the conventional wisdom that an inverted curve is one of the most reliable indicator of an imminent recession.

At the same time, others have spoken out against this orthodoxy, pointing out that there can be as much as a 1-2 year lag between the moment of first inversion and when the economic contraction officially arrives.

Yet others, note that due to the Fed’s direct influence on the long end (where the market tends to frontrun central bank monetization of Treasuries), the yield curve – which represents the market rate of interest on the short end, and the natural rate of interest, or “r star” on the long-end – has lost all signalling value.

Now, in a hybrid take on the yield curve concept, GaveKal’s Charles Gave says that the yield curve is certainly informative… just not that of the public sector, but the private sector instead.

According to Gave, recession timers should ignore government debt and focus instead on the corporate credit market. Here, the U.S. natural rate of interest can be represented by yields on longer-dated industrial bond rated Baa by Moody’s, while the market rate is captured by the prime lending rate charged by U.S. banks.

The problem is that if Gave’s interpretation is right, the US economy is about to fall off a cliff.

“The private sector yield curve reading stands at zero, or right on the threshold where trouble can be expected to begin” Gave wrote today in a note to clients, quoted by Bloomberg. “Should this spread move into negative territory, I would expect a financial accident to occur outside of the U.S., a U.S. recession, or possibly both.”

Translation: even the smallest deviation from the current unstable equilibrium could unlock a recession.

Looking at the chart above, Gave warns that either a U.S. recession has taken place within a year of the private sector yield curve inverting, or a “financial accident” has occurred in other economies with currencies linked to the dollar, which would be all of them.

Why does Gave pick this particular spread? Because as he explains, artificially depressed prime rates below the natural rate of corporate credit have allowed banks to generate “artificial” money, kept “zombie” companies alive, but most of all permitted most viable corporations to engage in “financial engineering” such as issuing debt to repurchase stocks, all of which are predicated on cheap borrowing costs continuing indefinitely; the risk of course, is that the credit-funded party ends once the curve inverts, Gave said.

Based on this measure, “we are entering dangerous territory,” he concluded. If the private sector curve inverts, then zombie companies – the same ones we highlighted back in March as surviving only thanks to central bank generosity – “which will fail and capital spending will be cut, as firms move to service debt and repay principal. Workers will get laid off and the economy will move into recession.”

In summary: to Gave the curve is not only informative, but is indeed flashing a “red warning”, one which suggest a “financial accident is about to occur”, only it’s not the government curve, but the corporate curve where this particular Cassandra can be found.

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Authored by Irina Slav via OilPrice.com,

An international independent audit of the oil reserves of Saudi Aramco has more than confirmed the official figures released by Riyadh for three decades, putting the number at 270 billion barrels, two unnamed sources close to the company told Reuters.

The audit was conducted by companies including DeGolyer and MacNaughton, and Baker Hughes’ Gaffney, Cline, and Associates. It is being watched closely because the reserve base of the company will have a direct bearing on its valuation ahead of the much-hyped initial public offering.

The figure may come as something of a surprise because for thirty years, Aramco has been reporting unchanged reserves of about 261 billion barrels despite active production. Yet barrels are not the only factor considered in an oil company’s valuation as Bloomberg Gadfly’s Liam Denning noted in an analysis earlier this year, even though they are an important indicator of the company’s long-term viability and profitability.

Also Bloomberg this month took a look at Aramco’s accounts, reporting that the company booked a net profit of US$34 billion for the first half of 2017. The significance of the figures was naturally questioned by skeptic analysts aware that balance sheets can be adjusted to present the information about a company’s performance in the most favorable way.

Bloomberg itself made a note of pointing out that despite Aramco’s negligible debt levels and super-low production costs, the company is Saudi Arabia’s cash cow: cash flow is not great because such a large part of the Saudi economy and society literally depend on Aramco.

Interestingly enough, Aramco said the numbers were inaccurate, adding that they were mere speculation.

The company is also understandably sensitive to oil prices, which is why Saudi officials have been pushing so vehemently for higher oil prices ahead of the IPO. Now they seem to be aiming for US$100 a barrel as the IPO, according to Crown Prince Mohammed, should take place in late 2018 or 2019.

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While it might be difficult given that the memory of February’s “volocaust” is still fresh in their minds, investors would be better served if they stopped using VIX as a proxy for market risk.

That’s because, as Wall Street Journal columnist James Mackintosh makes clear in a piece published Monday, geopolitical risks have, over time, proved far more consequential to investment returns. But in the near-term, investors tend to discount them until crisis erupts.

Investors almost entirely ignored what many thought was a rising prospect of nuclear war on the Korean Peninsula last year, and they have also pretty much ignored the welcome prospect in the past week of peace breaking out. Investors realize they have no idea what the chance of war is, and aren’t even any good at assessing whether it has gone up or down.

By contrast, February’s “volmageddon” had a direct impact on stock prices. The Cboe Volatility Index and its equivalents in other markets are treated by many investors, academics and policy makers as a proxy for risk generally.

This is a mistake.

But of course, over the long term, the risk of nuclear armageddon and its impact on financial markets (to say nothing of civilization) is paramount. So the fact that this isn’t factored into risk models is patently ridiculous, Mackintosh suggests.

Looking back over the history of the 20th century, where communist revolutions and world wars led to massive investor losses, the stupidity of markets ignoring geopolitical trends becomes even more apparent, Mackintosh says. After all, if you owned a casino in Cuba just before the revolution, you lost everything.

There’s a reason for this, of course, Mackintosh says. It’s difficult to predict geopolitical developments – who would’ve predicted a year ago that President Trump would be preparing for a peace summit with North Korea leader Kim Jong Un?

Investors who owned Russian stocks in 1917 or Chinese stocks in 1949 lost everything. London Business School market historians Elroy Dimson, Paul Marsh and Mike Staunton calculate that shares in Austria—which lost two wars and an empire—lost money after inflation over 97 years, even when counting dividends. Shareholders in Belgium, Germany, Italy, France and Japan were down in real terms for more than half a century, as were Spanish investors, who endured a destructive civil war and dictatorship.

Yet, can any of this guide your investments? There is good reason to ignore most of the twists and turns of geopolitics: It is just too hard to assess, as Korea shows. Five months ago, North Korea tested a missile capable of hitting U.S. cities, and talk was of a U.S. pre-emptive strike. On Friday, Kim Jong Un became the first North Korean dictator to visit the south, and the two sides agreed they would sign a proper peace treaty by the end of the year. Who knows what will happen next?

But acknowledging that it’s impossible to predict political developments with anything approaching certainty is different from agreeing that “volatility” is the same thing as risk.

As it operates now, the VIX is really only relevant if you’re trading on a short-term horizon. If you have a long-term position – that is years or decades – volatility isn’t a risk, it’s an opportunity.

But sadly, big banks and pension funds somehow don’t recognize this. Instead, their risk models all rely on the VIX or similar gauges of short-term price fluctuations. So when prices fall, instead of buying, these models dictate that the fund or banks sell risky assets like stocks, exacerbating the behavior from which they are trying to insulate themselves.

My big concern is that so many people now equate risk and volatility that it becomes self-fulfilling. Bank regulations have long had volatility embedded in them via measures of value at risk in their trading books. When volatility rises, the value at risk rises, and banks typically respond by selling stocks—helping to push down stock prices.

If this only applied to banks it wouldn’t matter. But the same sort of thinking applies to insurance companies and pension funds, which typically use volatility as part of the assessment of their portfolios. Combined with mark-to-market valuations and Europe’s Solvency II directive they might well be forced into selling stocks in the next bear market, rather than acting as a stabilizing influence by buying on the cheap. If long-term investors join traders in thinking that volatility is a reason to sell, then the next downturn could be nasty indeed.

Also, according to modern portfolio theory, stocks are typically safer than bonds – particularly government bonds. But tell that to holders of Russian debt before the country’s default. Or even to holders of US Treasurys, many of which have seen their value eroded over time thanks to inflation.

But at the same time, a bondholder who bought Treasurys in the 1980s and continuously rolled over their positions would’ve made more money than investors who tracked popular equity indexes over the following 25 years.

When the word “risk” is used investors should question what it means, because one person’s risk is another’s opportunity. Consider the risk categories into which financial advisers attempt to lump assets.

A high-risk portfolio has more equities and fewer bonds, while a very-low-risk portfolio might be mainly cash and Treasurys.

Used like this, risk amounts to little more than volatility, as history shows. Sure, stocks can lose a lot of money very quickly—Treasurys have never had anything like the S&P 500’s 20% one-day loss in October 1987—but bonds can be in some ways worse over time. Prof. Dimson points out that after inflation, government bonds have had losses almost as deep as stocks, and losses that lasted much longer.

On the other hand, it is also possible for bonds to do remarkably well for a surprisingly long time. From August 1987, an investor who had bought 30-year Treasurys and rolled over into each new issue would have been ahead of U.S. stocks a quarter of a century later in 2012, including reinvested dividends and coupons. In the U.K., the 30-year is still ahead of the FTSE 100 from 1986’s “Big Bang” liberalization of stock trading. The real risk over these periods was holding cash, supposedly the safest place to be.

The VIX, which measures the expected volatility of the S&P 500 over the next 30 days, shouldn’t be thought of as a gauge of risk, but instead as a useful tool for pricing insurance, its creator, Vanderbilt Finance Professor Bob Whaley said during an interview with Business Insider late last year.

Unfortunately, understanding the index isn’t a prerequisite for trading it. Just ask the day traders who lost millions of dollars when XIV, a short-volatility ETF, blew up overnight.

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Authored by Nauman Sadiq,

After seven years of utter devastation and bloodletting, a consensus has emerged among all the belligerents of the Syrian war to de-escalate the conflict, except Israel which wants to further escalate the conflict because it has been the only beneficiary of the carnage in Syria.

Over the years, Israel has not only provided medical aid and material support to the militant groups battling the Syrian government – particularly to various factions of the Free Syria Army (FSA) and al-Qaeda’s Syrian affiliate al-Nusra Front in Daraa and Quneitra bordering the Israel-occupied Golan Heights – but Israel’s air force has virtually played the role of the air force of the Syrian jihadists and has conducted more than 100 airstrikes in Syria and Lebanon during the seven-year conflict.

Washington’s interest in the Syrian proxy war is mainly about ensuring Israel’s regional security. The United States Defense Intelligence Agency’s declassified report of 2012 clearly spelled out the imminent rise of a Salafist principality in northeastern Syria (Raqqa and Deir al-Zor) in the event of an outbreak of a civil war in Syria.

Under pressure from the Zionist lobby in Washington, however, the Obama administration deliberately suppressed the report and also overlooked the view in general that a proxy war in Syria will give birth to radical Islamic jihadists.

The hawks in Washington were fully aware of the consequences of their actions in Syria, but they kept pursuing the ill-fated policy of nurturing militants in the training camps located in the border regions of Turkey and Jordan to weaken the anti-Zionist Syrian government.

The single biggest threat to Israel’s regional security was posed by the Shi’a resistance axis, which is comprised of Iran, the Assad administration in Syria and their Lebanon-based surrogate, Hezbollah. During the course of 2006 Lebanon War, Hezbollah fired hundreds of rockets into northern Israel and Israel’s defense community realized for the first time the nature of threat that Hezbollah and its patrons posed to Israel’s regional security.

Those were only unguided rockets but it was a wakeup call for Israel’s military strategists that what will happen if Iran passed the guided missile technology to Hezbollah whose area of operations lies very close to the northern borders of Israel.

In a momentous announcement at an event in Ohio on March 29, however, Donald Trump said, “We’re knocking the hell out of ISIS. We’ll be coming out of Syria, like, very soon. Let the other people take care of it now.”

What lends credence to the statement that the Trump administration will soon be pulling 2,000 US troops out of Syria – mostly Special Forces assisting the Kurdish-led Syrian Democratic Forces – is that President Trump has recently sacked the National Security Advisor Lieutenant General H.R. McMaster.

McMaster represented the institutional logic of the deep state in the Trump administration and was instrumental in advising Donald Trump to escalate the conflicts in Afghanistan and Syria. He had advised President Trump to increase the number of US troops in Afghanistan from 8,400 to 15,000. And in Syria, he was in favor of the Pentagon’s policy of training and arming 30,000 Kurdish border guards to patrol Syria’s northern border with Turkey.

Both the decisions have spectacularly backfired on the Trump administration. The decision to train and arm 30,000 Kurdish border guards had infuriated the Erdogan administration to the extent that Turkey mounted Operation Olive Branch in the Kurdish-held enclave of Afrin in Syria’s northwest on January 20.

After capturing Afrin on March 18, the Turkish armed forces and their Free Syria Army proxies have now cast their eyes further east on Manbij, where the US Special Forces are closely cooperating with the Kurdish YPG militia, in line with the long-held Turkish military doctrine of denying the Kurds any Syrian territory west of River Euphrates.

It bears mentioning that unlike dyed-in-the-wool globalists and “liberal interventionists,” like Barack Obama and Hillary Clinton, who cannot look past beyond the tunnel vision of political establishments, it appears that the protectionist Donald Trump not only follows news from conservative mainstream outlets, like the Fox News, but he has also been familiar with alternative news perspectives, such as Breitbart’s, no matter how racist and xenophobic.

Thus, Donald Trump is fully aware that the conflict in Syria is a proxy war initiated by the Western political establishments and their regional Middle Eastern allies against the Syrian government. He is also mindful of the fact that militants have been funded, trained and armed in the training camps located in Turkey’s border regions to the north of Syria and in Jordan’s border regions to the south of Syria.

According to the last year’s March 31 article for the New York Times by Michael Gordon, the US ambassador to the UN Nikki Haley and the recently sacked Secretary of State Rex Tillerson had stated on the record that defeating the Islamic State in Syria and Iraq was the top priority of the Trump administration and the fate of Bashar al-Assad was of least concern to the new administration.

Under the previous Obama administration, the evident policy in Syria was regime change. The Trump administration, however, looks at the crisis in Syria from an entirely different perspective because Donald Trump regards Islamic jihadists as a much bigger threat to the security of the US than Barack Obama.

In order to allay the concerns of Washington’s traditional allies in the Middle East, the Trump administration conducted a cruise missile strike on al-Shayrat airfield in Homs governorate on April 6 last year after the alleged chemical weapons attack in Khan Sheikhoun. But that isolated incident was nothing more than a show of force to bring home the point that the newly elected Donald Trump is an assertive and powerful president.

More significantly, Karen De Young and Liz Sly made another startling revelation in the last year’s March 4 article for the Washington Post: “Trump has said repeatedly that the US and Russia should cooperate against the Islamic State, and he has indicated that the future of Russia-backed Assad is of less concern to him.”

Mindful of the Trump administration’s lack of commitment in the Syrian proxy war, Israel’s air force conducted an airstrike on Tiyas (T4) airbase in Homs on April 9 in which seven Iranian military personnel were killed. The Israeli airstrike took place after the alleged chemical weapons attack in Douma on April 7 in order to convince the reluctant Trump administration that it can order another strike in Syria without the fear of reprisal from Assad’s backer Russia.

Despite scant evidence as to the use of chemical weapons or the party responsible for it, Donald Trump, under pressure from Israel’s lobby in Washington, eventually ordered another cruise missiles strike in Syria on April 14 in collaboration with Theresa May’s government in the UK and Emmanuel Macron’s administration in France.

What defies explanation for the April 14 strikes against a scientific research facility in the Barzeh district of Damascus and two alleged chemical weapons storage facilities in Homs is the fact that Donald Trump had already announced that the process of withdrawal of US troops from Syria must begin before the midterm US elections slated for November. If the Trump administration is to retain the Republican majority in the Congress, it will have to show something tangible to its voters, particularly in Syria.

The fact that out of 105 total cruise missiles deployed in the April 14 strikes in Syria, 85 were launched by the US, 12 by France and 8 by the UK aircrafts shows that the strikes were once again nothing more than a show of force by a “powerful and assertive” US president who regards the interests of his European allies as his own, particularly when he has given a May 12 deadline to his European allies to “improve and strengthen” the Iran nuclear deal, otherwise he has threatened to walk out of the pact in order to please Israel’s lobby in Washington.

Finally, the Trump administration will eventually realize at its own risk that placating the Zionist lobby is unlikely if not impossible because Israel has conducted another missile strike in Aleppo and Hama on Sunday (April 29) in which 26 people, including many Iranians, have been killed and 60 others wounded.

According to NBC, the blast at the Brigade 47 base in Hama which serves as a warehouse for surface-to-air missiles was so severe that it caused 2.6 magnitude earthquake and shockwaves were felt as far away as Lebanon and Turkey. This seems like a last-ditch attempt by Israel to further escalate the conflict and to force the Trump administration to abandon its plans of withdrawing US troops from Syria.

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Nauman Sadiq is an Islamabad-based attorney, columnist and geopolitical analyst focused on the politics of Af-Pak and Middle East regions, neocolonialism and petro-imperialism.

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