Government’s already-dismal budget forecast just got 106% worse

Yesterday the Office of Management and Budget released a new report called the “Mid-Session Review” of the US federal budget.

It’s something they’re required by law to do– periodically review and update the government’s budget and track the changes.

The last government budget update was released in February. And according to the February budget, the government’s deficit for this fiscal year was going to be a whopping $873 billion.

Now they’re projecting to close this fiscal year (which ends on September 30th) with a deficit of $890 billion… which means they’re over-budget by just under 2%.

2% is actually pretty good. But here’s the problem: when they first unveiled the FY2018 budget in March of last year, they projected the annual deficit to be ‘only’ $440 billion.

So between their initial projections in March 2017, and their current projections in July 2018, this year’s budget deficit increased by more than 100%.

And that’s pretty pitiful.

But it gets worse.

Last March, they projected a total budget deficit of $526 billion for Fiscal Year 2019.

But according to the revised projections they published yesterday, the budget deficit for Fiscal Year 2019 will now be $1.085 TRILLION… 106% worse than projected.

And, whereas last year the government was forecasting DECLINING deficits in Fiscal Years 2020, 2021, etc., until miraculously reaching a positive budget SURPLUS of +16 billion in 2026, their updated projections now show TRILLION DOLLAR DEFICITS next year. And the year after that. And the year after that. Etc.

Bear in mind that even though this revised budget is a colossal train wreck, the projections still don’t factor in the possibility of a recession. War. Major emergency. Natural disaster. Financial crisis.

These forecasts assume that all big picture and macroeconomic trends are going to be fantastic for the next decade.

We’ve lately been talking about the concept of assets being ‘priced to perfection’.

‘Priced to perfection’ is a financial term meaning that assets are valued as if business conditions will be perfect forever.

Investors simply assume that the business plan will be successfully achieved without any difficulty, that sales will be strong, consumers will be happy, the economy will remain robust, etc.

And as a result of these pie-in-the-sky assumptions, investors pay record high prices for assets.

Well, these budget projections are priced for perfection.

They don’t take into account the possibility of any number of major risks that are looming, not to mention the enormous capital investments that are necessary in the United States.

US infrastructure, for example, is in desperate need of serious multi-trillion dollar maintenance.

Then there’s that pesky issue of Social Security, which presently has a funding gap of tens of trillions of dollars, according to the government’s own financial statements.

If you factor in even a fraction of these costs, the budget numbers… which are already gruesome… fall off a cliff.

The government has no Plan B. In fact, their Plan A, literally, is to have trillion+ dollar deficits and expect that there won’t be any consequences.

This is ludicrous.

There has never been a major superpower in the history of the world, from Ancient Rome to the French monarchy of Louis XIV, that has been able to run wild budget deficits without paying a serious toll… or passing those costs on to the people.

Sooner or later these bills have to be paid, whether that means higher taxes, dramatically reduced benefits, serious inflation, a loss of confidence in the currency, etc.

There are hundreds of ways this could play out, and it’s impossible to predict precisely how or when.

We only know for certain that there WILL be an impact.

It will likely take several years. But expecting to be able to run trillion dollar deficits and an insolvent pension fund without any consequences forever and ever until the end of time is totally absurd.

This is why, even though the government doesn’t have one, it makes all the sense in the world for -you- to have a Plan B.

Source

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What Do You Get if You Cross Red Dawn with a Cooking Show?

It’s 1989. Mikhail Gorbachev has been tamping down the tensions between the U.S. and the USSR, and both countries have recently agreed to significant arms reductions. Some American leaders are now suggesting that the Cold War is coming to a close. By the end of the year, the Berlin Wall will be rubble and a wave of Eastern European dominoes will have started to fall, a process that will culminate with the death of the Soviet Union.

Clearly, it was time to prepare for a war with Russia.

In the last edition of the Friday A/V Club, we looked back at an official civil defense film about how to survive a nuclear attack. This time we turn to the more freewheeling world of the survivalist subculture, which found its own ways to prepare for wars and other disasters. One survivalist, an eccentric writer who called himself Kurt Saxon, published a series of DIY guides to improvised weaponry titled The Poor Man’s James Bond. The books were successful enough that he decided to branch out into home video, with ultra-low-budget tapes like The Poor Man’s James Bond Greets the Russians, released the same year the Berlin Wall came down.

Why was Saxon worried about the Russians in 1989? Near the start of the video, he lays out his argument:

Gorbachev is a realist who would gamble on war abroad rather than relinquish power at home. His present attempts to relax tensions is simply a time-gaining ploy to build up his own Star Wars system.

The Russians have made a great show of destroying a few nuclear weapons. This is enough to pacify our moronic political hacks. Meanwhile, the Russians are preparing to move on Europe, both as a reason for bringing their own satellites back into line and to gain lootable territory. As we all know, the Soviet Union is far superior to the West in men and conventional armaments. It would take only a short time and a few major losses to force the West to retaliate with nuclear weapons.

The Russians have always been big on civil defense, while Americans have ignored our own programs. Russia boasts of facilities with which they hope to save up to 80 percent of their population in a full-scale nuclear war. I doubt that capability, but if they only save 50 percent that would still leave 150 million Soviets in a wasteland who could not survive without conquest.

So in order to survive, they would pour across the Bering Straits into Alaska, then to Canada, then the lower 48 states.

Scenario established, Saxon turns to teaching his audience how to make ricin, explosives, and other items that might come in handy if you find yourself transported into the Red Dawn universe. Saxon comes across as a cheerful chemistry teacher with a little too much enthusiasm for his subject, or maybe as the host of a public-access cooking show who has suddenly developed a taste for right-wing literature. (This was back when the fear of a Russian takeover was concentrated on the far right, not the center-left.) I get the impression that Saxon would be whipping up these recipes whether or not he thought an apocalypse was on the horizon. When he isn’t suggesting ways to use his products to fight the reds (“on a crowded street, you just go up in back of some Russian soldiers, you just give him a quick stab and then fade into the crowd, and he’ll just rub his behind for a little bit, and then he will die in about three days of pneumonia”), he’s bubbling over about how much fun it is to mix these chemicals.

And there may be another motive here too. At the end of video, after waxing a bit about the world’s environmental problems, Saxon ruminates about the “heaven on earth” we could have once the “great culling” is over. The apocalyptic often goes hand in hand with the utopian, and our host turns out to have a vague but heartfelt utopian vision of his own.

You might not guess it from the video’s reverent words for the French Resistance, but Saxon used to be a Nazi. When Saxon testified in 1970 to a Senate committee investigating “Riots, Civil and Criminal Disorders,” Sen. Charles H. Percy (R-Ill.) asked him whether he has ever “been associated as a member of a militant right wing.” Saxon replied, “Oh, I was a stormtrooper about a year. I was also in the Minutemen and the Birch Society. But I haven’t been in politics for the last three years.”

(To read about some more sensible preppers, go here. For past editions of the Friday A/V Club, go here. To read the full transcript of Saxon’s Senate testimony—and you should, because it takes some gloriously bizarre turns—go here. Sadly, the senators didn’t inquire about Saxon’s time in the Church of Satan, but one moment in that dalliance is remembered here.)

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Michael Cohen Secretly Taped Trump Discussing Playboy Model Payoff

President Trump’s former longtime attorney, Michael Cohen, secretly recorded Trump two months before the 2016 US election discussing payments to a former Playboy model who said she and Trump had an affair, according to the New York Times, citing lawyers and others familiar with the recording which was seized during an FBI raid on Cohen’s office.

The F.B.I. seized the recording this year during a raid on Mr. Cohen’s office. The Justice Department is investigating Mr. Cohen’s involvement in paying women to tamp down embarrassing news stories about Mr. Trump ahead of the 2016 election. Prosecutors want to know whether that violated federal campaign finance laws, and any conversation with Mr. Trump about those payments would be of keen interest to them. –NYT

The existence of the recording will undoubtedly kick open the door to tactics Trump and his associates have used to keep aspects of his business dealings and personal life secret, posits the Times, while it also highlights the potential legal and political danger that Cohen poses to Trump. 

Cast outside of Trump’s inner circle, Cohen has lawyered up with longtime Clinton pal Lanny Davis, who suggested two weeks ago that Cohen cooperating with prosecutors might not work out so well for Trump.

 “We have nothing to say on this matter,” said Davis when asked about the tape. 


Rudolph W. Giuliani, Mr. Trump’s personal lawyer, confirmed in a telephone conversation on Friday that Mr. Trump had discussed the payments with Mr. Cohen on the tape but said the payment was ultimately never made. He said the recording was less than two minutes and demonstrated that the president had done nothing wrong. –NYT

Nothing in that conversation suggests that he had any knowledge of it in advance,” said Giuliani, adding that Trump had previously told Cohen that if he were to make a payment related to the woman, to write a check instead of sending cash so that the transaction could be properly documented. “In the big scheme of things, it’s powerful exculpatory evidence,” Giuliani added.

The former model, Karen McDougal, claims to have had a nearly yearlong affair with Trump in 2006, right before Melania Trump gave birth to their son Barron. McDougal sold her story to the National Enquirer for $150,000 as the 2016 presidential campaign was in its final months, however the tabloid sat on the story which kept it from becoming public in a practice known as “catch and kill.” 

The Enquirer’s chairman, David J. Pecker, is a personal friend of Trump’s, and McDougal has accused Cohen of taking part in the deal. 

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The Philly Soda Tax May Be Legal, But It’s Still Bad Policy

The Pennsylvania Supreme Court ruled this week that Philadelphia’s 1.5-cent-per-ounce tax on soda and other sugary beverages does not conflict with state law.

A group of city merchants and representatives of the beverage industry had challenged the so-called soda tax on the grounds that it amounts to double taxation, since consumers are already charged a state sales tax on sweetened drinks. Under Pennsylvania law, localities are not allowed to tax anything already taxed by the state. The state Supreme Court rejected that claim in a 4-2 ruling, concluding that the soda tax is applied at the wholesale level and therefore does not conflict with the state sales tax, which is charged at the final point of sale.

“The payer of the beverage tax is the distributor, or in certain circumstances, dealers, but never the purchasing consumer,” Chief Justice Thomas Saylor wrote for the majority.

That logic might hold up in the realm of law, but real-world economics show that consumers are paying both the sales tax and the soda tax, which is passed down the supply chain. The tax adds about $1 to a two-liter bottle of soda, and more than $2 to a six-pack of cans.

Consumers are responding to those new incentives by travelling outside Philadelphia to do their shopping. A report by Catalina, a market research firm, found that soda sales inside city limits have fallen by 55 percent since January 1, when the tax took effect; while sales outside the city have grown by 38 percent. That means the tax is costing not only consumers, but city businesses who have lost customers because of it—a completely predictable outcome.

And it’s not just soda sales being hit. The tax also applies to fruit juices and sports drinks.

“This duplicative tax has shown to be a financial burden for both consumers, who the tax is getting passed onto, and employers,” says Gene Barr, president of the Pennsylvania Chamber. “Taxes that single out particular industries drive customers to other areas to purchase these goods, which can lead to business closures and a loss of revenue that is difficult to overcome.”

According to Ax The Bev Tax, a coalition of city businesses, the tax has cost 1,200 jobs across various industries.

About the only people happy with the Supreme Court ruling are, predictably, the city officials who sold the tax as a way to generate $90 million for schools and pre-K programs. Mayor Jim Kenney, in a statement, said the ruling “offers renewed hope for tens of thousands of Philadelphia children and families who struggle for better lives in the face of rampant poverty.”

But the city’s plans for the soda tax money have already had to be pared back once, because the tax generated about 15 percent less revenue than expected in 2017. And as Baylen Linnekin noted last year, “spending tens of millions of dollars to expand pre-K in a city where even the most optimistic reports show city schools already fail to educate children and are routinely broke may not be the best idea.”

This week’s ruling is a reminder that legality is not the only measure of good policy. The soda tax should be reconsidered by city officials or blocked by the state legislature, which has the authority to overrule local taxes.

State lawmakers, include some Philadelphia Democrats, have opposed the tax. State Sen. Anthony Williams (D-Philadelphia) authored an amicus brief for the state Supreme Court, urging them to rule against the city.

“I don’t like a regressive tax. I don’t like it billed as it is, which is helping the poor,” Williams tells Billy Penn, a Philadelphia-based alt-news website. “No, you’re taxing the poor to help themselves.”

State Sen. Scott Wagner (R-York), this year’s Republican gubernatorial nominee, took a shot at the soda levies during a campaign event this week, calling for a state to cap the tax.

The Pennsylvania Chamber is urging state lawmakers to pass House Bill 2241, which would prohibit municipalities in Pennsylvania from imposing soda taxes.

Whether lawmakers will do anything about the tax remains to be seen. Although Pennsylvania’s legislature is technically a year-round body, the fall session in an election year is not very active, historically.

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Global Bonds Stumble, Yield Curve Steepens After Trump, BoJ

Following Trump comments on The Fed, rates, and currency manipulation and headlines about The BoJ shifting its policy, global bond markets hiccupped to the downside and yield curves steepened aggressively.

JGBs led the plunge…but Bunds and USTs followed.

 

US Treasury yields are spiking (especially the long-end)…

Steepening the yield curve aggressively. This is the biggest single-day steepening in the 2s30s curve since early February’s crash.

Treasury yields and stocks are catching up to each other…

All of which is interesting given that bond speculators are already at record shorts…

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Ecuador Reportedly Preparing To Hand Assange To UK In “Coming Weeks Or Days”

Ecuador is preparing to hand over WikiLeaks founder Julian Assange to the UK in “coming weeks or even days,” RT editor-in-chief Margarita Simonyan reported, as political support and sympathy for Assange’s predicament have more or less evaporated since the arrival of an administration that largely views Assange as an inherited problem, and would like more than anything to finally be rid of him. “My sources tell [Julian] Assange will be handed over to Britain in the coming weeks or even days,” Simonyan wrote in a recent tweet which was reposted by WikiLeaks. “Like never before, I wish my sources were wrong,” she continued.

Earlier this week, reports surfaced in the UK media that high level talks were happening between UK and Ecuadorian officials to try and remove Assange from the embassy.

Foreign Office Minister Sir Alan Duncan is said to be spearheading the diplomatic effort. Sources close to Assange said he himself was not aware of the talks but believed that America was putting “significant pressure” on Ecuador, including threatening to block an IMF loan, if he continues to stay at the embassy. The Times report comes just weeks before a visit to the UK by the newly-elected Ecuadorian president, Lenin Moreno, who has labeled Assange a “hacker”, “an inherited problem” and a “stone in the shoe.”

Assange

Hostilities to Assange’s presence in the embassy have been climbing for weeks. In late March of this year, the Ecuadorian government suspended Assange’s communication privileges with the outside world and cutting off his Internet access. That crackdown followed Assange’s decision to speak out about the Spanish government’s treatment of the Catalan independence movement.

Assange has been holed up in the embassy since 2012. Though Sweden long ago dropped its request that Assange be extradicted, he is still struggling with legal issues in the UK: Earlier this year, a UK court declined to reverse his arrest warrant for violating his bail terms when he initially took refuge at the embassy. Wikileaks has released thousands of diplomatic cables belonging to the US, and US officials, including Attorney General Jeff Sessions, have said Assange’s arrest is a “priority.”

As things stand, appears Assange will almost certainly be arrested once turned out of the embassy. But as that fate looks increasingly certain, it’s important to remember that a UN panel determined that Assange’s stay in the embassy amounted to “arbitrary detention” but it wasn’t enough to change his fate.

Furthermore, as we pointed out earlier this week, US imported a record amount of crude from Ecuador last week (a massive unprecedented surge all of a sudden), which begs the question…was there a payoff?

Ecuador

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NFL Freezes Policy Barring Players From Kneeling During Anthem

In a move that is sure to anger President Trump, the NFL’s two-month old national anthem policy is on hold.

As a reminder, back in May the NFL passed a rule that forbid players from sitting or taking a knee if they are on the field or sidelines during “The Star-Spangled Banner,” but allowed them to stay in the locker room if they wish. The policy said teams would be fined if players didn’t stand during the anthem while on the field. The league left it up to teams on how to punish players.

However, shortly after The AP reported on Thursday that Miami Dolphins players who protest on the field during the anthem could be suspended for up to four games under a team policy issued this week, the league and the players union issued a statement late Thursday night saying the two sides are talking things out. More details from the statement, from the AP:

“The NFL and NFLPA, through recent discussions, have been working on a resolution to the anthem issue. In order to allow this constructive dialogue to continue, we have come to a standstill agreement on the NFLPA’s grievance and on the NFL’s anthem policy. No new rules relating to the anthem will be issued or enforced for the next several weeks while these confidential discussions are ongoing.”

“The NFL and NFLPA reflect the great values of America, which are repeatedly demonstrated by the many players doing extraordinary work in communities across our country to promote equality, fairness and justice. Our shared focus will remain on finding a solution to the anthem issue through mutual, good faith commitments, outside of litigation.”

The issue which has dominated headlines over the past two seasons, and was the catalyst for the eventual downfall of Papa John’s founder John Schnatter, has led to division and alienated some fans.

In response to the NFL’s may decision, none of the team policies had been made public until the AP obtained a copy of Miami’s nine-page discipline document. And, as the AP reported earlier, it included a one-sentence section on “Proper Anthem Conduct.” It classifies anthem protests under a large list of “conduct detrimental to the club,” all of which could lead to a paid or unpaid suspension, a fine or both.

The Dolphins said in a statement: “The NFL required each team to submit their rules regarding the anthem before their players reported to training camp. We will address this issue once the season starts. All options are still open.”

According to the document, Miami can choose not to issue any suspension nor fine any player guilty of “conduct detrimental to the club.” Other violations under that label include drug use or possession, gambling, breaking curfew and riding motorcycles as a driver or passenger from the start of camp until the last game of the season.

Meanwhile, Jets acting owner Christopher Johnson said shortly after the league announced its policy that he will not punish his players for any peaceful protests — and would pay any potential fines incurred by the team as a result of his players’ actions.

* * *

These new league rules were challenged this month in a grievance by the players union. The NFLPA said the NFL policy, which the league imposed without consultation with the players union, is inconsistent with the collective bargaining agreement and infringes on player rights. Now, the two sides are hoping to reach a solution without litigation.

“Players who are on the field during the Anthem performance must stand and show respect for the flag and the Anthem,” says the 16th and final bullet point on Miami’s list of conduct considered detrimental, below disparaging teammates, coaches or officials including NFL Commissioner Roger Goodell.

The NFL started requiring players to be on the field for the anthem in 2009 — the year it signed a marketing deal with the military. But in 2016, then-49ers quarterback Colin Kaepernick began protesting police brutality, social injustice and racial inequality by kneeling during the national anthem, and the demonstration spread to other players and teams.

Critics led by President Donald Trump called the players unpatriotic and even said NFL owners should fire any player who refused to stand during the anthem. Some players countered that their actions were being misconstrued and that they are seeking social change rather than protesting the anthem itself.

Trump’s criticism led more than 200 players to protest during one weekend, and some kept it up throughout the season.

Kaepernick didn’t play at all last season and still hasn’t been picked up by another team. He threw 16 touchdown passes and four interceptions in his final season in 2016. Safety Eric Reid, one of Kaepernick’s former teammates and another protest leader, is also out of work.

Both have filed collusion grievances against the NFL.

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‘Peaceful’ Montenegro Says It’s ‘Too Small’ To Start World War III

Montenegro’s foreign minister says his country is “too small” to start World War III. His comment appears two days after U.S. President Donald Trump’s suggestion that “aggressive” Montenegrins could spark a global conflict.

“We have no intentions whatsoever to start World War III, we are too small for that,” Montenegro Foreign Minister Srdjan Darmanovic tells CNN in an interview published today. “It was fun to hear about it, actually like a good joke, but we are a very peaceful nation.”

On Wednesday, Fox News host Tucker Carlson asked Trump why the United States should send forces to defend the small NATO member if it were attacked, as mandated by Article 5 of NATO’s Washington Treaty. “They may get aggressive, and congratulations, you’re in World War III,” Trump responded.

Montenegrin officials disagree. “Aggressive is a word which can’t be applied in the case of Montenegro,” Montenegrin U.N. Ambassador Milica Pejanovic-Djurisic tells The Washington Post. In a statement posted on its official website, the Montenegrin government says it is “proud” of the “history and tradition and peaceful politics that led to the position of a stabilising state in the region.”

Darmanovic, for his part, isn’t taking Trump’s words literally. “I think President Trump actually did not speak on Montenegro. He spoke on 2 percent on financing and contributing to NATO, and Montenegro was just picked up as an example—maybe because we are one of the tiniest countries in the alliance,” he said. Regardless of what Trump did or did not mean to say, the president signed a communiqué endorsing Article 5 during the NATO summit in Belgium earlier this month.

It’s unlikely that Montenegro will cause World War III, though not impossible. Montenegro joined NATO last June to the great chagrin of Russia, which supported a failed coup against the Montenegrin government in 2016. If Russia were to invade the tiny nation, the U.S. would be required to come to Montenegro’s defense, potentially sparking a massive global conflict. Again, that’s unlikely. But it wouldn’t be the first time a world war started in a small Balkan country.

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Kunstler On The Resistance’s Displacement-Projection Syndrome

Authored by James Howard Kunstler via Kunstler.com,

“For more than a decade, Russia has meddled in elections around the world, supported brutal dictators and invaded sovereign nations — all to the detriment of United States interests.”
— The New York Times

The Resistance sure got a case of the vapors this week over Mr. Trump’s failure to throttle America’s arch-enemy, the murderous thug V. Putin of Russia, onstage in Helsinki, as any genuine Marvel Comix hero is expected to do when facing consummate evil. Instead, the Golden Golem of Greatness voiced some doubts about the veracity of our “intelligence community” — as the shape-shifting Moloch of black ops likes to call itself, as if it were a kindly service organization in Mr. Rogers neighborhood, collecting dimes for victims of childhood cancer.

If I may be frank, the US Intel community looks like a much bigger threat to American life and values than anything Mr. Putin is doing, for instance his alleged “meddling” in US elections. This word, meddling, absolutely pervades the captive Resistance news outlets these days. It has a thrilling vagueness about it, intimating all kinds of dark deeds without specifying anything, as consorting with Satan once did in our history. The reason: the only specific acts associated with this meddling include the disclosure of incriminating emails among the Democratic National Committee leadership, and a tiny gang of Facebook trolls making sport of profoundly idiotic and dysfunctional American electoral politics.

The brief against Russia also contains vague accusations of “aggression.” It is hard to discern what is meant by that — though it apparently warms the heart of American war hawks and their paymasters in the warfare industries. They allege that Russia “stole” Crimea from Ukraine. Consider: Crimea had been a province of Russia since the 1700s. Ukraine itself was a province of the USSR when Nikita Khrushchev put Crimea under Ukraine’s administrative control in 1956, a relationship which became obviously problematic after the breakup of the soviet mega-state in 1990 — and became even more of a problem when the US State Department and our CIA stage-managed a coup against the Russia-leaning Ukrainian president Viktor Yanukovych in 2014. Crimea is the site of Russia’s only warm water naval bases. Do you suppose that even an experience American CIA analyst might understand that Russia would under no circumstances give up those assets? Please, grow up.

Does anyone remember the explicit promise that US Government gave the first post-Soviet president, Mr. Yeltsin, that NATO would not expand into the countries of eastern Europe formerly under soviet control? NATO now includes the Czech Republic, Hungary and Poland, Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia and Slovenia, Albania, Croatia, and Montenegro. Is anyone aware that NATO has been staging war games on Russia’s border the past several years? Do you suppose this might be disturbing to the Russians, who lost at least 20 million dead when Germany crossed that border in 1941?

As to the thug-and-murderer charge against V. Putin, has any news org actually published a list of his alleged victims? It’s very likely, of course, that Mr. Putin has had some of his political enemies killed. I wouldn’t take the “con” side of that argument. But I’d  be interested in seeing an authoritative list, if the intel community has one (and why wouldn’t they?). I imagine it doesn’t exceed two dozen individuals. How many innocent bystanders did President Obama kill during the drone attack spree of his second term, when our rockets blew up wedding parties and sandwich shops in faraway lands. In 2016, The Atlantic published this:

One campaign, Operation Haymaker, took place in northeastern Afghanistan. Between January 2012 and February 2013, The Intercept reported, “U.S. special operations airstrikes killed more than 200 people. Of those, only 35 were the intended targets. During one five-month period of the operation, according to the documents, nearly 90 percent of the people killed in airstrikes were not the intended targets.”

I suppose the excuse is that none of this was personal – as V. Putin’s alleged murders were. No, it wasn’t personal. It was worse than that. It was a bunch of military video-game jocks sitting around an air-conditioned bunker eating hot pockets and slurping slurpees while snuffing out lives by remote control twelve-thousand miles away. I wouldn’t be surprised if they were high-fiving each other with every hit, too.

As for “hacking” of elections, do you suppose for minute that we do not have hundreds, or perhaps thousands, of computer techies at our many sprawling NSA facilities around the country working around the clock to penetrate foreign computer defenses absolutely everywhere, among friend and foe alike? And that we are not trying to influence the outcomes of their political struggles in our favor? Go a step further: do you suppose those US “intel community” hackers are not also collecting information about American citizens, including yourself?

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Why One Analyst Thinks It’s Time To Sell The FAANGs

While the FAANG stocks remain a favorite group for both institutional and retail investors, having been responsible for all the market gains in the first half of 2018, a new round of warnings about their future performance has emerged in recent days.

On Wednesday, during CNBC’s Delivering Alpha conference, Oaktree’s Howard Marks doubled down on his January warning about the frothy market-leading sector explaining what he sees as the “red flashing lights” facing FAANGs:

… you see, when something has worked for six, eight, ten years, people do tend to consider it a perpetual motion machine and think it’ll go on forever; and people say, Well, is that what’s going to crack it? And the answer is, well, what’s going to change their mind? As long as they think that Amazon and ETFs are perpetual motion machines and they keep putting in capital, they won’t crack. So clearly, when they crack, that could be something that hurts the market a lot. What’s going to make them crack?

Marks’ latest warning follows several previous ones, most notably last summer when he cautioned that the addiction to FAANG gains is among a handful of investor vulnerabilities that could spell doom for the bull market. Back in November 2016, Jeff Gundlach also urged investors to avoid the group; since then FAANGs have dramatically outperformed the broader market much to the chagrin of David Einhorn whose “short basket” of mostly tech names has led to dramatic undeperformance for Greenlight Capital in 2018.

Still, all warnings have so far fallen by the wayside as inflows in the tech sector continue to run at a record pace, suggesting that bullish sentiment is so entrenched it would take a shock to shake investor confidence.

Demonstrating the resilience of the euphoria for FAANGs, not even Netflix’ surprisingly week Q2 results and guidance did much to dent enthusiasm for the e-commerce and tech names, and the Nasdaq in general.

However, relentless upward price action does not mean that analysts can not and should not try to warn about the potential risks investors face by putting money into this group, the majority of whose members trade near at all time highs, and today another strategist fired a warning shot at the at the FAANG sector.

In a Thursday note to clients, Chris Senyek, chief investment strategist at Wolfe Research, urged investors to exit Facebook, Apple, Amazon, Netflix and Google, saying too much love has led to valuations with signs of “frothiness.”

Investors are chasing the most expensive stocks, treating them as safe amid an escalation in trade tensions, but it’s a stance likely to backfire, he said quoted by Bloomberg.

As a potential downside catalyst, Senyek noted that no matter the trade war outcome, tech stocks are likely to suffer in both a favorable or unfavorable outcome.

The risk-reward in high-momentum stocks is highly skewed to the downside. If a resolution with trade issues occurs, we expect a sharp rotation out of these momentum stocks. Similarly, if a trade war unfolds, we’d expect another drawdown in the market with the highest P/E momentum names materially underperforming.”

This too warning is being ignored today, with Nasdaq well in the green, and FANG stocks surging on average 50% in the past year, quadrupling the gains of the S&P.

Meanwhile, the next chart shows the closest thing to price indescriminate euphoria the market has experienced since the dot com boom: expensive stocks get more expensive and cheap stocks get cheaper, a sign that investors are riding momentum and caring little about how much they pay, Senyek said. The valuation gap between momentum darlings and overlooked stocks are particularly extreme in the tech space.

As Bloomberg further notes, the PE multiple for the highest momentum stocks is now about 50 points higher than those with the lowest valuation. In the previous nine years, the gap mostly stayed below 20 as a result of an unprecedented scramble to allocated capital to the one group that has continued to outperform no matter the macro environment.

Meanwhile, the core underlying paradox remains: “Perversely, some of the market’s most expensive stocks have been viewed by investors as safe havens during turbulent time,” Seynek said. “We’d use these stocks as a source of funds in the weeks ahead.”

For now, however, sellers are missing, as is the answer to Marks question: “What’s going to make them crack?

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