Month: November 2018

Authored by Federico Pieraccini via The Strategic Culture Foundation,

In the last few weeks, numerous articles and analyses have been produced relating to the murder of Jamal Khashoggi in the Saudi consulate in Istanbul. However, the relationship between Saudi Arabia and the United States has not been questioned, and the reason for this has not yet been explained.

Nixon’s decision in 1971 to withdraw the United States from the gold standard greatly influenced the future direction of humanity. The US dollar rose in importance from the mid-1950s to become the world reserve currency as a result of the need for countries to use the dollar in trade. One of the most consumed commodities in the world is oil, and as is well known, the price is set by OPEC in US dollars, with this organization being strongly influenced by Saudi Arabia.

It is therefore towards Riyadh that we must look in order to understand the workings of the petrodollar. After the dollar was withdrawn from the gold standard, Washington made an arrangement with Riyadh to price oil solely in dollars. In return, the Saudis received protection and were granted a free hand in the region. This decision forced the rest of the world to hold a high amount of US dollars in their currency reserves, requiring the purchase of US treasuries. The relationship between the US dollar and oil breathed new life to this currency, placing it at the centre of the global financial and economic system. This privileged role enjoyed by the dollar allowed the United States to finance its economy through the simple process of printing its fiat currency, relying on its credibility and supported by the petrodollar that required other countries to store reserves of US treasuries in their basket of currencies.

This arrangement continued to sustain itself in spite of numerous wars (the Balkans, Iraq, Afghanistan), financial crises (the Black Monday of 1987, the Dotcom bubble of 2000, and Lehman Brothers’ subprime crisis of 2008), and the bankruptcies of sovereign states (Argentina in 1998). The explanation is to be found in the credibility of the US dollar and the US itself, with its ability to repay buyers of treasury bonds. In other words, as long as the US continues to maintain its dominance of the global financial and economic system, thanks to the dollar, its supremacy as a world superpower is hardly questioned. To maintain this influence on the currency markets and the special-drawing rights (SDR) basket, the pricing of oil in US dollars is crucial. This explains, at least partially, the impossibility of scaling down the relationship between Washington and Riyadh. Nobody should delude themselves into believing that this is the only reason why Saudi-US relations are important. Washington is swimming in the money showered by Saudi lobbies, and it is doubtful that those on the receiving end of such largesse will want to make the party stop.

The agreement made between Washington and Riyadh guaranteed that the latter would receive protection from the former and Washington would look the other way regarding Riyadh’s behavior within its kingdom and in the region – so long as Saudi Arabia sold its black gold in US dollars alone. This agreement was clearly a controversial one and has been kept away from the general public, even in the light of Khashoggi’s death and the liberal mainstream media’s piling on the Kingdom. Yet this is not the only reason why US-Saudi ties are so close. The initial agreements between the Saudis and the Americans concerned the petrodollar; but after the Islamic revolution in Iran in 1979 (Iran’s nationalist prime minister, Mohammad Mosaddegh, had been previously overthrown by the US and UK in 1953), Riyadh and Washington decided to declare war on their common enemy, with the hearty approval of Israel. The cooperation between Riyadh and Washington became even closer in the 1980s, through the common campaign against the USSR in Afghanistan through the use of jihadists recruited, trained and armed by the Pakistan, Saudi Arabia, and the US secret services. The use of jihadist terrorism as a geopolitical weapon has been a main feature of Riyadh’s statecraft.

The relationship between Saudi Arabia and the US evolved from a mere economic and protection agreement, to a full-fledged collaboration against the shared enemies of Washington, Tel Aviv and Riyadh, expanding on the existing cooperation since the 1980s of using jihadism to advance strategic objectives. The situation with Iran became of primary importance for US strategy in the region. Riyadh, with the passage of time, assumed a triple role, namely, that of being the guarantor of the petrodollar, a facilitator in the use of Islamic terrorism as a geopolitical weapon, and a regional opponent of Iran.

This relationship has been mutually beneficial. The House of Saud has been free to run its country according to the strict strictures of Wahhabism without Western interference; and Washington enjoys a capacity for unlimited military spending (especially after the 2008 crisis and the beginning of quantitative easing) simply through the printing of debt in the form of government bonds that are immediately acquired by other countries. Washington has effectively been printing waste paper and obtaining consumer goods in return, a state of affairs that has allowed the United States to squander six trillion dollars in wars in Iraq and Afghanistan without suffering significant economic consequences.

Ever since Donald Trump took over the White House, the process of de-dollarization that begun during the Obama era has only accelerated. With the unprecedented move in 2012 to remove Iran from the SWIFT international banking system, a dangerous precedent had been set that acted as a warning to the rest of the world. The United States revealed itself as willing to abuse its dominant position by wielding the dollar as a weapon against geopolitical adversaries.

The consequences of that action continue to be felt today. Many within the Western elite have come to recognize this mistake and are regretting it. Russia and China understood that they were next on the chopping block and set about creating alternative payment systems like CIPS that would serve to act as a backup system in case Washington tried to exclude Moscow and Beijing from the SWIFT system.

Trump contributed more than any of his predecessors towards further pushing the world in the direction of de-dollarization. Sanctions and tariffs have weakened confidence amongst US allies and forced the rest of the world to start looking for alternatives. The cases of Iran and Russia are instructive, with commercial exchanges being undertaken in currencies other than the dollar for a number of years now. There are dozens of other examples where the use of the dollar in commercial transactions has been abandoned. More complicated, however, is the financing of debt for private or public companies that often takes place in dollars. This exposes industries to a difficult situation in the event that their national currencies devalue against the dollar, making it more expensive to find the US dollars needed to repay creditors, leaving what are major national companies with the prospect of facing bankruptcy. As Russia learned in 2014 with the attack on its Ruble, exposure of potentially strategic sectors of the country to the economic influence of a foreign adversary should be avoided.

The push to renounce the use of the dollar in financial transactions also stems from the fear that the next financial crisis may affect global debt as expressed in dollars; not only destroying the US economy, but dragging down with it countries that are large holders of US treasuries. This is not speculation or conspiracy theory but simple deduction from observing the economic situation over the last 10 years. The global economy was saved in 2008 as a result of the confidence held by citizens following the intervention of central banks. The corrosive mechanism laid out by the Fed and its partners became evident months later. Central banks started printing unlimited amounts of money at 0% interest rates and furnishing it to banks and financial institutions to cover the debts left by the bursting of speculative bubbles like the one involving subprime mortgages.

The average citizen, seeing Bernanke and Draghi on TV talking about “unprecedented actions to save the system”, felt reassured, and therefore felt their money remained safe, in banks or in US dollars. The next financial crisis – potentially the worst ever – is likely to be caused by either the raising of interest rates by the Fed and other central banks, or from the popping of one of the numerous debt bubbles around. The central point is that the citizens’ belief in the system will be put to the test because, as Draghi said, “[this weapon of QE] can be used only once”. There is no protection for banks and speculative entities that could be in debt to the tune of many billions of dollars with no chance of survival.

With a view of to the possible collapse of the dollar-based financial system, several countries are selling their US government bonds, reducing their exposure and accumulating gold. This involves not just China and Russia, but even the European Union.

In such a situation, a crisis in relations with Saudi Arabia is unthinkable for Washington, especially when the region now seems to be guided by an axis that starts from Tehran and ends in Beirut, including Baghdad and Damascus. Riyadh is necessary for the Israeli strategy in the region, and Washington follows in tow for reasons related to the US dollar. Factoring the importance of Riyadh in supporting the petrodollar and in countering Iran in the region, it is not surprising why the Israeli lobby in Washington is doing its utmost to calm US senators down intent on punishing Riyadh for the Khashoggi affair.

If Saudi Arabia were really convinced of the innocence of MBS in the Khashoggi affair, it could use this situation to its advantage by reducing the role of Washington in its foreign policy. Turning to the east and increasing partnerships with China and Russia would have beneficial effects on the whole region, as well as reducing the importance of the United States in the world. Saudi Arabia is governed by a large family riven with divisions and feuds spanning decades. MBS has no interest in his kingdom and is occupied with his survival alone. He is aware that Netanyahu and Trump are his best bet for continuing to reign. Trump is equally aware of the importance of MBS in his communication strategy in the US, with a view to the midterm and the 2020 elections. MBS is for Trump the golden goose that finances the MAGA project, thanks apparently to Trump’s mesmerizing negotiation skills with the Saudis. Of course this is far from the truth, but what matters is the spin that Trump gives to this alliance.

Israel is the primary ally of MBS, given that the crown prince is the first Saudi monarch openly willing to establish diplomatic relations with the Jewish State and bring relations between the two countries out into the open. The upper level of the US government, the so-called deep state, tried for a few weeks to use MBS against Trump. But this strategy came to an end after the Israelis, together with some elements of the US deep state, saw the risk of downsizing the global relationship between Saudi Arabia and the US. MBS will hardly be pushed aside, and within the Kingdom his position seems firmer than many expected, as seen at the Davos in the Desert conference. Breaking up with MBS would have had unimaginable repercussions for the US’s hegemonic position, and this is something Washington can ill afford at the moment.

The use of jihadism and petrodollars as political and financial weapon against Washington’s adversaries is reason enough to quickly forget Jamal Khashoggi and go back to ignoring the various abuses committed by Saudi Arabia. In this phase of the transition from a unipolar to a multipolar world, the US cannot afford to renounce some of the most potent weapons in its arsenal to wield against its geopolitical foes.

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Just ahead of U.S. sanctions on Iran set to snap back on Monday targeting primarily the energy, shipbuilding, shipping, and banking sectors, Iran’s most prominent conservative cleric has announced that if oil exports are halted, Saudi tankers will be confiscated and Gulf countries attacked.

Powerful Shia cleric Ayatollah Ahmad Alamolhoda is the Friday Prayer leader in Mashhad, considered Iran’s spiritual capital and among the holiest places in Shia Islam, and sits on the government’s “Assembly of Experts” but has no formal government role or decision-making ability. However, he’s a powerful leader and chief spiritual force behind Iran’s conservative faction who has long been at odds with President Hassan Rouhani. 

Iranian opposition sources report that Alamolhoda told his followers during his Friday prayer sermon:

If we reach a point that our oil is not exported, the Strait of Hormuz will be mined. Saudi oil tankers will be seized and regional countries will be leveled with Iranian missiles.

The cleric is further reported to have declared that Iran has the power to “instantly” create conditions for $400 a barrel oil prices if it decides to act in the Persian Gulf. 

He said as reported in regional opposition media: 

If Iran decides, a single drop of this region’s oil will not be exported and in 90 minutes all Persian Gulf countries will be destroyed. The UAE and Saudi Arabia will be destroyed in 60 minutes. After 90 minutes the U.S. will have nothing in this country. And we haven’t even started with Israel. Beware of the day we go after Israel, too. That’s why they want us to round up our missiles.

Though the hardline cleric’s rhetoric is often of this fiery tone and threat-laden in nature, it articulates the position of conservative critics who’ve long pointed out that President Rouhani’s risk of entering a deal with the West (the 2015 JCPOA) has utterly failed. 

Meanwhile, with less than 24 hours to go before the next and fiercest round of sanctions come back into force, thousands of demonstrators appeared on the streets of Iran holding anti-American banners and chanting “down with the US”. Iranian media reported that similar demonstrations were held in multiple cities across the country.

November 4 marks 39 years since the 1979 US embassy takeover after which the Shia Islamic revolution held 52 American staff and Marines hostage for 444 days. In the streets of Iran people could be seen burning effigies of Trump, and torching American and Israeli flags, and even burning dollars. 

White House officials have openly declared that Washington is waging “economic war” against Iran, with Secretary of State Mike Pompeo saying on Friday, “The administration’s efforts to change Iranian behavior are far broader, far deeper.” Hinting that it’s part of a broader package that includes covert regime change efforts, he said further, “There are many other lines of effort,” and added, “We’re simply focused on this line of effort today because of the significance of November 5th.”

It will be interesting to see if economic war quickly escalates into a confrontation in the Persian Gulf, something Iran’s IRGC has said could be coming many times before. However, as Tehran tries to cling to a lifeline in the form of European countries willing to find ways to circumvent the U.S.-led sanctions, it is unlikely that the Rouhani government would ever give the order – yet those IRGC operatives loyal to the hardline clerics might. 

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Authored by Sven Henrich via NorthmanTrader.com,

So stocks dropped a little in October. Ok they actually dropped a lot and all of a sudden the S&P 500 was miles away from the all those optimistic 3,000+ year end targets. And what happens when stocks drop hard? Bulls cry for the Fed to come to the rescue.

It was quite the scene.

Here’s the global market cap wiped off in just October:

$8 TRILLION. Poof. Gone. The largest drop since 2008.

So it is no wonder the Fed begging has begun. From the president on down:

“If the Fed backs off and starts talking a little more Dovish, I think we’re going to be right back to our 2,800 to 2,900 target range that we’ve had for the S&P 500.” Scott Wren, Wells Fargo.

— Donald J. Trump (@realDonaldTrump) October 30, 2018

Jim Cramer: 

“My main fear is that we could have a mini version of 2008 if the Fed doesn’t change course,” the “Mad Money” host said. “Our one hope? If Fed chief Jerome Powell actually starts listening to the stock market and wakes up to the damage that tariffs can do to the economy, then maybe he’ll shift gears, just like Greenspan did in ’98. Then we can bottom and even roar higher. But as long as Powell stays committed to the December hike and three more next year, … and the president stays committed to expanding his tariffs, then history says we’ve got more downside no matter what.”

Canaccord’s Tony Dwyer: 

“Fed needs to take its foot off the throat of the market.”

Bill Stone Avalon Advisors’ co-chief investment officer:

 “The one thing to watch is the Fed, the market is looking at the possibility of a policy error there — that they’ll tighten too hard.”

Merrill Lynch’s head of market strategy Joe Quinlan:

 “The current market rally has legs, as long as a hawkish Fed doesn’t stop it”

From the Financial Times:

“The market turmoil of the past month threatens to put the brakes on US economic growth, according to a closely watched measure of financial conditions. Conditions have tightened so sharply in recent weeks, investors are beginning to suggest that the Federal Reserve could limit the number of times it raises interest rates. The S&P 500 has tumbled over 8 per cent since the start of October — on course for its worst monthly performance since February 2009 — raising equity funding costs for companies and sending the Goldman Sachs’ financial conditions index to its highest level since April 2017. Measures of financial conditions typically factor in long-term bond yields, corporate borrowing rates, currency fluctuations and share prices, and assess how supportive or restrictive they are for the economy. Ian Lyngen, head of US rates strategy at BMO Capital Markets, said that investors were “getting nervous that the sell-off has tightened financial conditions enough that the Fed will struggle to achieve some of its policy goals, such as raising interest rates to their ideal target level.”

You get my drift: Basically everyone is now setting up the argument that it’s the Fed’s fault if markets can’t advance. Really? After 10 years of straight up years (courtesy easy central bank money) at the first sign of the 10 year yield at risk of breaking out above trend everyone wants the Fed to stop.

Please. What’s the argument here, the Fed is hiking too aggressively?

It’s just not true.

If anything the Fed has slow walked this rate hike cycle compared to previous rate hike cycles. Everyone wants the Fed to stop raising rates here?

Here? Give me a break. At a point where real rates remain negative, the effective Fed funds rate is barely above 2% and we just saw the slowest rate hike cycle in decades. Please.

If the debt construct is so sensitive that it can’t even handle a little attempt at normalization then this entire experiment has been a giant failure.

And maybe that’s what everyone is worried about.

Growth has been slowing down globally with negative rates and intervention still being on the daily market menu in many places.

Look at the data coming in:

South Korea:

Japan:

China:

Europe:

Slowing growth with rising inflation:

A winning combination if I ever saw one. 

And the US? You tell me.

Capex spending growth? I don’t see it:

GDP already slowed from the Q2 4.2% sugar high to a lower 3.5%, a print heavily relying heavily on government expenditures and an increasing in inventory build:

Massive debt is the name of the game and we just saw how fear of rising rates contributed to markets selling off.

Debt serviceability matters and the US stands out:

And with tax cuts and increased military spending the US is going pedal to the metal on debt expansion:

And corporations are on the same page:

High yield default rates are still not showing signs of stress, but compared to the size of the underlying economy corporate debt has never been higher.

As rates are rising the very real cost of servicing this debt via interest payments is very evident:

It’s not a mystery. Decades of expanding debt, enabled by artificial low rates are now running into a wall of serviceability, particularly as the US government needs for more debt financing has accelerated courtesy tax cut.

This chart is going to $30 trillion+:

Best of luck:

So no wonder all of sudden participants are freaking out about the Fed continuing to raise rates. The Fed needs ammunition for the next recession, but, because they slow walked it all, they let markets run into its next bubble and now the hangover has begun.

And instead of aggressively raising (as they have in the past cycles) when they had the chance they are now set up to be the fall guy. Serves them right.

They kept kicking the can, always cautious, always uncertain, always tinkering. Well now things have gotten shaky and major trends are at risk and they have preciously less ammunition compared to previous slowdowns.

And so here we are (see also: Back With a Vengeance, BUT):

Key trend line confluence between markets and the 10 year yield.

If the Fed caves and slows down its rate hike cycle bulls can find comfort in a dovish Fed again.

If the Fed sticks to its guns for once and trend lines break everybody can blame the Fed. I can hear them already now: “Wasn’t our fault for running investors off the cliff again. It’s the Fed’s fault”.

Right.

Or maybe the truth is a lot more sinister and that is that the Fed’s playing a losing hand. With each boom and bust cycle they are forced to lower rates ever lower and can raise them only to ever lower highs, a cycle that will ultimately result in failure.

Why? Because while the Fed responds to recessions with easy money (lowering rates) while our political system is unable to solve structural problems and hence the answer has been ever more debt and the Fed enabled this spiral with cheap money:

And so when markets eventually break their trends the Fed will be forced to lower rates again.

Fed chair Powell is not in enviable position here.

• If he doesn’t raise rates in December the Fed’s independence will be questioned having been perceived to have succumbed to political pressure and perhaps admitting that the market construct can’t handle higher rates. In that case the reaction may be ultimately opposite of what everyone expects. While the Fed caving may bring about a year end rally it could also badly damage confidence going into 2019.

• If Powell does raise rates and markets freak and break their 2009 trends the ensuing market calamity may force the Fed to cut rates again in 2019.

The Fed crying has already begun. Let’s see how it ends. Don’t be surprised to see more tears. A lot more tears.

*  *  *

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After a period of unprecedented calm in 2017, and nearly a decade of generally smooth sailing for the S&P, two things changed drastically at the start of the year: central bank balance sheets peaked at $16.6tn in March 2018, following a “liquidity tailwind” in the prior 12 month of a “staggering” $2.5tn of asset purchases by central banks.

And, not coincidentally the correlation between bonds & stocks flipped in February 18, just one month before the liquidity supernova peaked, and for the first time since the Global Financial Crisis.

Bank of America’s CIO Michael Hartnett put it simply: “the end of QE/central bank asset purchases = end of “volatility dampener” = lower stocks no longer bailed out by lower yields = regime shift to higher volatility.”

Eight months later he was right: when October’s fall was done, the S&P 500 came to rest -6.9% below where it ended September. European stocks fell -5.6%. China fell -7.8%. Japan dropped -9.1%. The MSCI world ended October -7.4%. MSCI emerging equities -8.8%, while American stocks alone lost $2 trillion in value during the month.

Going back to the second chart above, the one depicting the inversion of what back in February we called the “Market’s most important correlation”, in his latest Weekend Notes, One River’s CIO Eric Peters observes that capital markets are now entering the proverbial autumn at a time when “today’s investment portfolios are built for perpetual summer” and warned that should this new correlation regime – or “climate change” to extend on the weather analogies – persist, the new season will be “profound painful”, and that the new correlation regime “would be catastrophic” to wit:

The world’s safe haven fell despite the carnage in equities. Or perhaps, equities fell because the world’s safe haven declined. US 10yr treasury yields rose 10bps in October. A 60/40 stock-bond portfolio lost 3%. The failure of bonds to rally in such a severe equity decline was strange, he thought. Was this correlation shift a passing storm? A change in season? Or climate change? Storms come and go. But today’s investment portfolios are built for perpetual summer. A new season will be profoundly painful, he thought. Climate change would be catastrophic.

A quick tangent: whereas to Peters the generic 60/40 portfolio dropped 3%, to BofA’s Hartnett a typical 60/40 portfolio of US stocks and Treasury bonds “lost 5.3% in October, worst monthly return since Feb’09.”

No wonder even risk parity funds got slammed.

Of course, so did everyone else – as Peters continues, virtually all hedge fund indices fell in October; global, equity, event, credit, relative value, emerging markets, and macro/CTA.

With the exception of some very modest single digit gains in relative-value trading, they have all suffered material losses in 2018. He also tracks multi-asset risk-premia indexes, which were utterly savaged in October: the overall index fell -12.6% (-20% YTD), the momentum index fell -12.9% (-17% YTD), the value index fell -22.6% (-61% YTD), and the volatility-selling index fell -8.6% (-34% YTD).

There was one outlier: long vol strategies made some money in Oct, but even there, Peters observes “strange behavior in markets muted moves. The longer that volatility remains contained, the more it moves when unleashed, he thought, impatient.”

As for more traditional, Long/short equity managers, they lost 8%, prompting the following rhetorical observation from the One River CIO:

How can the losses be so universal, he wondered? Are there no contrarians? Or is it that after so many years of policy-induced endless summer, there are only a few ways left to make money? And both systematic and discretionary traders naturally succumbed to their allure, just as autumn arrives?

Which brings up a bigger question: with renormalization gradually coming back to the market, is there anyone left who remembers how to trade based on, gasp, fundamentals instead of just expecting central bank bailouts and betting it all on hope as a “strategy”?

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Authored by James George Jatras via The Strategic Culture Foundation,

In the wake of the sending of bomb-like devices of uncertain capability to prominent critics of US President Donald Trump and of a mass shooting at a Pittsburgh synagogue (both Trump’s fault, of course) – plus a migrant invasion approaching the US through Mexico – there have been widespread calls for toning down harsh and “divisive” political rhetoric.

Of course given the nature of the American media and other establishment voices, these demands predictably have been aimed almost entirely against Trump and his Deplorable supporters, almost never against the same establishment that unceasingly vilifies Trump and Middle American radicals as literally Hitler, all backed up by the evil White-Nationalist-in-Chief, Russian President Vladimir Putin.

Those appealing for more civility and a return to polite discourse can save their breath. It’s much, much too late for that.

When Trump calls the establishment media the enemies of the people, that’s because they – together with their passive NPC drones and active Antifa enforcers – are enemies, if by “the people” we mean the historic American nation. Trump’s sin is that he calls them out for what they are.

Trump didn’t cause today’s polarization, he only exacerbates it because he punches back. Good, may he continue to do so. Pining for a more well-mannered time in a country that belongs to another, long-gone era is futile.

American politics is no longer about a narrow range of governing styles or competing economic interests. It is tribal. Today’s “tribes” are defined in terms of affinity for or hostility to the founding American ethnos characterized by European, overwhelming British origin (a/k/a, “white”); Christian, mainly Protestant; and English-speaking, as augmented by members of other groups who have totally or partially assimilated to that ethnos or who at least identify with it (think of Mr. Hamadura in The Camp of the Saints).

(Unfortunately we don’t have a specific word for this core American ethnic identity to distinguish it from general references to the United States in a civic or geographic sense. (Russian, by contrast, makes a distinction between ethnic русский (russkiy) and civic/geographical российский (rossiiskiy).) Maybe we could adapt Frank Lloyd Wright’s “Usonian”? “Or Americaner,” comparable to Afrikaner? “Or Anglo-American”?)

Since the Left gave up on its original focus on industrial workers as the revolutionary class, the old bourgeois/proletarian dichotomy is out. Tribes now line up according to categories in a plural Cultural Marxist schematic of oppressor and victim pairings, with the latter claiming unlimited redress from the former. As the late Joe Sobran said, it takes a lot of clout to be a victim in America these days. The following is a helpful guide to who’s who under the new dispensation:

In most of the above categories there are variations that can increase the intensity of oppressor or victim status. For example, certified victimhood in a recognized category confers extra points, like Black Lives Matter for race (it is racist to suggest that “all lives matter”) or a defined religious group marginalized by “hate” (mainly anti-Jewish oranti-Muslim, but not something like anti-Buddhist, anti-Rastafarian, or even anti-atheist or anti-Satanist because no one bothers about them; anti-Christian victimhood is an oxymoron because “Christian” is inherently an oppressive category). In addition, meeting the criteria for more than one category confers enhanced victimhood under a principle called “intersectionality.”

In the same way, there are aggravating factors in oppressor categories, such as being a policeman (an enforcer of the structure of oppression regardless of the officer’s personal victim attributes, but worse if straight, white, Christian, etc.) or a member of a “hate” subculture (a Southerner who’s not vocally self-loathing is a presumed Klan sympathizer; thus, a diabetic, unemployed, opioid-addicted Georgia cracker is an oppressor as the beneficiary of his “white privilege” and “toxic masculinity,” notwithstanding his socio-economic and health status). Like being Southern, living while genetically Russian is also an aggravating factor.

Creatively shuffling these descriptors suggests an entertaining game like Mad Libs, or perhaps an endless series of jokes for which you could be fired if you told them at work:

Two people walk into a bar.

One is a Baptist, straight, male Virginia state trooper whose ancestors arrived at Jamestown.

The other is a one-legged, genderqueer, Somali Dervish WIC recipient illegally in the US on an expired student visa.

So the bartender says … [insert your own punch line here].

While Patrick Buchanan is right that the level of domestic violence today is not up to what the US experienced in 1968, the depth of the existential divide is much greater. This is why it’s perfectly acceptable for a homosexual, black MSM news anchor to describe “white men” collectively as a “terror threat,” but when a straight white, female counterpart makes a clumsy but mild observation about ethnic role-playing it’s a firing offense. (Note that while “female” is an assigned victim category, white females can be “gender traitors” if they are seen as putting their “racial privilege ahead of their second-class gender status”; to remain victims in good standing and an “allies” of higher-caste victim groups they need to learn to just “shut the f**k up” when POC sisters with superior oppressed status are holding forth.)

The victim side accuses its opponents of a litany of sins such as racism, sexism, homophobia, Islamophobia, etc., for which the solution is demographic and ideological replacement – even while denying that the replacement is going on or intended. This is no longer ordinary political competition but (in an inversion of von Clausewitz attributed to Michel Foucault) politics “as the continuation of war by other means.” In its immediate application this war is a second American civil war, but it can have immense consequences for war on the international stage as well.

To attain victory the forces of victimhood championed by the Democratic Party need to reclaim part of the apparatus of power they lost in Trump’s unexpected 2016 win. (Actually, much of the apparatus in the Executive Branch remains in Democratic hands but is only of limited utility as a “resistance” under the superficial Trumpian occupation.) As this commentary appears it is expected that on November 6 the GOP will retain control of the US Senate but the House of Representatives will flip to the Democrats.

That’s what’s “supposed” to happen, just as Hillary Clinton was “supposed” to win the White House two years ago. How things will actually play out though is anybody’s guess.

But for the sake of discussion, if the expected scenario comes to pass the last chance Trump’s election afforded to save what is left of the American nation is likely to come to an end. We can anticipate three results:

• First, on the domestic political front, while Democrats and their MSM echo chamber have cooled down talk of impeaching Trump, it will return with a vengeance on November 7 (coincidentally, Great October Socialist Revolution Day) if the House changes hands. In contrast to the GOP’s dithering in the area of investigations and hearings relevant to the US-UK Deep State conspiracy to overturn the 2016 election (which will be buried forever), the Democrats will be utterly ruthless in using their power with the single-minded purpose of getting Trump out of office before 2020. They won’t waste much time on the phony Russian “collusion” story (Robert Mueller’s report will be an obscenely expensive dud), they’ll focus like a laser on getting Trump’s tax returns and dredging up anything they can from his long involvement in the sharp-elbowed, dog-eat-dog world of New York property development and construction, confident they can find something that qualifies as a high crime or misdemeanor. (Some racist language couldn’t hurt, either.) The model will be Richard Nixon’s Vice President Spiro Agnew, who was forced out of office on charges relating to his time in Maryland politics years earlier. Even the GOP’s retention of the Senate would be far from a guarantee that Trump won’t be removed. It’s easily foreseeable that a dozen-plus Republican Senators would be thrilled to get rid of Trump and restore the party’s status quo ante with Mike Pence in the Oval Office. As with Nixon, Republicans will panic at whatever dirt the Democrats dig up and demand Trump resign for the “good of the country and the party,” as opposed to the way Democrats formed a protective phalanx around Bill Clinton. Unlike Nixon, Trump might choose to fight it out in the Senate and might even prevail. In any case, a change in control of just one chamber means an extended political crisis that will keep Trump boxed in and perpetually on the defensive.

• Second, for Trump’s supporters and other dissenters from the Regime of Certified Victims, the walls will continue to close in. The digital ghettoization of alternative views to “protect our democracy” from supposed outside meddling conflated with “hate online” will accelerate, with social media a particular target for censorship. The Deep State’s intelligence and law enforcement organs will step up actions to penalize any resistance to Leftwing violence, while perpetrators of such violence will rampage with impunity. Trump has done nothing to protect free speech online or in public places while his enemies continue to contract the space for both – but things can and likely will get much, much worse if the Democrats feel the wind at their back after next week. Such vestigial protections of religion, free speech, right to bears arms, and others that we still possess – for now – aren’t likely to survive much longer as the edifice of the old America continues to crumble under the malfeasance of the very Executive, Legislative, and Judicial officials who pretend to be its custodians. 

• Third and most ominously, chances of a major war could increase exponentially. If Trump is fighting for his life, chances of purging his terrible, horrible, no good, very bad national security team will go from slim to none. Any hope of a national interest-based policy along the lines Trump promised in 2016 – and which still seems to be his personal preference – will be gone. Thankfully, South Korea’s President Moon Jae-in has run with the ball through last year’s opening and hopefully the momentum for peace in Northeast Asia will be self-sustaining. With any luck, the Khashoggi imbroglio between Washington and Riyadh will lead to America’s “downplaying and eventually abandoning the anti-Iranian obsession that has so far overshadowed our regional policy” and to an end the carnage in Yemen, even as the Syria war lurches toward resolution. Still, the US remains addicted to ever-increasing sanctions, and despite warnings from both Russia and China that they are prepared for war – warnings virtually ignored by the US media and political class – the US keeps pressing on all fronts: outer space, the Arctic, Europe (withdrawal from the INF treaty), Ukraine, the South China Sea, the Taiwan Strait, Xinjiang, and elsewhere. Trump is expected to meet with Putin and Chinese President Xi Jinping following the US election, but they may have to conclude that he is not capable of restraining the war machine nominally under his command and will plan accordingly.

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If the Trump administration and Wall Street needed any further reminders that the current economic environment is rapidly changing, they got it through a shock of volatility in October, with the S&P 500 experiencing one of its worst months since September 2011.

The S&P 500 has broken below its 9-year recovery channel…

The VIX term structure has now been inverted for 20 days straight… the longest streak since August 2011

And Nasdaq VIX is at its highest relative to the S&P since 2004…

And as economic policy uncertainty begins to re-accelerate, so does equity market uncertainty (though VIX remains notably under-priced)…

In other words, today is the rare moment in time when fundamentals and technicals are coming together and warn about a turning point in markets. It is likely that a worldwide slowdown is here and it will soon show up in US economic data, thus why Wall Street started to derisk last month.

Reuters confirmed this changing environment on Friday when speculators’ positions in Cboe Volatility Index VIX swung to a net long for the first time since May, per the latest U.S. Commodity Futures Trading Commission (CFTC) positioning data:

• CFTC data through Oct. 30 show speculators net long VIX futures at 1,998 contracts, compared with a net short position of 10,303 contracts a week earlier

• Overall open VIX futures volume was little changed at 504,037 contracts, close to the highest since early February

• A sharp sell-off for U.S. stocks in recent weeks has pushed up volatility on Wall Street

With CFTC data showing speculators net long volatility, the seasonality chart below could point to even more instability for the remainder of the year. A move that would surely bankrupt the Target manager who made millions of dollars shorting the VIX in “accommodative times,” but as we know, Fed chair Powell recently removed that word from Fed communication pieces.

Of course, for now, hope remains that midterm election uncertainty will unleash a buying-panic (assuming for some reason that this recent selloff is related to the midterms)

As Deutsche Bank explains, the base case is the Democrats taking over the House and holds the potential to reduce downside risks from trade policy friction. We see a variety of possible channels through which the administration’s agenda on trade is likely to be curtailed by a switch in majority. Congressional investigations and potential impeachment proceedings, even though nominal, would likely use up significant bandwidth while a growing number of Democrats and even Republicans are likely to attempt reducing Presidential power in dealing with trade. If trade frictions reduce, that allows the market focus to shift back on strong US growth; and also ease pressure on global growth and in our view would lead to a stronger eventual rally. The market is currently pricing in almost no growth implying significant scope for a catch up rally.

If Republicans keep control of both the House and the Senate that would be interpreted by the administration and the market as public support for the trade war, likely leading to further escalation. In the very short term while the market might rally due to the aforementioned base of investors who attribute strong growth to the Republicans’ policy, we think it prolongs the period of trade uncertainty and hurts growth.

No matter the result, the record net short bond position continues to collapse despite widening yields this week after equity’s biggest short-squeeze since the post-Brexit bounce…

With that being said, VIX 2018 could be following the footsteps of VIX 2000.

History does not repeat but instead could rhyme…

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Authored by Frank Shostak via The Mises Institute,

The annual rate for US non-military capital goods orders excluding aircraft fell to 1.9% in September from 7.8% in August to stand at $69.6 billion.

Observe that after closing at $60.2 billion in December 2015 capital goods orders have been trending up.

Most commentators regard a strengthening in capital goods orders as evidence that companies are investing both in the replacement of existing capital goods and in new capital goods in order to expand their growth.

There is no doubt that an increase in the quality and the quantity of tools and machinery, i.e. capital goods, is the key for the expansion of goods and services.

However, is it always good for the wealth generation process?

Consider the case when the central bank is engaged in loose monetary policy, i.e. monetary pumping, and an artificial lowering of the interest rate structure. Such policy sets the platform for various non-productive or bubble activities. In order to survive, these activities require real funding, which is diverted to them by means of loose monetary policy. (Once loose monetary policy is set in motion this allows the emergence of various bubble activities).

Note that various individuals that are employed in these activities are the early recipients of money; they can now divert to themselves various goods and services from the pool of real wealth.

These individuals are now engaging in the exchange of nothing for something. (Individuals that are engage in bubble activities do not produce any meaningful real wealth; they however by means of the pumped money take a slice from the pool of real wealth.)

Now bubble activities like any non-bubble activity also require tools and machinery (i.e., capital goods).

Therefore, capital goods that are generated for these activities are in fact a waste of real wealth.

The tools and machinery that are generated here are going to be employed in the production of goods and services that are on the low priority list of consumers. (The wrong infrastructure has emerged).

These activities do not add to the pool of real wealth, they are in fact draining it. (This amounts to economic impoverishment).

The more aggressive the central bank’s loose monetary stance is the more drainage of real wealth takes place and the less real wealth left at the disposal of true wealth generators.

If such policy persists for too long this could slow or even shrink the pool of real wealth and set in motion a severe economic crisis.

Meanwhile, because of a downtrend in the yearly growth rate of US AMS (“Austrian Money Supply”) since October 2011, US economic activity is likely to follow this downtrend. Note that a downtrend in the AMS growth undermines various bubble activities.

We can conclude that an increase in capital goods in a free economic environment is likely to be supportive of a genuine economic growth. This is however, not going to be the case in an environment where the central bank manipulates interest rates and engages in monetary pumping.

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In his last Sunday Start article, Morgan Stanley’s chief US equity strategist Michael Wilson argued that the inexorable rise in interest rates from September into the beginning of October put US equities in overvalued territory for the first time since January.

And while overvaluation itself is never a reason for stocks to correct, it did provide fuel for a bigger move lower once it started… as we saw last month.

So when the rolling bear market finally decided to attack the most crowded – and expensive – areas of growth stocks in October, the pain, Wilson writes in his latest Sunday Start note, “was greater than many investors could have imagined.” Furthermore, while the divergence between growth and value had been well documented, when divergences get this wide, they gain a momentum that feeds on itself, until it’s over, the MS strategist adds.

So in October, when “the music stopped for previously protected species of growth”, value just went down less, and as Wilson writes today, taking another victory lap, the “wet weather” he warned about back in August “arrived later than I expected, but when it did, it took the form of a hurricane.“

The delayed hurricane was not just a function of the September spike in rates.

While higher long-term interest rates were clearly a fundamental catalyst for the correction in equities, another concern is starting to creep into investors’ minds according to Wilson:

They’re beginning to question whether margins could be a headwind for earnings growth next year. Last month we highlighted the lofty margin expectations embedded in consensus forecasts for 2019. Rising wages, transportation costs, interest rates, and other inputs are not likely to abate, and we’re skeptical that the majority of companies will be able to pass them along to their customers.

In fact, Morgan Stanley’s economists argue that if GDP growth decelerates to 2.4% as many expect it will, there is a good chance that operating margins are down next year, which could equate to a ~1% miss versus consensus. Why is this important for stocks? Because according to Wilson, “every 100bp miss in operating margins relative to consensus represents a 7% hit to EPS for the S&P 500.“

And so, with traders concerns about future profit margins and earnings growing – note the recent punishment doled out for stocks that both missed and beat – the little bit of good news as we enter November is that after the last holdouts in US small caps and growth stocks have finally been taken to the woodshed, Wilson believes that “the rolling bear market arguably has finished its work, or at least the heavy lifting.”

Still, before he is accused of turning bullish, the equity strategist writes that he has “no illusions that we’re out of the woods yet on the growth slowdown next year and real earnings risk we have written about.” He also remain sharply focused on the shrinking liquidity from the Fed’s ongoing balance sheet reduction and the ECB’s tapering of its QE program that began last month.

Of these the global liquidity shrinkage is the biggest concern, because based on Morgan Stanley estimates, by January the combined balance sheets of the Fed, ECB, and BoJ will be contracting on a year-over-year basis, assuming no change in their current plans.

Historically, when the big three’s collective monetary base shrinks, it doesn’t bode well for asset prices, “though after the worst month in 10 years, some of this has been discounted”, Wilson notes.

Looking ahead at the rest of the year, Morgan Stanley thinks US stock markets are likely to remain very choppy but in a narrower range.  Specifically, “in terms of the S&P 500, the wider range of 2400-3000 we posited at the beginning of the year has likely narrowed to something like 2650-2800 – but with bigger intraday swings and hard-to-anticipate price action.“

This aligns with the bank’s 2750 base case target for the S&P which it has maintained all year, although with most market participants now playing defense, “there’s less margin for error, which means stops get tighter just as volatility picks up.”

This, in turn, usually leads to forced liquidation of longs and covering of shorts at the wrong moments and to Wilson, that’s exactly the kind of price action we’ve seen, which doesn’t instill confidence. Meanwhile, as we noted last week and as Wilson confirms, the powerful rallies on Wednesday and Thursday were led by stocks on the high-short-interest list and other low-quality cyclicals. This fits the value/growth preference we are recommending, but it’s also creating significant portfolio pain, which typically leads to risk-aversion.

In narrative terms, Wilson says this means that “the rolling bear is turning into a chopping bear”.

Finally, the Morgan Stanley chief equity strategist picks up on something we first reported over a week  ago – namely the death of “buy the dip”, in demonstrating how markets changed in 2018 as monetary policy normalizes and peak growth is evident:

Nothing captures this better than our Quantitative Derivatives Strategy team’s observation that the buy-the-dip strategy that performed so well in the QE era is no longer working.

So to summarize Morgan Stanley’s “chopping bear” thesis: October was not just a technical sell-off like the one in February, There are now fundamental drivers: higher interest rates, slowing economic growth next year, margin risk, and tighter financial conditions. Combined, “they all add up to investors holding less risk and, without incremental money flows, this new primary downtrend will likely take time to reverse.“

Finally, as we discussed earlier today, the usual deus ex that has stepped in during times of stress, a wave of corporate stock buybacks, appears to be fading away…

… which as JPMorgan warned, if this trend of slowing buybacks continues, “the extra boost that US repatriation provided to US equity and bond markets via share buybacks and corporate bond redemptions is largely behind us.” As such, where the next leg higher in markets will come from remains the biggest question for investors with less than 2 months left in the year.

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Authored by Stephen Cohen via TheNation.com,

Russiagate allegations of Kremlin attempts to “undermine American democracy” may themselves erode confidence in those institutions…

Ever since Russiagate allegations began to appear more than two years ago, their core narrative has revolved around purported Kremlin attempts to “interfere” in the 2016 US presidential election on behalf of then-candidate Donald Trump. In recent months, a number of leading American media outlets have taken that argument even further, suggesting that Putin’s Kremlin actually put Trump in the White House and now is similarly trying to affect the November 6 midterm elections, particularly House contests, on behalf of Trump and the Republican Party. According to a page-one New York Times “report,” for example, Putin’s agents “are engaging in an elaborate campaign of ‘information warfare’ to interfere with the American midterm elections.”

Despite well-documented articles by Gareth Porter and Aaron Matéeffectively dismantling these allegations about 2016 and 2018, the mainstream media continue to promote them. The occasionally acknowledged lack of “public evidence” is sometimes cited as itself evidence of a deep Russian conspiracy, of the Kremlin’s “arsenal of disruption capabilities…to sow havoc on election day.” (See the examples cited by Alan MacLeod at FAIR.org.)

Lost in these reckless allegations is the long-term damage they may themselves do to American democracy.

Consider the following possibilities.

Even though still unproven, charges that the Kremlin put Trump in the White House have cast a large shadow of illegitimacy over his presidency and thus over the institution of the presidency itself. This is unlikely to end entirely with Trump. If the Kremlin had the power to affect the outcome of one presidential election, why not another one, whether won by a Republican or a Democrat? The 2016 presidential election was the first time such an allegation became widespread in American political history, but it may not be the last.

Now the same shadow looms over the November 6 elections and thus over the next Congress. If so, in barely two years, the legitimacy of two fundamental institutions of American representative democracy will have been challenged, also for the first time in history.

And if US elections are really so vulnerable to Russian “meddling,” what does this say about faith in American elections more generally? How many losing candidates on November 6 will resist blaming the Kremlin? Two years after the last presidential election, Hillary Clinton and her adamant supporters still have not been able to do so.

We know from critical reporting and from recent opinion surveys that the origins and continuing fixation on the Russiagate scandal since 2016 have been primarily a product of US political-intelligence-media elites. It did not spring from the American people—from voters themselves. Thus a Gallup poll recently showed that 57 percent of those surveyed wanted improved relations with Russia. And other surveys have shown that Russiagate is scarcely an issue at all for likely voters on November 6. Nonetheless, it remains a front-page issue for US elites.

Indeed, Russiagate has revealed the low esteem that many US political-media elites have for American voters—for their ability to make discerning, rational electoral decisions, which is the bedrock assumption of representative democracy. It is worth noting that this disdain for rank-and-file citizens echoes a longstanding attitude of the Russian political intelligentsia, as recently expressed in the argument by a prominent Moscow policy intellectual that Russian authoritarianism springs not from the nation’s elites but from the “genetic code” of its people.

US elites seem to have a similar skepticism about—or contempt for—American voters’ capacity to make discerning electoral choices. Presumably this is a factor behind the current proliferation of programs—official, corporate, and private—to introduce elements of censorship in the nation’s “media space” in order to filter out “Kremlin propaganda.” Here, it also seems, elites will decide what constitutes such “propaganda.”

The Washington Post recently gave such an example: “portraying Russian and Syrian government forces favorably as they battled ‘terrorists’ in what U.S. officials for years have portrayed as a legitimate uprising against the authoritarian government of President Bashar al-Assad.” That is, thinking that the forces of Putin and Assad were fighting terrorists, even if closer to the truth, is “Kremlin propaganda” because it is at variance with “what U.S. officials for years have” been saying. This was the guiding principle of Soviet censorship as well.

If the American electoral process, presidency, legislature, and voter cannot be fully trusted, what is left of American democracy? Admittedly, this is still only a trend, a foreboding, but one with no end in sight. If it portends the “undermining of American democracy,” our elites will blame the Kremlin. But they best recall the discovery of Walt Kelly’s legendary cartoon figure Pogo: “We have met the enemy and he is us.”

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After months of internecine squabbling between the different factions of Theresa May’s conservative party, it appears the prime minister might finally be close to securing a deal that stands a chance of winning parliamentary approval, thanks to a major concession from the European Union.

If a report in the Sunday Times is accurate, May has assembled a detailed “secret” Brexit plan that, among other details, would kill off the controversial Northern Ireland “backstop” that had become the main obstacle to further negotiations.

Working in secret, May has reportedly developed a detailed, 50-page plan for a Brexit treaty that will allow the entire UK to remain within the EU customs union – that is, until a final deal can be hammered out during the transitionary period, which Brexiteers fear could mean “forever”.

As part of the new “secret” deal, May has effectively scrapped most of her controversial four-page “Chequers plan”, and replaced most provisions governing the single market and customs union with an agreement to hash out a “Future Economic Partnership” – essentially an open-ended agreement to continue negotiations that leaves open the possibility of reaching a free trade deal like the one enjoyed by Canada, a provision that is bound to appease at least some of the Brexiteers. The word on the street in Westminster is that part of the plan “could have been written by Jacob Rees-Mogg,” the leader of the hardline Eurosceptics, which, if true, would signify a major victory for May.

In another major concession allowed by EU chief negotiator Michel Barnier last week, the EU is apparently prepared to accept that regulatory checks on British goods can be trusted to happen “in the market” – ie at the British factories where they are produced – instead of at border checkpoints.

Theresa May, looking positively overjoyed

May is hoping to discuss the plan with her cabinet on Tuesday, and hopes that it will receive enough support to at least warrant the EU calling for a special summit in late November to hammer out the final details.

If May manages to win the support of her cabinet, here’s what will happen next (summary courtesy of the Times):

• The EU will write an all-UK customs deal into the legally binding withdrawal agreement so an EU-designed “backstop” treating Northern Ireland differently from the UK mainland is not required.
• There will be an “exit clause” to convince Eurosceptics the UK will not be in it for ever.
• The FEP will outline how a new trade deal would balance market access and border checks, making clear that a deal along the lines of the EU’s arrangement with Canada is still a possible outcome as is May’s Chequers plan for close alignment.

Of course, given how badly negotiations had deteriorated, May was effectively forced to take her negotiations covert to stop the non-believers from undermining her. But now that she has won these concessions from the EU, she is finally in a position to do some browbeating of her own.

Here’s how she’ll likely proceed with selling the plan (again, text courtesy of the Times):

• Telling Brexiteer ministers that unless they support it, they will be personally responsible for causing a no-deal Brexit, which most regard as a potential disaster.
• Telling remainers that May fought for the closest possible alignment until the last minute, but that the negotiations mean Britain will not be a full member of the customs union for ever.
• Not admitting in public that she has ditched her Chequers blueprint, but signalling privately that she will allow a “pivot” towards a different “landing zone” for the final deal.

But given the amount of control they have exercised over the process thus far, the Brexiteer faction might be unwilling to relinquish their leverage and blindly accept the deal, thanks to fears that the final agreement (which still would need to be hammered out at the hoped-for November EU summit) might contain a well-hidden provision to keep Northern Ireland more closely tied to Brussels if the rest of the UK were to leave the customs union. One anonymous Whitehall source quoted by the Times spelled this out in no uncertain terms.

A senior Whitehall source added: “The PM will be able to say there’s no more backstop, we’ve got rid of that – success. It is UK-wide – success. There’s an exit mechanism – success. And you’ve got Canada. The small print is that Ireland is f**ked.”

Oddly enough since the negotiations for the deal were reportedly carried out in secret, the Brexiteers have already begun to flesh out a strategy for possibly countering it – or at least ensuring that they are not forced into going along with the deal by threats of a “no deal” Brexit, or, worse, cooperation with Labour.

In an editorial published in the Sunday Times, former Brexit Secretary David Davis demanded that May authorize her attorney general to release to parliament any legal advice prepared for May’s cabinet. Davis even went so far as to warn that, if May were to refuse, she would risk the same fate as Tony Blair, who famously refused to publish the advice of his attorney general about the legality of joining the US war in Iraq. When the advice leaked, revealing that the attorney general had doubts about the legality of the war effort, Blair’s reputation never recovered.

The upshot is that Brexiteers are looking for assurances that the UK’s stay within the customs union will be temporary, and that there will be no chance of the Brexit Treaty remaining intact after the transition period ends at the beginning of 2021.

“We need the cards laid on the table so that we can form a judgment. Is the future of the union at stake? Are we being hurtled towards a Hotel California Brexit where we can check out, but we can never leave?”

Though they’ve been subjected to a series of false dawns in recent weeks, cable traders still embraced the news, pushing GBP higher on the hope that a “no deal” Brexit might be averted.

While the EU held its ground on concessions like allowing all of the UK to remain in the customs union for months, the fact that Barnier & Co. finally caved isn’t all that surprising. After taking into account the massive headache that a ‘no deal’ Brexit would create for the EU economy (which is already being threatened by the potential for a debt crisis in Italy) as well as the UK Brexiteers’ willingness to blithely accept such an outcome, Barnier must have finally realized that only he had the power to make the difficult choices necessary to create a deal.

But then again, as we’ve seen time and time again with these seemingly interminable negotiations, no deal can safely be considered ‘done’ until all necessary approvals have been secured – a scenario that is still a long way off.

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