Month: December 2018

Illinois Pension Shortfall Worsens To $134 Billion Despite Strong Markets, Increased Contribs

Authored by Ted Dabrowski and John Klingner via WirePoints.com,

The Illinois Commission on Government Forecasting and Accountability (COGFA) has released its latest state pension report. The numbers confirm what taxpayers already know and what Illinois politicians continue to ignore: Illinois needs massive pension reforms.

COGFA says that the state’s pension debt rose by more than $4 billion despite strong stock markets, a booming national economy and billions more in taxpayer contributions.

The total shortfall for Illinois’ five state-run pension funds – for teachers, state workers, university employees, judges and lawmakers – rose to $133.5 billion in 2018 compared to last year’s $129.1 billion in 2017. The plans’ fiscal year ended June 30, 2018.

The teachers’ fund earned 8.3 percent on its investments and the state employees’ fund earned 7.7 percent, both exceeding their 7 percent return targets. The university employee fund earned 8.3 percent, outpacing its expected return target of 6.75 percent.

Taxpayers also poured more contributions into the pension funds than ever before.

Illinoisans contributed $8 billion dollars to the pension funds in 2018, $6 billion more than what they contributed in 2008.

It just shows how unmanageable Illinois pensions have become. Billions in taxpayers contributions and above expected investment returns didn’t even make a dent in Illinois’ accumulated pension debt. In fact, the situation worsened for taxpayers and pensioners alike over the year. The pension hole is now larger by more than $4 billion.

Insolvent

Collectively, the five pension systems have just 40.2 percent of the funds they need today to be able to meet their obligations in the future, up slightly from 39.8 percent the year before. The university employee fund, SURS, is the best funded of the five pension funds, but its funded ratio fell by nearly 2 percentage points to 42.6 percent.

Most notable is the funding ratio for the state lawmaker pensions. It’s just 15.1 percent funded. Any way you measure it, it’s broke. Only a yearly bailout by taxpayers keeps that plan afloat.

Uncontrolled benefits

Lawmakers typically blame the current pension crisis on a lack of taxpayer dollars. But the pension funds are crisis today due to over 30 years of uncontrolled benefit growth, not a lack of funds.

What COGFA’s report fails to mention – and what the media has failed to report on – is that total pension benefits owed to state workers grew 1,061 percent between 1987 and 2016, swamping the state’s economy and taxpayers ability to pay for them.

Total benefits promised (the accrued liability) have grown 4.5 times more than personal incomes (238 percent) and six times more than state revenues (176 percent) over the period.

And when you compare accrued liability growth across states, Illinois is also an outlier. Wirepoints performed a 50-state analysis of pension promises and found Illinois had the 4th-fastest growingpension liabilities of all states between 2003 and 2016.

That growth in benefits has made it impossible for the state to escape the pension crisis.

Stellar investment returns and growing taxpayer contributions aren’t enough to fix things so long as politicians refuse to do anything about the growth in pension benefits and the overwhelming pension debt burden.

A period of collapse

Illinois’ pension funds have collapsed – putting both state workers and taxpayers at risk – during one of the longest bull markets in history.

Since the end of the Great Recession, the S&P 500 index has recovered and grown by 200 percent.

During that same time, Illinois’ pension shortfall worsened by 72 percent, or $56 billion. In fiscal year 2009, the unfunded liability was “just” $78 billion. Today, it’s nearly $134 billion.

Some of the growth in debt was due to the pension funds changing their actuarial assumptions, including SURS dropping its assumed rate of return in 2018. Regardless, the systems’ overall downward trend is clear.

And the warning this trend provides is even more stark: if the state’s pension debts continue to worsen during a period of remarkable market returns, imagine how those funds will fare when the next recession inevitably hits.

Illinois needs comprehensive reforms more than ever

What’s important to note is that the reported $133.5 billion in debt is the rosy scenario for Illinois.

The state’s actuaries still calculate the pension shortfalls assuming investment return rates of nearly 7 percent, on average.

When more realistic rates are used – those that can be guaranteed – the shortfall increases to more than $250 billion for the five state funds. That’s what Moody’s calculates is the true shortfall for Illinois.

Add to that all pension shortfalls in municipalities, plus the state’s $73 billion in unfunded health care obligations, and the burden on taxpayers becomes unbearable.

If Illinois properly paid its debt according to actuarial standards, 50 percent of the state’s budget would be consumed by retirement debts alone. Illinois is the outlier when it comes to that statistic and it’s one of the key reasons why the state is just one notch away from a junk rating.

Illinois’ multi-layered pension crises, including those in Chicago and throughout Illinois, will only be resolved when the state amends its constitution and significantly reduces its unfunded obligations at all levels of government.

Until then, the crises will only get worse.

Read more about Illinois’ state and local public retirement crisis:

Read all of Wirepoints’ major work on pensions here.

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Belgium Police Fire Tear Gas, Water Cannon As Anti-Migration Protests Turn Violent

The streets of Brussels turned violent on Sunday after thousands of Flemish right-wing parties called for a march against a UN migration pact signed in Marrakech last week, according to the BBC. 

Approximately 5,500 anti-immigration protesters came out in force against the pact- chanting various slogans such as “our people first” , “no jihad in our state” and “Brussels rats,” while around 1,000 counter-protesters from left-wing groups showed up to oppose the march. Police fired tear gas and a water cannon as violence broke out between the groups, throwing fences and stones. 

The pact, signed last week by 164 countries – however it was rejected by the United States and several European countries including Austria, Hungary, Italy, Poland and Slovakia – which refused to formally adopt the agreement. 

The deal, which is not legally binding, seeks an international approach to migration that “reaffirms the sovereign rights of states to determine their national migration policy” and asserts the “fundamental” importance of legal migration.

But critics in Europe believe it will lead to increased immigration to the continent. –BBC

Approximately 90 people were arrested. Towards the end of the speeches, VTM News journalist Hannelore Simoens claimed to have been attacked by demonstrators who threw smoke bombs and shouted curses at she and her camera crew. Video of the incident suggests otherwise. 

According to freelance journalist Sotiri Dimpinoudis, the demonstrators were “smashing every window.” 

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Liberty Links 12/16/18 – Johnson & Johnson Knew for Decades That Asbestos Lurked in Its Baby Powder

As always, if you appreciate my work and want to support independent content creators, consider becoming a monthly Patron, or visit the Support Page.

Johnson & Johnson Knew for Decades That Asbestos Lurked in Its Baby Powder (Reuters)

Every Moment of Every Day, Mobile Phone Apps Collect Detailed Location Data. (Totally out of control, The New York Times)

Australia’s Horrific New Encryption Law Likely to Obliterate Its Tech Scene (The Next Web)

Amazon’s Disturbing Plan to Add Face Surveillance to Your Front Door (ALCU)

Bitcoin is a Decentralized Organism (Mycelium) (This is one of the most enjoyable and informative articles I’ve read all year, by Brandon Quittem)

Joe Rogan Experience #1035 – Paul Stamets (If you liked the above article, you’ll love this, YouTube)

U.S. News/Politics

See More Links »

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Imagine If Saudi Arabia Was Not A US Ally

Authored by Caitlin Johnstone via Medium.com,

The US Senate has voted 56 to 41 to sorta-kinda eventually end America’s part in the Saudi-led war in Yemen, one step out of a great many that will need to happen in order to end the worst humanitarian crisis on the face of the earth.

The joint resolution still allows US drones to patrol Yemeni airspace and rain death from above in its “war on terror” against Al Qaeda, and it is unable to pass in the House this year due to an unbelievably sleazy rider that House Republicans attached to the unrelated Farm Bill. The resolution isn’t expected to change much in terms of actual US participation in the war besides some intelligence and reconnaissance assistance to Saudi Arabia and the United Arab Emirates against the Houthi rebels, since the US has already ended its assistance in refueling Saudi jets on their bombing campaigns as of last month. Trump is expected to veto any Yemen resolutions, and the Senate resolution was not passed with a veto-proof supermajority.

Still, it’s a step. A step in the right direction, both toward congress imposing some checks and balances on the Executive Branch’s heretofore obscenely unchallenged war powers, and toward the US government moving into opposition to the brazen war crimes being inflicted upon the Yemeni people by America’s close ally Saudi Arabia. And I think that last bit is worth taking a moment to think about.

Research from the Armed Conflict Location and Event Data Project indicates that up to 80,000 people have been killed in this war, which would be eight times more than the 10,000 figure we’ve been hearing from the mainstream media for years on those rare occasions they’ve felt like mentioning Yemen. And it is important to note that this number applies to deaths by military violence only, not to the other untold tens of thousands who have died of starvation and cholera as a result of Saudi Arabia’s inhuman blockades on imports and its deliberate targeting of farms, fishing boats, marketplaces, food storage sites and cholera treatment centers with airstrikes. Just for children under the age of five, the death toll due to starvation alone is believed to be around 85,000.

So that’s what’s going on while the bureaucrats on Capitol Hill are slowly pushing their pencils and the diplomats are making nicey nicey with theocratic Gulf state tyrants. If Saudi Arabia were not an ally of the United States, this matter would be treated very, very differently.

In May of last year, then-Secretary of State Rex Tillerson was given a memo by his assistant, virulent Iran hawk Brian Hook. The memo, intended to educate the struggling political neophyte Tillerson on the finer points of State Department manipulation, laid out the beltway’s standard protocol for dealing with Washington’s allies and its enemies. Hook said human rights issues are something the US government presses its enemies on but not its allies, naming China, Russia, North Korea, and Iran as examples of US enemies who violate human rights, and naming Egypt, the Philippines, and Saudi Arabia as examples of US allies who violate human rights.

“In the case of US allies such as Egypt, Saudi Arabia, and the Philippines, the Administration is fully justified in emphasizing good relations for a variety of important reasons, including counter-terrorism, and in honestly facing up to the difficult tradeoffs with regard to human rights,” Hook wrote. “One useful guideline for a realistic and successful foreign policy is that allies should be treated differently — and better — than adversaries. Otherwise, we end up with more adversaries, and fewer allies. The classic dilemma of balancing ideals and interests is with regard to America’s allies. In relation to our competitors, there is far less of a dilemma. We do not look to bolster America’s adversaries overseas; we look to pressure, compete with, and outmaneuver them. For this reason, we should consider human rights as an important issue in regard to US relations with China, Russia, North Korea, and Iran. And this is not only because of moral concern for practices inside those countries. It is also because pressing those regimes on human rights is one way to impose costs, apply counter-pressure, and regain the initiative from them strategically.”

And indeed this is exactly the sort of behavior we see from the US government, not just from its official branches like the State Department but from its unofficial ones as well, including the mainstream media. Just look at the France protests, which have seen mass arrests and protesters getting eyes shot out and hands blown off by brutal police responses while receiving nary a whisper of commentary from the plutocrat-owned talking heads, yet if this were happening in Russia we all know it would be forced into viral trends and pushed into public consciousness at every opportunity.

If Saudi Arabia existed in the “enemies” column instead of the “allies”, we’d have been seeing constant mass media coverage of its butchery in Yemen for almost four years now. MSNBC, which recently went more than a yearwithout mentioning Yemen even a single time, would be tearfully depicting the dying children with the same urgency it covered the “uniquely horrific” sarin gas attack alleged to have taken place in Syria last year, and doing so regularly. The starving children of Yemen would be on the forefront of western consciousness instead of the back burner, and demands to make it stop would be screaming from coast to coast.

That’s seriously it. That one stupid, silly shift from the “allies” column to the “enemies” column would make the difference between night and day in the western world’s response to the slaughter in Yemen. The Saudi royals would be vilified, and that vilification would be used to manufacture support for sanctions and strategies to shove the KSA off the world stage. CIA covert ops would be implemented to sow discord, and starvation sanctions would target Saudi civilians to help stoke the flames of discontent. Regime change would take place via invasion or staged coup, and then a puppet regime would be installed which would quietly make the shift to selling all Saudi oil in US dollars.

And in the meantime, God help Trump if he was stupid enough to stay cozied up with the Saudis, because guess what? There’s a lot more evidence for Saudi collusion than there is for Russia collusion. The all-you-can-eat nothingburger of Russiagate would have been replaced by far more concrete and straightforward stories about direct financial ties to the Saudi government, an emissary for a Saudi prince who wanted to help Trump win the 2016 election, and remarks by Saudi Crown Prince Mohammed bin Salman that Trump’s son-in-law Jared Kushner is “in his pocket”. Trump’s creepy glowing orb picture alone would have mainstream Saudi-gate conspiracy theorists in intractable hysterics.

Of course none of this would ever have had a chance to happen, because if Saudi Arabia were not a US ally, it would have been invaded and forcibly regime changed immediately after 9/11.

But Saudi Arabia is a US ally, and a very close one indeed.

Its petrodollar deal, its prime strategic location and its ability to move vast amounts of wealth around behind a veil of total government opacity in the facilitation of sociopathic agendas has made it a priceless asset in the US-centralized empire’s relentless quest for global domination. This remains true in spite of whatever particular quibbles that empire might happen to have with MBS, and in spite of any journalists’ unfortunate encounters with any bone saws.

The struggle to dominate the Middle East remains one of the foremost priorities of elite power in this world, and they’re going to do everything they can not to let a few piles of dead children interfere with an important alliance. The butchery in Yemen is the single worst thing that is happening in the world today, and because of the power dynamics that are at play, we’re going to need a whole lot more than a feel-good Senate vote to heal it. It’s a step. We must keep stepping.

*  *  *

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The Charts Bulls And Bears Are Obsessing Over For 2019

“In markets, economics, and crises; things take longer to happen than you think they will, and then they happen faster than you thought they could.” – Ritesh Jain

2017 was a tough year for many rational, sane investors who had to keep chasing the non-correcting ascent.

And now, as Sven Henrich notes, 2018 has turned out to be a year for Wall Street to be wrong on everything. The year when the warning signs finally did matter, but they were ignored:

A perhaps similar script to 2008 when the warning signs then were ignored as well only to see the largest financial crisis in our lifetime unfold:

And now, as Bloomberg notes, 2019 is shaping up to be a testing year for the world economy.

By far the biggest concern heading into 2019, according to BofAML’s sentiment survey, is the resumption of trade concerns.

And that is expected to weigh on growth…

Bears will argue that while the U.S. and China have agreed a temporary truce to their trade war, the peace won’t hold. That means risks of new tariffs and other barriers between the world’s two biggest economies remains heightened.

Bulls argue there’s a deal to be done. Trump and Xi will agree terms that allows greater access to China’s markets without China surrendering its grand ambitions to create a world leading high tech economy.

Source: Bloomberg

2018 definitely saw a regime change from what investors have become used to as BTFD morphed into STFR and the smart money dumped like never before…

If the only ‘money’ keeping stocks alive is ‘buybacks’, 2019 could be one for the ages, as Sven Henrich notes:

“And while markets may still see sizable rallies, the warning signs are still all around us, and they send a clear message: The 10-year bull market will come to an end, and the investing and trading climate is changing dramatically, possibly, for years to come.”

And one of the biggest factors in whether 2019 is “it” lies in the energy complex. Oil prices enjoyed a wild ride in 2018, ending the year around $50 a barrel, after hitting more than $75 in October.

Bears argue lower prices reflect weak demand and still-booming supplies from U.S. shale formations that will hurt energy-reliant economies.

Bulls say cheaper energy will cushion consumers, countries with current account deficits and will keep a lid on inflation, giving central banks less of a reason to raise interest rates. Oil production cuts of 1.2 million barrels a day by OPEC and its allies won’t hurt either.

Source: Bloomberg

Central Banks began to spoil the party in 2018 and 2019 is set to accelerate things.

Bears argue liquidity will become more expensive as central banks raise interest rates led by the Federal Reserve. That means more emerging market turmoil right as populism is pressuring central banks.

Bulls argue there’s no inflation so there’s no need for higher interest rates. Moderating U.S. growth means the Fed can pause.

Source: Bloomberg

Instead of the U.S. economy breaking the record for its longest expansion, bears see 2019 as the year growth goes in reverse. A fading fiscal stimulus, Congress paralysis, trade wars and Fed hikes will hurt.

Or maybe not. Bulls note that there’s no sign of overheating or rampant inflation that could derail the economy, and employment remains solid. And the Fed could decide to pause earlier than markets currently expect, easing pressure on borrowers and markets.

Source: Bloomberg

Credit market concerns are quickly becoming a key subject to fear as liquidity fades driving up the cost of funding for all as a boom in issuance of structured products such as collateralized loan obligations has spurred warnings from regulators.

Bears worry that a weakening economy and Fed liquidity withdrawal could wallop credit fundamentals, flipping many BBB credits into junk territory.

Bulls say with the Fed’s rate-hike campaign coming to an end, and a recession avoided, returns will return to positive in 2019. Bank of America Merrill Lynch sees U.S. leveraged loans posting total returns of between 4 and 5 percent.

Source: Bloomberg

And while a lot of focus is on China (trade and economy) and US, Europe will be key too.

Bears say the Italian government’s open defiance of European budget rules will spark the euro’s next crisis. The European Central Bank could be forced to intervene with untested tools, pressuring the fragile political consensus holding the euro together.

Bulls argue support for the euro is at a record high in Italy and the rest of the euro area. The populist government has signaled it wants to find a compromise with European partners. Street protests in France calm down without leaving permanent damage.

Source: Bloomberg

And of course Brexit may be the ultimate arbiter of Europe’s direction with the U.K. potentially crashing out of the European Union next year.

Bears note that The Bank of England warned that such a scenario would see the economy shrink as much as 8 percent and the pound lose a quarter of its value. In a no-deal Brexit, financial markets enter panic mode.

Bulls argue Brexit can happen orderly and both sides can make quick progress in defining their new economic relationship.

Source: Bloomberg

And finally, Debt and Rates remain a key factor for 2019 and investors now overwhelmingly believe The Fed pauses its interest-rate-hiking regime in the first half of 2019…

Which is echoed in the collapse of market-implied expectations for Fed rate moves over the next two years…

Bears note that global debt is now more than three times the level it was 20 years ago, raising concerns the world is headed for a debt crisis. They note that rising interest rates pose significant risk to households and nonfinancial firms in 36 percent of sizable economies. They warn that most advanced economy governments and several large emerging markets are highly vulnerable to sovereign debt risks.

Bulls say interest rates will only crawl higher and as long as economic growth holds up, borrowers can service their debt.

However, as BofAML notes, something notable has change in recent weeks. Duration positions in Treasuries have adjusted dramatically, crossing into net long exposure for the first time since 2016, and reaching a level not seen in our data since 2010. Furthermore, UST vs core Europe positioning is at a record level in our data since 2004.

The driver of that sharp adjustment seems to be the expectation that US growth will slow sharply to converge to a less buoyant global economy. However, to validate these longs, the Fed will not just have to pause, but stop hiking altogether… and trade war concerns will have to come true – which brings us full circle to the start of this summary.

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Ideological Blindness On The Right And Left

Authored by Jeffrey Tucker via AIER.org,

Murray Rothbard had a law: intellectuals specialize in what they are worst at.

We’ve all known them: the learned historian who knows no economics but proclaims fealty to socialism; the economist who is brilliant at math but can’t stop writing about theology; the philosopher who has subtle views about Heidegger and Derrida but mainly spends class time haranguing students about the solution to climate change.

What is true for intellectuals is doubly so for politicians.

Many people on the right side of the political spectrum have solidly reasonable views on property rights, judicial restraint, and cutting domestic spending. But these days, many of these same people are obsessed with fomenting trade wars, making immigration hard, propping up foreign dictators, and stepping up the drug war. They are specializing in their worst features.

It’s the same on the left. Many of these people can be great on civil liberties, corporate welfare, and prison reform, but they spend the bulk of their energies on socializing medicine, raising the minimum wage, and pushing bad ideas like job guarantees. They too are specializing in pushing their worst ideas.

Why does Rothbard’s law pertain so often? It’s because people fall in love with their own heterodoxies and double down when their wrong ideas come under attack. Ideology begins to replace reality, and their focus gets ever more distorted. Once that ideology is lodged deeply in the mind, it takes control of all perceptions.

There is a scene in the movie Inception that explains how this works. Inception involves planting an idea in someone’s head, via an externally managed dream, in a way that misleads a person into thinking that he or she originated it. That’s when it becomes the most powerful guide to action.

“If you’re going to perform inception, you need imagination,” explains a character. “You need the simplest version of the idea — the one that will grow naturally in the subject’s mind. Subtle art.”

Once that idea has grown and mutated into a political ideology, to the point that it seems to explain events, it becomes almost impossible to dislodge. A crisis of faith becomes necessary before a shift happens. And that is not easy to achieve. The world can come crashing down around you and still the true believer will stick to their story.

We are surrounded by examples of this from both the right and left.

Protectionism

“I am a Tariff Man,” wrote the president in a now-famous recent tweet. The remainder of the tweet contained utterly false information about who pays. He believes foreigners are paying, when in fact a tariff acts as a domestic sales tax paid by producers and consumers.

What’s more striking is that this brazen declaration of loyalty to mercantilism comes after a year of utter failure in policy. Every prediction has turned out to be false. The trade war is not an easy win. We are stuck now with falling financials, suffering American companies, rising prices, broken trade relationships, falling exports, factory closings, rising trade deficits, and angry buyers of taxed products.

Cause and effect are notoriously difficult to trace in social science, but, at the very least, it should be obvious that the policy hasn’t worked to achieve its aims. Yet the more the evidence of failure mounts, the more the president doubles down on his mercantilist dreams.

And Rothbard’s law has kicked in. The president’s views are not all terrible. He has many of the right enemies. His 2017 efforts at tax cuts and deregulation buoyed markets. His judicial appointments have exhibited a much-welcome attention to constitutional principles. But where is his heart? What is his passion? It is all about disrupting international commerce through tariff walls and national economic planning. He talks and thinks about his trade war more than any other subject by far.

You might think that the events of the last year would shake loose one’s attachment to the protectionist ideology. You would be wrong. When the story of Trumpian economic policy is written, it will be about how great promise was shattered through fanatical attachment to mercantilist ideology, even in the face of unrelenting failure.

Climate Change

The same problem afflicts the left with its dogmatic attachment to the pop aspect of climate-change politics. If you read the scientific papers, you find what you would expect: a great deal of uncertainty on many aspects of theory, and certainly tremendous hedging on political implementation. Among true believers, however, there can be no dissent, even from the most implausible aspects of the idea.

Pretend you have spent the better part of 10 years at an island resort ignoring all news. You come back and pick up the New York Times. The news is terrible — or ridiculous. It’s hard to say. The editorial page says the following.

Governments are “pulling the world back from the cliff’s edge of catastrophic climate change.” That’s quite the job for governments that have yet to prove they can deliver mail better than the private sector. Now they are going to manage the global climate and stop the whole world from being delivered from a fiery hell into which industrial technology otherwise would plunge us? Indeed.

How is this marvelous and astounding achievement by government going to take place? Governments must “try to wean their citizens from fossil fuels,” which would be a monumental achievement. Currently, 82 percent of all energy use derives from fossil fuels. By “energy use,” we literally mean everything in our lives: manufacturing all our food, giving us lighting, transportation, and communication. The whole of life as we know it.

How will governments of the world manage to change this? The Times says that governments should impose “measures that could help people of modest means transition to less-polluting transportation.”

Let them ride bikes, in other words, as in Mao’s China.

The agenda as stated here is so extreme and disruptive that many people dismiss it as typical political claptrap, not a real threat to our way of life. It is certainly true that even if we knew 100 percent that the science could prove that a climate catastrophe was in store, it does not follow that climate scientists (or journalists or English professors or even economists) know the way to fix it through government — or that it is even possible.

Still, the true believers are willing to act on their theories through state power, with no plan in place to measure costs relative to benefits. The dogma has become: industrial civilization must go one way or another. The first attempts to implement the grand agenda have gone horribly wrong.

The gas tax in France resulted in the worst riots in decades. The government was shocked. The culture of the climate-change clerisy had become so internally reinforcing that it had failed even to consider that regular people do not want to be pillaged in the name of controlling global temperature patterns, even if such control were possible.

These true believers have lost connection to reason and political reality, all in the name of an ideological commitment to some of the least plausible propositions to come from the left in many decades.

Both the center and far left have fallen victim to Rothbard’s law, as much as people on the Trumpian right. The rest of us are caught between two brands of ideological fanaticism that begin in a bad idea, deploy government power to realize the goal, and end as a grave threat to liberty and property.

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Just One Misplaced Dot By The Fed, And Expect Curve Inversion “Within Weeks”

A lot has changed in the market since November, and not just the relentless pounding that stocks have been subjected to for the past two months as one hedge fund after another has been liquidating ahead of year-end even as the most shorted stocks (coughteslacough) continue to levitate. Nowhere is this change more visible – aside from asset prices of course – than in the latest BofA FX/Rates sentiment survey which saw a sea-change in opinions in just one month, when after 32% of respondents expected higher rates and a flatter curve in November, this number has since tumbled to just 13%, with the majority of investors now expecting little changes to rates after Powell’s recent dovish commentary.

It’s not just subjective surveys that expect little to no rate hikes in 2019: the market itself has now priced out any additional Fed tightening in 2019, in stark refutation to the message from the Fed’s dot plot, which suggests at least three more rate hikes next year.

Indeed, as IIF’s Robin Brooks observes, going into next week’s FOMC meeting, the market “looks very dovish”, and while the December rate hike is almost fully priced in, less than one rate hike is priced for 2019 (a total of 40bps through Dec 2019), while the market expects the Fed to begin cutting rates in 2020 when the next recession is expected to begin.

So while traders are certain the Federal Reserve will hike rates this week, the key question and the “suspense” centers on the latest forecasts for interest rates – i.e., the dots – and the economy, which have profound implications for one of the biggest debates in the Treasury market.

The Fed’s final projections for 2018 will come as investors are rapidly souring on the economy and losing confidence that the Fed will keep hiking amid as global economic headwinds hit the US economy.

And, in what could become a self-fulfilling prophecy, strategists say they are exclusively focused on the Fed’s outlook for 2019, which will dictate whether the inversion seen in some parts of the yield curve becomes more pervasive. With 2s5s and 3s5s recently inverting and sparking much discussion of imminent recession, the spread between 2- and 10-year yields is already close to going negative for the first time since 2007.

In this context, what Powell says next week will have immediate consequences for the shape of the yield curve and whether the 2s10s inverts.

According to Ian Lyngen, head of US rates at BMO – who has been calling for a flatter curve for the past year – the curve’s next leg is likely lower: Lyngen believes that Powell will probably sound more upbeat on the economy than markets anticipate as he justifies raising rates, potentially sending risk assets sliding even more as stocks have recently priced in a substantial pullback in rate hike odds. Should policy makers confirm plans to hike three more times in 2019, and leave the dot plot unchanged, that will only add to the flattening impulse.

“The real risk will be that the Fed doesn’t change the dot plot, increases fed funds and sounds generally kind of hawkish,” Lyngen told Bloomberg. “That would be a surprise, because I think consensus is now a dovish hike. So if we get a hawkish hike, that will flatten the curve even further.”

And with the 10Y closing Friday at 2.89%, and the 2s10s at just 15bps, Lyngen expects the gap to narrow to the “low single digits” on a hawkish surprise Wednesday if the dots are unchanged, suggesting 3 more hikes in 2019. The result is a rising prospect of curve inversion, “potentially within weeks“, which in turn has drawn the attention of investors and policy makers as an inverted curve has almost always resulted in a recession.

Said otherwise, just one misplaced dot on the next dot plot, and the curve may invert just in time for Christmas. 

Looking further out, the spread between December 2018 and December 2019 eurodollar futures, an indication of how much tightening the market expects in 2019, has shriveled to 10 basis points, implying less than one-quarter point hike. Should the Fed push back against this dovish market sentiment, it is likely that we will see a violent squeeze as dovish ED positions are unwound, resulting in even tighter financial conditions, and an acceleration in the stock selloff.

Still, most expect Powell – who was taught a painful lesson by the market for his Oct.3 comments that the neutral rate of interest is “still a long way away” – to fold to the what has been dubbed the “Dow vigilantes” (and, of course, Trump who last week said he “hopes” the Fed won’t hike any more). One among them is Bryce Doty of Sit Investments Associates expects the Fed to shift its forecasts lower, soothing markets, even though strong U.S. economic data should have Powell sounding optimistic. Yet even though Doty anticipates a lower 2019 median dot, he still foresees curve flattening because a quarter-point hike would push short-end rates higher.

“That will be the only possible source of relief for stock investors,” said Doty. “They’ll say, ‘Okay, he’s really bullish on the economy, but at least we got some good news on the dot plot.'”

On the other hand, if the Fed refuses to budge on its 3 hike forecast for 2019, with the median 2019 dot remaining at 3.1%, or 3 rate hikes higher…

… then all bets are off, especially for Powell’s career because should the Fed chair be seen – by Trump – as responsible for the next stock market plunge, then his odds of staying employed as Fed chair will be roughly the same as the Fed hiking next year.

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To All The World-Improvers’ & Justice-Warriors: “Shut Up And Play Yer Own Cards”

Authored by Mark Jeftovic via Guerilla-Capitalism.com,

A few months ago I had formed a useful metaphor about the underlying mechanisms at play when those concerned with social justice want to improve things for the greater good. This is nothing new, Bill Bonner & Lila Rajiva wrote an entire book on this called Mobs, Markets & Messiah’s wherein they examined the trail of wreckage left behind by what they called “world improvers” like Che Guevara, Pol Pot, Stalin, the list goes on.

As they saw it:

“The trouble with the big wide world is that it is never good enough for some people. They keep trying to improve it. No harm in that, you should always try to make your world a better place. Wink at a homely girl, or curse a bad driver. But the world improvers are rarely content with private acts of kindness. Instead, they want gas chambers and Social Security –vast changes almost always brought about at the point of a gun. Thus is was that central banks were set up and given the power to control what doesn’t belong to them, your money. Thus it came to be that we got regularly felt up by strangers at airports –and thought it normal”.

Bonner expanded on that further in “Hormegeddon: How Too Much Of a Good Thing Leads To Disaster”, where, with due props to Nassim Taleb for introducing the concept of hormesis into the public lexicon. Hormesis describes how some things that might benefit us in small doses, almost certainly destroy us as we amp up the volume.

The metaphor I came up with was this: all any of us can do in these mortal coils of ours is to play the cards life deals us as best we can. That’s it. We have no other control over anything else. If we try to exert control over anything else, we are assuring disappointment for ourselves and grief for others.

If we have a halfway decent ethical compass, we’ll try to refrain from playing our hand in a way that would unfairly penalize others: no aces up our sleeves, or peaking at the other players hands. We would play a straight up game, not cheat, and expect the other players to play the same way, and if they don’t, we would avoid playing with them.

That’s basically life, and the golden rule, in a nutshell. Some famous rabbi once remarked, “everything is The Golden Rule, all else is commentary”.

But there are those for whom that isn’t good enough, these are what Bonner and Rajiva called “The World Improvers” or what today we would call social justice warriors. They aren’t satisfied playing the cards they are dealt to the best of their own abilities.

Because fate is unfair and luck is unevenly distributed they feel the need to:

1) Control the cards fate deals to the other players

“Now we’re getting somewhere” the social justice warrior might think. Life is unfair. If we can force life to deal the same hand to everybody, and then it’ll be fair. Then we can all play the game with the understanding that nobody is playing from an exalted position of privilege. Although sometimes, that can get tricky so you really have to  monkeyhammer the deck to ensure that equality ensues.

Charles Hugh Smith’s “Inequality and the Collapse of Privilege” sheds some insight that I think is lost on many social justice warriors. Beyond the obvious point that equality of outcomes is impossible and what we should really be striving for is equality of opportunity, Smith also makes a distinction between advantage  and privilege. 

The difference is that an advantaged class operates from a position of earned benefit, while a privileged class operates from an unearned one.

When the Globe and Mail’s Margaret Wente wrote the think piece “How Privileged Are You? Take this Test and Find Out“, it is clear that this distinction is lost on her. My quip when I first read it was that the dilemma she identified as privilege could be completely alleviated if children simply refused to be raised by parents who made sound life choices. Problem solved.

Another example is that “What is Privilege” video you have probably had shoved in your face at least once on social media that has over 3 million views on Youtube. It enumerates 35 markers of ‘privilege’ (such as “If you came from a supportive family environment”, “If there were more than 50 books in your household”…)

What Wente, the directors of this video and others fail to differentiate is between those who, for example, are raised within the inner circles of the economic / financial / political elites, who can borrow newly created money at near-zero interest, use it to buy up assets and income streams, then get bailed out by the state if the wheels come off (privileged); versus, say, a double-income couple who tough it out through marital stresses, support each other through university, live below their means and save enough money and cultivate enough stability to give their kids a stable foundation in life. That’s not privilege, that’s advantage. Earned advantage.

That’s actually the way it’s supposed to work! Your parents are supposed to raise children with the added benefit of what they learned themselves, each generation becoming a bit wiser, healthier, and self-actualized than the preceding generation. When that happens we shouldn’t be telling these kids something is wrong, what we should be doing is looking at why so many parents are failing at the job of parenting.

As Chris Rock puts it, “Dads, if your daughter ends up on the pole, that means you fucked up”.

But to the social justice warriors, because of the uneven outcomes, those who plan ahead and think through outcomes, especially if they’ve been trained to do that by their parents who learned that from their parents, and so on, find that “problematic”. It’s unfair.

But not to worry, when the social justice warriors cannot control the cards life deals to all the players, there is always the next logical step, and that is to

2) Control how the other players are permitted to play their own cards.

Now we’re really getting somewhere. Because life, fate, history, geopolitics et al are unfair, we can still even things out for everybody by simply dictating to the other players what they must or must not do with the cards they’ve been dealt.

I got an example of this personally this week when I sent out my weekly #AxisOfEasy newsletter, and put in the following postscript:

P.S Our little mastodon community is growing nicely, why not set up a free account  where you can openly admit to liking the song “Baby it’s cold outside” without fear of recrimination or doxxing.

The wholly contrived controversy around the song “Baby It’s Cold Outside” could only have been ignited by somebody with too much spare time on their hands who was on a mission to be offended. Nevertheless, it’s illustrative in that it gives us a microcosm example of the kind of neo-Jacobin Terrors we’ll all wind up under if we don’t vigorously challenge political uber-correctness like this. (Progressives frequently ruminate over the normalization of “hate”.  What I worry about being normalized is being told what I can and can not like or think).

Perhaps unsurprisingly, somebody who saw the newsletter did take offense to my postscript, and emailed me:

Please don’t advertise your community with such a trashy song. It seemed like you had good motivations for making your mastodon instance. But then you throw in a song that’s basically AT BEST trivializing daterape, and it makes you sound like a real piece of MRA shit.

Let’s pause here to observe the fact that if you examine the lyrics to “Baby It’s Cold Outside”, what is clear is that it is not “AT BEST trivializing date rape”, it is doing that only at worst, and only if one really shoehorns their own misanthropically biased interpretation into it. You really have to work to get there because it comes down to a single line in the song that has at least 3 or 4 other, more soulful interpretations off the top of my head.

I am belabouring this for a reason, and I am choosing this example because what happens next is the perfect illustration of how world improvers think things should work, as opposed to how the world actually works:

I wrote him back:

“with all due respect, it’s a song with innocuous lyrics, what that song means to any given person is a matter of how they choose to interpret it, and completely at their own discretion. That song happens to be very meaningful to my wife and I and we remember it fondly and romantically. I will not be told to feel bad for that or to abandon the memories, the meaning or the love that a song invokes, or otherwise disavow a deeply personal experience by those who would be hell bent on imposing their own hyper-moralistic tunnel vision on everybody else.

Also I don’t appreciate being called an MRA shit, next time you want to take an issue up with me keep it clean and be civil.”

to which he replied

Calling for civility is the refuge of those who wish for no judgment or consequences about their words and positions, and it’s a poisonous seed that grows into the flaming misogynist neonazi trash heap. I understand you disagree and have your own fond memories of the song, but in return I ask you to understand that your own nostalgia may cloud your vision.

I’m breaking this exchange out in excruciating detail because it presents a textbook example of how world improvers and social justice types frame conversations and are incapable of accepting what they see as non-conforming views.

What his response amounts to is that he, the social justice warrior, is permitted to hurl verbal abuse and profanity at me, and I am not allowed to object to that. By doing so I am somehow shirking my responsibility toward him. Further, it doesn’t matter if I am offended by what he said to me, what matters is that he is offended by something that might be going on in my head. Finally, despite my own feelings toward a song that has nothing to do with him, it’s my vision that may be clouded, and should by extension be re-educated, not his.

This type of exchange is typical of attempts at dialogue with the militant progressives, and they all follow a typical arc:

  • The social justice warrior seeks out, and purportedly finds some innocuous or misunderstood issue to be offended about.

  • The SJW then defines the terms of the dialogue so that any opinion they have about it is relevant and meaningful, while anything you have to say about it is out-of-scope and problematic. They may invent some neologism to neutralize your logic (i.e “Thomas Sowell is alt-right-adjacent, so nothing he ever said counts”) or they may just fall back to the old stand-by’s of calling you a Nazi and a racist.

  • (Also, the SJW has full license to behave with rudeness, treat you with sanctimony and derision, and resort to ad hominem attacks)

  • Finally, especially if this taking place on social media, when SJWs find themselves boxed into a corner, bounded by  their own contradictions and hypocrisy, they’ll just block you. (Kissinger: “Declare victory,  then withdraw”).

As Thomas Sowell once wrote:

“One of the most pathetic – and dangerous – signs of our times is the growing number of individuals and groups who believe that no one can possibly disagree with them for any honest reason”

The obvious solution here is…

This post’s title is a riff on Frank Zappa’s “Shut Up and Play Yer Guitar”. In 1986 Zappa gave testimony before the Maryland State Legislature about a proposed bill that would have expanded the definition of pornography to include music:

It is my personal feeling that lyrics cannot harm anyone. There is no sound that you can make with your mouth, or word that will come out of your mouth, that is so powerful that it will make you go to hell.

It’s also not going to turn anyone into a ‘social liability.’ ‘Disturbed’ people can be set off on a ‘disturbed’ course of action by any kind of stimulus. If they are prone to being antisocial or schizophrenic or whatever, they can be set off by anything, including my tie, or your hair, or that chair over there.

You can’t point to the statistics concerning ‘people doing strange things in the vicinity of rock music,’ because all you’ve got to do is look around at all the normal kids who listen to it and live with it every day who do not commit suicide; they don’t commit murder [ or date rape – markjr ], and they grow up to be, in some cases, legislators.

Anybody who feels “Baby it’s Cold Outside” is an affront to their decency can go ahead and not listen to it. To that end, the same day my exchange took place, CBC radio, the network that started the entire #BabyItsColdOutside debacle by removing the song from their Christmas playlist, reversed it’s course in the face of overwhelming public outcry and reinstated it, with the comment:

“Appreciating not everyone interprets lyrics the same way, listeners may wish to skip the song as we understand not everyone will agree with this decision.”

In other words, CBC is telling one and all to “Shut up and play yer own cards”.

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“They Used Us For Crisis PR” – Facebook’s Factcheckers Are In Open Revolt

A group of former and current factcheckers hired by Facebook to flag false news have come forward to say they’ve “lost trust” in the social media giant after it did little to actually crack down on fake news. “They’ve essentially used us for crisis PR,” Brooke Binkowski, a former editor at Snopes, which partnered with Facebook for two years, told The Guardian. Another journalist said, “We were just collateral damage” — at a time during and after the 2016 presidential election when “fake news” was a front and center topic in national debate. 

Facebook CEO Mark Zuckerberg, via Reuters

Not only has Facebook ignored the expertise of the very factcheckers it hired, but those interviewed for the explosive Guardian report point to the hypocrisy of Facebook executives over the recent Soros scandal, wherein the company admitted to paying a Republican PR firm to cast liberal critics as operatives for liberal financier George Soros, following a shocking exposé in a Nov. 14 New York Times report which shed light on a wide scope of questionable damage control techniques employed by the social media giant in the wake of several scandals. Essentially Facebook’s crisis PR firm pushed a Soros conspiracy in order to smear critics in a bizarre fake news planting false flag scenario likely personally ordered by chief operating officer Sheryl Sandberg herself.

Sanberg had also come under controversy within Facebook’s employee ranks after ordering an investigation into whether the billionaire activist had been shorting the company’s stock while calling it a “menace to society” in a blistering speech that same month at the World Economic Forum. Citing these scandals and general apathy for actually implementing factcheckers’ expertise journalists working in coordination with Facebook are now pushing to end the controversial media partnership which involves established media as well as factchecking outlets outlets like the Associated Press, PolitiFact, FactCheck.org, ABC News, and Snopes acting in tandem with Facebook to flag fake or questionable news. 

Concerning the revelations over the Soros conspiracy smear campaign Facebook recently admitted to, The Guardian report found that was a major tipping point for the factcheckers: 

“Some said Facebook’s hiring of a PR firm that used an antisemitic narrative to discredit critics – fueling the same kind of propaganda factcheckers regularly debunk – should be a deal-breaker.”

via TechCrunch

One current Facebook factchecker who remained anonymous explained to The Guardian, “Why should we trust Facebook when it’s pushing the same rumors that its own factcheckers are calling fake news?” And continued: “It’s worth asking how do they treat stories about George Soros on the platform knowing they specifically pay people to try to link political enemies to him?” The journalist added, “Working with Facebook makes us look bad.”

Perhaps the most stunning comments included in the report were from the aforementioned Snopes editor, Brooke Binkowski, who says her pleas to research and monitor propaganda related to the Rihingya crisis in Myanmar fell of deaf ears. “I was bringing up Myanmar over and over and over,” she said. “They were absolutely resistant.” Binkowski concluded, “I strongly believe that they are spreading fake news on behalf of hostile foreign powers and authoritarian governments as part of their business model.”

And further this stunning revelation was included in the report:

Binkowski said that on at least one occasion, it appeared that Facebook was pushing reporters to prioritize debunking misinformation that affected Facebook advertisers, which she thought crossed a line: “You’re not doing journalism any more. You’re doing propaganda.”

Other partner factchecking journalists accused Facebook of desiring the “appearance of trying to prevent damage without actually doing anything,” and one described that, “We were just collateral damage”.

Facebook dodged The Guardian’s multiple questions into the matter. When asked about whether advertisers influenced factchecking, a  Facebook spokesperson merely emailed the statement: “The primary way we surface potentially false news to third-party factcheckers is via machine learning.” The company then published a blogpost in response to The Guardian’s article, asserting that it does not ask or pressure partners to prioritize factchecks related to advertisers. Facebook further stated that it had “heard feedback from our partners that they’d like more data on the impact of their efforts.”

It goes without saying that all of this means that anytime Facebook execs begin lecturing others over “fake news” and how they plan to combat it, huge red flags should go up signalling that Facebook could again be making plans to launch yet another “dirty tricks” disinformation campaign. 

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A Fed Rally? Can Jolly Ol’ Jerome Save Christmas?

Authored by Sven Henrich via Northman Trader,

Oh dear. Ten trading days left in the year and things are looking grim. Last week’s 100 handle rip off of the Monday lows was sold again amid relentless fund outflows producing the lowest weekly close on $ES in 2018. Many sectors made new yearly lows including banks, transports and small caps. The 2009 bull market trend has either broken or is at the verge of breaking on many indices. $SPX on Friday closed the week over 13% below Wall Street’s 2018 consensus forecast with nearly 70% of its components below their 200 day moving averages.

All this right in front of the last FOMC meeting for the year. The stakes couldn’t be higher, hence my point on Friday:

All eyes then on a Fed that is staring at a potential shambles of a decade long intervention policy. Let’s not forget the context and history here which is critical for everyone to understand.

Since 2008/09 every major correction ended on central bank intervention, be it the Fed or global central banks:

And now that liquidity is drying up and the Fed’s QT program has accelerated the jig looks to be up.

Several key points to this chart:

Firstly the Fed’s own programs coincided with market bottoms in 2009, 2010, 2011 and 2012. QE3 ran through 2013 along with ZIRP. We had a taper tantrum along the way, but then the Fed started to slowly and cautiously raise rates and Janet Yellen’s planned 4 rate hike schedule for 2016 ended in February 2016 when she went dovish along with global central banks stepping in hard to avert the breakdown implied by the massive topping pattern that had formed. The aborted correction. $5 trillion in global central bank infusions followed giving the Fed the breathing room to recommence its slow hike schedule.

Note the 5 big topping patterns in the chart including the one we can see now. All on negative divergences as now. Every topping pattern led to a 20% correction or bear market, except one, the 2016 global intervention year. But all of these other patterns eventually reconnected with the weekly 200MA with most falling below. That MA currently sits at 2346 and hence, technically speaking, that’s at least where this correction should ultimately be heading, unless there is another miracle move via central bank action or jawboning.

But there are no central banks interventions now. Liquidity is being drained out of the system. The Fed is leading the way with its QT program which was accelerated this summer. Markets appear to not take it well. The ECB also confirmed it is ending QE at the end of December.

If this bull market was all about artificial liquidity then it should surprise no one that now a removal of liquidity is causing major problems. So perhaps the 10 year bull market was an artificial mirage far exceeding its natural organic equilibrium, a point bears have been making for years.

I have to repeat something I’ve said for a long time because it remains true: There is no evidence, zero, that markets anywhere can make and sustain new highs without some form of artificial liquidity flowing through them. 2018 still had tax cuts and record buybacks soaking through the system, but all that is waning now as well.

And it appears investors have gotten the message as they are selling. Hard:

And look closely at that state of markets right in front of this Fed meeting:

$SPX has currently broken its 2009 trend line. Only a big rally in the next 10 days can save the trend.

The industrial sector has broken its 2009 bull trend:

Transports are showing a weekly close below their 2009 bull trend:

And small caps are also sitting right at their trend as the underlying volatility trend has broken to the upside:

And the $DJIA is also hanging on for dear life:

And $SPX has now entered the upper risk zone I’ve been pointing to:

You get the message: The stakes for this Fed meeting couldn’t be higher. Markets are breaking or at the verge of breaking heading into this Fed meeting.

So what then is the prospect of a Fed inspired rally?

Historically speaking shockingly high actually. Check this out:

“We document that since 1994, the S&P500 index has on average increased 49 basis points in the 24 hours before scheduled FOMC announcements. These returns do not revert in subsequent trading days and are orders of magnitude larger than those outside the 24-hour pre-FOMC window. As a result, about 80% of annual realized excess stock returns since 1994 are accounted for by the pre-FOMC announcement drift. The statistical significance of the pre-FOMC return is very high; a simple trading strategy of holding the index only in the 24 hours leading up to right-before an FOMC announcement would have yielded an annualized Sharpe ratio of above 1.1. Other major foreign stock markets exhibit similarly large and significant pre-FOMC returns.”

Who is “We”? Well, if you think this is some random study I assure you it is not. This paragraph above comes to you courtesy of the Fed itself, specifically the NY Fed. And if you think this only applies to Fed easing cycles think again:

“The pre-FOMC drift is not significantly different in monetary policy easing versus tightening cycles“.

Magic.

So you see, despite all the horrid action, selling and broken charts, the Bear Trap case is not dead yet. Indeed I could make the case for a rip your face off rally coming, both technically and structurally based.

Let me walk you through the evidence.

Note one sector chart I’ve not shown so far, the $NDX.

It’s still holding its 2016 trend line:

It’s also still holding its 2009 trend line:

Barely in both cases, but so far they’re still holding.

Now it gets interesting:

Its MACD is the most extreme since the 2000/2001 bubble burst making this correction actually more severe than 2016 and 2008/09. Ponder that.

Even during the 2000 bubble burst these type of readings resulted in massive counter rallies along the way.

Don’t forget $NDX is still remaining in a potential bullish wedge pattern:

Note the higher lows on the chart.

In context also consider the extremely tight wedge price pattern on $AAPL:

This pattern has room lower into the next large support zone on $AAPL, but it’s a very tight formation and a break higher could target MA reconnects.

Speaking of support, check the crushed banking sector:

It has entered critical support, is below its weekly Bollinger band and just above its weekly 200MA.

And while the month is not over have a look at what just happened with $USHL on a monthly basis:

The most oversold readings since 2008. No, this may just be a 10% correction on $SPX so far, the underlying stats show a much more severe correction underneath.

A couple of more charts to consider.

Every major market downturn has coincided with a turn in industrial production.

NONE is evident at the moment, indeed Friday’s data came in north of 3% growth:

That downturn may well come in Q1 2019, but it hasn’t happened yet, leaving room for another big rally.

What this correction has accomplished is dialing back GAAP P/Es in a major way:

Back to 2015 levels as much of the recent excess has been sucked out by this correction. In 2015 markets dropped on the heels of the earnings recession. The unprecedented liquidity infusions from central banks and the US tax cuts have resulted in a massive acceleration in GAAP earnings. These look to stall into 2019, but they haven’t turned south yet. Now that may well happen into next year, but hasn’t happened yet.

Indeed earnings are still expected to be strong into Q1 2019.

Bottomline, we still haven’t seen a massive slowdown, we have the anticipation of one, but it hasn’t happened yet and that creates an interesting conundrum for if a larger rally is to emerge investors may find themselves underinvested.

So however this week may begin how this week ultimately ends may be much more relevant. So far buyers keeping failing at the daily 5EMA and weekly 5EMA as resistance as they keep rejecting there and $ES closed below its weekly 100MA for the first time since 2016.

Yet sellers have failed to crack the .382 fib on $ES on a closing basis so far.

..while many indices remain heavily oversold and showing some signs of potential bottoming right at key support, the $DAX being an example here:

What will the Fed do this week? One rate hike and stop, putting their rate hike schedule on hold into 2019? Not raising rates and admitting the Fed made a policy error bringing its credibility further into question? Reducing the speed of QT?

Either way Jay Powell has a tough task this week. He’s the bag holder dealing with the fallout of what Ben and Janet bestowed on him, a market that can’t handle even a neutral rate. Pathetic. Bears have been right all along. The debt construct can’t handle normalized rates. We’re not even close to normalized and already the walls are closing in as the 6 risk factors hang like a sword of Damocles over the market.

And debt is expanding all around us virtually ensuring the next recession. Already in 2018 government debt has exploded by over $1.3 trillion, accelerated by tax cuts, and it’s getting much, much worse: U.S. government debt is rising at the fastest pace since 2012 and is projected to jump by $7.5 trillion from 2016 to 2023.

All this already built in before a recession hits and will make these numbers much worse crystalizing what I said earlier this year: This tax cut was the wrong plan at the wrong time and it will make everything that is to come worse.

Conclusion: Remaining on the cusp with price actioning worsening the Fed may again turn out to be the temporary saving trigger for a market that has been so dependent on it staying accommodative for 10 years. Let’s not forget the Jay Powell was still uttering the word “accommodative” during his most recent press conferences.

For this week: Sellers must force a weekly close below the .382 fib and February lows to fully trigger a topping pattern that points to 2341-2460 on $SPX, buyers need closes above the daily 5 EMA and the weekly 5 EMA. But not just a 1 or 2 day wonder rally will do. No Sir. Buyers need a face ripper rally to avert the break of the 2009 bull trend for now and move the debate into 2019. The technical parameters exist, but the bar is high.

*  *  *

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