Month: September 2019

Hezbollah Will Respond To Israel: But When? How? And At What Cost?

Authored by Elijah Magnier, Middle East based chief international war correspondent for Al Rai Media

ZH note: War correspondent Elijah Magnier’s rare access to high level sources in Iran, Iraq and Lebanon, gives him unique capability to articulate Hezbollah’s strategic thinking and perspective, which he does so below from an on the ground perspective based on local sources. 

The “Axis of the Resistance” has been informed about Hezbollah’s intention to respond to Israel imminently, confirmed sources within the decision-making leadership. The main offices of militant leadership and all gathering of forces have been abandoned or forbidden, and a state of full alert has been declared in preparation for a possible Israeli decision to go to war. In Iran, Syria and Palestine, the finger is on the trigger. Is the Middle East going to war? Actually, it all depends on how far and in which direction the Israel Prime Minister Benjamin Netanyahu wants to go — and the degree to which he will accept, or not, the hit back from Hezbollah.

This all snowballed when, from al-Ayen in the Bekaa Valley, Hezbollah Secretary General Sayyed Hassan Nasrallah launched his threat against Israel. He swore to down drones violating Lebanese sovereignty and threatened to kill Israelis. This is would be carried out in retaliation for the Israeli killing of two Hezbollah members in Syria, and for sending suicide drones to hit Hezbollah high-value objectives and capabilities in the suburbs of Beirut.

Netanyahu responded a few hours late by bombing a position of the Popular Front for the Liberation of Palestine – General Command (PFLP-GC) – in the same Bekaa Valley, to send a clear message to Sayyed Nasrallah: Hezbollah’s challenge is being acknowledged, and answered with another Israeli challenge. Now it is only a question of when, how, and at what cost the Hezbollah “bloody retaliation” will be, bloody because it is inevitable that Israeli soldiers will be killed.

Sayyed Nasrallah had no option but to respond to the Israeli violation of the Rule of Engagement (ROE) established since the 2006 third Israeli war on Lebanon. If he fails to hit Israel and accepts the ongoing international mediation and politico-financial temptations offered to the Lebanese government to persuade him to renounce his promised attack, he loses his credibility, which is substantial right now.

Moreover, Israel would then be encouraged to hit more targets in Lebanon as it is doing in Iraq and in Syria for some years now, against hundreds of objectives. If Hezbollah refrains from responding as promised, Netanyahu will “get away with it”: this boosts his chances in the forthcoming election.

Sayyed Nasrallah committed himself before the whole world to hit back at Israel. All eyes in the Arab world – in particular among the Palestinians, the Syrians, the Iraqis, the Yemeni and his own Lebanese society that is embracing Hezbollah – are focused on what the target will be and when the attack will take place. In Israel, Sayyed Nasrallah has high credibility, and people believe him, as indeed most Israeli newspapers write today. Hezbollah is expected to halt Israel’s violation of the Rules of Engagement and give an example to follow for all those within the “Axis of the Resistance” and put a stop to the Israeli attacks on their sovereignty.

It will not be possible to stop all Israeli drones from flying over Lebanon and prevent these from collecting intelligence information. That is considered vital to Israel to update its bank of objectives and analyse any potential threat. Sayyed Nasrallah is aware of that and for that very reason he would indeed attempt to down Israeli drones.

Since the attack against Beirut, Israeli drones continue over flying Beirut: “Israel is doing everything to provoke a reaction from Hezbollah so that it can identify our anti-air missile capability”, said a source within the “Axis of the Resistance”.

Israel is also waiting to see if it is possible to continue targeting Hezbollah warehouses or send suicide drones to target-kill specific individuals, depending on the price it needs to pay in exchange for its killing of Hezbollah operatives. Netanyahu has positioned himself at the bottleneck, unable to move in or out. He pushed his arrogance to the limit in Lebanon, knowing that he would corner Sayyed Nasrallah if Hezbollah were not to hit back (due to the critical financial situation in Lebanon) and the desire to stay away from a devastating war. Now, the Israeli Prime Minister is asking Hezbollah to “calm down”. But it looks like it is too late to turn back the hands of the clock.

Because Iraq did not reply to the Israeli targeting of its warehouses (five destroyed so far) and the assassination of an Iraqi commander (killed by a drone on the Iraqi-Syrian border), Israel obviously concludes that the Iraqi stage is open to its military activities. Hezbollah is aware of the Israeli modus operandi so it cannot permit replication in Lebanon, even at the cost of going to war.

Actually, in Israel, many leaders are blaming Netanyahu for gossiping and bragging about Israel’s responsibility in attacks outside Israel’s borders. Israel generally prefers to be quiet about this practice, one used by Israel for decades but now exploited by Netanyahu for electoral purposes.

So, what is the “cost” Hezbollah is looking for? According to sources within the “Axis of the Resistance”, Hezbollah is looking for a target – to kill two or three Israelis or send a suicide drone against an Israeli military gathering or other more deadly and spectacular options. “Israel is only a few meters from the Lebanese borders. Killing Israeli soldiers is so simple when a Rule of Engagement is violated. Netanyahu will have to justify for his people what advantage he gained in breaking the cessation of hostility since 2006 despite repeated warnings of the consequences. He is either looking for war – in which case both belligerents have to be ready – or he will have caused unnecessary killing on both sides. He will have to pay the price for this,” said the source.

Obviously, Hezbollah is not looking to push Israeli too far outside its comfort zone, with an “acceptable” number of casualties: a hit in exchange for another hit. It will depend on Netanyahu to take it further into war if he wishes to, or to nurse his wounds. Although the Israeli Prime Minister holds the initiative and was respecting to the “rules of the game” as long as he honored the undeclared agreement, it is time now for him to understand that Lebanon, despite its small size, is not Yemen or Syria or Iraq. 

Sayyed Nasrallah’s disposition to attack Israel was boosted by the Lebanese President Michel Aoun who described the Israeli aggression as “an act of war”. Prime Minister Saad Hariri considered the aggression “a threat to regional stability”. Hezbollah has enough domestic support to stand against Israel and retaliate even if the situation goes out of control. Sayyed Nasrallah is no longer constrained by the Lebanese officials who asked him months ago to take into consideration the tourist season, and to share their positive view of the highly tense situation in the Middle East. Indeed, the Iranian, Iraqi, Syrian, Palestinian and Lebanese fronts are all on the verge of explosion, depending on how Israel and the US are willing to be “guided.”

During the last Israeli elections, Hezbollah decided to keep at a distance. This time it seems the situation is different. There is an opportunity for Hezbollah to damage Netanyahu who is facing elections during the third week of September. In this case, Hezbollah’s reply to Israel must be before the 19th of September. If Netanyahu decides to go to war regardless of the outcome, he will certainly lose his possibility of re-election. Most probably, if he does not respond to Hezbollah, he will look weak but will come out of it with less damage.

This takes us to the date of the attack. First, and indeed above all, it depends on the opportunity and on identifying a selective target. That depends on the military decision and findings on the Lebanese-Israeli borders and most probably in the next 72 hours. Second, there are possibilities for allowing the 31stof August to go by, the date the “Amal” movement is planning a large gathering in Beirut to start celebrating the first day of Muharram. This is the first night that marks the beginning of Ashura, a solemn day of mourning for the martyrdom of Imam Hussein Bin Ali Bin Abi Taleb, Mohammad’s grandson, at Karbalaa, Iraq.

The first 10 days of Ashura bring most of the Shia in Lebanon and in particular Hezbollah supporters, to the utmost level of sacrifice. Netanyahu could not have chosen a worse timing for his violation of the Rules of Engagement.

Sayyed Nasrallah is not obliged to provide a date of attack to Israel. It is common for an organization to first exhaust a country’s resources by forcing it to mobilize its forces on all fronts and abroad to protect its embassies. Therefore, the exact date will be kept in the hands of Hezbollah to evaluate. It could be that allowing the Israeli soldiers to relax on the borders after several weeks of lack of action would create the best opportunity, but I doubt Hezbollah would wait that long. As we have said, Hezbollah as a matter of precaution has abandoned its offices and known gathering places: this is standard practice when war (an Israeli hit or attack) is expected. Netanyahu has really no alternative but to wait and decide if war is really going to be his next best option.

via ZeroHedge News https://ift.tt/2NJhzVz Tyler Durden

“A Rare Smoking Gun”: Judge Says Goldman And Four Other Firms “Blatantly Price Fixed” GSE-Backed Bonds

Goldman Sachs and four other financial firms are facing claims that they rigged the $550 billion market for bonds backed by Fannie Mae and Freddie Mac, according to Bloomberg. 

In the Southern District of New York, a proposed class action suit accuses the institutions of driving down the offer that they bought unsecured bonds at and “pumping” up the bid at which they sold them over the counter. 

U. S. Southern District of New York Judge Jed S. Rakoff allowed the case to proceed against Goldman Sachs, Deutsche Bank Securities Inc., BNP Paribas Securities Corp., Morgan Stanley & Co., and Merrill Lynch.

The judge concluded that traders from these banks engaged in price fixing by using industry chatrooms, which exist primarily so that banks, dealers and co-underwriters can work together on a limited basis to find opening prices for bond issuances. However, in this case, four chat logs instead offered evidence that the traders discussed how to avoid a “race to the bottom” on the secondary market. 

Judge Jed Rakoff

The judge called it a “rare smoking gun”.

“This, on its face, is blatant price fixing,” he continued, dismissing the bank’s argument that those “authorized to coordinate on an opening price are allowed to have unrestricted pricing discussions during the syndication phase.”

The judge continued: 

“If it is illegal to fix the secondary prices for bonds once they are on the market, it cannot be legal to fix such prices through conversations that occur right before.”

The judge also rejected the idea that four isolated chats weren’t sufficient enough to make up a conspiracy. Instead, the judge said that the tone of these four chats indicated that there were “many others”. 

The judge threw out claims against 12 other banks, including Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities, UBS Securities LLC, and HSBC Securities (USA) Inc., because the suit couldn’t link them to the scheme, despite “plausibly pleading that the conspiracy extended beyond” the chatroom.

via ZeroHedge News https://ift.tt/2PyHnGk Tyler Durden

Breaking Down The Bull/Bear Argument

Authored by Lance Roberts via RealInvestmentAdvice.com,

Market Review & Update

Really! Another week of nowhere? 

This is the same chart from last week, updated, but here is the salient point.

“This has been an impossible market to effectively trade as rhetoric between the White House, the Fed, and China has reached a fevered pitch.”

Don’t fall into the trap.

On Thursday, the market rallied as China said they were not going to retaliate against the U.S. on trade immediately. They also stated they wanted to take a “calm” approach to the discussions. 

The media, and Wall Street, heard:  “Trade Deal.” 

That is NOT the case by any stretch of the imagination.

As we wrote previously:

China is playing a very long game. The pressure is on the Trump Administration to conclude a ‘deal,’ not on China. Trump needs a deal done before the 2020 election cycle, AND he needs the markets and economy to be strong. If the markets and economy weaken because of tariffs, which are a tax on domestic consumers and corporate profits, as they did in 2018, the risk-off electoral losses rise. China knows this and is willing to ‘wait it out’ to get a better deal. China is not going to jeopardize its 50 to 100-year economic growth plan on a current President who will be out of office within the next 5-years at most.”

What China has figured out is they can easily manipulate Trump into giving up strategic positioning by offering to “talk.” This continues to be an effective strategy since they know Trump’s re-election is contingent upon a strong U.S. economy, and stock market. By slow-rolling progress, and agreeing to “talk,” Trump has given up ground to support U.S. corporations. At the G-20 he agreed to allow companies to sell products to Huawei. Then, he delayed tariffs until December on major consumer goods, which would have negatively impacted U.S. corporations Christmas selling season. 

In exchange, China has done….nothing. 

This is the same trap I warned Trump would fall into with North Korea over nuclear weapons. To wit:

“As a dictator, he [Kim Jung Un] can not afford to show weakness. Therefore, he needs the U.S. to acquiesce to some degree to allow him to claim victory over the ‘evil empire’ of the west. By continuing to bring Trump to the table to ‘talk,’ he doesn’t give up anything. However, the ‘talks’ continue to buy time to continue his missile development.” 

Today, there is “no deal” with either North Korea or China. 

In the coming weeks, China will once again come to the table, they will make concessions, which will temporarily excite the markets, and then they will default on those agreements. Trump will get mad, he will slap more tariffs on China, and the entire cycle will begin again. 

The risk, however, with tariffs already engaged, is whether economic growth falters before the upcoming election. An economic downturn prior to the 2020 election is the greatest threat to Trump’s re-election. This is precisely what China is trying to achieve which would give them tremendous bargaining power over Trump.

One thing is certain, there will be much more volatility between now, and the end of the year. 

From a short-term market perspective, the risk is to the downside next week:

  1. Historically, September is one of the weakest months of the year, particularly when it follows a weak August.

  2. The market remains range bound and failed at both the 50-dma and downtrend line on Friday

  3. The oversold condition has now reversed. (Top panel)

  4. Volatility is continuing to remain elevated.

  5. Important downside support moves up to 2875

  6. The bulls regain control of the narrative on a breakout above 2945. 

It is from this perspective that we continue to hold an overweight position in cash (see 8-Reasons), have taken steps to improve the credit-quality in our bond portfolios, and shifted our equity portfolios to more defensive positioning. 

For now, the reduced volatility, and hedges, continue to allow us to navigate market uncertainty until a better risk/reward opportunity presents itself.

Breaking Down The Bull/Bear Argument

I received an interesting email on Thursday (I have reformatted the email for readability.)

“According to the legend, Martin Armstrong most people get caught at the top when the trend turns on them.  Likewise, we know the story that when the shoeshine guy giving stock tips; you know its time to sell. 

It looks to me like we find ourselves in a radically different predicament.

  1. The S&P 500 is still just a stone’s throw away from all-time highs, yet the sentiment everywhere is decidedly bearish. The shoe shine guy (if I could find one) would be telling us to sell everything.

  2. There have been record outflows from the market for months, if not years, and the sky is going to fall on everyone tomorrow.

  3. There is record amounts of cash on the sidelines due to fear.

I cannot get this combination of facts to jive. The “herd” does not have a very good track record of making great timing calls on the market and I literally cannot find one bull anywhere. I would feel a lot better about calling a turn in the market if everyone and their brother was bullish.”

The email is a great example of the “quandary” facing investors currently. On the one hand, there is troubling economic data and “trade wars,” which provide a logical concern for investors with capital at risk. But, on the other hand, the “algo’s” which make up roughly 80% of the trading in the markets are knee-jerking every “trade,” or “Fed,” related headline keeping asset prices elevated near all-time highs.

What do you do?

The answer is “nothing.” 

As we noted previously, sometimes, when the path forward is unclear, and volatility is high, the best thing to do is to “sit on your hands” and wait for the market to “tell” you what to do next. Over the last few weeks, being “long” equities has been frustrating. However, being “short” has been equally discouraging.

The email hits on a few of the “myths” which prevail in the markets currently. These are fairly important concepts to understand, so let’s break them down individually. 

1) Sentiment Is Hardly Bearish

Currently, individuals could not be more confident about the markets or the economy. As shown in the chart below both investor confidence about the economy, and expected returns from stocks over the next 12-months, are near record highs, not lows.

Moreover, as I noted just recently in “When A Bond Bull Becomes A Raving Stock Bull,” the retail investor is just about as long-biased as they can get. 

While it may “seem” like everyone is “bearish,” it isn’t the case. Part of this has to do with the “training,” investors have received over the last decade.

While some sentiment indicators clearly show a surge in bearish sentiment, which normally denotes a substantial level of fear by investors, there has been no substantial change to actual allocations.

While stock allocations have fallen modestly, cash and bond allocations have barely budged. This is a far different story than was seen during previous major and intermediate-term corrections in the market.

This suggests that while investors are worried about the markets and their investments, they are too afraid to actually make changes to their portfolio as long as Central Banks continue to support the markets.

“Are you afraid of a market crash? Yes.

Are you doing anything about it? No.” 

This “fear” to do something, leaves lots of room for “panic” when something eventually breaks.

2) Record Outflows?

There has been lot’s of discussions about the record outflows from equities. That really isn’t the case as shown by the most recent fund flows analysis. 

“Long-term fund flows enjoyed a solid second quarter and a robust first half of 2019. Long-term fund flows—open-end and exchange-traded funds—collected nearly $93 billion in the second quarter, a slight decrease from the first quarter’s $136 billion. In total, long-term fund flows collected $224 billion in the first half of the year, slightly ahead of 2018’s $219 billion.”

Of course, the crowding into ETF’s is a whole other “time bomb” waiting for unwitting investors.

To wit:

“With more ETF’s than individual stocks, and the number of outstanding shares traded being reduced by share buybacks, the risk of a sharp and disorderly reversal remains due to compressed credit and liquidity risk premia. As a result, market participants need to be mindful of the risks of diminished market liquidity, asset price discontinuities and contagion across asset markets.

Secondly, individual investors are NOT passive even though they are investing in “passive” vehicles. Today, more than ever, advisors are actively migrating portfolio management to the use of ETF’s for either some, if not all, of the asset allocation equation. However, they are NOT doing it ‘passively.’

Just because individuals are choosing to “buy baskets” of stocks, rather than individual securities, it is not a ‘passive’ choice but rather ‘active management’ in a different form.  

While the idea of passive indexing works while all prices are rising, the reverse is also true. The problem is that once prices begin to fall the previously ‘passive indexers’ will become ‘active panic sellers.’ The tables are once again set for a dramatic and damaging ending.”

Furthermore, it is hard to suggest there are record outflows when the market is extremely overbought. As Ned Davis noted: 

“Stock market bulls have been arguing for months that muted stock market valuations and consistent equity-fund outflows are proof-positive that stock-market investors are not feeling the sort of euphoria that typically exists before the start of an economic recession or bear market. But a longer-term view of equity valuations and allocations indicates ‘excessive optimism.’”

Davis, in a note, said that the value of the S&P is much higher today than the index’s average growth would predict. In fact, it’s higher relative to the average than it has been 80% of the time.

In other words, be careful of the idea that investors are unduly “bearish,” the reality is quite different.

3) The Myth Of Cash On The Sidelines

Despite 8-years of a bull market advance, one of the prevailing myths that seeming will not die is that of “cash on the sidelines.” To wit:

“Underpinning gains in both stocks and bonds is $5 trillion of capital that is sitting on the sidelines and serving as a reservoir for buying on weakness. This excess cash acts as a backstop for financial assets, both bonds and equities, because any correction is quickly reversed by investors deploying their excess cash to buy the dip,” Nikolaos Panigirtzoglou, the managing director of global market strategy at JPMorgan, wrote in a client note.

Stop it.  

This is the age-old excuse why the current “bull market” rally is set to continue into the indefinite future. The ongoing belief is that at any moment investors are suddenly going to empty bank accounts and pour it into the markets. However, the reality is if they haven’t done it by now after 3-consecutive rounds of Q.E. in the U.S., a 300% advance in the markets, and ongoing global Q.E., exactly what will that catalyst be?

Clifford Asness previously touched on this issue as well.

“There are no sidelines. Those saying this seem to envision a seller of stocks moving her money to cash and awaiting a chance to return. But they always ignore that this seller sold to somebody, who presumably moved a precisely equal amount of cash off the sidelines.”

Every transaction in the market requires both a buyer and a seller with the only differentiating factor being at what PRICE the transaction occurs. Since this is required for there to be equilibrium in the markets, there can be no “sidelines.” 

Furthermore, despite this very salient point, a look at the stock-to-cash ratios also suggest there is very little available buying power for investors current.

The reality is that investors remain more invested in riskier assets than has historically been the case. And, as Ned Davis noted:

“Cash is low, meaning households are fairly fully invested.” 

4) Not A Bull In Sight

Lastly, our emailer suggests he can’t find a bull anywhere. It is only because he isn’t looking in the right places.

“Our full year GDP is on pace for 2.6%, which is stronger than the average annual GDP of this entire 10½ year expansion. Unemployment is near record lows. Consumer confidence is near record highs. And corporate earnings continue to impress.

None of that says recession.

But let me just play along for a moment and pretend that the inverted yield curve actually meant something this time around – the fact of the matter is that the economy often expands after an inversion, and the stock market goes up on average of double-digits afterwards.

If anything, the inverted yield curve is one of the best buy signals of all time.”– Kevin Matras, Zacks Research

Or, this:

“Despite recent recession fears and yield curve inversions, the bull market should live on until early 2021, analyst Tom McClellan said Thursday on CNBC’s ‘Closing Bell. ‘ Everyone needs to just keep their pants on for now and realize that the yield curve gives a really long early warning about trouble. It doesn’t say that trouble is upon us now. It takes several months to over a year before we get the final price high after a yield curve inversion. If you get an instance like 1995, there was a very momentary yield curve inversion and then it backed off and the bull market kept on going. So that is possible.” – CNBC

You can’t get much more bullish than that.

However, as I wrote previously in “The Yield Curve Is Sending A Message:” 

“While everybody is ‘freaking out’ over the ‘inversion,’ it is when the yield-curve ‘un-inverts’ that is the most important.

The chart below, shows that when the Fed is aggressively cutting rates, the yield curve un-inverts as the short-end of the curve falls faster than the long-end. (This is because money is leaving ‘risk’ to seek the absolute ‘safety’ of money markets, i.e. ‘market crash.’)”

“As noted above, the current economic data is only a ‘guess’ about the current economy. In the next 12-months, we will see the ‘revised’ data, but the yield curve is already telling you it will be weaker.

Just as in December 2007, there was ‘no recession.’ It wasn’t until December 2008, when the data was revised, that the National Bureau of Economic Research (NBER) announced the recession had begun a full year earlier. In December 2007.” 

Lastly, this isn’t 1995. 

The Fed did cut rates in 1995 to fend off risks from the Orange County Bankruptcy, but the yield curve was nowhere near inversion. When The Fed begin seriously cutting rates, in 1999, as the yield curve inverted, well, I don’t need to remind you what happened next.

The Fed is cutting rates with the “yield curve” inverted. 

I wouldn’t dismiss that too quickly.

Kevin Matras is correct. The stock market DOES indeed go up double digits following a yield curve inversion. The only issue is that it is the first step in recovering from the bear market that preceded it.

via ZeroHedge News https://ift.tt/2LgFGcB Tyler Durden

“Burn With Us” – Protesters Clash With Riot Police At Hong Kong Airport Amid Surge Of Violence

Following one of the most violent days of unrest since the anti-extradition bill protests began three months ago, Hong Kongers again ignored police orders to stay home on Sunday and gathered at Hong Kong International Airport. Though Sunday’s demonstration was smaller than Saturday’s, police once again escalated their violent tactics, at one point seeming to indiscriminately beat down young people traveling on the city’s public transit on suspicion that they might be traveling to join the protest.

Protest leaders called on supporters to overwhelm roads and rail links to the airport on Sunday and Monday to try and cause mass cancellations of flights like they did two weeks ago, according to the SCMP.

They were met by an army of riot police, who forced them to retreat to Tung Chung, where many demonstrators took refuge in the local MTR station.

Some protesters tried to set up barricades to stop the advancing riot police, leading to scuffles that have become all too familiar at this point in the protest movement.

 

After a brief, but violent, showdown with police Sunday afternoon, calm had returned to the airport by Sunday night, but travelers were left to improvise alternative routes to the airport as police shut down the express train service, forcing flyers to take taxis and buses on highways clogged with pedestrians.

After leaving the airport, protesters gathered in Tung Chung, where the MTR station was trashed during scuffles with police, and barricades were set on fire. Protesters also gathered at Citygate mall. Many ended up stranded on Lantau Island as police also shut down the Tung Chung MTR line after claiming it was “vandalized” by protesters.

With no access to public transportation, thousands of people resorted to walking on the expressway. Throughout the day, friendly motorists gave protesters rides from the airport and Tung Chung back to more urban areas of Hong Kong.

Speaking to the Hong Kong Free Press, a 25-year-old protester named James said his group had decided to leave the airport because they felt vulnerable.

“In the evening it’s dangerous, especially at the airport – it’s just a small island…Police can come from the airport and Tung Chung, so it’s two-sided, they can attack from two sides. So it’s hard to defend yourself,” he said.

At the Tung Chung MTR station, protesters smashed turnstiles and other equipment, while spray painting slogans like “Communist Party Railway” on the walls. A wave of anger has been directed at MTR over its decision to allow Hong Kong police to board trains and harass protesters.

In what appears to be a new slogan for the movement, demonstrators spraypainted “Burn With Us” and “8.31”, “7.21” on the station’s walls. The latter dates are references to the attacks on demonstrators on Saturday, and back in Yuen Long on July 21 (Of course, if they start using “down with Pooh,” Beijing will have no choice but to crush the movement).

Videos shared on social media Sunday only added to the outrage, as they showed police in helmets and gas masks beating pedestrians and riders inside a train in Prince Edward station.

A spokeswoman for Hong Kong police told Voice of America that police had used “appropriate force” during the clashes with suspected protesters. She admitted that it was difficult to distinguish between protesters and the public as police moved against the crowd at the Prince Edward station.

“Police will continue to take resolute enforcement actions so as to safeguard the city’s public safety and bring all lawbreakers to justice” police said in a news release.

Representatives for Hong Kong’s government said police were justified.

“The behaviors of the radical protesters gravely breach the public peace and pose a serious threat to the safety of police officers on duty and members of the public at the scene,” according to a news release issued Sunday.

Once again, demonstrators turned out in smaller numbers on Sunday after police banned a planned rally and march organized by a group that had spearheaded gatherings held earlier in the protest movement that involved some 2 million people. A few thousand protesters occupied Harcourt Road, a major east-west highway near Admiralty.

As they did on Saturday, protesters chucked bricks and Molotov cocktails at police, while police hammered the crowd with blue-dyed water shot from water cannons. According to VOA, the sound of military helicopters flying overhead and the firing of tear gas rifles gave the day an “ominous” soundtrack.

The increasingly violent nature of the protests has led to a spike in hospitalizations. According to Hong Kong’s Hospital Authority, 41 people were hospitalized on Saturday, with 5 men still in critical condition as of Sunday evening.

via ZeroHedge News https://ift.tt/2MND6wD Tyler Durden

Hezbollah’s Response Begins: Israeli Soldiers “Killed And Wounded” In Missile Attack

It begins — Hezbollah issued the following statement amid Israeli confirmation that its forces came under attack Sunday: 

At 4:15 PM, Martyrs Hassan Zbeeb and Yasser Daher Group destroyed an IDF military vehicle near the road of the Avivim military base, killing and wounding vehicle’s occupants.

Israeli Defense Forces (IDF) confirm in a statement that several anti-tank missiles were fired from the Lebanese side of the border toward an IDF base and military vehicles. Reports say Israel has returned fire, shelling several sites in southern Lebanon.  

Hezbollah Secretary General had previously promised decisive military response to last week’s Israeli drone attacks on Hezbollah offices in south Beirut, and the assassination of a PFLP commander in Bekaa valley.

“A number of anti-aircraft missiles were fired from Lebanon at an IDF base and military vehicles in the area,” the IDF said. “There are a number of hits.”

“A short while ago, fires broke out in the Lebanese border area. The fires originate with operations by our forces in the area,” the IDF said in a follow-up statement. 

Civilians on both sides of the border are reportedly taking shelter as more exchange of fire is expected.

Hezbollah and Lebanese media sources are claiming to have the strike on an Israeli military vehicle “killed and wounded those inside” — something which Israeli officials have yet to confirm or deny.

developing…

via ZeroHedge News https://ift.tt/34l0tn1 Tyler Durden

Brexit Gloves Come Off, “Let The Massacre Begin” Says Eurointelligence

Authored by Mike Shedlock via MishTalk,

Tory rebels are preparing emergency legislation to stop a No Deal Brexit. Such threats increase the odds of No Deal.

“Let the Massacre Begin” says Eurointelligence.

The gloves have come off on both sides. MPs are now plotting a strategy to take total control of the House of Commons, and anti-Brexit Lords have devised a strategy to frustrate a filibuster. The important question is not whether a legislative route is theoretically possible within the time limits – we think it probably is – but whether the rebels have the votes, and if they do, whether such legislation is effective. On the first, we don’t think they do. On the second, we are sure that it is not.

Time Limits

​Regarding time limits, Eurointelligence seems to have come around to my point of view that the real physical limit may be September 9.

Alternatively, both of us noted a chance of everything getting done precisely on September 3. That mathematical chance always existed.

Possibly we are discussing two different things depending on what Eurointelligence means by “legislation”.

The point is moot because even if there is time and there is a sufficient number of votes, Eurointelligence has the view I have stated many times recently “we are sure” that it won’t work.

Arm Twisting

There is a lot of arm-twisting going on in the background – coupled with the implicit threat that a vote in favour of anti-Brexit legislation would most likely trigger elections and the certain deselection of Tory rebels. Tories and Labour MPs are both aware that extension is not a popular option in the country. The April extension brought victory to Nigel Farage’s party in the European elections in May. If parliament votes in favour of a law to extend, it is possible that Johnson would then risk a pre-Brexit election, with the support of Corbyn. We think he will probably do at least as well as Theresa May did two years ago, but with MPs that are committed to his Brexit strategy.

Not Understanding the Law

The default legal position is that Brexit happens on October 31.

The UK cannot unilaterally change that even if Parliament passes a law declaring it illegal.

I have been amused from the beginning about such tactics, have frequently stated such laws are not binding. Eurointelligence comments similarly.

The Remainers’ biggest weakness is a lack of an overall strategy that extends beyond the narrow confines of the House of Commons and its ancient rules. The single biggest misunderstanding in the Brexit process relates to the nature of Art. 50, which is EU law, not UK law. We were reminded of this once again yesterday when we saw an article in Prospect magazine, which compared the five-week prorogation to Hitler’s Reichstag fire. Apart from the fact that it is never a good idea to make casual Hitler comparisons, the comparison reveals a lot about the author’s exaggerated views on the role of the parliament. Art. 50 gives parliaments two specific rights: ratify a withdrawal deal or revoke. Prorogation will not restrict the parliament’s ability to do either of those things.

Johnson could frustrate even a watertight extension bill by threatening to become a rogue member of the European Council, vetoing every decision that is put in front of him. If push comes to shove, the European Council is more likely to side with Johnson against the parliament, than vice versa, unless they have the confidence that the parliament can produce an alternative PM. This is why the rebels really need a new prime minister in place by end-October. Legislation to extend only works if there is at least some collusion from Number 10, as was the case with May. 

Three Part Scenario

Once again we return to the one and only scenario that has a chance:

  1. A motion of no confidence that succeeds

  2. Parliament agrees on an alternate caretaker PM

  3. Johnson goes along with it and resigns or loses a legal challenge if he doesn’t.

Even then, there is a high likelihood that Johnson wins the ensuing election.

Polls

That margin would likely give Johnson a workable majority.

And I suspect that Johnson would cooperate with the Brexit Party for a huge majority unless Labour and the Liberal Democrats united.

The Brexiteers are united, but Labour wants a referendum for which there is little public support while the Liberal Democrats want to remain.

It’s even a bit more complicated for Labour because Corbyn personally supports a customs union.

This is the huge problem for Labour at the moment.

We Have a Way

Boris Johnson made this claim today: “We Have a Way to Get Brexit Done“.

  1. Boris Johnson has warned MPs that trying to block a no-deal Brexit makes that outcome more likely. Defending his decision to prorogue parliament he said: “The weird thing is, that the more the parliamentarians try to block the no-deal Brexit, the more likely it is that we’ll end up in that situation.”

  2. Johnson also claimed the government had found a way to get Brexit done. He said: “We are in the last stages now of negotiating with our friends about a way to get it done. If we can’t succeed in that negotiation we must come out anyway.”

  3. Ken Clarke has said he “probably would” back Jeremy Corbyn to be caretaker prime minister in order to block a no-deal Brexit. But he added: “I don’t think it’s going to happen, because I must be one of a tiny number of Tories prepared to contemplate that.”

  4. Ireland’s deputy premier Simon Coveney insisted that any Brexit deal with the UK must be based on the withdrawal agreement negotiated by Theresa May.

Willing to Fall on Their Own Sword

Read point three carefully. It’s a point I have made repeatedly.

Any Tory who votes against the government will be immediately outed from the party and lose their seat in the next election.

Point four ensures No Deal. I expect Ireland to cave, but I would rather they not.

If Ireland insists on keeping the backstop, there cannot be a deal and that is the best outcome for the UK other than a straight-forward Canada-style tariff deal.

Let’s see how many Tories are willing to fall on their sword. Even a handful might be insufficient because a similar number of Labour MPs are hard Brexiteers.

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Hurricane Dorian Reaches “Catastrophic” Category 5

Hurricane Dorian has been upgraded by the National Hurricane Center to a ‘catastrophic’ Category Five, the highest on its five-point scale.

The storm, which has sustained winds of 160 mph, is currently heading towards the Bahamas, while the NHC has also warned of a “life-threatening storm surge and very heavy rainfall” in the Great Abaco Islands located east of southern Florida. 

At around 8 a.m. EDT Dorian was located approximately 225 miles west of West Palm Beach, Florida, and just 35 miles from the Great Abaco Islands and Grand Bahama – home to around 70,000 people.

“The core of extremely dangerous Hurricane Dorian should be moving over Great Abaco soon, and continue near or over Grand Bahama Island later tonight and Monday. The hurricane should move closer to the Florida east coast late Monday through Tuesday night,” said senior NHS hurricane specialist Lixion Avila. 

According to Bloomberg, Florida’s eastern coast is now under a tropical storm watch from Deerfield Beach to Sebastian Inlet. 

“The forecast for Florida is improving but nosediving for North and South Carolina,” said Energy Weather Group chief meteorologist, Jim Rouiller late Saturday. “They will probably have to deal with a Category 2 or 3. They are under the gun now.”

Rouiller said for Florida to be in the clear Dorian has to make that crucial turn Monday.

“It is like the 800-pound gorilla in the china shop,” Rouiller said. “I will just wait until the gorilla makes its way out the front door.”

Dorian, one of five storms to form in the Atlantic this year, menaced the U.S. Virgin Islands earlier this week and is about to batter the Bahamas with a storm surge that could reach 15 feet (4.6 meters) above tide levels and 10 to 15 inches of rain. The storm, now at the top of the five-step Saffir-Simpson scale, was thought to be aimed at Florida’s east coast, But more forecast models now predict it will turn north up the coast, possibly even making a landfall in eastern North Carolina Wednesday or Thursday, Rouiller said. –Bloomberg

“Residents should have their hurricane plan in place, know if they are in a hurricane evacuation zone and listen to advice given by local emergency officials,” said the NWS Sunday morning, adding “There is an increasing risk of strong winds and dangerous storm surge along the coasts of Georgia, South Carolina, and North Carolina later this week.” 

“Residents in these areas should continue to monitor the progress of Dorian.”

According to NBC News, tourists in the Bahamas have been evacuated to government shelters located in churches and schools. 

“Homes, houses, structures can be replaced,” said Bahamas Prime Minister Hubert Minnis on Saturday. “Lives cannot be replaced.“

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US Slaps New Tariffs On China; One Minute Later China Retaliates

The biggest reason for last week’s torrid stock market rally was rekindled “optimism” that the escalating trade war between the US and China may be on the verge of another ceasefire following phone conversations, fake as they may have been, between the US and Chinese side. This translated into speculation that a new round of tariffs increases slated for this weekend may not take place or be delayed.

However, that did not happen, and with no trade deal in sight, at 12:00am on Sunday, the Trump administration slapped tariffs on $112 billion in Chinese imports, the latest escalation in a trade war that’s ground the global economy to a halt, sent Germany into a recession, and given the market an alibi to keep rising because, wait for it, “a trade deal is imminent.”

Only, it isn’t, and 1 minute later, at 12:01am EDT, China retaliated with higher tariffs being rolled out in stages on a total of about $75 billion of U.S. goods. The target list strikes at the heart of Trump’s political support – factories and farms across the Midwest and South at a time when the U.S. economy is showing signs of slowing down.

The 15% U.S. duty hit consumer goods ranging from footwear and apparel to home textiles and certain technology products like the Apple Watch. A separate batch of about $160 billion in Chinese goods – including laptops and cellphones – will be hit with 15% tariffs on Dec. 15.  China, meanwhile, began applying tariffs of 5 to 10% on U.S. goods ranging from frozen sweet corn and pork liver to bicycle tires on Sunday.

The slated 15% U.S. tariffs on approximately $112 billion in Chinese goods may affect consumer prices for products ranging from shoes to sporting goods, the AP noted, and may mark a turning point in how the ongoing trade war directly affects consumers. Nearly 90% of clothing and textiles the U.S. buys from China will also be subjected to tariffs.

Until today, the Trump administration has avoided tariffs on consumer goods – even as the president claimed that only China was paying for tariffs – and consumer spending has remained high amid slowdowns in other economic areas such as investment spending and exports. President Trump’s economic advisors, Larry Kudlow and Peter Navarro, have consistently argued the trade conflict will not or will minimally affect consumers, although the stated reason for the delay in another $160bn in tariffs on consumer goods until Dec. 15 is precisely due to the administration’s fear of a price shock ahead of the holidays.

Beijing has vowed retaliatory tariffs that, combined with the Sunday increases, would cover $75 billion in American products once the Dec. 15 tariffs take effect. 

As expected, Chinese state media on Sunday knocked the U.S. for the continuing tariffs, arguing they would hurt American interests as well, according to Reuters.

“The United States should learn how to behave like a responsible global power and stop acting as a ‘school bully,’” the official Xinhua news agency said, Reuters noted.

China has repeatedly slammed US pressure tactics, with signs that its officials are girding for a prolonged confrontation.

“China’s determination to fight against the U.S. economic warmongering has only grown stronger, and its countermeasures more resolute, measured and targeted,” according to a commentary by the official Xinhua News Agency after the tariffs kicked in. One thing that “White House tariff men should learn is that the Chinese economy is strong and resilient enough to resist the pressure brought about in the ongoing trade war.”

And speaking of economic impact, the Congressional Budget Office has projected that by 2020, Trump’s tariffs and trade war will reduce the level of real U.S. GDP by about 0.3% and reduce average real household income by $580. Separately, JPMorgan has estimated that the latest round of tariffs will increase the average cost per U.S. household to $1,000 a year – up from $600 for duties enacted last year. That estimate is in the low range because it was based on a duty rate of 10%, before Trump increased it to 15%.

As Bloomberg reports, about 90% of California-based JLab Audio’s headphones and other wireless products targeted for duties got hit Sunday, possibly hurting holiday sales and forcing a delay in hiring, CEO Win Cramer said. About 40% of the company’s sales come in the fourth quarter, he said.

“If I had hair, I’d be pulling it out,” Cramer said. “I’m really concerned about the financial performance of the business, knowing that if we continue to eat this cost, how much it hurts.”

Well, Cramer, just pass the costs along to the consumer. Supposedly the economy is super strong, and higher inflation is precisely what the Fed wants, so win-win-win, right?

Others were just as vocal in their criticism of Trump’s trade war: Gary Shapiro, president of the Consumer Technology Association, said the Trump administration’s approach of using tariffs to pressure China into a deal has backfired.

“U.S. companies have to spend more resources on constantly changing trade rules and less on innovation, new products and our economic health,” Shapiro said. “This is not how you reach a meaningful trade agreement.”

Among the higher Chinese duties that took effect Sept. 1 include an extra 10% on American pork, beef, and chicken, and various other agricultural goods, while soybeans will get hit with an extra 5% tariff on top of the existing 25%. Starting in mid-December, American wheat, sorghum, and cotton will also get a further 10% tariff. While China imposed a new 5% levy on U.S. crude oil starting from September, there was no new tariff on liquefied natural gas.

The resumption of a suspended extra 25% duty on U.S. cars will resume Dec. 15, with another 10% on top for some vehicles. With existing general duties on autos taken into account, the total tariff charged on U.S.-made cars would be as high as 50%.

* * *

While the Trump administration has dismissed concern about a protracted trade war, business groups are calling for a tariff truce and the resumption of negotiations between the world’s two-largest economies. On Friday, Trump told reporters that face-to-face talks between Chinese and American trade negotiators scheduled for Washington in September are still happening “as of now,” before going to Camp David, the U.S. presidential retreat.

“We’re going to win the fight,” he said.

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EU Antitrust Chief: “Google And Facebook Are Sucking Up Data From Every Corner”

This is the full transcript of speech delivered by Margrethe Vestager, the European Union Antitrust Chief, held at the Business Forum of the German Ambassadors’ Conference, Berlin, 27 August 2019:

Ladies and gentlemen,

It’s a great pleasure, and an honour, to be here with you today. I want to thank Heiko Maas for those kind words, and for inviting me to join you.

I’m especially glad to have the chance to meet with you, who represent Germany’s 230 diplomatic missions around the world, as well as German industry. Because all of us here have an important role to play, to prepare Europe’s economy for the challenges of the future.

And in our working day, or just reading the news headlines, we are very often confronted with the scale of those challenges. Today’s threats to the system of global trade rules pose a serious risk to growth here in Europe, and throughout the world. Brexit remains a major source of uncertainty. We need to make enormous changes to the way we power the world’s economy, to avoid climate change running out of control. And all this is happening at a time when digitisation is transforming our markets – and Europe’s future depends on being, not just an industrial powerhouse, but a digital leader.

Europe’s advantages

Indeed all these challenges can seem daunting. But it is important to remember that Europe has already proved its capacity to take on big challenges. After all, we built the European Union on the ashes of two world wars. And we have just travelled through the biggest financial and economic crisis since the Great Depression.

And we have a good starting point to also face those challenges ahead of us.

Our Single Market gives the best European companies the room they need to grow and succeed. And by keeping that market open for competition, we support the drive for improvement that makes Europe a world leader in innovation. In fact, in the World Economic Forum’s latest Global Competitiveness Report, Germany came on top as the world’s most innovative economy, ahead of the United States and Switzerland.

Our international influence gives us the opportunity to shape the world around us in a way that helps to secure our future. As the biggest trading partner for some 80 countries, including the US and China, we have a powerful voice in international trade. And we can use that voice, not just to defend the system of global trade rules, but to make sure those rules provide a level playing field for European business.

Our improving public finances are making it possible for us to invest in the future of Europe – in research and innovation, in skills, in infrastructure.

And – no less importantly – our commitment to the values that built our Europe, to values like freedom and fairness and democracy, gives us the solid foundation we need to shape the digital world. So that digitisation supports people’s freedom and opportunities, instead of undermining them.

Platforms and competition

This is why, in recent years, we’ve been looking very closely at digital platforms. Because those platforms often provide the infrastructure that allows the digital world to work. And that can give them enormous power to affect our lives.

Take Google. Its main platform – the Google search engine – dominates the market for web searches in every country in the single market.

And that’s not the only area where Google is powerful. Some 80% of the world’s smartphones and tablets use Google’s Android operating system, which dominates the market for operating systems that other phone makers can use.

And Google is also an advertising broker in online search advertising. Any company with a search box on its website can turn to Google to find ads that are linked to the things those users search for. And Google dominated this market, too, with more than 70% of the European market between 2006 and 2016.

All these markets are vital to our digital economy. In all of these markets, Google used its power to undermine competition, and keep out innovation.

Tackling self-preferencing

And dealing with these markets has also brought us face to face with the most fundamental questions which digitisation raises.

For instance, many platform businesses act as both player and referee – they run a platform, and also compete with other companies that rely on that platform. There’s an obvious conflict of interest here, an obvious temptation to adjust the way the platform works, to favour their own services ahead of others.

That’s what Google did, when it used the power of its search engine to favour its own comparison shopping service. By doing that, it harmed competition and consumers – which is why we fined the company nearly two and a half billion euros, for breaking the competition rules. And we’re looking right now at whether the same thing may have happened with other parts of Google’s business – like the job search business known as Google for Jobs.

But this is about more than the competition rules. There’s also a broader issue for our societies, of whether we think it’s right for companies like Google and others to have such control over the success or failure of other companies, and be free to use that power in any way they like. If we don’t, then we may find that we need regulation, to make sure that these platforms use their power in a way that’s fair and doesn’t discriminate.

And in the end, the best way to protect our interests – as consumers and as citizens – may be a combination of competition policy and regulation.

The role of data

That also goes for the way that we deal with another fundamental issue in the digital world – the way platforms collect and use data.

Platforms like Google or Facebook collect data from consumers – not just the posts we like on Facebook or the searches we make on Google, but much more unexpected things. Like the Onavo VPN app, which users downloaded to hide their browsing from prying eyes – but which also sent information to Facebook about the apps they used, and the websites they visited.

And those platforms also collect large amounts of data from their business customers, through services like Google Analytics, which track how visitors use their site – but at the same time, those trackers pass data to Google.

So these companies are a bit like one of those robot vacuum cleaners, working their way into every corner of the digital world, and sucking up data. Except, of course, that what they’re collecting isn’t rubbish – it can be a vital way for these companies to outdo their rivals.

The way that these companies collect and use data can undermine competition – and if it does, then we may need to take action, to enforce the competition rules. But once again, we shouldn’t assume that we can deal with all the challenges that digital technology creates for our way of life, just by thinking about how it affects competition. The way companies collect data, the way they use it, the decisions they make about who they share it with – these are all things that can affect competition; but as our world becomes more digital, they’re also choices about how our society works. And making sure that these choices don’t do us harm will have to be a team effort.

International cooperation

Because we do have the power to shape digitisation, in a way that meets the needs of Europe’s economy, and our society. But to do that, we need to work together. And that also means using our influence to build an international environment that helps us reach our goals.

For instance, Europe’s governments need fair international tax rules, so that digitisation doesn’t allow companies to avoid paying their fair share of tax.

The OECD is leading work to reach an international agreement on taxing digital companies. But we need to help to keep the pressure up, to reach a quick conclusion. That’s why Ursula von der Leyen has made very clear that if there’s no global solution by the end of 2020, the EU should be willing to act alone.

Conclusion

There’s no doubt that Europe has the influence that we need to help us reach our goals. The real issue is whether we can use that influence effectively, to get the best results for Europeans.

That’s why Ursula von der Leyen, in her Political Guidelines, has committed to a coordinated approach to Europe’s external action. And it’s also why Europeans need to work together, at national as well as European level. Because our strength as a Union is multiplied many times over, when we make use of the influence of both Europe and its nations.

In other words, we do have the power to make a difference. We do have the power to make sure that digitisation works for Europe’s people, not against them.

There’s just one condition. We need to work together.

Thank you.

*  *  *

h/t SaraACarter.com

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Lagarde Praises Negative Rates (But Study Shows They Reduce Lending)

Authored by Mike Shedlock via MishTalk,

Incoming IMF chief Christine Lagarde says negative rates have helped Europe more than they’ve hurt. I disagree.

The nearly always wrong Christine Lagarde is wrong once again.

Today she claims Negative Rates Have Helped Europe More Than They’ve Hurt.

The next head of the European Central Bank, Christine Lagarde, appears to be as much of a fan of negative interest rates as the current chief, Mario Draghi.

European banks have complained about the impact on profitability, but even there the current managing director of the International Monetary Fund defended the move.

“On the one hand, banks may decide to pass the negative deposit rate on to depositors, lowering the interest rates the latter get on their savings,” she wrote. “On the other hand, the same depositors are also consumers, workers, and borrowers. As such they benefit from stronger economic momentum, lower unemployment and lower borrowing costs. All things considered, in the absence of the unconventional monetary policy adopted by the ECB – including the introduction of negative interest rates – euro area citizens would be, overall, worse off.”

Negative Rates Actually Cut Lending

Research shows Negative Rates Actually Cut Lending.

Central banks’ negative interest rates were supposed to increase spending, stop deflation and stimulate the economy. They may have done the exact opposite.

According to research from the University of Bath, central banks charging commercial banks to hold excess cash reserves have actually decreased lending. That’s because the additional costs reduce banks’ profit margins, leading to a drop in loan growth.

“This is a good example of unintended consequences,” said Dr. Ru Xie of the university’s School of Management, one of the study’s authors. “Negative interest rate policy has backfired, particularly in an environment where banks are already struggling with profitability.”

Xie also said that sub-zero rates appear to have acted against other unconventional forms of central bank policy, such as quantitative easing, introduced in the wake of the great recession.

Five Banks With Negative Rates

Where’s the Evidence Negative Rates Help?

There is no evidence negative rates produce a stronger economy or lower unemployment.

There is evidence banks are hurt.

Look at Deutsche Bank, French banks or Italian banks.

Deutsche Bank

Deutsche Bank allegedly has 1.63 trillion in assets as of June 30, 2019. The market questions those assets and so do I.

Fed vs ECB

Whereas the Fed bailed out US banks by paying interest on excess reserves, the ECB charged banks interest on excess reserves draining bank profits.

Negative interest rates unquestionably hurt EU banks and there is no evidence of Lagarde’s proposed counter-benefits.

A European banking crisis awaits.

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