Author: admin

Authored by Charles Hugh Smith via OfTwoMinds blog,

Anyone looking at the hollowed-out, fragile shell of a Fed-managed “market” as a system realizes a crash that runs away from central planning control is already baked in.

The last thing punters and pundits expect is a stock “market” crash, yet a “market” crash is already baked in and here’s why: real markets have internal resilience (they’re anti-fragile, to use Nassim Taleb’s phrase), and central-planning manipulated “markets” don’t.

Few look at markets as obeying systems-level dynamics that have little to do with “news” or conventional metrics. The media makes money by reporting every tiny change in mood, metrics, rumors, etc., as if these drive markets. But we all know that the reality is much simpler: The Federal Reserve is the “market.”

In other words, the “market” is no longer a functioning (real) market; it is a central-planning signaling utility of the Fed and other central banks. This hollowing-out of the real market in favor of a central-planning, top-down controlled “market” destroys the system-level functions of markets.

If you want a refresher on the legitimate functions of a market, please read The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good, which explains why all the hundreds of billions of dollars of top-down, central-planning “aid” to impoverished nations has failed, enriching kleptocrats and autocratic regimes while assuaging the guilt of the poverty-pimps in the IMF, UN, and all the philanthro-capitalist foundations.

The only programs that actually improve the lives of the impoverished are those that enable small-scale markets in which participants make their own decisions rather than suffer the consequences of decisions made by central-planners who not only know nothing of local conditions, they’re uninterested in local conditions because we know best.

This is the core of central-planning: a handful of those with power make decisions that cripple markets’ ability to respond to reality by allocating goods, services, capital and credit as participants see fit.

Centrally planned markets enrich the few at the expense of the many. This is as true of “markets” in developed nations as it is in kleptocratic developing economies. The Fed is akin to Soviet-era central planners, and the net result is the same: capital is grossly misallocated, distortions are optimized to enrich the few at the top, and the market’s functionality is destroyed because it doesn’t align with the goals of the central planners.

Central planning hollows out systems and increases fragility and vulnerability. Once a market has been gutted and turned into a centrally planned “market,” it can no longer perform the key functions of markets: communicate information to all participants, discount flows of capital, goods and services, allocate capital, etc. These functions are what enable markets to alleviate poverty by increasing the wealth created by the free flow of information, goods, services, credit and capital.

Just as the collapse of the Soviet Union was baked in by the systemic fragilities of central planning, the Fed’s commandeering of the stock market bakes in a crash. In systems-speak, central planning manifests as non-linear effects, i.e. the consequences are not proportional to the triggering events.

Just as a light snow seems to have no effect on the snowpack piled on a mountain slope, central planning-manipulation seems to have no ill effects on “markets.” The signaling utility keeps signaling that all is well because “markets” keep rising until the snowpack gives way in an avalanche.

Central planning is all about creating the illusion of permanence and the illusion of beneficial control: central planners are careful to present themselves as all-powerful beings whose actions are beneficial to all. But like Soviet-era planners or top-down poverty pimps, their actions are not beneficial to all, and so they must labor mightily to create an illusion of permanence and absolute control, lest the systemic fragility they’ve unleashed become visible.

The Fed’s phony “market” only signals “all is well” when it’s rising, but this masks the reality that crashing markets are just as profitable as rising markets. The idea that rising markets are “good” and declining markets are “bad” is reserved for rubes and chumps, as traders and algos don’t care whether “markets” are going up or down, the only thing that matters is profiting from the trend.

Central planning optimizes a disconnect from reality that erodes trust in the market’s signals. Now that the Fed has commandeered the “market” as a signaling utility, it no longer reflects the real economy. Trust in its “signals” is as thin as liquidity: both are an inch deep and a mile wide, the ideal set-up for a crash that takes almost everyone by surprise.

Anyone looking at the hollowed-out, fragile shell of a Fed-managed “market” as a system realizes a crash that runs away from central planning control is already baked in. The timing is unknown, but the greater the confidence that the central planners are god-like, the closer we are to an “out of the blue” crash that takes the punditry and punters by surprise.

That this now seems completely and utterly “impossible” is an interesting signal in itself.

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Back in September, we reported that TV network OAN had filed a lawsuit against Rachel Maddow for the time the host said that OAN “really, literally is paid Russian propaganda.”

Now, Maddow finds herself having to come up with a defense for her statement in court. And she has also apparently hired Lionel Hutz as her legal adviser.

According to Culttture, her lawyers argued in a recent motion that “…the liberal host was clearly offering up her ‘own unique expression’ of her views to capture what she saw as the ‘ridiculous’ nature of the undisputed facts. Her comment, therefore, is a quintessential statement ‘of rhetorical hyperbole, incapable of being proved true or false.”

Oh, it’s capable of being proved false, alright. Maddow had previously claimed, on air, about one of OAN’s reporters: 

“In this case, the most obsequiously pro-Trump right wing news outlet in America is really literally is paid Russian propaganda,” and added, “Their on-air politics reporter (Kristian Rouz) is paid by the Russian government to produce propaganda for that government.”

The testimony of UC Santa Barbara linguistics professor Stefan Thomas Gries, however, stands at odds with Maddow’s defense. Gries said: “It is very unlikely that an average or reasonable/ordinary viewer would consider the sentence in question to be a statement of opinion.”

Gries continued:  “I am the second most widely-cited cognitive linguist and sixth most widely-cited living corpus linguist. The field of cognitive linguistics draws from both linguistics and psychology and studies how language interacts with cognition.”

OAN had filed the defamation suit in federal court in San Diego, according to AP. OAN is a small, family owned conservative network that is based in San Diego and has received favorable Tweets from the President. It is seen as a competitor to Fox News. 

OAN’s lawsuit claims that Maddow’s comments were retaliation after OAN President Charles Herring accused Comcast of censorship. The suit said that Comcast refuses to carry its channel because “counters the liberal politics of Comcast’s own news channel, MSNBC.”

It was about a week after Herring e-mailed a Comcast executive when Maddow opened her show by referring to a Daily Beast report that claimed an OAN employee also worked for Sputnik News, which has ties to the Russian government.

Maddow said: “In this case, the most obsequiously pro-Trump right-wing news outlet in America really literally is paid Russian propaganda. Their on-air U.S. politics reporter is paid by the Russian government to produce propaganda for that government.”

Except Maddow, likely still upset from spending 3 years trying to promulgate a Russian hoax that didn’t exist, didn’t quite get her facts straight. Big surprise.

Authored by Patrick Buchanan via Buchanan.org,

As of Dec. 26, Kim Jong Un’s “Christmas gift” to President Donald Trump had not arrived. Most foreign policy analysts predict it will be a missile test more impressive than any Pyongyang has yet carried off.

What is Kim’s game? What does Kim want?

He cannot want war with the United States, as this could result in the annihilation of the Kim family dynasty that has ruled North Korea since World War II. Kim is all about self-preservation.

What he appears to want in his confrontation with Trump is a victory without war. In the near-term, Kim seeks three things: recognition of his regime as the legitimate government of North Korea and its acceptance in all the forums of the world, trade and an end to all U.S. and U.N. sanctions, and a nuclear arsenal sufficient to deter a U.S. attack, including missiles that can strike U.S. bases in South Korea, Japan, Guam, and the Western Pacific. And he seeks the capability to deliver a nuclear warhead on the U.S. mainland.

Nor is this last goal unreasonable from Kim’s vantage point.

For he knows what became of the two other nations of George W. Bush’s “axis of evil” that failed to develop nuclear weapons.

Saddam Hussein’s Iraq was invaded, and he was hanged and his sons hunted down and killed.

The Ayatollah’s Iran negotiated a 2015 nuclear deal with America and opened up its nuclear facilities to intrusive inspections to show that Tehran did not have a nuclear weapons program.

Trump came to power, trashed the deal, reimposed sanctions and is choking Iran to death.

Moammar Gadhafi surrendered his WMD in 2004 and opened up his production facilities. And in 2011, the U.S. attacked Libya and Gadhafi was lynched by a mob.

Contrast the fate of these regimes and rulers with the Kim family’s success. His father, Kim Jong Il, tested nuclear weapons and missiles in defiance of U.S. warnings, and now the son is invited to summits with the U.S. president in Singapore and Hanoi.

If Kim did not have nuclear weapons, would American presidents be courting him? Would U.S. secretaries of state be visiting Pyongyang? If Kim did not have nuclear weapons who would pay the least attention to the Hermit Kingdom?

Undeniably, with his promised “Christmas gift,” possibly a missile capable of hitting the U.S., Kim is pushing the envelope. He is taunting the Americans. We have told him what he must do. And he is telling us where we can go.

But by so doing, Kim has put the ball squarely in Trump’s court.

The question Trump faces: Is he prepared to accept North Korea joining Russia and China as a third adversarial power with the ability to launch a nuclear strike on the continental United States?

And if U.S. sanctions are insufficient to force Kim to “denuclearize,” as seems apparent, is Trump prepared to force him to do so? Is Trump prepared to use “fire and fury” to remove Kim’s nukes?

With 28,500 U.S. troops and thousands of U.S. citizens in South Korea, many within artillery range of the DMZ, is Trump prepared to risk a clash that could ignite a second Korean War in the election year 2020?

Is the president prepared for whatever that might bring?

How does this confrontation play out?

A guess: The U.S. has lived with North Korea’s nuclear weapons for a decade, and Trump is not going to risk a second Korean conflict with a military attack on Kim’s nuclear and missile arsenals. Kim Jong Un and his father have created a new reality in Korea, and we are going to have to live with it.

Where does East Asia go from here?

South Korea has twice the population of the North and an economy 40 times as large. Japan has a population five times that of North Korea and an economy 100 times as large.

If the U.S. treaty guarantees, dating to the 1950s, to fight for these two nations come into question as a result of America’s reluctance to face down Pyongyang more forcibly on its nuclear arsenal, these nations are almost certain to start considering all options for their future security.

Among these are building their own nuclear arsenals and closer ties to the one nation that has shown it can discipline North Korea — China.

Much is on the line here.

Kim’s challenge is ultimately about the credibility of the United States, which has treaty commitments and issued war guarantees to scores of nations in NATO Europe, the Mideast and East Asia, but whose people have zero interest in any new war, especially a second Korean War.

If the world sees that America is reluctant to face down, or fight a North Korea that is threatening us, will they retain the old confidence that the United States will risk war for them?

What Kim is undermining is not just U.S. security but U.S. credibility.

With Tesla stock rising by $200 in three months, and more than doubling from its summer lows to hit a new all time high of $433 and sporting a record market cap of $78 billion, it’s time for a quick sanity check. 

At $433/share, TSLA’s market cap is now $77.8 billion. This makes it bigger than OEM giants Hyundai ($22BN), Ford ($37BN), General Motors ($52BN), BMW ($52BN) and Daimler ($60BN). Said otherwise Tesla, which sold 350,000 cars in the past 12 months, is now “bigger” than Hyundai, which sold 4.6 million cars in 2018, and General Motors, which sold 3 million cars last year, combined.

In fact, there is now just one OEM that is bigger than Tesla: Germany’s carmaking giant Volkswagen (which employs roughly 270,000 workers in Germany alone), and which recently overtook Toyota as the world’s largest automaker in terms of sales. 

So how did Tesla, eclipse OEMs which combined have sold about 20 times more cars between them? The answer remains simple: as S3’s Ihor Rusaniwski points out, despite the recent massive short squeeze, Tesla still remains the world’s most short automaker (with a couple of tiny exceptions such as BYD, Aston Martin and Nio), and as such what we are seeing now is a slow motion replica of the short squeeze that briefly made Volkswagen the world’s most valuable company in 2008, if only for a few hours.

As such, the question is when will the positive feedback loop of shorts covering, inspiring further bullishness, a more optimistic narrative, higher prices and even more short covering finally stop. Perhaps if more investors actually did some more sanity checks such as this one, the answer will come sooner rather than later.

Authored by Jeffrey Snider via Alhambra Investment Partners,

The way the global economy shifted from globally synchronized growth to globally synchronized downturn was specific: dollar then trade then manufacturing and industry which then spread into other areas. If the economy is to avoid moving further down that same track, then something in that chain of events must actually change.

Meaning just that: actual change in the way the numbers are pointing rather than just applying more positive words to mostly the same data.

As far as the dollar goes, not much luck there. In terms of trade, no dice, either. How about manufacturing, then?

In terms of the US economy, where industry is lagging behind the rest of the world’s trend, there has been renewed hope for revival especially in this area. Primarily due to the way Markit’s PMI’s have trended, the whole sector is being talked about as if it is on the rebound.

The ISM begs to differ; the last several months of figures from this alternate view at most haven’t gotten worse. What about others?

The Federal Reserve’s various branches have collected manufacturing sentiment data from among constituent manufacturers for decades. If we are looking to break the tie, so to speak, between Markit and the ISM perhaps the regional surveys can provide enough consistent evidence to do so.

The general trend overall is clear enough, meaning that Euro$ #4 is as obvious now as Reflation #3 was during 2017. Things were on the way up into that year, stopped rising and began transitioning the following year (2018), and like the rest of the world have come back down this year (2019).

But to discern any possible inflections more recently, we’ll have to separate the surveys into like comparisons.

First, what were probably the best cases at least for the rebound narrative that began to appear in late summer. Both the Philly and Dallas Fed data had been rising after a rough patch toward the end of 2018 and at the beginning of 2019.

Just past midyear, however, the Philly branch had recorded a jump back to +21.8 for July. It was the highest since the previous summer. And it was up from a low of -4.1 registered during February.

For almost those same months, the Texas Manufacturing Outlook Survey followed in August 2019 with its own recent high. Coming back up from +6.2 last December and then +6.3 in May 2019, it would reach +17.9 and seemingly back on the rise.

Since then, however, both are heading right back down toward and to contraction territory. For Texas, November’s estimate was the first monthly minus since Euro$ #3, while for Philly it was only the second time at or less than zero going back to the same.

With those two now heading the wrong way, they put Richmond and the New York Fed’s Empire Survey into the updated category of best case. For the latter, the index has like the ISM flatlined at a much lower level in 2019 than during 2018. Not getting worse but also, contrary to the narrative, not getting better.

In Richmond, it has been mostly the same except for more volatility in the survey presumably because of volatility in the region’s manufacturing economy. The latest reading for the month of December, however, came in way short of expectations for +9 (which would have continued the rough upward trend), instead moving even further into contraction at -5.

It raises questions about the same kind of midyear improvement as had been indicated in Philly and Dallas.

Of the major regional Fed surveys, that leaves only KC’s which really doesn’t require any commentary. The central bank’s Tenth District, covering most of the middle portion of the country, doesn’t appear to be improving nor has it at any point during 2019. It is the worst case.

Not only does KC indicate continued and accelerating contraction across that specific manufacturing region, the data looks to be in close agreement with the ISM’s much broader Manufacturing PMI.

The Fed’s sentiment figures across the major set of them seem more consistent with the ISM than IHS Markit.

We already know about which way the dollar seems to be leaning, and therefore the continued problems across global trade. It would only make sense, then, that US manufacturing would be heading in that same direction if maybe not all at once or all at the same time (nothing goes in a straight line).

These figures are far from definitive, of course, but the majority of the data sets are now at odds with the idea of rebound – one that is supposedly getting stronger. Even Dallas and Philly are heading in the wrong direction (again), suggesting instead renewed difficulties in domestic production (which is consistent with more recent data showing seriously flagging US imports).

If that is indeed the case, then dollar, trade, and manufacturing continue to be consistently against this idea of a “strong” economy and its epic unemployment rate.

It’s official: exactly one year after Putin oversaw the final test of Russia’s most advanced hypersonic weapon, on Friday a the intercontinental weapon that can fly 27 times the speed of sound became operational, Russia’s defense minister reported to President Vladimir Putin, bolstering the country’s unprecedented nuclear strike capability, one which the US has yet to match.

As AP reports, Russia’s Defense Minister Sergei Shoigu informed Putin that the first missile unit equipped with the Avangard hypersonic glide vehicle entered combat duty.

“I congratulate you on this landmark event for the military and the entire nation,” Shoigu said later during a conference call with top military leaders.

The Avangard is launched atop an intercontinental ballistic missile, but unlike a regular missile warhead that follows a predictable path after separation it can make sharp maneuvers in the atmosphere en route to target, making it much harder to intercept.

Putin had previously described the Avangard hypersonic glide vehicle as a technological breakthrough comparable to the 1957 Soviet launch of the first satellite. The new Russian weapon which can deliver a nuclear payload to the US in minutes, and a similar system being developed by China, have caused many sleepless nights for the Pentagon, which has pondered defense strategies.

The Strategic Missile Forces chief, Gen. Sergei Karakayev, said during the call that the Avangard was put on duty with a unit in the Orenburg region in the southern Ural Mountains.

The Avangard hypersonic missile was first unveiled by Putin, among other prospective weapons systems, in his state-of-the-nation address in March 2018, noting that its ability to make sharp maneuvers on its way to a target will render missile defense useless. “It heads to target like a meteorite, like a fireball,” he said at the time.

As AP reminds us, the Russian leader noted that Avangard is designed using new composite materials to withstand temperatures of up to 2,000 Celsius (3,632 Fahrenheit) resulting from a flight through the atmosphere at hypersonic speeds. The military said the Avangard is capable of flying 27 times faster than the speed of sound and carries a nuclear weapon of up to 2 megatons.

Putin explained that Russia had to develop the Avangard and other prospective weapons systems because of U.S. efforts to develop a missile defense system that he claimed could erode Russia’s nuclear deterrent. Moscow has scoffed at U.S. claims that its missile shield isn’t intended to counter Russia’s massive missile arsenals.

And here is another headache for the US and NATO: earlier this week, Putin emphasized that Russia is the only country armed with hypersonic weapons, proudly noting that for the first time Russia is leading the world in developing an entire new class of weapons, unlike in the past when it was catching up with the U.S.

In December 2018, the Avangard was launched from the Dombarovskiy missile base in the southern Urals and successfully hit a practice target on the Kura shooting range on Kamchatka, 6,000 kilometers (3,700 miles) away.

According to Russian media, the Avangard will first be mounted on Soviet-built RS-18B intercontinental ballistic missiles, bearing the NATO code-name SS-19. It is then expected to be fitted to the prospective Sarmat heavy intercontinental ballistic missile after it becomes operational.

The Defense Ministry said last month it demonstrated the Avangard to a team of U.S. inspectors as part of transparency measures under the New Start nuclear arms treaty with the U.S. The US team was not too happy, especially since the Russian military previously had commissioned another hypersonic weapon of a smaller range.

The Kinzhal (Dagger), which is carried by MiG-31 fighter jets, entered service with the Russian air force last year. Putin has said the missile flies 10 times faster than the speed of sound, has a range of more than 2,000 kilometers (1,250 miles) and can carry a nuclear or a conventional warhead. The military said it is capable of hitting both land targets and navy ships.

Meanwhile, as Russia pulls away technologically from the US in “first-strike”capabilities, China is breathing down its neck. Beijing tested its own hypersonic glide vehicle, believed to be capable of traveling at least five times the speed of sound. It displayed the weapon called Dong Feng 17, or DF-17, at a military parade marking the 70th anniversary of the founding of the Chinese state.

Needless to say, the US is scrambling to find an effective deterrent to weapons that collapse the conventional MAD doctrine due to their unprecedented delivery speed. As AP notes, US officials have talked about putting a layer of sensors in space to more quickly detect enemy missiles, particularly the hypersonic weapons. The administration also plans to study the idea of basing interceptors in space, so the U.S. can strike incoming enemy missiles during the first minutes of flight when the booster engines are still burning. For now, however, both such proposals are merely in the design phase.

The Pentagon also has been working on the development of hypersonic weapons in recent years, and Defense Secretary Mark Esper said in August that he believes “it’s probably a matter of a couple of years” before the U.S. has one. He has called it a priority as the military works to develop new long-range fire capabilities.

In other words, for the next “couple of years” at least, Russia will be able to launch, and ostenibly hit a target on US soil before the Pentagon even knows what hit it.

Authored by Jonathan Turley,

Imagine if Monica Lewinsky had taken the stand as a witness in President Clinton’s 1999 impeachment trial. Imagine the drama of the young former White House intern sitting in the well of the Senate recalling how the president encouraged her to sign a false affidavit after learning that she would be a witness against him. It would have been an unforgettable moment. But it didn’t happen for the simple reason that few in the Senate wanted to hear such evidence.

During the Clinton trial, the House impeachment managers were surprised to learn that the upper chamber’s Republican majority agreed with Democratic demands not only to bar live testimony but to limit depositions to three witnesses and take them in private. It was a decision that might have determined the outcome of the trial. Soon the Senate will have to decide whether to replicate the same constraints on the trial of President Donald Trump.

Whether witnesses are required at a presidential impeachment trial is an open question. The 1868 trial of Andrew Johnson resembled a criminal proceeding. The House managers called 25 prosecution witnesses and Johnson’s defense team called 16 witnesses. During the Clinton impeachment, the issue of witnesses came up during House Judiciary Committee hearings. As an expert called to address the constitutional standards, I explained that the Framers didn’t explicitly require witnesses in the House or the Senate but there was likely an expectation — drawn from English impeachments — that witnesses would be called at a Senate trial.

While I favored calling witnesses, the issue wasn’t clear-cut because the underlying investigation into Mr. Clinton had spanned years. Two independent counsels had interviewed dozens of witnesses. Rather than call the same people to testify again, the House decided to rely on the massive record supplied by independent counsel Kenneth Starr. Senate Democrats not only opposed calling witnesses; all but one voted to dismiss both articles without any trial. Minority Leader Chuck Schumer – who has demanded that witnesses be called in the Trump impeachment trial – as a freshman in 1999 disdained witness testimony as “political theater.”

In the end, the senators considering whether to remove Mr. Clinton from office heard only excerpts from depositions by three witnesses — and even that was over Democratic objections.

Here is what they — and the public — didn’t hear.

Ms. Lewinsky gave an interview to A&E last year revealing that Mr. Clinton encouraged her in a 2:30 a.m. phone call to submit a false affidavit to the independent counsel.

This raises the possibility that the president committed a variety of crimes, from suborning perjury to witness tampering. Apparently, when Mr. Clinton learned that Ms. Lewinsky was on the witness list in Paula Jones’s sexual-harassment lawsuits, he did what many Democrats have accused Mr. Trump of doing: He called a witness to influence her testimony.

Moreover, Ms. Lewinsky claimed in the interview, she called Vernon Jordan, one of his friends and political allies, and he took her to meet Frank Carter, a lawyer who had her sign an affidavit denying any intimate relationship with the president. She says Mr. Jordan also offered the inexperienced 24-year-old a job with Revlon, where he was a board member.

Ms. Lewinsky said that she was terrified and that the president had assured her that “I could probably sign an affidavit to get out of it.” She also said that Mr. Carter assured her that if she signed the false affidavit, she might avoid being called as a witness. Messrs. Carter and Jordan have denied that they urged Ms. Lewinsky to lie.

Imagine, again, the most riveting moment that never occurred in an impeachment.

Ms. Lewinsky might have taken the stand and told senators that Mr. Clinton not only had an affair with a young intern but also pressured her to lie under oath. She might then have described how her lawyer had allegedly advised her to sign a false affidavit. Even before the GBP MeToo movement, such testimony would have put many Democratic senators in a difficult position.

While one of the articles of impeachment referred to Mr. Clinton’s “encouraging” Ms. Lewinsky‘s false statements, had she publicly testified about what the president said in his early morning phone call, it would have been evidence of subornation, witness tampering and obstruction of justice. It would have destroyed the argument made by his defenders that he did nothing but lie about a personal affair.

Now we are debating again whether to call witnesses at an impeachment trial. While Mr. Schumer has argued that witnesses are essential in a trial, he only means Democratic witnesses. The witnesses that Republicans could be expected to call – like Hunter Biden – would be, says Mr. Schumer, a “distraction.”

Only in an impeachment trial can the jury protect itself from testimony it doesn’t want to hear.