Author: admin

Submitted by Michael Every of Rabobank

Common People

I’m from a generation that still gets a buzz from the opening lines of Pulp’s Common People: “She came from Greece she had a thirst for knowledge; she studied sculpture at St Martins College; That’s where I, caught her eye.” In an age of populism, and in the run-up to the UK election, it seems particularly timeless. Yesterday the market also sang along happily (stocks up, US 10-year yields reversing half their previous plunge, CNY firming) when Bloomberg reported that based on the insider views of some “people”, China’s anger over US legislation on Hong Kong, and pending on Xinjiang, won’t get in the way of a phase one trade deal; and from the US side it is just a matter of crossing the Ts and dotting the Is on tariff roll-back (which China is making 100% clear is needed) and this will all be done before 15 December.

It may or may not be true – and we won’t have to wait long to find out. If this doesn’t happen within 9 days, will there be a belated retraction published? I also laughed at the padding to what was the latest reiteration of the same one-sentence story: “Trade Deal Still On: People”. In particular, Bloomberg noted “Stocks rallied in Europe and US equities rebounded from declines on Tuesday tied to Trump’s comments that he didn’t have a deadline to sign an agreement with Beijing. The offshore yuan reversed declines to gain as much as 0.25%.” Yes – on the back of their story! And it added “Investors are closely watching for any signs of progress on a phase-one deal as worries increase that Trump may slap more tariffs on China later this month” Yes – and their story was the only news of progress we got. Effectively the story was talking about itself in the third person when it was the story. Which is very Bloomberg at the moment, isn’t it?

The irony is that if this were the stock of a publicly-listed firm making cardboard boxes or paperclips and we were getting unsourced “people” spreading info like this, knowing full well what the market reaction would be, it would likely represent criminal market manipulation. This is high geopolitics, and impacts all kinds of markets globally – and it’s perfectly OK to do it. In fact, it’s encouraged. Indeed, it’s rinse and repeat and rinse and repeat on this ‘trade deal news’ – or at least until 15 December, when something has to happen. I do agree there is little appetite on either side for that new round of tariffs – but what breakthrough can either side offer in an increasingly-strained political atmosphere?

Moreover, surely Trump has a stronger political position always promising a great trade deal that he’s going to be super-tough over that never actually arrives, but which still lets markets hit all-time highs, than trying to sell what will be a milquetoast trade deal when it actually does arrive. But let’s not worry about that. Rinse and repeat on trade-deal news, and then when things do go wrong just sell like everyone else and say “Whocouldanooed?” while waiting for a central-bank bailout. Indeed, in the present environment even after new tariffs have been slapped on and the US and China are at loggerheads we can probably trade the optimism of when trade normality will return – because it must, right? “People” will demand it.

As a friend very-usefully pointed out to me yesterday when I complained right now it might not be worth looking at yields or stocks or FX for what the underlying truth is on the trade-deal: try soybean futures, which while well off their 2019 lows are also well of their 2019 highs, and have been trading as if “people” don’t know what they are talking about since the start of October.

And from soybeans to soyboys, as the other major headlines are that with NATO in London Trump made nice with Erdogan, who is playing his pivotal geostrategic role to perfection; cancelled his press conference; and called Trudeau “two-faced” for nasty comments. (Trump pique, or an observation that the videos of Trudeau released pre-election did indeed show him to have two different faces?) He also reiterated that tariffs might be used to incentivise NATO members to spend 2% of GDP on defence (and on US stuff, no doubt).

One other conclusion from NATO was that it needs a raison d’etre and lots of voices are suggesting balancing out China fits the bill., including Secretary General Stoltenberg, who said “We see them in the Arctic, we see them in Africa, we see them investing in European infrastructure and of course investing in cyberspace” Trade deal now on the back of that national-security sentiment, obviously.

NATO-related question of interest: How would current “people”-centric markets trade an actual war if one ever happened? One asks as North Korea promises a “Christmas gift” to the US and President Trump talks about a military response; and as Trump sends 14,000 US troops to the Middle East as insurance against suggestions Iran might attack US interests there. Presumably said markets would trade Comical Ali headlines that all is well(?) I do grant you, however, that for now geopolitics is not driving volatility on the view that it is all mouth and no trousers, as common people say.

But back to data, where it is worth mentioning that the US ISM services survey yesterday saw the headline come in at 53.9 vs. 54.5 expected but with a big bounce in the employment sub-index along with a further slump in import activity; and ADP employment was disappointing at just 67K vs. 135K expected, which doesn’t line up that well. Again we wait for more real direction.

Aussie trade data were as bad news as the building permits slump was for tradies, with the surplus AUD4,502m vs. an expected AUD6,500m. Take away net exports and there isn’t a whole lot holding the economy up right now. Certainly not retail sales flat m/m in October vs. a 0.3% consensus, as households keep paying down debt with tax cuts and a sudden mini-bubble in Sydney and Melbourne property doesn’t make people want to spend more as they are forced to borrow AUD200-300,000 more in order to buy a home – thanking the RBA all the way, of course.

New Zealand is meanwhile sighing in relief as the RBNZ released its decision on capital buffers for banks and stated they need to rise to 16% of risk-weighted assets as planned, which has been causing serious concern that borrowing costs would have to rise (by as much as 20.5bp according to the RBNZ); but this can be done over seven, not five, years as first flagged. So the need to prepare for serious global financial turbulence is there, but won’t hit New Zealand until 2027(?) That implies at least one RBNZ cut to offset, but over a long time-frame. We will be getting more than one cut and far sooner than that though, I assure you.

And back to the last week of the UK election: I took her to the supermarket; I don’t know why; But I had to start it somewhere; So it started there; I said ‘Pretend you’ve got no money”; She just laughed and said “Oh, you’re so funny”; I said “Yeah? Well I can’t see anyone else smiling in here.”

Federal authorities have indicted two Russian cybercriminals who allegedly lead a shadowy organization called “Evil Corp” that has stolen more than $100 million using a powerful malware that has spread to more than 40 countries.

According to Reuters, prosecutors indicted Maksim Yakubets, the organization’s Lamborghini-driving alleged ringleader, whle ordering asset freezes against 17 of his associates. An indictment was also filed against Yakubets’s alleged No. 2, Igor Turashev. Both men are believed to be alive and living in Russia, beyond the reach of American authorities, who have tried to apprehend Yakubets at least once before. Authorities said they’ve already arrested 8 other alleged members of the group.

Back in 2015, prosecutors made another attempt to stop Evil Corp, eventually indicting Yakubets and Turashev. But the two remained at large, and their software quickly went right back to stealing.

Which seems funny to us, because judging by his wanted photos, Yakubets looks like a spindly teenager. He doesn’t exactly have ‘criminal mastermind’ vibes. More like “mom still does my laundry…”

Not exactly the look of a man who would drive a Lamborgini with the word ‘thief (in Russian)’ displayed on his license plate through the streets of Moscow, as Reuters alleges.

British authorities described the 32-year-old Yakubets as a supercar-lover who customized his Lamborghini license plate to read “Thief” in Russian and ran his operation from the basements of Moscow cafes.

A “true 21st century criminal” they called him…

“Yakubets is a true 21st century criminal,” U.S. Assistant Attorney General Brian Benczkowski said. “He’s earned his place on the FBI’s list of the world’s most wanted cyber criminals.”

If Evil Corp’s leaders seem harmless by appearance, the description of their crimes might change somebody’s mind: their malware ‘Dridex’ has helped them steal more than $70 million in the US alone.

Evil Corp is alleged to be behind an ever-evolving family of malicious software known Dridex, which has bedeviled banks and businesses since it first appeared in 2011. The malware works by hacking into banks and businesses and making rogue financial transfers that are eventually funneled back to the hackers.

Dridex targeted smaller businesses and organizations that lacked the sophisticated cyberdefenses of larger organizations, US officials said.

Though the indictments only mentioned incidents in Nebraska and Pennsylvania, victims spanned the United States – including a dairy company in Ohio, a luggage company in New Mexico and a religious order in Nebraska, FBI Deputy Director David Bowdich told a news conference.

Losses totaled $70 million in the United States alone, officials said.

The malware was spread via email with so-called “phishing” campaigns, which encouraged victims to click on malicious web links, and Evil Corp chiefly targeted companies in the US and UK.

The director general of the British agency, Lynne Owens, said that Yakubets and Evil Corp “represent the most significant cyber crime threat to the U.K.,” a sentiment endorsed by John Shier, an expert at U.K.-based cybersecurity company Sophos.

“I’d put them in the top tier,” he said of the group’s operators.

And let’s not forget their alleged links to the Russia state (because Putin is the capo di tutti capi).

Underlining alleged links between cybercriminals and the Russian state, U.S. Treasury officials said Yakubets worked on the side for Russia’s Federal Security Service (FSB), its domestic intelligence agency, and stole classified material on Moscow’s behalf. One senior U.S. Treasury official said that, last year, he had even applied to the FSB for a license to handle secret documents.

Echoing the Mueller probe indictments of more than a dozen intelligence agents who allegedly participated in the ‘plot’ to rig the election, analysts doubted that Yakubets would ever see justice.

“What are the chances this guy is going to face trial in the United States?” he said. “Probably next to zero.”

The indictments stemmed from an international investigation involving the FBI, as well as the UK’s National Crime Agency. In a twitter thread about the indictments, the NCA alleged that Yakubets paid more than a quarter of a million pounds for his wedding and that other members of the group were living ‘lavish’ lifestyles, and that the group was responsible for stealing “hundreds of millions of pounds” in the UK.

An international law enforcement operation has exposed the world’s most harmful cyber crime group, Evil Corp.

Maksim Yakubets has been indicted in the United States following unprecedented collaboration between the NCA, @FBI, @NCSC & @TheJusticeDept.https://t.co/YFXDuk8PpO pic.twitter.com/EE3TafK7qC

— National Crime Agency (NCA) (@NCA_UK) December 5, 2019

Evil Corp created and deployed malware causing financial losses totalling hundreds of millions of pounds in the UK alone.

The NCA began working with multiple partners to investigate one of the group’s core malware strains, Dridex, in 2014. pic.twitter.com/gu6NR640qe

— National Crime Agency (NCA) (@NCA_UK) December 5, 2019

Dridex has been targeting UK victims since at least 2014, compromising and stealing from large organisations, SMEs and the general public.

Our officers developed intelligence and identified evidential material over several years to support the US indictments.

— National Crime Agency (NCA) (@NCA_UK) December 5, 2019

Yakubets drives a customised Lamborghini supercar with a personalised number plate that translates to ‘Thief’ & spent over a quarter of a million pounds on his wedding.

He is now subject to a $5 million US State Department reward – the largest ever reward for a cyber criminal. pic.twitter.com/a7s9tKFutt

— National Crime Agency (NCA) (@NCA_UK) December 5, 2019

Members of Evil Corp are living a lavish lifestyle, funded by the life savings of their victims.

If Maksim Yakubets, who used the online identity of ‘Aqua’, ever leaves the safety of Russia he will be arrested and extradited to the US. pic.twitter.com/BdoaxZrFBK

— National Crime Agency (NCA) (@NCA_UK) December 5, 2019

Yakubets was charged in two separate cases (one in Pennsylvania and the other in Nebraska) for distributing malware that stole unsuspecting victims’ passwords and other personal information, then reroute wire transfers to foreign banks and into accounts controlled by his “money mules.” Before they realized what was happening, unsuspecting marks could be down tens of thousands of dollars. Meanwhille, Turashev is being charged for playing an administrative-type role in the organization.

Moments before 3pm, stocks suddenly slumped, following the latest running update to the WSJ’s article on the ongoing state of US, China trade talks, according to which even though “China’s Commerce Ministry said that negotiating teams from both sides have maintained close communication”, over the past few days “officials in the U.S. have become less optimistic about a deal.” The reason: “the two sides remain at odds over the value of farm goods Beijing will buy from the U.S., with President Trump looking for $40 billion to $50 billion a year within two years.”

That, as we reported several week ago, would represent an enormous increase from the $8.6 billion last year—and twice as much as China bought from the U.S. before the trade war began in earnest in 2018.

As part of the ongoing discussion over farm purchases, the Trump administration wants Beijing to publicly state its purchasing plans—and not to condition them on market circumstances or China’s trade obligations, while Beijing “is reluctant to make that pledge because it might have to divert purchases from other trading partners that are bound to object.”

Perhaps more importantly, the two sides haven’t yet agreed on how deep a reduction in tariffs the U.S. would make. As a reminder, currently, the U.S. has tariffs on about $360 billion of Chinese goods. Unless there is a deal by Dec. 15, the U.S. is threatening 15% tariffs on $165 billion more in Chinese imports.

And the potential dealbreaker – while the U.S. side is willing to skip the next tariff increase, Trump and Robert Lighthizer “are reluctant to start scrapping tariffs. Their willingness to do so depends largely on how many farm goods the Chinese will buy—and how firmly it will commit to the purchases, say the people familiar with the talks.”

In short, the trade war remains a game of chicken, one in which someone has to blink first, and neither side is willing to do so.

In kneejerk response to the WSJ article, ES tumbled almost 10 points, however it has since regained its entire loss and was last seen trading at HOD because according to some bulls, the fact that there is no deal is evidence that there will, magically, be a deal in the next 10 days before the US is expected to hike tariffs on another $165 billion in Chinese imports.

OilPrice.com’s Tsvetana Paraskova notes that a ministerial committee of OPEC and its partners led by Russia recommended that the OPEC+ oil production cuts be deepened by 500,000 bpd, two sources told Reuters on the sidelines of the OPEC meeting in Vienna.

And despite plenty of volatility, oil prices were thoroughly unimpressed…

The Joint Ministerial Monitoring Committee (JMMC) of the OPEC and non-OPEC countries with representatives of the leaders of the two groups, Saudi Arabia and Russia, respectively, met to discuss the state of the oil market and to suggest a course of action for the full OPEC ministerial meeting which is taking place at the time of writing. The full ministerial OPEC plus Russia-led non-OPEC meeting will be held on Friday.

Russia’s Energy Minister Alexander Novak said at the end of the OPEC+ JMMC panel meeting that the recommendation is to deepen the cuts by 500,000 bpd in the first quarter of 2020 with full compliance and JMMC to meet again in March to review the market situation.

On Thursday, the much-anticipated meeting in Vienna began with rumors among analysts that a so-called “Saudi surprise”—deepening the cuts by 800,000 bpd or even more—may be in the making. The unusual level of ‘no comments’ from delegates and unusually cohesive discipline in (the lack of) messages to the media raises questions, Financial Times Energy Editor, David Sheppard, tweeted.

Then word began to circulate that Saudi Arabia and Venezuela proposed at the OPEC+ panel deepening the cut by 500,000 bpd. A Saudi official told Energy Intelligence that there was “No deeper cut being advocated by the kingdom.”

There are also reports that Saudi Arabia told on Thursday its partners that it is no longer tolerating any cheating on quotas, and, according to Bloomberg, they are offering a quid pro quo – “we will cut, if you stop cheating.”  

According to analysts who have run the numbers, deepening the cuts by 500,000 bpd – considering the October 2018 baseline in the current deal – would not be much of a hassle for the OPEC+ group, because they are currently overcomplying as a whole with the level of the cuts. If laggards in compliance, such as Iraq and Nigeria, fall in line, and if Russia wins with its request to have condensate out of the crude oil production numbers, then these additional 500,000 bpd ‘cuts’ are no actual cuts at all.

As tensions increase between China and US over trade, democracy/Hong Kong, Taiwan, Huawei, and diplomatic travel, there is another ‘struggle’ going on that is all about appearance.

Bloomberg opines that an unusual sense of tranquility has descended on China’s financial markets, especially notable amid the chaos of dueling headline-algos that a deal is close (or not).

Notably, Bloomberg raises the specter of China’s “National Team” – as state-backed funds are called – which is sometimes suspected of buying shares to ensure market stability around major events like legislative meetings or big anniversaries. 

“I wouldn’t be surprised to see if the government asked banks or funds to not react to the news,” said Justin Tang, head of Asian research at United First Partners, who added that he does not see direct intervention as in the past.

“The government could be a quiet hand of the market in China.”

However, one thing Bloomberg does not dare to mention is the US Plunge Protection Team appears to be have been just as active…

Since the “Phase One Complete” headlines, China has slid notably while US markets have risen almost incessantly (and far too linearly)…

Source: Bloomberg

Additionally, while Bloomberg notes the relative calm of China’s markets, it has relatively exploded relatiove to the collapse in volatility in US markets…

Source: Bloomberg

We give the last word to Hao Hong, chief strategist at Bocom International:

“Does this lack of volatility feel normal? No!”

But do not for one second believe this is China only, given the charts above, it’s clear that someone or something is desperate to keep US markets aloft…

Source: Bloomberg

And don’t forget…

And so it is that both China and US are desperate to maintain the appearance of ‘strength’ – as indicated by their respective stock markets – as trade deal chatter reaches the vinegar strokes.

Authored by James Rickards via The Daily Reckoning,

The major stock market indices will move sideways through the remainder of the month (and year) to end the year about where they are now. That said, if markets move outside a narrow range, there is more downside potential than upside.

This is a good time to lighten up on equity exposure and reallocate to bonds, cash and gold.

Stock markets haven’t gained much over the past two years. That may come as a shock to investors who feel like they’ve been on a roller coaster ride since early 2018. Yet, the fact is that the Dow Jones Industrial Index was 26,616 on January 26, 2018 and about 27,850 as of today.

That’s about a 1,200-point gain, or 600 points a year. 600 points is one good day for the market. Is that the best it can do over two years? Even adding an average 2% annual dividend yield, the annualized return is about 3%. That’s far less than an investor could have made in super-safe U.S. Treasury bonds.

If you’re a day trader, you might have made money buying dips and selling near the top in rallies. More likely, non-professional traders lost money chasing the rallies and bailing out during the drawdowns. If you’re the typical buy-and-hold investor watching your 401(k) statements, you’ve gone almost nowhere despite the fireworks. You’re right back where you started.

The question is, why?

The drivers of the sideways movement in stocks are slow economic growth and weak earnings growth in individual companies.The drivers of the short-term volatility along the way are good news/bad news on trade wars, and utter confusion at the Fed.

The bottom line is stocks are moving sideways on a sea of uncertainty. Let’s back up a minute to see how we got here…

After the Trump tax cuts passed in late 2017, the White House was predicting growth would return to the long-term trend (post-1980) of 3.2% or higher. That hasn’t happened.

The second quarter of 2018 did show annualized growth of 3.5%, but that was a one-time effect from employee bonuses and consumer confidence due to higher stock prices resulting from the Trump tax cuts.

That euphoria quickly faded.

Growth in the fourth quarter of 2018 was only 1.1%. For all of 2018, U.S. GDP grew by 2.9%, higher than the average growth since the end of the last recession in June 2009, but far less than the White House projected.

Since then growth has slowed even more as the effect of the 2017 tax cuts has faded. On an annualized based, the first quarter of 2019 showed 3.1% growth, the second quarter was 2.0% and original readings of third-quarter growth came in at 1.9%. It was upgraded to 2.1%, but that’s nothing to write home about.

This puts annualized growth year-to-date at 2.4%, almost exactly where it has been for the past ten years. In short, the Trump growth miracle is a mirage. We’re in the same 2.3% rut we’ve been in since 2009.

The cumulative impact of trade wars, currency wars and geopolitical tension is also reflected in a slowdown in global growth. The following summary comes from the IMF’s World Economic Outlook press conference on October 15, 2019 as presented by Gita Gopinath, Director of the IMF’s Research Department:

As for the global economy, the global economy is in a synchronized slowdown. And we are, once again, downgrading growth for 2019 to 3 percent, its slowest pace since the global financial crisis. Growth continues to be weakened by rising trade barriers and growing geopolitical tensions. We estimate that the U.S.‑China trade tensions will cumulatively reduce the level of global GDP by 0.8 percent by 2020. Growth is also being weighed down by country‑specific factors in several emerging market and developing economies and also by structural forces, such as low productivity growth and ageing demographics in advanced economies. … The weakness in growth is driven by a sharp deterioration in manufacturing and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods… Overall, trade volume growth in the first half of 2019 has fallen to 1 percent, the weakest level since 2012.

The good news/bad news volatility is also easy to explain. Stock markets are no longer traded by humans with different perspectives. Stocks are traded by robots, and robots are dumb.

Many investors still have the belief that their buy or sell stock orders are matched against other orders by humans with different views. The orders are matched by computers and the result is an orderly market with efficient price discovery. That scenario is not true.

Today, over 95% of New York Stock Exchange trades are generated by robots using algorithms to decide when to buy and sell. These are not matching systems (which have been around since the 1990s). These are trading robots that decide what to do without human intervention.

Trading is no longer man v. man or woman v. woman. It’s robot v. robot with a small number of trades in the form of man or woman v. robot. You’re not trying to outwit another human. You’re trying to outwit a robot.

The good news is that robots are easy to figure out. They act automatically based on source code and algorithms developed by coders and applied mathematicians who don’t necessarily know much about the psychology of markets. Robots buy or sell based on headlines or key words.

They also buy “high” (as defined) and sell “low” (also as defined) based on boundaries set by the developers.

This dynamic explains both the short-term volatility and the longer-term range bound trading. On the one hand, robots will scramble (in microseconds) to dump stocks if there’s a negative report in the trade wars.

They likewise buy stocks if there’s a positive report in the trade wars. At the same, robots will sell when stocks approach Dow 27,000 (or similar benchmarks on the S&P 500) and buy when stocks approach Dow 25,000.

Unfortunately, neither the robots nor their human developers were ready for the Age of Trump.

President Trump will call President Xi of China his “best friend” on Monday and denounce Chinese “theft” on a Wednesday. Robots are good at reading headlines, but they’re no good at understanding nuance, body language or Trump’s Art of the Deal style.

The same is true of the robots’ ability to understand the Fed.

Jay Powell was a hawk in December 2018 (when he raised rates), a dove in January 2019 (when he promised not to raise rates), a super-dove in the spring of 2019 when he decided to cut rates and end Fed balance sheet reductions, and utterly confused in September 2019 when he said he might not cut rates soon, but would expand the balance sheet. Then Powell cut rates again in October.

How is a robot supposed to understand a highly conflicted human? It can’t. But, it can issue automated buy and sell orders on every new headline.

The bottom line is that growth is weakening, the Fed is cutting rates, the trade wars are not over (despite happy talk) and political tensions are rising.

That’s a mix of support for stocks (Fed rate cuts and good trade war news) and headwinds for stocks (bad trade war news, weak growth and politics). These forces will tend to offset each other and leave stocks in early 2020 about where they are now.

That’s a reason to reduce equity exposure and consider some of the stronger plays in bonds and gold.

A study by The Guardian and research agency Revealing Realty has concluded what we’ve known for some time; people tend to cram as much information into their brains, as fast as possible, with little to no scrutiny.

What that leads to, according to the report, is the rapid spread of misinformation while people ignore the substance of an article – often instead heading straight to the comments sections for an argument before absorbing key information.

While The Guardian says the analysis is a “snapshot” and not a “statistically representative sample of the population” due to the fact that they tracked the smartphones of just six volunteers in the UK who agreed to have their smartphone behavior monitored over three days – the publication says the results comport with previous studies to illustrate patterns of behavior across the political spectrum. Given the source, this may also be part of some argument that the nanny state needs to do a better job monitoring and filtering content – for our own good, we’re sure.

Charlie in Sunderland consumed much of his election news through memes on lad humour Facebook pages, spending more time looking at posts of Boris Johnson using the word “boobies” than reading traditional news stories. Fiona in Bolton checked out claims about Jeremy Corbyn’s wealth by going to a website called Jihadi Watch before sharing the far-right material in a deliberate bid to anger her leftwing friends. And Shazi in Sheffield followed the BBC leaders’ interviews purely by watching videos of party supporters chanting the Labour leader’s name outside the venue. –The Guardian

“News is becoming intermingled with entertainment,” says Revealing Reality’s Damon De Ionno, who spearheaded the project after inventing the method of recording participants’ smartphone screens. “You’re no longer asking: what’s going on in the world today? It’s very different – you want to be entertained.”

Notable (though not entirely surprising) findings:

• Several of the subjects shared Facebook articles without clicking the links – and instead dove into the comments sections.

• People tend to read news that confirms their existing views.

• We “may be becoming a nation of trolls” (Only right-wing abusing the left, of course).

One 22-year-old Conservative-voting woman was observed going out of her way to read reputable mainstream news sources so she had a balanced understanding of Labour policies. But she would then seek out provocative far-right blog posts to share on Facebook because their headlines would anger her leftwing friends and create online drama.

•  Mainstream news sources have ceded ground to alternative news outlets.

“It’s total anarchy,” said De Ionno. “The idea of fake news and fake ads, with Russians manipulating people, is a really easy bogeyman. The reality is there’s many more shades of grey and it’s hard to unpick.” 

How the study was conducted

At Revealing Reality’s headquarters in a converted ballroom in south London, a group of analysts working for De Ionno are attempting to piece together how Britons are consuming news in this general election campaign with the aid of a wall of photos of each volunteer in their home, pages of data, and transcripts of interviews.

Although there were some changes in behaviour during the study – one person complained they had had to restrict their viewing of online porn while the study was taking place – the researchers believe most people largely forgot their phones were being recorded.

Analysts then studied the recordings of each volunteer’s screen activity using an coding system adapted from software originally built for the study of animal behaviour, before comparing notes following a three-hour interview with each participant.

“They’re disengaging with mainstream sources,” said one analyst.

“If social media content is playing such a central role in shaping people’s views on the election what are the implications for high quality journalism, reputable sources and well constructed and evidenced articles?” asked the researchers.

“News doesn’t stick as well. There’s a new drama every day and cliffhangers on a daily basis. A lot of the respondents didn’t have a good memory of what happened a week ago, said De Ionno.

In short, people don’t trust mainstream news, often don’t read past the headlines, prefer content that reinforces their worldview, and love sharing quick memes while arguing in the comments section.

“If everything people that people are seeing is via social media – who is accountable? There is very little human intelligence or decision-making behind it, no attempt to give a balanced view. That seems to leave all responsibility on the reader.”

We’re sure there’s a nanny-state solution to that!

In line with expectations, Saudi Aramco just priced its IPO at the high end of the targeted range, selling 3 billion shares or a 1.5% stake at 32 riyals ($8.53) per share for a total of $25.6 billion, and giving the oil giant a market valuation of $1.7 trillion, making it the world’s biggest company (surpassing Apple) thanks to the what is now the world’s biggest-ever IPO. The money raised by the state-owned producer breaks the record set by Chinese ecommerce giant Alibaba in 2014, but gives the company a valuation well below the $2 trillion sought by Crown Prince Mohammed bin Salman.

According to Bloomberg, the closely watched deal which was confined to Saudi accounts over fears of the types of questions that would emerge in an international roadshow, saw a total of $119 billion in subscriptions and was 4.65x oversubscribed but that is simply laughable considering that the Saudi were forced to once again extorting its oligarch like Prince Alwaleed to invest in the IPO at the metaphorical (and perhaps literal) barrel of a gun.

The oil company will also likely exercise its 15% “green shoe”, which would allow it to issue up to 15% more shares to meet demand and could see it ultimately raise more than $29 billion.

In Riyadh’s panicked scramble to get the IPO done at any cost, local retail investors were offered loans to purchase stakes, promised bonus shares and targeted in a nationwide advertising campaign. Meanwhile, in a hilarious flashback two two years ago, wealthy Saudi families, many of whom were caught up in the crown prince’s 2017 corruption crackdown, were also pressured to invest.

Saudi Aramco executives have in recent weeks also tried to drum up interest from state-backed funds in the Gulf, including Abu Dhabi — which was expected to invest $1.5bn. Kuwait was also considering putting in $1bn.

To make sure the deal goes smoothly, Saudi Arabia hired almost all of Wall Street’s biggest banks to advise on the IPO that will see about 1.5% of the company sold. Some of Aramco’s bankers had advised that a more prudent approach would be to sell shares more cheaply in an effort to ensure they trade higher after their debut, a person familiar with the matter said. Clearly, they were overruled, and so the question is how far will Aramco’s price drop once it breaks for trading.

“The banks advised the client to play it safe,” the person said. “There is a risk to the lenders if the shares trade down.”

As the FT notes, the kingdom also sought to increase the company’s appeal by pledging a bumper annual $75bn dividend, which is relatively speaking, below what many of its western peers offer, changing tax and royalty rates as well as curbing long-term capital spending to help cash flows.

Despite such enticements, overseas investors have remained cautious.

The total amount raised -whether $26 or $29BN with the greenshoe – will be a huge disappointment to Prince Mohammed, who for the last four years pushed to raise $100 billion by selling 5% of the group in a global financial capital such as London or New York. In the end he had to satisfy himself with a quarter of this amount sold on a domestic market. Even so, the $25.6 billion total sale means the company surappsed the previous record of $25bn set by Alibaba when it went public in New York.

At $1.7tn, Saudi Aramco’s market capitalisation will still be more than that of the five next biggest oil companies combined. Still, it is worth recalling that just over a decade ago, another energy giant, China’s Petrochina, became the world’s first company to hit a $1 trillion market cap shortly after its 2007 IPO on the Shanghai Stock Exchange.

PetroChina’s market value has since plummeted to less than $140 billion, representing the largest destruction of shareholder wealth in world history. Will Aramco follow in Petrochina’s footsteps? For those who say yes, you finally have a chance to short it. 

For those curious for more, here is a good explainer by the WSJ: