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Authored by Jeffrey Snider via Alhambra Investment Partners,

JP Morgan’s CEO Jamie Dimon has been running around Washington claiming that mid-September’s repo rumble was the result of the post-crisis regulatory environment. He now says that his bank had the spare cash and was willing to cash in on double digit repo rates but it was government rules which prevented that from happening. It’s unclear (but we can, and I will, guess) why he didn’t make the same claim and warn everyone on Friday, September 13, before the seasonal low point in liquidity that everyone knew was there.

It wasn’t until quite a while afterward during that period when a stunned financial world was still trying (and failing) to make sense of what had happened.

You probably won’t be surprised to learn that this isn’t the first time Wall Street has complained about these very same regulations. They’ve been against them from the very beginning. What’s different now is that they have a very public event about which nobody has any real answers to rally support. It all sounds pretty plausible (it always sounds plausible, yet never explains most of the facts).

Suddenly, Treasury Secretary Mnuchin seems to be siding with the banks. Having spoken directly with Mr. Dimon recently, Secretary Mnuchin today says:

The banks have raised an issue around intra-day liquidity, and that is something that makes sense for regulators to look at.

That issue they’ve raised is something called the Supplemental Leverage Ratio, or SLR. It was created and applied to Global Systemically Important Bank organizations, or G-SIB. The FDIC, in particular, had pushed for the SLR because quite rightly the agency wasn’t very thrilled about the prospects for having to absorb potential deposit liabilities of huge banks sporting enormous leverage getting shut out of wholesale funding markets.

The Global Financial Crisis of 2008 demonstrated conclusively this wasn’t a trivial possibility.

To put it simply, regulators would require designated G-SIB’s (there are 8 in the US) to hold an additional liquidity buffer (SLR) based upon their reported leverage (one lesson authorities did learn from Bear, Lehman, and the rest). It would be a liquidity surcharge which would have to be met by a set percentage of holdings in unencumbered cash and highly liquid assets like UST’s over and above other regulatory (like Basel 3’s LCR) and good standing requirements.

If any G-SIB bank wanted to employ more leverage, more power to them. The regulation was an attempt to recognize partly the risks to others beyond the one bank involved in doing so. Regardless of capital ratios, worthless capital ratios, beyond a preset threshold the more leverage the greater the SLR; more liquid assets including cash and Treasuries need to be held as further liquidity reserves.

So, again, blaming the SLR along with Basel 3’s Liquidity Coverage Ratio sounds like a plausible excuse for September’s repo malfunction. JP Morgan, as its CEO now says, wanted to act but couldn’t because his bank’s SLR surcharge was the primary impediment.

We also know this because they said essentially the same thing in September…2018. Again, you probably won’t be surprised to learn that early on last year the banks were supporting regulatory efforts to make changes to what is now the e-SLR (the “e” stands for “enhanced” while there is room for debate about whether that’s the proper use of that particular word in this context). Martin J. Gruenberg, an FDIC board member, spoke in Washington last September to that effect:

On April 11 of this year [2018], the Federal Reserve Board and the OCC released a joint notice of proposed rulemaking, or NPR, to make changes to the enhanced supplementary leverage ratio capital requirement applied to the eight U.S. G-SIBs and their federally insured bank subsidiaries. The changes would have the effect of reducing the capital requirement. They are not technical fixes. They would significantly weaken constraints on financial leverage in systemically important banks put in place in response to the crisis.

And where did that “e” come from in the first place? Way back in July 2017, Wall Street was lobbying for changes to the same regulatory paradigm back then, too. What I wrote at the time was:

Released on June 12 [2017], it suggested that the SLR might be reformulated to make it less imposing. The SLR was initially proposed so that the risk-weighting shenanigans (regulatory capital relief) would at least be exposed by this measure of true(r) leverage. It takes Tier 1 capital divided by the sum of on-balance sheet assets plus off-balance sheet exposures. There is still a large gray area in that latter variable.

Banks want now to deduct certain cash and liquid assets (including UST’s) from it. The result of which is supposed to, in Treasury’s estimation, unlock significant liquidity potential of the global banking system from just American operations. It is, in other words, the official acceptance of at least part of the idea that one big problem in the economy is insufficient liquidity (no sh@#).

The banks succeeded and Secretary Mnuchin’s Treasury Department issued its favorable report that very June. Most attention was focused on what it said about the so-called Volcker Rule while the more complex (and more relevant) SLR, e-SLR, and G-SIB designations remained, pardon me, in the shadows.

To sum up: Wall Street has hated almost every single post-crisis regulation that has been implemented, though in some cases they’ve been right to do so. However, there is absolutely no reason to believe that the e-SLR or G-SIB rules had anything to do with the repo market outbreak in September 2019.

What’s been constant is the banking system’s ongoing efforts to remove these kinds of regulations. At the same time, problems in the repo market have been nearly as constant. Yet , you didn’t hear a single thing about the SLR during any of the other outbreaks simply because no one paid any attention to those prior bouts of repo market illiquidity.

There was no opportunity, therefore, to pin the regulation on something bad.

The only thing that changed, in its aftermath, was that the public for once had no choice but to look at the repo market and the funding environment. With attention now fixed and no plausible answers being offered, all of a sudden it’s now evidence against a regulation banks have been actively opposing for years.

Shocking, I know.

As is the fact that May 29, 2018, had more to do with these repo market woes than anything about the SLR and the like. If that particular constraint was such a major issue in September, why wasn’t it in May 29 the prior year when the Treasury market began to embarrass Mr. Dimon and his prediction of 4% and even 5% 10-year UST yields? Repo rates were elevated at that time, too.

Obviously, in the middle of 2018, the head of JP Morgan, the bank allegedly suffering under the unfair imposition of out-of-touch regulators, saw no reason why the US and global economy wouldn’t soar in an all-but-guaranteed inflationary breakout (interest rates had nowhere to go but up). Implicit in that view was a resilient and robust global financial system flourishing without the hint of liquidity issues.

Dimon opposed the SLR (and LCR) when he fully believed things were really good, and he opposes the SLR now that he’s not so sure and he has something bad with which to blame. And he will oppose the SLR tomorrow if things really do turn around, and especially if they don’t.

So, is it that Dimon had no idea what was really going on during 2018 at his own bank, and has therefore come around to thinking some version of the SLR is to blame for getting 2019 all wrong? Or, is it because he had and has no real idea of the liquidity system that after being caught totally off-guard by pretty much everything he is cynically seeking to settle a longstanding score about the one thing he does know well?

When I came up with the zoo analogy to try to describe what’s going on, I didn’t realize just how well it would fit the times. What’s worse, the financial media will now be filled with stories about how it must be that Dimon is right! A real zoo.

Therefore, nothing will change even if the SLR does get changed.

Authored by Jack Phillips via The Epoch Times,

Russia test-fired an intercontinental ballistic missile from a new nuclear-powered submarine, the defense ministry said, describing the test as successful.

A video posted by the Defense Ministry shows the vessel launching an RSM-56 Bulava missile from a submerged position in the White Sea, according to the TASS news agency on Wednesday. The missile reached its target on the Kamchatka Peninsula in Russia’s Far East region.

“For the first time ever, a seaborne Bulava ballistic missile was test-fired from the latest Project Borei-A strategic missile-carrying submarine Knyaz Vladimir,” the ministry said, according to the state-backed news agency.

The Russian Ministry of Defense posted a video of the apparent test on YouTube.

The Bulava’s “dummy warheads reached the range within the established time, which was registered by data recording equipment,” the ministry added.

The firing area was closed down for shipping, the report said.

In this file photo, Russian nuclear submarine, the Yuri Dolgoruky, drives in the water area of the Sevmash factory in the northern city of Arkhangelsk on July 2, 2009. (Alexander Zemlianichenko/AFP/Getty Images)

According to the Moscow Times, the missile was fired from the Knyaz Vladimir submarine, which is expected to be supplied to the Russian navy in December. Russia is planning to construct about 10 other, similar submarines by 2027.

The Knyaz Vladimir will carry up to 16 ICBMs of the RSM-56 Bulava type. Each missile is expected to carry between four and six nuclear warheads, the Moscow Times noted.

In September, Russian President Vladimir Putin ordered the country’s military to conduct a “symmetrical response” to a recent U.S. test of a cruise missile.

Putin said he told the government to “analyze the level of threat posed by the aforementioned actions of the United States toward our country and take comprehensive measures to prepare a symmetrical response,” CNN reported.

Russia’s President Vladimir Putin chairs a meeting with members of the Security Council in Moscow, Russia on Aug. 23, 2019. (Sputnik/Alexey Nikolsky/Kremlin via Reuters)

In August, Russia test-fired Sineva and Bulava ballistic missiles from submarines in the polar region of the Arctic Ocean and the Barents Sea on Aug. 24 as part of combat training, the Defense Ministry said in a statement.

The Sineva, a liquid-fueled intercontinental missile, was fired from the Tula submarine, while a Bulava, Russia’s newest solid-fueled missile, was launched from the Yuri Dolgorukiy submarine, the ministry said.

The missiles hit targets at training grounds in the northern Arkhangelsk region and on the Kamchatka Peninsula in Russia’s Far East, the ministry said.

“During the launches, the specified technical characteristics of submarine ballistic missiles and the efficiency of all systems of ship missile systems were confirmed,” it said.

Senate Majority Leader Mitch McConnell (R-KY) on Wednesday slammed an impeachment resolution brought by House Democrats the day before – using a floor speech to go after House Speaker Nancy Pelosi and House Intelligence Committee Chairman Adam Schiff.

McConnell said that the resolution would deprive President Trump of the “most basic rights of due process.”

“It falls way short, way short…Instead of setting a high bar House Democrats seem determined to set a new low,” he said, before accusing Pelosi of endorsing a “bizarre” process which makes Schiff “a defacto special prosecutor.”

McConnell on Pelosi’s impeachment resolution: “It falls way short, way short…Instead of setting a high bar House Democrats seem determined to set a new low.”

Accuses Pelosi of endorsing a “bizarre” process that treats Schiff “as if he were a defacto special prosecutor”

— Lindsay Wise (@lindsaywise) October 30, 2019

The resolution, set for a Thursday vote, gives Schiff’s committee more power than it has ever had in the past – as prior impeachments have been conducted through the House Judiciary Committee. The new resolution engages the House’s Intelligence, Foreign Affairs, Oversight and Ways and Means Committees to independently conduct their own impeachment inquiries in a full court press.

The resolution also allows Republicans to subpoena witnesses and documents subject to Democrats’ approval. It will also allow Schiff to control the release of transcripts, including ones that have been edited.

McConnell on Wednesday said that the resolution denies Trump “basic due process rights,” such as having his attorney participate in closed-door depositions.

Authored by Michael Snyder via The Economic Collapse blog,

There should no longer be any doubt that the U.S. economy is slowing down, but most Americans still don’t realize what is happening because the major news networks are completely focused on the endless impeachment drama that is currently playing out in Washington.  And without a doubt that is important, because it threatens to literally rip our entire nation in two.  But meanwhile, economic activity has taken a very ominous turn.  Hiring is slowing, consumer confidence is plunging, defaults on auto loans are rapidly escalating, the “transportation recession” continues to get deeper and it appears that the housing bubble is popping.  Everywhere we turn, there are signs of economic trouble, and many are deeply concerned about what this will mean for us as we head into a pivotal election year in 2020.

Not since the last recession have we seen numbers this bad.  The “mini-boom” that we witnessed for several years has now turned into a “bust”, and very tough times are ahead.

The following are 14 signs that the U.S. economy is steadily weakening…

#1 U.S. business hiring has fallen to a 7 year low.

#2 Consumer confidence in the United States has now declined for 3 months in a row.

#3 Defaults on “subprime” auto loans are happening at the fastest pace that we have seen since 2008.

#4 The percentage of “subprime” auto loans that are at least 60 days delinquent is now higher than it was at any point during the last recession.

#5 Vacancies at U.S. shopping malls have hit the highest level since the last recession.

#6 Destination Maternity has announced that they will be closing 183 stores as the worst year for store closings in U.S. history just continues to get worse.

#7 The Cass Freight Index has now fallen for 10 months in a row.

#8 U.S. rail carload volumes have plunged to the lowest level in 3 years.

#9 In September, orders for class 8 heavy duty trucks were down 71 percent.

#10 Tesla’s U.S. sales were down a whopping 39 percent during the third quarter of 2019.

#11 The bad news just keeps rolling in for the real estate industry.  Last month, existing home sales in the United States declined by another 2.2 percent.

#12 New home prices have fallen to the lowest level in almost 3 years.

#13 According to one recent report, 44 percent of all Americans don’t make enough money to cover their monthly expenses.

#14 A recent survey found that more than two-thirds of all U.S. households “are preparing for a possible recession”.

All over the country, economic activity is slowing down, and this is hitting many small businesses particularly hard.

In Wisconsin, one aluminum firm “has seen bookings plunge by 40 percent” and was forced to lay off workers as a result…

Sachin Shivaram, the chief executive of Wisconsin Aluminum Foundry, started to worry this summer when orders for his brake housings and conveyor belt motors first grew scarce. Within weeks, what began as mild concern snowballed into a business drought that has seen bookings plunge by 40 percent.

In August, Shivaram, 38, reluctantly laid off two dozen workers, hoping to recall them when the outlook improved. It hasn’t.

“Things are not good. We didn’t anticipate this level of deterioration,” he said. “Orders are down across the board.”

Of course there are hundreds of other examples just like this one.

As times get tougher, many U.S. consumers are increasingly turning to debt to help make ends meet.

For those at the low end of the economic food chain, getting approved for credit cards and other conventional forms of debt can be quite difficult.  This has opened up a door for online financial predators, and they are making a killing by making loans to people that really can’t afford them.

In fact, it is being reported that online lending has become a $50 billion industry, and sometimes these “loans” carry annual interest rates of more than 100 percent…

It’s called the online installment loan, a form of debt with much longer maturities but often the same sort of crippling, triple-digit interest rates. If the payday loan’s target audience is the nation’s poor, then the installment loan is geared to all those working-class Americans who have seen their wages stagnate and unpaid bills pile up in the years since the Great Recession.

In just a span of five years, online installment loans have gone from being a relatively niche offering to a red-hot industry. Non-prime borrowers now collectively owe about $50 billion on installment products, according to credit reporting firm TransUnion. In the process, they’re helping transform the way that a large swathe of the country accesses debt. And they have done so without attracting the kind of public and regulatory backlash that hounded the payday loan.

Just like the “payday loan” industry flourished during the last recession, now predatory lending is flourishing during this present era.

Unfortunately, as “the everything bubble” bursts, times are going to be very tough for all of us during the years ahead.

I think that Michael Pento of Pento Portfolio Strategies summed things up very well when he made the following statement during a recent interview…

‘When this thing implodes, we are all screwed. On a global scale, we have never before created such a magnificent bubble. These central bankers are clueless, and they have proven that beyond a doubt. All they can do is to try to keep the bubble going.’

We should give the central bankers credit for keeping the bubble going for as long as it has.  It should have never lasted this long, but thanks to unprecedented intervention they have been able to keep it alive.

But no financial bubble lasts forever, and now things have started to shift in a major way.

2020 is rapidly approaching, and the time of “the perfect storm” is now upon us.

I encourage you to do what you need to do to weather the coming economic storm, because it is not going to be pleasant.

President Trump has spent several days at various press conferences painting a very vivid picture of the US military raid on ISIS leader Abu Bakr al-Baghdadi.

The DOD is now showing video of the U.S. military raid that resulted in the death of ISIS leader Abu Bakr al-Baghdadi. pic.twitter.com/5g7DPn13h8

— Julio Rosas (@Julio_Rosas11) October 30, 2019

Now, the US Department of Defense (DoD) has just released a new video showing the US military raid.

This is likely the same feed President Trump was watching when the raid occurred last weekend.

Former National Security Adviser John Bolton is scheduled to testify next Thursday in Donald Trump’s impeachment inquiry, according to the New York Times’ Nicholas Fandos.

Three big new deposition notices just went out, per a person familiar.

John Eisenberg for 11/4
Michael Ellis also for 11/4
John Bolton for 11/7

— Nicholas Fandos (@npfandos) October 30, 2019

Also testifying next week will be NSC lawyer John Eisenberg and one of his deputies, Michael Ellis.

Word of Bolton’s testimony comes after CNN reported that his attorneys were in discussions with House committees about participating in the impeachment investigations.

Bolton was fired by President Trump last month after he ‘disagreed strongly’ with the noted war hawk’s suggestions.

While Trump had reportedly been growing displeased with Bolton’s belligerent recommendations and overall demeanor (recall “Bolton ‘Deep in His Heart’ Believes Trump Is a ‘Moron,’ Former Aide Claims”), the tipping point happened when Bolton expressed his displeasure with Trump’s impromptu invitation of the Taliban to Camp David on the week of the Sept 11 anniversary, a peace overture which collapsed almost as quickly as it was announced.

Bolton was also reportedly ‘so alarmed’ by efforts to encourage Ukraine to investigate the Bidens and 2016 election meddling that he told an aide, Fiona Hill, to alert White House lawyers, according to the New York Times. 

Earlier this month Hill testified that Bolton got into a heated confrontation on July 10 with Trump’s EU ambassador, Gordon D. Sondland, who was working with Trump attorney Rudy Giuliani to investigate Democrats. Hill said that Bolton told her to notify the top attorney for the National Security Council about the ‘rogue’ effort by Sondland, Giuliani and acting White House chief of staff Mick Mulvaney.

“I am not part of whatever drug deal Sondland and Mulvaney are cooking up,” Bolton apparently told Hill to tell the lawyers. 

It was not the first time Mr. Bolton expressed grave concerns to Ms. Hill about the campaign being run by Mr. Giuliani. “Giuliani’s a hand grenade who’s going to blow everybody up,” Ms. Hill quoted Mr. Bolton as saying during an earlier conversation.

The testimony revealed in a powerful way just how divisive Mr. Giuliani’s efforts to extract damaging information about Democrats from Ukraine on President Trump’s behalf were within the White House. Ms. Hill, the senior director for European and Russian affairs, testified that Mr. Giuliani and his allies circumvented the usual national security process to run their own foreign policy efforts, leaving the president’s official advisers aware of the rogue operation yet powerless to stop it. –NYT

It is unknown if Bolton’s testimony is voluntary, or if he will be issued a subpoena according to the Daily Mail.

Now that UK PM Boris Johnson has locked down the votes to call for a general election in December, it appears he’s moving on to the next step: ensuring that, even if his Tories can’t secure an outright majority (which would have been a stretch even before the September expulsions) that they come back with enough votes to push through his Brexit deal. 

Johnson reportedly has enough votes to pass the Withdrawal Agreement Bill, so long as he allows MPs sufficient time to scrutinize it (since they objected to his attempt to fast-track the process). However, instead of prioritizing another Brexit Deal vote, Johnson is hoping to hold the next general election first, largely for political reasons (former Tory Philip Hammond has accused Johnson of deliberately pushing out moderate independents and encouraging “entryism” by far-right candidates better aligned with Johnson’s agenda, per the Guardian).

Nigel Farage

And that’s where Nigel Farage and Brexit Party come in. According to the FT, BP is reportedly considering pulling out of races for 100s of seats, and focusing instead on 20-30 Leave-supporting constituencies currently held by Labour MPs, in the hopes of turning even more seats into supporters of Johnson’s Brexit deal (or even leaving without a deal, the party’s favored position, and something that Johnson has said in the past that he would support).

It’s simple political arithmetic. If two pro-Brexit candidates run in the same district, they risk splitting the vote and handing the race to  Labour or another opposition MP. Pollsters have reportedly been warning both Johnson and Farage about the possibility that, without a deal, Jeremy Corbyn would be PM before Christmas.

And that’s something nobody can live with.

Still, Brexit Party insiders insisted a deal could create complications for Farage, who is coming in hot after his party’s stellar performance during the EU Parliamentary races back in May, and is facing pressure to quickly replicate that success. Ironically, those MEPs would all need to vacate their seats once Brexit has been delivered.

It’s unclear still, whether Farage will run during the upcoming vote. He has reportedly told friends that he’s leaning toward not running. Some advisors have argued that if Farage runs (in what would be his eighth attempt to hold a seat in the Commons) and wins, then he would be locked into focusing on one district instead of managing the Party’s broader agenda.

Here’s the FT:

“Much of the Brexit party vote rests on his personal following,” said one party insider. But a Brexit party spokesperson dismissed the suggestion of Mr Farage not standing in the election as “wild speculation”.

Of course, the Tory expulsions will no doubt come in handy for Johnson by allowing him roughly two dozen seats that he can trade away to Farage, possibly in exchange for Brexit shifting their candidates to focus on Labour-held districts.