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Dear Jay Powell: It’s Still The Eurodollar, Stupid!

Authored by Jeffrey Snider via Alhambra Investments,

Behind The Blame Game

After what is all but certain to be the final “rate hike” in this cycle, Bloomberg reported that President Trump had previously explored all possible legal ramifications of demoting Federal Reserve Chairman Jay Powell. The issue has become a major one, in the media, anyway, now that Mr. Powell has indicated his error. There will be no further hikes this year, rate cuts now pretty much a done deal from here.

Given the situation, it’s at least understandable how no one is in much of a mood to talk about it publicly. The President’s Chief Economic Advisor, Larry Kudlow, said this week:

I’m not going to comment. It happened six months ago, and it’s not happening today, and therefore I have nothing to say about it. We are not taking actions to change his status.

The central bank is ostensibly independent, which has been its biggest error of all. Not because it is or isn’t attached to the government in some fashion, rather there is no accountability for anything. That’s all independence has meant; central bankers get to decide how well the central bank has performed.

Unsurprisingly, the most Chairman Powell would say recently about QE and the like was, “views differ on the effectiveness of these policies.” Interest rates and money curves are far more certain about them.

The President is saying that the Fed has made another policy error. But in making the claim he is also making an error. A policy error gives the central bank too much credit. It simply isn’t that powerful. If you really believe 2.40% federal funds crashed the economy, I doubt any amount of evidence would convince you otherwise.

It isn’t a policy error it is a forecast error. There’s a big difference. The policy is irrelevant. The Fed wasn’t tightening, it was raising rates believing the economy was so good it required some response. The problem isn’t the response it was the belief leading up to it.

Believing the central bank has that much influence, you’re likely to also believe rate cuts will help; or that a central banker will be in any way helpful. I wrote last July:

The shape of the current curve is saying the same thing now as it did in early 2000, only at such a diminished nominal level only a central banker could miss the curve’s primary message.

It’s the eurodollar, stupid.

The reason there is so much constant forecast error, especially the last ten years, is that one. That’s why there is no economic growth nor inflation risk as both the eurodollar as well as the UST curves flatten out far closer to zero than normal. They call it R* or the neutral (and natural) interest rate, but all those things describe an economy that just isn’t going to grow and the deepest, most important markets that all believe (eurodollar futures plus UST’s) this isn’t about to change.

At that very moment, the FOMC’s forecasts were really starting to diverge from the reality pictured in the increasingly inverted eurodollar curve. While the projections remained fixed on growth and inflation acceleration, over the next several months the entire global economy moved closer to what really was a landmine.

There is no doubt what happened during October, November, and December at least as an economic matter (the technical details as to what exactly went wrong and where, those are much harder to pin down). The data keeps pointing in that direction.

IHS Markit’s PMI estimates on the US economy (as well as others) reconstructs the aftermath of the detonation. The latest Composite PMI reading released today is now just above 50. At just 50.6, the flash estimate for June 2019 was is right in the same vicinity as the lowest point during Euro$ #3 three years ago in early 2016.

The manufacturing PMI came in at 50.1 – the lowest since 2009. Since it is trade in goods which requires so much financing and money, especially in global conditions, it is always the manufacturing sector which first picks up on the economic damage wrought by monetary explosion(s). Markit’s index topped out unsurprisingly last April, beginning its downward trend in the month that contained May 29.

The real plummet began in November and then like bond yields all over the world it sank in December, taking an almost straight line path downward ever since (making a fool out of my constant reminder of how things never go in a straight line; both bond yields and manufacturing PMI’s beg to differ).

The real issue for both President Trump and Chairman Powell isn’t rate hikes, nor is it trade wars. While the two are going to keep pointing fingers at each other, they and we would be so much better off heeding the advice of the bond market (for once). It was neither of those things which led us into this mess, and therefore focusing on them will only ensure there’s worse to come.

Which, by the way, is exactly how the curves are positioned right now. As I’ve been writing for a while, Euro$ #4 looks to be one of the nastier global monetary shortages. The composite PMI equals the low of Euro$ #3 while the manufacturing PMI is underneath already. By those viewpoints, the economy even now is in a state which is consistent with the last near recession.

And it’s just getting started. Matching the worst of the last one (and the one before that), the bond market is pricing how the worst of this one is yet to come.

It’s still the eurodollar, stupid.

via ZeroHedge News http://bit.ly/2RtEDaN Tyler Durden

India “Risks Triggering Sanctions” Over Russian S-400 Deal, US Warns

Just ahead of US Secretary of State Mike Pompeo’s visit to India next week, the State Department reiterated US frustration with New Delhi over its deal to purchase S-400 antiaircraft missile system from Russia.

India already appeared to blow off last week’s US urging it not to go through with the purchase, which comes at a delicate time of severe strain with Turkey over precisely the same issue. A State Dept. briefing hinted at the Turkey issue alongside ally India seeking to procure the advanced Russian system:

“With respect to the S-400, we’re urging all of our allies and partners, India included, to forgo transactions with Russia that risk triggering the CAATSA sanctions,” an official said during a background briefing Friday.

The “Countering America’s Adversaries Through Sanctions Act” is the 2017 law allowing the White House to impose sanctions on countries buying Russian weapons. 

Russian S-400 system file photo

“This is a time we will be encouraging India to look at alternatives,” the US official added. However, it appears a whole litany of countries over the past year have shown increasing interest in pursuing the S-400. 

Last year the military analysis magazine Military Watch put together the following list of US allies, NATO members, as well as non-aligned states lately showing “considerable interest” in the S-400. They include: 

  • Iraq 
  • Qatar
  • Saudi Arabia
  • Morocco
  • Egypt
  • Turkey
  • India
  • Vietnam
  • South Korea

And then there’s Russia defense clients China, Belarus, Algeria, and Iran as well. Turkey has remained unmoved even amid an unprecedented rift with Washington and talk of sanctions and even threats of Ankara’s own counter-sanctions. 

India’s English-language daily The Economic Times indicated this week that the Indian government’s course will remain unwavering:

The Ministry of External Affairs had earlier made it clear that India had no plans to scrap its S-400 deal with Russia despite the US posturing. The Indian government is not comfortable with Donald Trump administration repeatedly trying to dissuade India from purchasing the S-400 system. 

Though during Pompeo’s visit to New Delhi next week economic and job matters are expected to top the list — especially reassurances that Washington has no plans to impose a cap on issuing the highly sought after H-1B visas used widely by Indian IT professionals — the S-400 deal with Russia will be a tense lingering issue, likely to be brought up by Pompeo.

India is categorized as having “Strategic Trade Authorization Tier-1 status” in Washington, yet not even Turkey’s full NATO membership status has prevented it from coming under the White House’s wrath over the past year, further resulting in blocked F-35 stealth fighter purchases. 

via ZeroHedge News http://bit.ly/2FsnucA Tyler Durden

Feeling The Heat Of A Civilization On The Downside

Authored by EconomicPrism’s MN Gordon, annotated by Acting-Man’s Pater Tenebrarum,

An Epic Folly for the Ages

Today we begin with a list.  A partial list.  And in no particular order…

Angela Merkel. Donald Tusk. Mario Draghi. Donald Trump. Jerome Powell.  Shinzo Abe.  Haruhiko Kuroda.  Theresa May. Boris Johnson. Mark Carney. Xi Jinping.  Emmanuel Macron.  Vladimir Putin. Justin Trudeau. Juan Trump.  And many, many more…

Politicians and bureaucrats of the modern age of statism and central planning… fighting a rearguard action doomed to fail. [PT]

These central planners – though they may not know it – are facing a no-win situation. They have extrapolated the past and are attempting to preserve the status quo into the future.  Yet their efforts to perpetuate the upward growth curve of their countries and unions are useless against the relentless turn of history.

The political, financial, economic, and social foundations that have been in place over the last 75 years – and perhaps, over the last 220 years – are breaking down.  And no policy directive, no interest rate adjustment, no trade tariff, no five year plan, no extraordinary measures, no green new deal, and no technocratic prevarication is going to stop it. Big Government doesn’t stand a chance.

The entire apparatus, from social welfare programs to a ridiculously complex capital structure, is based on perpetual growth. But growth, as we are all presently discovering, is ephemeral. The rapid creation of fake money by central planners may be able to forestall the downside that follows a mega-growth cycle. But it cannot avert it.

Still, the central planners are doing anything and everything to resist the downside. They are taking emergency actions. They are employing extreme currency debasement. They are slapping price controls across the economic landscape. They are starting wars. They are harnessing populism. They are doing all of these – and more.

They are also slipping and sliding and falling and flailing.  Indeed, this is an epic folly for the ages.  With this as context, what follows are several of this week’s choice proceedings…

Perpetual Stimulus

On Tuesday, German Chancellor Angela Merkel suffered visible tremors while listening to the German national anthem.  She was standing next to Ukrainian President Volodymyr Zelensky at a welcome ceremony in Berlin when the heat and stress got to her.  Can you blame her?

Angela Merkel trembles through the national anthem [PT]

Merkel has spent 14 years in office, toiling to keep the European project from fragmenting.  That’s a long time for anyone to stare down doom on a daily basis. Fortunately, after consuming three glasses of water, Merkel was doing much better.

On the same day, European Central Bank President Mario “whatever it takes” Draghi reaffirmed his commitment to currency debasement. His objective is to, somehow,provide perpetual stimulus to the euro zone economy. Much like  Elizabeth Warren’s Economic Patriotism plan, Draghi aims to boost exports via the destruction of money.

Following Draghi’s utterances, the great European bond bubble expanded into the outer stratosphere.  The yield on the German 10-year Bund dropped to a record negative 32 basis points.  What’s more, the yield on the 10-year French OAT briefly slipped into negative territory for the first time in recorded history.  But that is not all…

Europe’s chief monetary crank Mario Draghi promises to implement an even looser monetary policy and sends German 10-year Bund yields tumbling further into the nether region of negative yields-to-maturity. This is insanity writ large. [PT]

Draghi’s utterances stimulated President Trump to fire the following Twitter shot:

“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have getting away with this for years, along with China and others.”

Of course, Trump’s intended recipient of this tweet wasn’t Draghi; it was Fed Chair Jerome Powell…

Feeling the Heat of a Civilization on the Downside

On Wednesday, as fate would have it, Powell took his turn feeling the heat of a civilization on the downside.  Trump, no doubt, wants Powell to debase the dollar and engineer a cheap credit induced economic boom and stock market bubble to coincide with election day on November 3, 2020. He has been publicly ridiculing Powell’s monetary tightening policies for months.

Powell’s mandate coming out of the June FOMC meeting this week was to appease Trump while pretending the economy is doing just great. Hence, as Powell prepared to release the Fed’s FOMC statement, he registered a Pucker Factor 9 (PF9) out of 10 on the military’s Pucker Factor scale.  However, he did manage complete his task without succumbing to visible tremors.

US 10-year t-note yield – at its current level, it is trading well below the Federal Funds rate.

So far, Powell appears to have achieved his mandate.  The central planners at the Fed held their licked fingers up to the wind and concluded they’ll continue fixing the federal funds rate between 2.25 and 2.5 percent.  And to appease Trump, Powell included following in his opening remarks:

“The case for additional accommodation has strengthened.”

The credit market and the stock market both celebrated the Fed’s assurance of future currency debasement. The yield on the 10-year Treasury note fell below 2 percent.  Then, on Thursday, the S&P 500 Index clinched a new closing high of 2,954.  The Dow Jones Industrial Average also made another run at 27,000.

You see, with enough monetary gas, and misplaced confidence, financial markets can go vertical.  But what good is it if the actual economy is left behind?

The stock market is hurrying toward new all time high territory, celebrating a string of recent weak economic date releases which have kindled hopes for more monetary pumping from the Fed. Bizarrely, the Fed seems eager to oblige. If anyone had told us a year ago that the Fed would seriously contemplate rate cuts with the unemployment rate at 3.6% and the S&P 500 Index at an all time high, we would never have believed it. And yet, that is where we are now. [PT]

Remember, it takes prudence, wisdom, and industry to acquire and build wealth.  The fact that central planners are attempting to circumvent these steps by issuing gobs of fake money is confirmation of a degraded human mind.

At this point, you can practically count the days until we suffer the ruin of their folly.

via ZeroHedge News http://bit.ly/2Iy7urA Tyler Durden

Ilhan Omar Backs AOC, Infuriates Jews After Explaining Why Border Facilities Are “Concentration Camps” 

Rep. Ilhan Omar has once again poked the hornet’s nest, backing fellow congresswoman Alexandria Ocasio-Cortez (D-NY) who said that the white house is operating “concentration camps” on the US-Mexico border. 

When asked by a reporter if she agreed with AOC, Omar defended the comments using a literal description of ‘concentration camps’ – saying “There are camps and people are being concentrated,” adding “This is very simple. I don’t even know why this is a controversial thing for her to say.” 

Prominent Jewish leaders did not take kindly to Omar’s remarks.

Rep. Lee Zeldin (R-NY) tweeted on Friday that AOC and Omar “prefer mass hysteria & false comparisons over pursuing bipartisan fixes/progress.” 

Former New York Democrat Assemblyman Dov Hikind tweeted on Friday “For those who know @Ilhan well by now could have bet with precision that it was only a matter of short time before she would follow @AOC in distorting Holocaust history for political gain!” In a followup, he said that Omar is invited to go on an educational tour of Nazi concentration camps. 

Major GOP donor Dan K. Eberhart tweeted: “.@IlhanMN already has a history of incredibly insensitive and anti-Semitic remarks, so of course she would support @AOC’s incredibly offensive and intellectually dishonest “consecration camps” remarks.”

Recall just three months ago House Democrats almost censured Omar over two remarks considered anti-Semitic, only to pivot and turn the resolution into a general “anti-bigotry” vote. She now sits on the Black-Jewish Congressional caucus on which Rep. Zeldin also sits.

Ocasio-Cortez sparked controvery during a Monday evening instagram video in which she casually compared the border crisis to the holocaust, drawing wide condemnation from Jewish groups and others. 

As we noted on Wednesday, the Jewish Community Relations Council of New York slammed AOC – writing in a Tuesday statement: “We are deeply disturbed by the language used in your recent Instagram live video which seeks to equate the detention centers on America’s southern border with Nazi-era Concentration Camps.” 

On Saturday, she doubled (or is it tripled?) down.

via ZeroHedge News http://bit.ly/2FryGGi Tyler Durden

“Somebody” Finally Cares About Gold

Authored by Adam Taggart via PeakProsperity.com,

…and now that $1,400/oz has been breached, there’s plenty of room to run…

Grant Williams pithily summed up the situation that has been plaguing gold since 2013: No One Cares.

Yes, it’s highly likely that the price has been suppressed. But not enough buyers cared to fight the bullion bank/central bank cartel or make life difficult enough for the politicians — and thus, the regulators — to change things.

So gold languished. For years.

But last August, gold quietly entered a bull market after breaking above $1200.

As the price began rising (for both fundamental & technical reasons), we’ve been tracking its progress closely.  We do so on a daily basis via Peak Prosperity’s Precious Metals Daily Commentary updates (outstanding authored by user davefairtex), as key developments happened via our premium reports (like this prediction), and via expert interviews such as our recent in-depth discussions with TFMetals and Incrementum’s Ronni Stoeferle.

As we entered 2019, the increasingly dovish/desperate policy retracements of the central banks — which now appear will NEVER normalize their balance sheets — have boosted the bull run.

Lower real interest rates are gold price-positive. And not only are real rates falling right now, there’s already currently $13 trillion in negative *nominal* debt trading worldwide right now:

And based on this week’s further dovish announcements from both the Fed and the ECB, we can expect more $trillions to be added to that pile soon.

On Tuesday, Mario Draghi apparently went rogue on his fellow policymakers and launched into a swan song version of his all-time hit “Whatever it takes”. The next day, Jerome Powell at the Fed confirmed his willingness to ease and let the market know he stands ready to cut rates multiple times over the next year.

That — plus a downed US drone patrolling the Iran border — poured gasoline on gold, which spiked as high as $1,410/oz, finally breaking free of the $1,350 ceiling that had blocked its advance for years.

Technically, if gold can hold above $1,385, it has a lot of room to run from here. As the chart below shows, gold has traced out a reverse head-and-shoulders pattern and has now punched through the neckline — a bullish breakout — currently trading at $1,400/oz at the time of this writing, the highest price it has traded at since 2013.

source: Northman Trader

Short of a raid orchestrated by the central planners to fasten tighter the cap on gold (which remains a real possibility given the historical record), the yellow metal shouldn’t encounter much price resistance until above $1,500/oz.

The metal itself and the miners are now in uptrends across all three timelines of the proprietary forecaster maintained by Peak Prosperity’s Precious Metals analyst davefairtex . We haven’t seen such strong indicators in, well…forever.

Here’s gold, which while registering overbought after its recent $100 spike, remains in a very strong uptrend:

source: Peak Prosperity Gold forecaster 6.20.19

And here are the miners (represented by the XAU index), following gold nicely as would be expected, confirming a breakout:

source: Peak Prosperity’s Gold Miner forecaster 6.20.19

While we may see some price retracement over the immediate term, to be expected after such a monster run-up and as war-with-Iran fears (hopefully) ebb, Dave explains why the current macro situation remains bullish for gold:

The problem is, we have a newly-semi-dovish Fed happening at the same time as renewed interest in a US-China trade deal, a possible impending lockup of China’s banking system (!), the Iranian shoot-down of a US drone (over either Iranian territory – or Iranian waters – or International Airspace, take your pick), while Draghi over in Europe has been accused of lying about the ECB’s renewed dovishness, for which there is apparently no consensus after all. And Draghi is almost out the door himself, so there’s that uncertainty too.  Who will replace him?  Will they still be as print-happy?  Italy may be about to pay its debts using a new currency (the mini-BOT) which may or may not be illegal, and the EU is looking to fine Italy for having a high debt/GDP. This, while Apple has apparently decided to diversify its globalized supply chain outside China. Oh yeah. Boris Johnson appears to be a shoo-in for UK PM.

Enough moving parts?

So what can we expect going forward?

Well if peace breaks out, gold will probably retrace. Silver isn’t quite keeping up with gold, so it will probably retrace also.

This is the problem with safe haven moves. They spike higher, and then they deflate. And that history is why the commercials (I’m guessing here) play the odds and assume the world won’t end this time, and they go short into these big spikes. That, and there is probably some official intervention too.

Ultimately today’s breakout above 1382 is bullish.  Even if we do retrace the safe haven move, the 5-year resistance has been broken.  Although it appears as though it was the “Iran drone shootdown” snowflake that caused today’s gold buying avalanche, in truth it was probably a whole collection of snowflakes that led to an increase in overall uncertainty.  After all, gold has rallied for 4 weeks now.  The drone shootdown just pushed prices over the edge – turning it into a spike higher that even 134 “tons” of paper gold was unable to stop.

On the fundamental side, more and more experts and pundits are waking up to what PP has been saying all along: the central banks have painted themselves into a corner they don’t know how to get out of. So they keep using the one tool they have, hoping for a different outcome (and yes, perhaps pushing all of the wealth into the hands of the 0.1% *is* their desired outcome).

But that strategy is based on perverted logic; it can’t be sustained. You can’t print prosperity. There’s only so far asset prices can rise while real wages remain stagnant. Housing prices can’t long stay above people’s ability to put food on the table, even with <3% mortgages. There’s a point at which more stimulus no longer has any effect.

The smarter minds we talk with agree with us that the unfolding action we’re watching in real time is the total capitulation of the central banks. There’s nothing left after this one except money for Main Street, which we think the banks will hold in store to have *something* left for the arriving global recession (to be cutting rates at this point is absolutely insane).

So it’s quite likely a nasty deflationary downdraft lies in our future. While this may initially cause gold to drop in price, the metal should fare much better than the pantheon of risk-assets falling from their current all-time bubble highs. As we often say in our live presentations: “In a bear market, expect to lose money. The trick is to lose a lot less than everybody else”.

But even if the central banks succeed in preventing such a deflationary rout, then it will soon become confetti time for the word’s fiat currencies.

Do you realize that if you have a cool $1mil of cash on hand, you make only $20k/year if you have it in T-bills, or (much) less than that if kept in your bank account? Less than 5% of Americans have that kind of scratch on hand, and yet it produces an income below the US poverty level. If we stay on the trajectory we’re on, that $1 million won’t be worth diddly soon.

But gold? Gold should truly shine in this situation: both by maintaining its purchasing power and increasing in value as $trillions in capital look for safe haven.

Remember that the $7 trillion gold market is a small doorway compared to the $164 trillion held in stocks and bonds. (And the <$1 trillion silver market is ridiculously tiny relatively). If (more likely, “when”) just a few $trillion flee risk assets into the precious metals, the prices of gold and silver will explode.

Of course, our long-standing advice remains the same: Position yourself for this predictable outcome in advance.

Especially since the long awaited breakout above $1,350 has finally taken place. That technical milestone, combined with the last-gasp desperation the Fed and ECB have shown this week, indicate that the really big moves for the precious metals are now cleared to happen. Things could move quite quickly from here.

Specifically, we recommend availing yourself of the following three free resources if you haven’t yet already:

  • Get educated on how/where to buy & store gold and silver. Read our free primer here.

  • For the rest of your portfolio, talk with an advisor who understands the risks warned of here. If your current professional doesn’t fit the bill, schedule a free consultation & portfolio crash-audit with our endorsed advisor.

  • Follow the daily action in the precious metals by reading our excellent Precious Metals Commentary (referenced several times in the article above). You can do so here.

Finally, gold is no longer being ignored.

Someone Cares. Which is why we’re now at the highest levels seen in over half a decade.

Just imagine what the price will be like when Everybody Cares…

via ZeroHedge News http://bit.ly/2Y2d0YU Tyler Durden

China Vows To Fight Trade War “To The End” As Huawei Sues Commerce Department

It’s the weekend, which means the trade war between the US and China moved to the front page of the local propaganda media (in both the US and China). And while Trump has yet to slam Beijing, focusing this morning on the all time high in the market instead, China has been busy and in an editorial in the state-run People’s Daily, Beijing has warned that China has “the strength and patience to withstand the trade war, and will fight to the end if the U.S. administration persists.”

Echoing what China’s notorious twitter mouthpiece Hu Xijin said yesterday, the editorial said that just days ahead of the much anticipated G-20 summit in Osaka where Trump and Xi are set to meet, “the U.S. must drop all tariffs imposed on China if it wants to negotiate on trade, and only an equal dialogue can resolve the issue and lead to a win-win”, according to Bloomberg.

The communist party’s official paper also said the US had failed to take into account the interests of its own people, and they are paying higher costs due to the trade dispute. “Wielding a big stick of tariffs” also disregards the condition of the U.S. economy and the international economic order, according to the editorial.

Beijing’s official warning to the US ended as follows: if the U.S. chooses to talk, “then it must show some good faith, take account of key concerns from both sides and cancel all tariffs.”

And just to prove that China isn’t a paper tiger whose threats will be confined to the local newspapers, Reuters reported that overnight China’s controversial telecom giant, Huawei, filed a civil lawsuit against the US Commerce Department over the mishandling of telecommunications equipment seized by American officials, demanding its release.

In an almost absurd reversal, the company whose entire existence can be traced to stealing and reverse-engineering foreign technology and trampling over corporate ethics, the complaint alleges that the US government took possession of hardware, including an ethernet switch and computer server, which was transported from China to an independent laboratory in California for testing and certification back in 2017.

However, the equipment was not shipped back to China. It was “purportedly” seized en route and is currently sitting in Alaska, as US officials wanted to investigate whether the shipment required a special license. Such requests are usually processed within 45 days, but nearly two years have already passed since then.

“The equipment, to the best of HT USA’s knowledge, remains in a bureaucratic limbo in an Alaskan warehouse,” Huawei said in its lawsuit, which was filed on Friday in federal court in Washington.

Huawei contends that the equipment did not require a license because it did not fall into a controlled category and because it was made outside the United States and was being returned to the same country from which it came.

The company is not seeking any financial compensation and is not challenging the seizure itself, but is sending a message to Washington, saying “post-seizure failures to act are unlawful”, in effect charging the Trump admin with doing precisely what it, itself has been accused of. Huawei wants to force the Commerce Department to decide whether an export license is really necessary and, if not, release the withheld equipment.

The lawsuit comes amid a bitter row between two world’s largest economies, and Washington’s crackdown on Huawei. In May, the Trump administration added Huawei to the entity list, barring it from buying needed U.S. parts and components without U.S. government approval. The US alleges that Huawei could be spying for the Chinese government, a claim which the company has repeatedly denied.

Huawei CFO Meng Wanzhou, daughter of the company’s founder, has been detained in Canada since December on a U.S. warrant. She is fighting extradition on charges that she misled global banks about Huawei’s relationship with a company operating in Iran.

Of course, Huawei is not the only Chinese tech company that the White House decided to put on its trade blacklist. On Friday, five Chinese organizations – supercomputer maker Sugon, three its affiliates, and the Wuxi Jiangnan Institute of Computing Technology – were added to entity list on the grounds that their activities are allegedly contrary to US national security and foreign policy interests.

The fresh US blacklisting comes ahead of crucial talks between US President Donald Trump and Chinese President Xi Jinping in Osaka, Japan, which are intended to ease tensions between the two sides. Still, don’t expect a breakthrough: as Goldman’s trade deal odds index found last week…

… the probability of a breakthrough between the two nations is roughly one in five.

via ZeroHedge News http://bit.ly/2xj6IIJ Tyler Durden

“Let’s Make Iran Great Again”: Trump Says Iran Could Be His “Best Friend” 

Well, perhaps Trump is now realizing there was that little thing called the Joint Comprehensive Plan of Action (JCPOA), or commonly the Iran nuclear deal, which he tore up in May 2018 — and that it really wasn’t so bad compared to the current array of “bad options”. 

President Trump said Saturday that he would be Iran’s “best friend” and that it could be a “wealthy” country if it renounced nuclear weapons, according to the AFP.

So we’ve gone from missiles being readied, ships about to launch, and planes in the air this week to now “we can be besties” if Tehran makes nuclear concessions (and we’ve definitely gone full circle from the JCPOA pullout). 

Anti-war protestors in front of the White House on Thursday. Image source: Keystone

“We’re not going to have Iran have a nuclear weapon,” Trump told reporters outside the White House following an immensely tense week that almost witnessed major war between the US and Iran. 

“When they agree to that, they’re going to have a wealthy country. They’re going to be so happy, and I’m going to be their best friend. I hope that happens,” Trump said. 

And then this surprising and unprecedented statement coming less than two days after chaos in the Middle East was nearly unleashed: 

“Let’s make Iran great again.”

Trump responded to reporters’ questions at the close of this week’s Iran saga following the dramatic US drone shoot down by explaining: “Everyone was saying I’m a war-monger, and now they say I’m a dove,” according to the AFP. 

“I think I am neither, if you want to know the truth. I’m a man with common sense, and that’s what we need in this country, is common sense.”

Indeed, though it now looks like the White House could be experiencing regrets about its unilateral pullout of the 2015 P5+1 nuclear deal, and subsequent “maximum pressure” campaign, Trump’s decision to not pull the trigger Thursday night was met with a huge sigh of relief from the American people and around the globe (poll after poll has found that the vast majority of Americans do not want another US war in the Middle East).

According to Moon of Alabama blog, the US “maximum pressure” campaign has now effectively backfired, and Trump is seeking a way out as Tehran currently appears to be  waging its own “counter-pressure” campaign: 

Trump does not want to open a military conflict with Iran. But he is already waging a brutal economic war against Iran and the country is pushing back. Trump wants negotiations with Iran without first lifting his sanctions against it. Iran rejects that.

It no longer matters what Trump wants. Iran has achieved escalation dominance. It can cause a myriad of incidents that force Trump to react. He can either launch a hot war and thereby risk his reelection bid, or he can cut back on the sanctions that hurt the Iranian people. If he does not do either, more pinpricks will follow and will over time become more costly.

But the situation looks to fester without significant alteration, perhaps building toward another near future “incident” which again brings to the two sides to the brink of war. 

“We are putting additional sanctions on Iran,” Trump said further during Saturday’s press briefing. “In some cases we are going slowly, but in other cases we are moving rapidly.”

He also said military action “is always on the table” against Iran, but at the same time said he’s “open” to “reversing the escalation”.

via ZeroHedge News http://bit.ly/2ZHpeq9 Tyler Durden

Globally Synchronized (Bond Yields)

Authored by Jeffrey Snider via Alhambra Investments,

If you have nothing left, it can sound like a winning argument but you have to really try hard. In October 2015, with another false dawn dawning on the public, former Federal Reserve Chairman Ben Bernanke wrote and op-ed published in the Wall Street Journal. As had become his habit, it was full of praise – for his own work.

Though he likely didn’t choose the title, it reflected his article nonetheless; and it tells you all you need to know about it. How the Fed Saved the Economy. How did they do it, you might ask. By being aggressive and courageous, Dr. Bernanke has answered.

The better question was, how do we know the economy was saved? The primary piece of evidence presented: at least we aren’t Europe. Maybe the US economy wasn’t good but it wasn’t Europe bad, therefore success!

Europe’s failure to employ monetary and fiscal policy aggressively after the financial crisis is a big reason that eurozone output is today about 0.8% below its precrisis peak. In contrast, the output of the U.S. economy is 8.9% above the earlier peak—an enormous difference in performance.

Actually, no, it wasn’t any difference in performance. I wrote a few days after:

That ends the favorability, however, as cycles prior again demonstrate that Bernanke’s attempted distinction against Europe is none at all. From the 1990 peak, 31 quarters forward saw real GDP gain 26.0% while nominal GDP advanced almost 50%; from the peak in 1980 (which, again, is a highly advantageous starting point to Bernanke’s display since I have reflected through both of the double dip as the cycle peak) real GDP gained 27.1% with nominal GDP riding the remnants of the Great Inflation to 79.6%; from the 1973 peak, real GDP rose 22.0% while nominal GDP flew apart at 120.5%.

During and after the nasty 1973-75 recession, the one that led into the worst parts of the Great Inflation, a time period from which no serious person would ever confuse with anything but awful economic conditions, real GDP managed almost three times more expansion than what Bernanke was holding up as his standard.

This is why he chose to compare his record against his European counterparts. Their failure was more miserable. What that ultimately means is that the US economy was the least worst, nothing more. It was then, and remains now, all in the same category as either Europe or Japan. Being the best of the worst class doesn’t quite add up to a compelling case.

Having the world’s largest economies all share this distinction should be a major clue, or at least a starting point for someone somewhere to investigate how that would be. But if they did, they’d have to do so coming face to face with the bond market. Economists and central bankers hate bonds, so yield curves and interest rates are for the mainstream economic story like some undiscovered wilderness.

It’s always been globally synchronized – just never once in growth. What he was trying to say was how his actions, the Fed’s monetary policies, made all the difference. What the bond market instead pointed out was how Bernanke’s so-called courage made no difference whatsoever.

It may look initially like globally synchronized growth in 2017 was making Bernanke’s 2015 case for him; like there was some space between US rates and the others, but none of three major markets ever projected any real possibility of a radical change for the better. Bond yields had all converged in 2016 because Milton Friedman was right about the significance, and meaning, of interest rates. Coming out of it, Reflation #3, each major system priced the same factors amounting only to slight variances.

The UST market saw the most reflation, and that wasn’t very much – curves flattened at historically low nominal levels. The nominal increase was almost entirely due to “rate hikes”; that there were actually some. The flat curves said the FOMC wouldn’t likely get very far (they didn’t).

The German market never really bought into Mario Draghi’s worldview. There was very little chance Europe’s version of a “boom” would provide the ECB with enough justification for even a first. Yields never really moved all that much at any point.

Japan, well, enough said.

In the end, these amount to only slightly different probabilities of continuing the low rate paradigm. Japanification Euro$ #4 is simply the same mechanism for it, and ultimately the confirmation that the lack of growth remains the deciding condition for all of us.

The 10-year UST yield is today not really that far above its post-crisis low. The German 10s are already at a record. And Japan’s 10-year JGB is once more in the same vicinity as the last trough, also near a record low.

In short, Reflation #3 never had a chance in any of these places because people like Bernanke were simply rationalizing failure. Globally synchronized growth, from the view of global bonds, was either emotional pleading or globally synchronized propaganda. There was never a market consensus for Bernanke’s view, nor Draghi’s and certainly not anything Kuroda has been thinking or saying.

During what were supposed to have been the best of times, 2017, the only thing really different in each bond market was by how much each central bank was projected to inevitably fall short of real recovery. The fact that the US may have come the closest will be some small comfort only to central bankers like Bernanke looking for some way, any way, to maintain his reputation in posterity.

Because in the end they all fell short. Far short. The word appearing uniformly in all these falling global bond yields is landmine. More to the current point, what’s already going wrong is still just the opening act in the whole globally economy going the wrong way from growth. 

Sorry, Dr. Bernanke, globally synchronized the whole time.

via ZeroHedge News http://bit.ly/2FroAFr Tyler Durden

Iran Vows “One Bullet” In Our Direction Will “Set Fire” To US & Allies

The world was very close to witnessing yet another US preemptive strike war in the Middle East this week, and though a last minute White House decision to stand down caused a collective sigh of relief, even a minor incident could yet trigger a major conflagration. 

Early Saturday a top Iranian general warned Iran is ready to initiate a full retaliation if even “one bullet” is fired at the Islamic Republic. “Firing one bullet towards Iran will set fire to the interests of America and its allies” in the Middle East, armed forces general staff spokesman Brigadier General Abolfazl Shekarchi told Tasnim News Agency.

Image via The National Interest

“The Islamic Republic has never and will never start any wars,” Shekarchi added, and threatened further, “if the enemy commits the smallest of mistakes, it will face the biggest revolutionary reaction from Iran in Central and West Asia, and it will certainly not survive the battle.”

“If the enemy fires one shot in our direction, we will fire ten back,” he said, following the dramatic shoot down of a US military drone, which while Iran said had violated its airspace, US commanders countered that it had been in international airspace the whole time. 

On Friday President Trump revealed that “we were cocked and loaded” for an attack on Iran, but explained in an extreme show of transparency why he decided against airstrikes on Iran, saying that he was informed by a general that about 150 would die, and thus had to weigh the consequences. “10 minutes before the strike I stopped it, not proportionate to shooting down an unmanned drone,” Trump explained to the American public in a tweet.

Meanwhile Russia has slammed Washington decision-makers for escalating tensions to a point where climbing down the escalation ladder will prove increasingly difficult. 

Russia’s deputy foreign minister Sergei Ryabkov responded to the near-miss war in the Persian Gulf by saying “the situation is on the brink of war”, as cited in Russian news agency RIA. 

Ryabkov called on Washington to “weigh the possible consequences of conflict with Iran and said a report in the New York Times showed the situation was extremely dangerous,” according to Reuters.

via ZeroHedge News http://bit.ly/2MZQazN Tyler Durden

Did Venezuelan Coup Leaders Pocket $70 Million From Citgo’s Stolen US Assets?

Authored by Anya Parampil via TheGrayZone.com,

Venezuela’s government has claimed the Department of Justice will investigate Citgo’s opposition-appointed board for the theft of $70 million. But the board is itself the product of a massive theft – that of the elected government’s wealth.

Former Exxon Lawyer and Venezuela opposition envoy to Washington, Carlos Vecchio, may have overseen a multi-million dollar fraud scheme since his political allies were handed control of his country’s US-based oil accounts.

On June 17, Venezuela’s government claimed that the US Justice Department was opening an investigation into Citgo’s opposition-appointed board of directors. Hours later, the ad-hoc council confirmed it had received a subpoena from US officials.

Citgo appeared to confirm the existence of the US government probe, stating that it “received a subpoena from the Department of Justice, which has been conducting a multi-year investigation into corruption practices in PDVSA.” Citgo is a subsidiary of Petroleum of Venezuela (PDVSA), the country’s state-owned oil company.

Citgo said it has “pledged full cooperation” with the investigation. It did not specify the nature of the subpoena or whether it concerned illegal activities alleged to have taken place before or after Guaido’s appointees took control of the company.

Citgo’s announcement followed an ominous comment by Venezuela’s Vice Minister of Communications on June 17:

“It is very likely that the United States Department of Justice will open an ad hoc investigation into the fake board of directors that Juan Guaidó appointed to the Citgo company,” Rodriguez proclaimed during a presentation from Venezuela’s presidential palace.

According to Rodriguez, the investigation was sparked by an alleged accounting fraud totaling $70 million. Rodriguez asserted the money, originally meant to cover PDVSA’s 2020 bond payment due in April, was stolen by Guaido’s representative in the US.

“It seems like the person directly involved in having pocketed those $70 million in excesses, due to cooking the books, is Mr. Carlos Vecchio,” charged Rodriguez.

The allegations of theft on a mass scale came just a day after members of Guaidó’s inner circle were exposed for embezzling $125,000 in money intended for humanitarian aid, spending it on expensive hotels and luxury items in Colombia.

Guaidó’s coup administration is not only facing a collapse of its credibility, but now the possibility of serious legal consequences for its brazen conduct.

Asked by The Grayzone about the existence of an investigation into the opposition’s Citgo accounts, the US Department of Justice stated that it “generally does not confirm, deny or otherwise comment on the existence or non-existence of an investigation.”

Stacking Citgo’s board with corporate consultants and pre-Chavez oil executives

The Trump Administration recognized Vecchio as Venezuela’s ambassador to Washington in January, after he was appointed by Guaidó.

Vecchio has since surrounded himself with an entourage of professional opposition activists in Washington DC. They include David Smolansky, a former local official from Vecchio’ Popular Will party who was appointed to PDVSA’s board of directors by the opposition-controlled National Assembly this February.

Vecchio did not reply to questions sent by The Grayzone pertaining to the management of Citgo accounts and where he finds the funding to cover his salary and those of his staff.

“Why doesn’t Guaidó have appointed ministers?” Rodriguez asked, insisting that the US-appointed leader had selected “representatives of Citgo to steal $7 billion.”

“We have information that interests which belong to Citgo are moving to personal accounts,” the government spokesman added.

$7 billion represents the entirety of PDVSA’s US-based assets seized by the US in January when it rolled out unprecedented sanctions targeting Venezuela’s oil industry. In conjunction with the Trump Administration’s announcement, Guaidó ordered Venezuela’s legally defunct National Assembly to appoint a new board of directors to PDVSA and Citgo.

Within weeks, Reuters reported the new Citgo board “was arranging its first meeting at the company’s headquarters” in Houston.

“It seems like the U.S. legal system will generally accept the legal fiction that PDVSA, Citgo’s sole shareholder, is controlled by Guaidó rather than by the people in Venezuela who actually control it,” Bloomberg opinion columnist Matt Levine wrote at the time, highlighting the bizarre character of the move.

The Guaidó-appointed board was subsequently stacked with corporate consultants and former PDVSA employees who were forced out of the company under the watch of the late Venezuelan President Hugo Chavez.

Citgo’s new chairwoman, Luisa Palacios, previously served as chief of Latin America Macro and Energy Research at Medley Global Advisors, which bills itself as “the leading macro policy intelligence service for the world’s top hedge funds, investment banks, asset managers and corporations”.

While at MGA, Palacios’ job was to “[provide] primary-sourced intelligence and analysis on economic policy and political risk”. In other words, a woman who just months ago was advising hedge funds and corporations on Latin America energy policy now heads a major Latin American-based energy company.

Palacios has also worked as a strategist for British investment bank Barclays Capital and as a consultant at the World Bank’s Latin America division.

Joining Palacios on Citgo’s opposition-appointed board is financial analyst Andres Elloy Padilla. In an instance of flagrant nepotism, Padilla’s nomination was overseen by his brother, Luis Carlos, who was the Vice President of the Energy and Petroleum Commission of the National Assembly where nominations were decided.

Guaidó’s board also includes Luis Urdaneta, who once served as Citgo’s Chairman before becoming PDVSA’s Vice President in 1994. Urdaneta remained in that role until Hugo Chavez won power in 1998 and moved to fully socialize the company. Urdaneta’s colleague on Citgo’s new team, Angel Olmeta, similarly retired from his position on PDVSA’s board in 1998. While employed with PDVSA, Olmeta oversaw its acquisition of Citgo and went on to serve as the refinery’s Executive Vice President and Chief Operating Officer.

As former oil industry executives who saw their employment end with Chavez’s rise, Urdaneta and Olmeta have much in common with Guaidó’s US envoy, Carlos Vecchio. Vecchio enjoyed a successful career with private petrol, working as a tax lawyer for PDVSA before the rise of Chavez, then moving to ExxonMobil.

As The Grayzone reported, Vecchio led Exxon’s legal fight against the Chavez government and only entered the political arena once Chavez drove his former employer from the country.

As Guaidó’s US ambassador, Vecchio now stands accused of overseeing the embezzlement of $70 million from Citgo’s accounts. He has dismissed the reports, insisting his role as ambassador limits his involvement in Citgo’s affairs.

“I am not a part of PDVSA or Citgo’s board of directors, nor am I interested in being such,” Vecchio tweeted in response to the charges.

“We need to take control of those assets. Bank accounts, we need to protect that.”

While it’s unclear who exactly controls the assets handed over to Guaido earlier this year, Foreign Agent Registration Act filings list Vecchio as the “Foreign Principal” of “the Bolivarian Republic of Venezuela under President Juan Guaidó” in the US. The DOJ deleted that filing without explanation shortly after its publication.

“We have assets that belong to the republic. I represent the republic and [am] working on that,” Vecchio told Public Radio International in February when asked whether or not it was legal for him to manage Venezuela’s accounts.

“We need to take control of those assets,” he added.

When PRI asked what could “get done without an official embassy”, Vecchio replied without hesitation: “Bank accounts, we need to protect that. Gold reserves, we need to protect that and also public companies or corporations such as Citgo… So that’s what we are doing.”

What precisely Vecchio planned to do with the money was unknown, but his comments have taken on new meaning in light of the alleged fraud inquiry.

By transferring billions in oil assets belonging to the Venezuelan government into the hands of a group of opposition activists with a track record of corruption, the Trump administration has primed the pump for major scandals. Whether the former Exxon lawyer Vecchio and his cohort pocketed the Citgo accounts or “protected” them, as he pledged to do, the pilfering of Venezuela’s wealth through a slow-motion coup has already begun.

via ZeroHedge News http://bit.ly/2IyraeM Tyler Durden