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Submitted by Lindsay Politi of One River Asset Management

Ghosts of Investments Future

“I think of the markets like an ecosystem,” the fund manager told me.

“The environment causes some strategies to flourish and multiply, while others die off. The abnormally long, QE-fueled bull market killed off anything that wasn’t, at its core, a short volatility strategy. Now, whether it’s risky credit, levered equities, or risk parity, almost all strategies are taking similar risks. QE has done something much more damaging than the Fed could have imagined. It changed the very nature of the market, destroying the diversity of the market ecosystem, and making it incredibly vulnerable to the smallest change in the macro environment.”

Yields

“Bond guys think they know what they want, but they’re wrong,” my first boss told me. “They think they want lower yields because they drive up bond prices. But that’s a short-term gain collected at the expense of future returns. Client inflows surge, chasing those high returns, but they’re not repeatable unless yields continue falling. What bond guys should really want is high yields, the kind that create long term returns that are attractive to clients. Rising rates are painful in the short-term but higher rates are better in the long run.“

Fed Put

“Why did Powell reset the Fed put lower?” he asked “I don’t think Powell saw it that way,” I responded, “but I’m surprised people think a central bank put still exists.”

If we have a recession with overnight rates still at 2.50%, what can the Fed do? They can’t ease 500bps like in past recessions, there’s no room. Coordinated easing with the ECB and BOJ is off the table — their rates are negative and they’re running out of assets to buy for QE. At least the Fed won’t have that issue. With surging budget deficits, the Fed will have plenty of Treasuries to buy. And that’s only just begun, because the next put for the markets is really from fiscal, not monetary policy.

Assume

“What do you think about big data models?” the analyst asked. “There’s a fascination with having ever more data, but quantity can’t make up for quality,” I responded. Some things are easy to model but others are much harder because there’s just not good data. Anyone can build a decent model with great data. The hard part is knowing what to do with bad or incomplete data. The hardest yet is knowing when to pull your model because the data it was built with isn’t representative of the current environment.

How would you build a robust model for a bond bear market? There’s just not great data. Most quants compensate by creating a data series and then treating this made-up data as real. But to create a data series you must make assumptions. Success will come not to those who build the best machines but to those who make the best assumptions.

via RSS http://bit.ly/2ApiUJy Tyler Durden

Authored by Jim Quinn via The Burning Platform blog,

“An impasse over the federal budget reaches a stalemate. The president and Congress both refuse to back down, triggering a near-total government shutdown. The president declares emergency powers. Congress rescinds his authority. Dollar and bond prices plummet. The president threatens to stop Social Security checks. Congress refuses to raise the debt ceiling. Default looms. Wall Street panics.”

– The Fourth Turning – Strauss & Howe

Strauss and Howe wrote their book in 1996. They were not trying to be prophets of doom, but observers of history able to connect events through human life cycles of 80 or so years. Using critical thinking skills and identifying the most likely triggers for crisis: debt, civic decay, and global disorder, they were able to anticipate scenarios which could drive the next crisis, which they warned would arrive in the mid-2000 decade. The scenario described above is fairly close to the current situation, driven by the showdown between Trump and the Democrats regarding the border wall.

It has not reached the stage where all hell breaks loose, but if it extends until the end of January and food stamp money is not distributed to 40 million people (mostly in urban ghettos) all bets are off. The likelihood of this scenario is small, but there are numerous potential triggers which could still make 2019 go down in history as a year to remember.

As we enter the eleventh year of this Fourth Turning, the fourth Crisis period in U.S. history, the mood of U.S. citizens and citizens around the globe continues to darken. Fourth Turnings are driven by generational configuration and the emotional reaction to events by the Prophet generation leaders, Nomad generation spearheads, and Hero generation cannon fodder.

As we close out this year, stock markets are gyrating wildly, central bankers are trying to reverse their nine years of interventionist strategies to sustain the establishment, civil chaos spreads across the European continent, saber rattling between the U.S., Russia and China increases, the animosity between political parties reaches new heights, the Deep State relentlessly pursues their Mueller led coup against Trump, mega-social media corporations tighten their grip on free speech by silencing conservatives, leftists push their socialist, open borders, normalizing degeneracy agenda, and global recession gains momentum as trade declines and global debt reaches unserviceable levels.

Examining the three prior Fourth Turnings may give us a window into where we stand and what may happen in the coming year. We are in the tenth year of this Crisis, with the eleven-year anniversary slated for September 2019. The American Revolution Crisis was catalyzed in 1773 when the Boston Tea Party forever changed the colonial mood towards revolution. After eight years of struggle and desperate measures, the climax was reached with the surrender of Cornwallis at Yorktown in 1781.

But there was still thirteen more years of crisis as the new states forged a Constitution, elected Washington its first president, and he withstood the Jacobins, put down the Whiskey Rebellion and finalized a treaty with England. In year ten of the crisis, two years past the climax, the Treaty of Paris was signed, British troops left the continent, and Washington resigned as commander of American troops. The Articles of Confederation had been ratified in 1781 and remained in place until succeeded by the U.S. Constitution in 1789.

There was no tenth or eleventh year of the Civil War Crisis. Lincoln’s election with only 40% of the popular vote, prompting the attack on Fort Sumpter, and subsequent secession of Southern states, triggered the bloodiest conflict in world history, with 8% of all white men aged 13 to 43 killed in the war, including 6% in the North and 18% in the South. The acceleration of this Fourth Turning into a five-year window from 1860 to 1865 was not a positive development.

The extreme intensity of the conflict resulted in 700,000 tragic deaths. The catalyst occurred five years too soon and the resolution a generation too soon. A more extended crisis may have allowed tempers to moderate and the conflict to end in a more constructive manner. Instead, with the surrender at Appomattox and assassination of Lincoln, the resolution felt more like a defeat than a victory. Turmoil continued for at least a decade after the resolution.

The Great Depression/World War II Crisis saw its tenth and eleventh years as the most ominous, dangerous and destructive for Great Britain, as they bore the brunt of the German onslaught. 1939 saw the Nazi invasion of Poland and the official start of World War II. In May of 1940 Germany launched its blitzkrieg offensive through Holland and Belgium, defeating the French and British forces in a matter of weeks. Chamberlain resigned as Prime Minister, replaced by Churchill, as France surrendered in late June.

The Battle of Britain raged from July through October as Hitler relentlessly bombed England, trying to force their surrender. Germany, Italy and Japan signed the Tripartite pact in September, setting the stage for the U.S. eventual participation in the war. Einstein informed FDR of the potential for an atomic bomb during 1939 and the Manhattan Project was born. The climax of the crisis occurred with the successful D-Day invasion. The dropping of two atomic bombs on Japan and successful demobilization of military forces marked the end of the crisis.

History may not repeat, but human nature never changes, so the 80-year cycles of manmade crisis will repeat. The length of time from the American Revolution climax in 1781 until the Civil War climax in 1863 was 82 years. The next climax in 1944 was 81 years after the Civil War climax. Therefore, we can expect a climax to this current Crisis sometime in the 2025 range. The question is what events will transpire between 2019 and 2025 before a climax is reached.

Based upon history, the resolution will not be based on compromise, civility, reason, or peaceful means. The combustible combination of unpayable debt, civic anarchy, and global chaos are set to detonate, creating an era of maximum darkness, death, destruction, and decisions. Making America Great Again will require personal sacrifice, dreadful choices, survival skills, intelligent decisions, and the courage to win at all costs.

The first ten years of this Crisis were the early Winter solstice period when public order began to pass its nadir. The coldest days of Winter beckon with the harshest years of the Crisis ahead. Many melancholy days lie ahead, as bitter winter winds and blizzard like conditions sweep the bleak landscape, testing the mettle of even the bravest souls. The catalyst for the Crisis was the Wall Street created global financial meltdown in 2008. The election of Trump marked the beginning of the regeneracy, with Trump as the Gray Champion.

The last two years have certainly marked a new more volatile phase of this Crisis, setting the stage for the fireworks to come. The regeneracy is less like FDR’s New Deal initiated unification of the country and more like the Lincoln regeneracy after the First Battle of Bull Run when he ordered the enlistment of a half million men to fight a like number of fellow American men. Both American factions were unified in their cause. The chain reaction of emergencies and unyielding responses will continue unabated until a final resolution is achieved.

“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies.

The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” – The Fourth Turning – Strauss & Howe

Strauss and Howe foresaw the core elements which would surely propel the next Fourth Turning. They were plain to see for people who chose to see the world with eyes wide open. Debt, civic decay and global disorder are on center stage as we enter the fateful year of 2019. A madness seems to be gripping the nation, a melancholy realization all is not right. Everything has a chaotic feel, as financial markets are falling, politicians threaten and attack each other, government dysfunction is laid bare for all to see, Deep State snakes slither behind the scenes trying to bring down Trump, racial tensions grow, foreign governments topple, Russia and China challenge U.S. hegemony, and the global debt Ponzi scheme is entering its collapse phase.

There are no moderates, only pro-Trump and anti-Trump factions. Compromise and workable solutions to our deep-seated problems are off the table. The mood of the populace ranges from frustrated and angry to depressed and stressed. The aroma of conflict wafts through the air as battle lines are being drawn.

The initial spark of a global financial meltdown created by greedy Wall Street banks, the feckless Fed, and corrupt government officials was driven by bad debt, outright control fraud by the financial industry, captured rating agencies, easy money provided by the Wall Street owned Fed, and utter contempt for properly regulating the Wall Street cabal by the Fed and SEC.

This emergency was met by an unyielding response from the establishment, with the easiest money policies in world history, bailing out criminal bankers with taxpayer funds, increasing global debt by $80 trillion to $250 trillion (318% of global GDP), running fiscal deficits exceeding $1 trillion per year, and pretending all that debt will be repaid. Pretend and extend has been the solution.

The Deep State has taken extraordinary measures to try and retain their stranglehold on the wealth of the nation and control of the political, financial, social and media levers of society. They have utilized a combination of propaganda disguised as news, social media distractions, technological surveillance, misinformation campaigns, welfare to keep the poor sedated, and the continued issuance of debt to keep the masses satiated with consumer goods as their wealth dissipates. But the teetering edifice of debt, delusion and deception is poised to topple in 2019.

As we enter 2019, year eleven of this ongoing Crisis, you can sense the panic and distress permeating from the pores of the establishment figures and their rich shadowy benefactors trying to maintain their unseen presence behind the curtain as they pull the strings – operating as the invisible government running the show for their own benefit. It seems the unanticipated election of Trump has thrown a monkey wrench into their well- oiled pillage machine, forcing them to reveal themselves as they attempt a not so subtle coup against a sitting president.

Fourth Turnings always sweep away the existing social order in a torrent of violent upheaval and the blood of young men. But that doesn’t mean the existing establishment will give up their wealth, power and control without a fight. And the fight is underway. The volcano has erupted and the molten lava could flow in numerous pathways over the next six or so years.

“Imagine some national (and probably global) volcanic eruption, initially flowing along channels of distress that were created during the Unraveling era and further widened by the catalyst. Trying to foresee where the eruption will go once it bursts free of the channels is like trying to predict the exact fault line of an earthquake. All you know in advance is something about the molten ingredients of the climax, which could include the following:

• Economic distress, with public debt in default, entitlement trust funds in bankruptcy, mounting poverty and unemployment, trade wars, collapsing financial markets, and hyperinflation (or deflation)

• Social distress, with violence fueled by class, race, nativism, or religion and abetted by armed gangs, underground militias, and mercenaries hired by walled communities

• Political distress, with institutional collapse, open tax revolts, one-party hegemony, major constitutional change, secessionism, authoritarianism, and altered national borders

• Military distress, with war against terrorists or foreign regimes equipped with weapons of mass destruction” 

– The Fourth Turning – Strauss & Howe

The ingredients of distress in the next phase of this Crisis could include any or all of those pondered by Strauss and Howe twenty-two years ago. I can make the case for multiple levels of distress breaking free from their channels, making 2019 as historic a year as 1939 or 1940. My prognosis for 2019 follows:

Economic Distress

Economic distress is mounting, as the machinations of the Fed, Wall Street and the U.S. government prove to be nothing more than debt financed illusions. Once the easy money spigot is turned off and the tide of zero interest debt for Wall Street and mega-corporations recedes, you realize everyone was swimming naked. The national debt grew by $1.4 trillion in 2018 during “the best economy ever”, according to Trump.

We added $12 trillion to the national debt and have generated a historically weak recovery, especially for the working class. We’ve gone nine years without recession and the longest period in U.S. history between recessions was ten years. Without the tax cut stimulus, interest rates higher, corporate profits flagging, global trade waning, and central bankers withdrawing liquidity, recession is likely in 2019 – driving deficits towards $2 trillion.

The number of zombie companies (GE, Sears, JC Penney, Chesapeake, all fracking companies) propped up by cheap junk bond debt is astronomical. National debt default is still a ways off, but a tsunami of corporate debt defaults will inundate the economy once the recession knocks the legs out from beneath this faux recovery. Corporations and consumers have never been more indebted. Stock valuations have never been higher.

An economy that begins to self destruct when interest rates approach 3% proves the “solutions” implemented by those in power did nothing for the average American, while further enriching the parasitical class pulling the strings. At this point, a specific triggering event is unnecessary to provoke the economic conflagration. The unbearable weight of unpayable debt is going to cause the structure to collapse at free fall speed, like the Twin Towers pancaking everyone in the floors below.

With a recession inevitable in 2019, we know the stock market declines 30% to 40% during recessions, on average. When a stock market is this overvalued, based solely on Fed easy money and corporate buybacks (Apple has lost $9 billion on their buybacks this year), the withdrawal of liquidity combined with recession and declining profits will knock 50% to 60% off current prices. I wonder how many middle-class 401k contributors expect this to happen. Well this will be the third time in 18 years, so you would think they’d learn by now.

Recession means job losses, consumer debt defaults, less tax revenue for the government, more wasteful spending by politicians pretending to care, soaring deficits, currency gyrations, and the potential for rising interest rates as no one will be willing or able to buy the newly issued debt. Will we have massive deflation or hyperinflation? Anything is possible in a collapse scenario. What is certain will be millions of angry Americans looking for someone to blame and politicians seeking to distract them with some foreign “threat” to their safety and security. This is when trade wars morph into real wars.

Social Distress

The social distress sweeping the country gets the majority of attention on the left-wing corporate media propaganda machines as they purposely fan the flames of divisiveness. Keeping the sheeple angry at each other keeps them distracted from the continued pillaging of the national wealth by the Deep State scum operating in plain sight. The daily war against the normals has reached new heights of hypocrisy and idiocy.

The unceasing mantra of diversity, trying to normalize the lifestyles of the mentally ill, glorifying socialism as Venezuela implodes due to socialism, promoting the climate change agenda to abscond with more taxes, and trying to force left wing agendas down the throats of white traditional family-oriented people, is on the verge of starting civil violence as we are witnessing in France. The ruling class has gone too far in accumulating the wealth of the nation through the capture of regulatory, political, financial, and communication structures. Wealth inequality arisen through fraud, deception and corruption will lead to class warfare – likely after the next financial collapse.

The current government shutdown over funding for a border wall is essentially a showdown over the racial makeup of the country and allowing unfettered access to welfare benefits to illegal invaders who will loyally illegally vote for their Democrat benefactors for eternity. Racial politics is what has kept blacks enslaved on the welfare plantation in decaying urban ghettos run by Democrat politician plantation owners.

A black uprising led by Kanye West has struck fear into the hearts of Democrats, giving them further incentive to keeping the southern border open to new Democrat voters.  With gun grabbing liberal politicians attempting to disarm the deplorables in flyover country, while supporting antifa and black lives matter terrorists, and thwarting efforts to keep criminals and terrorists from illegally entering the country, a violent showdown is inevitable.

Political Distress

The political distress since the 2016 election has reached levels not seen since the Civil War Crisis period. The Deep State controllers’ next hand-picked figurehead president – Hillary Clinton – inexplicably lost the election to a NYC reality star real estate mogul who boasted about grabbing pussies and had a weakness for strippers and Playboy bunnies. Clinton’s arrogance and hubris were her downfall as the deplorables she ridiculed and a majority of white women in the country gave Trump a slim victory and drove millions of pussy-hat wearing feminazis into a rage.

College students across the land sobbed in their safe spaces and missed their Queer Theory or Pick your Gender classes. But not only were snowflakes across the land melting, but the surveillance state spooks who attempted to rig the election in Clinton’s favor went into a frenzy, as fear of their traitorous machinations being revealed forced them to begin a coup attempt against Trump. The Mueller, Comey, Clapper, Brennan, Obama, Clinton reactive coup attempt is ongoing and will come to a head in 2019.

The outcome of this epic struggle between the Deep State and the non-approved upstart president could create civil war like conditions. How will Trump supporters react if they believe their leader is removed through impeachment, based on false charges? Will they take to the streets in armed insurrection? Will the police and military fire on their fellow citizens? What if Trump refuses to step down, creating a Constitutional crisis? What if he is assassinated?

On the other hand, what if Trump’s allies within the DOJ and Military present evidence of collusion against the Obama administration, Clinton and top officials in the FBI, DOJ and CIA? How would the left wingers react to military tribunals with their beloved leaders in the docket? Even if these earth-shattering events don’t come to fruition, a Democrat controlled House will thwart everything Trump attempts to accomplish as they position themselves for the 2020 presidential election. The anger and disillusionment of the masses will deepen.

Military Distress

The potential for catastrophe on the military front hasn’t been higher in decades. The linear thinking lemmings dismiss the possibility of a global conflict because they are just as obtuse as “experts” before them throughout history. Since World War II we have only experienced proxy wars where the outcomes would not change the course of world history. There have been no “total wars”, where the loser is utterly shattered and complete victory is attained.

Those who practice revisionist history act as if the previous two Fourth Turning total wars were completely predictable before they began. In 1858 no one believed a Civil War taking the lives of 700,000 Americans was just over the horizon. Exactly 80 years later in 1938, few believed a global conflict which would kill 65 million people in six years was imminent. Here we are exactly 80 years later and anyone predicting a global conflagration killing millions is declared a loon.

Every previous Fourth Turning has ended in total war with victory of the “good guys” always in doubt. Every total war has ratcheted up the level of death and destruction, as technological “advancements” enhance our war making abilities. Human nature DOES NOT change. We are not smarter, less war-like, more humanitarian, or less arrogant than our predecessors throughout history. Hubris, power, and miscalculation by egomaniacal leaders leads to war.

We know the climax of this Fourth Turning is slated for around 2025. This infers a high likelihood of a major war involving the U.S. in the foreseeable future. Will it ignite in 2019? All the combustible elements are present. The onset of a global depression, trade wars, China & Russia feeling pushed into a corner and the volatile political situation in the U.S. and EU provide a potential pathway to global conflict.

Economic indicators from China show the slowest economic growth in a quarter century. Their natives are restless. Plunging oil prices will throw the Russian economy into recession. The EU economies, led by Germany, are seizing up with the slowdown in global trade. Japan has essentially been in recession since the 1990s. The U.S. is poised for a recession in 2019.

Immigration chaos in Europe, Brexit, Ukrainian nazis provoking Russia, South China Sea territorial disputes, the Syria, Turkey, Iran, Israel ticking time bomb, Saudi anarchy, socialist South American regimes imploding, and U.S. political pandemonium have created a perfect storm of domestic and international disasters. What do low-life politicians do when faced with terrible domestic issues? They seek to distract their citizens with a foreign threat. See “Blame Russia for Everything” as an example of this tried and true propaganda technique.

Desperate politicians do desperate things to retain power. Desperate Deep State actors care not one wit for their fellow countrymen. They are willing and able to sacrifice the youth of their nation to fight wars which will further enrich themselves and their fellow traitorous benefactors. We are nothing but cannon fodder to this psychopathic scum. Putin and Xi are essentially dictators who have no fear of elections every two years. They are serious men in possession of nuclear missiles, capable of destroying the world.

Blaming them for all the ills in your own country is a fool hardy tactic. The ever- increasing saber rattling, whether in the Ukraine, Syria, South China Sea, or during antagonistic trade negotiations can easily lead to unintended consequences. All leaders have enormous egos and are prone to over-confidence and miscalculation regarding how their opponent will react. Someone is going to do something stupid and then all hell is going to break loose.

No Escape

“The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.

History offers no guarantees. Obviously, things could go horribly wrong – the possibilities ranging from a nuclear exchange to incurable plagues, from terrorist anarchy to high-tech dictatorship. We should not assume that Providence will always exempt our nation from the irreversible tragedies that have overtaken so many others: not just temporary hardship, but debasement and total ruin. Losing in the next Fourth Turning could mean something incomparably worse. It could mean a lasting defeat from which our national innocence – perhaps even our nation – might never recover.” – Strauss & Howe – The Fourth Turning

There is no escape from the Fourth Turning. We are midway through this crisis and the existing social order retains tenuous control over the levers of finance, government and the legacy media. History tells us our society will be reshaped and transformed before this crisis resolves itself sometime between now and 2029. It would be the utmost of arrogance to believe our nation will be protected from destruction by an all-powerful God. We’ve made bad choices, deferred hard decisions, squandered our financial resources, allowed our educational system to be corrupted and valued all the wrong things.

There will be consequences. The overt last- ditch financial debt schemes concocted by the entrenched establishment, to prolong their power and control, are unraveling and a death and rebirth of the social order through a chaotic cleansing is in the offing. I believe the real fireworks will begin during 2019.

I don’t eagerly await the terrible storms headed our way. I wish we didn’t have to withstand the brutal gales of this coming winter, but we have no choice. You have to survive Winter to experience the blossoming Spring. The coming decade will try our souls and force everyone to make choices that will make a difference. The specific events are unknowable, but how we react and who we support during the events will be the decisive factor in whether this Fourth Turning is resolved in a positive way. Having it resolved in negative way could be an unimaginable tragedy.

Patrick Henry made his famous “Give me liberty or give me death” speech during the first American Fourth Turning. His words ring true today. We are already at war. Sides have been drawn. We are going to have to fight whether we like it or not. Our only other choice is chains and slavery. The time to choose has arrived. Welcome to 2019.

  “The war is actually begun! The next gale that sweeps from the north will bring to our ears the clash of resounding arms! Our brethren are already in the field! Why stand we here idle? What is it that gentlemen wish? What would they have? Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!” – Patrick Henry – 1775

via RSS http://bit.ly/2F0QZTs Tyler Durden

After Monday’s panic-buying spree at the close, tonight’s opening session of 2019 is more of the same as US equity futures have popped on the open and are extending gains…

Dow Futures are up 130 points

but the Nasdaq is leading for now…

The dollar is unchanged for now.

via RSS http://bit.ly/2F5kBzl Tyler Durden

While markets were in a festive mood on New Year’s Eve, with the S&P enjoying a last second 15-point spike even as 10Y yields tumbled to the lowest level since January…

… something strange took place in both overnight funding markets and the Treasury market.

While it is well-known that dealers tend to “window dress” their books on the last day of the year by curtailing activity in financing markets to shore up balance sheets, what happened on Monday left quite a few mouths wide open: with the General Collateral rate trading around 2.50% on Friday, Monday saw a historic surge in overnight GC repo, that sent the rate surging by the most ever, spiking sharply to 6.125% on Monday morning, with the bid/ask trading 6.50%/5.75% just after 10am after opening Monday at 3.75%/4.00%, which was already nearly 1.50% higher than the Friday close (incidentally, the Broad General Collateral Rate (BGCR) was set at 2.45%, the same as the Tri-party General Collateral Rate).

In fact, the closing print of 6.125% was the highest GC repo rate observed since January 2001, and just under 400 bps higher than the Fed funds rate.

“The cash never came in,” said Scott Skyrm, EVP at Curvature Securities, noting that “funding pressure should be about 50 basis points. This was 350 basis points.”

Indeed, confirming the need for cash, on the last day of 2018, 17 counterparties took only $41.8BN at the Fed’s overnight reverse repo operation on Monday, up from $3.21b on Friday, which was the second-smallest quarter-end usage since the RRP was created in 2013, and suggesting that instead of padding books with cash-equivalent securities to satisfy regulatory requirements, banks were suddenly strapped for cold, hard cash.

Clearly there was something amiss with year end liquidity: while there have been year end spikes in the repo rate all prior years, not once in the past decade was the surge as high as it was this time, prompting questions if there were broader year-end liquidity plumbing issues in the market than just traditional window dressing.

Meanwhile, in yet another bizarre manifestation of year-end liquidity events, on Monday shortly after a 52-week Bill auction priced amid unremarkable results, the short-end of the curve inverted dramatically, with the yield on the 1Y finding itself more than 10bps higher than the 2Y.

In fact, the yield on the 52-week Bill closed Friday at 2.5986%, higher than the yield on the 7Y TSY which was at 2.5869%, meaning the 1s7s was inverted.

The last time the 1s7s curve inverted? You guessed it – the same time the overnight repo rate surged as much as it did on Monday – back in early 2001.

One reason cited for the bizarre shape of the yield curve was the bond market’s confusion about what the Fed will do, with the short-end still anticipating perhaps one or more rate hikes, while the longer-end increasingly pricing in deflation, rate cuts and, eventually, QE, although since both of those expectations are what makes up the shape of the yield curve by definition, that explanation was left wanting.

As for the record spike in repo, rates traders were left scratching heads, with Curvature’s Skyrm warning that market participants may have to start pricing in the fact that if repo rates “spike up a bit, they could go much higher.”

via RSS http://bit.ly/2CIJNcZ Tyler Durden

Submitted by Michael Edesess of Advisor Perspectives

The amazing story of Theranos, a company started in 2003 by a 19-year-old Stanford dropout, is told in page-turning detail in a recent book by Wall Street Journal reporter John Carreyrou. Despite an incredibly distinguished board, leading venture capital investors, raves from a respected Stanford dean and contracts with consumer chains Walgreen and Safeway, the company’s claims were finally revealed in 2015 to have been fraudulent.

But what if Theranos had been a hedge fund instead of a healthcare company? The comparison shows why investment “science” is not science.

The story of Theranos

Elizabeth Holmes always had her sights set high. Carreyrou records that at age nine or 10 when she was asked, “What do you want to do when you grow up?” she said without hesitation, “I want to be a billionaire.”

As a Stanford student in 2003, she spent a summer in Singapore testing the blood of patients suspected of carrying the severe acute respiratory syndrome (SARS) virus. It convinced her there must be a better way to test blood.

In late 2003, at the age of 19, with the help of Stanford’s School of Engineering Associate Dean Channing Robertson, in whose laboratory she had worked, she incorporated the company that would become Theranos and dropped out of college. Theranos’s goal was to perform a wide range of blood tests with only the blood from a finger-prick, using a miniaturized analytic device.

With Robertson’s and Stanford’s network, and Holmes’ charisma and impressive delivery of her idea, she quickly acquired funding and staffed up. She gave successful presentations of the technology to major companies like the Swiss pharmaceutical giant Novartis.

But as early as 2006 some of her staff noticed that the technology presented to Novartis was fake. Depicted as a video of a blood sample being processed in real-time by the miniature analyser, the video actually was a recording of a successful test that had been performed earlier. The analyser usually didn’t work.

When Theranos’s CFO learned of this he told Holmes, “We’ve been fooling investors. We can’t keep doing that.” As soon as he told her that, he was summarily fired.

This scenario was played out again and again. Tests that were supposedly done by the microanalyzer using blood from a finger-prick were actually done by a large conventional Siemens analyzer using a venous draw. Anyone who expressed scepticism or pointed out that the technology wasn’t working was forced out of the company. Turnover was extremely high. Employees had been required to sign very restrictive non-disclosure agreements upon hiring, and were made to turn over all documents and devices upon departure as well as to sign additional restrictive agreements.

Management by Holmes and particularly her second-in-command (and secretly, boyfriend) Sunny Balwani was aggressively autocratic. Theranos departments, even those that should have been working together, were kept apart by reporting separately to Holmes so that they would not share information. Departed employees who might go public with information detrimental to the company were threatened with lawsuits by the law firm of David Boies, probably the most prominent attorney in America, on the pretext of protecting trade secrets; just how frightening became crystal clear to Carreyrou and his sources in 2015 as he pieced together his eventual article unmasking Theranos’s fraud.

This continued, astonishingly enough, for more than a decade. Meanwhile, glowing articles were written about Holmes and Theranos in numerous magazines and newspapers, including Fortune, Forbes, USA Today, Inc., Fast Company, Glamour and The Wall Street Journal itself. Segments were heard on radio and seen on television stations. Her board of directors included former secretaries of state Henry Kissinger and George Schultz, General James Mattis, and other prominent individuals.

When Carreyrou’s article was published in The Wall Street Journal on October 16, 2015, it began the unravelling of the company. Eventually, its largest investor, Rupert Murdoch, who had invested $125 million, sold his shares back to Theranos for one dollar to take the tax loss. Holmes, Balwani, and Theranos were charged with “massive fraud” by the SEC. If it hadn’t been for Carreyrou, the fraud – which caused actual harm to patients – might have continued for years.

What if Theranos had been a hedge fund?

Now let’s go beyond what Carreyrou wrote and change the scenario. Elizabeth Holmes comes up with a brilliant-sounding idea for an investment strategy using complex derivatives. With her charisma, hypnotic presentation skills, networking abilities and radiant intelligence, she quickly raises seed capital for a hedge fund.

She hires top investment talent and makes them sign strict non-disclosure agreements, keeping them separated from each other to prevent leaks. Understandably, she goes to great lengths to ensure that anyone who leaves the company does not reveal information about it, including hiring the top law firm in the nation, known for its tactics of intimidation.

After a little while it is discovered internally that her original brilliant-sounding investment strategy doesn’t work very well. But it is now only one of many strategies being tested and deployed by her by-now large staff. Results for most of these strategies are ho-hum, but they are written off with unverifiable explanations, such as that they are strategies that protect against down markets while slightly underperforming in up markets. Furthermore, of the many strategies being tested and used, there are one or two that have succeeded, so far, moderately well, though they are run-of-the-mill long-equity investment strategies departing only in small ways from closet-index funds.

Arcane quantitative measures and performance goals are adapted and devised to show that the funds are meeting their objectives. The results are presented in complicated PowerPoints to potential and existing investors, and to consulting firms, who nod their heads affirmatively. The PowerPoints continue to highlight the original strategy using complex options, conveying the impression that this is the strategy being used.

Mostly, though, the investment results do not come close to matching the initial exuberant hype. Holmes says it takes time for her investment strategy to work. The institutions and wealthy investors in her funds and their consultants are still impressed by her and stay with her, saying they “aren’t concerned about the short-term performance of these funds.”

Holmes co-authors articles with prominent academics, who are on her payroll, using complicated-looking mathematics, reaching bold conclusions that support the strategies her funds use (but to a discerning eye, don’t agree with the mathematics). These articles are published in peer-reviewed financial journals, helped by the fact that her co-authors and reviewers understand how that system works. She speaks regularly at conferences, and is the frequent subject of admiring articles in magazines and newspapers.

Falsifiability and science

Unlike Theranos the healthcare company, “Theranos” the hedge fund can never be proved to have misrepresented the effectiveness of its approach. There is no way to prove analytically that an investment strategy cannot work, except for the most patently absurd strategies, such as buying and selling the same stock simultaneously – although many have tried and have laid false claims to do so. Other than the most fundamental conclusions based on the no-free-lunch principle – higher expected return will come only with higher perceived risk – there is little that can be proved using pure reason or mathematics.

There is also almost no chance of using evidence to prove statistically that the strategy does or does not work. The statistical record for a proposed strategy will take years to accumulate and by that time the strategy may have changed, the investment environment will have changed, and the likelihood of establishing superiority to the statistics of its background population are extremely low given the chaotically random nature of those data – although again, many have tried and have laid false claim to do so.

When sceptical questions were posed outside the firm – as by media correspondents (the ones who weren’t completely starstruck) – Theranos CEO Holmes brushed them aside with easy explanations. (When they were posed from inside the firm, the questioner was immediately fired.) Some of the explanations were outright lies; more often they were vague half-truths that could only be unmasked once it was finally learned how fraudulent all the claims were.

But for the alternative Elizabeth Holmes, the imaginary hedge fund CEO, explanations that are vague half-truths are delivered routinely – and readily accepted – because such responses are the industry norm. Performance was poor because the markets were in an inscrutable, unpredictable irrational bubble (or panic); it was poor because the strategy lags in up markets but more than makes up for it in down markets; it was poor because the strategy was out of style.

These vague half-truths will never be unmasked as fraud, like those of Theranos’s Holmes were, because it is impossible to verify whether they were true or false. This applies not only to many hedge funds but to other investment managers, mostly those saying they use “quantitative” strategies and claiming to be doing science.

Karl Popper, the famous 20th century philosopher of science – whose lifespan almost coincided with the brilliant economist and critic of “scientism” Friedrich Hayek – introduced the term “falsifiability” to the philosophy of science. According to Wikipedia, Popper “proposed that statements and theories that are not falsifiable are unscientific. Declaring an unfalsifiable theory to be scientific would then be pseudoscience.”

Popper argued that if a theory is inconsistent with possible empirical observations it is scientific, whereas if it is consistent with all possible observations it is unscientific.

That is, if there is some possibility of making an observation that will prove the theory or claim false – i.e. if it is falsifiable – then it can be regarded as a scientific theory or claim. But if there is no possibility of observing something that cannot be explained away by modifications of, or additions to the theory or claim, then it is unscientific.

Theranos’s claims were scientific. It was doing science, after all. It claimed to have a miniature device that could do more than a hundred blood tests with the blood from a single finger-prick. When all the facts were finally put together, this claim was shown to be a falsehood. That is the nice thing about scientific claims – you can actually prove whether they are false.

The claims of the hedge fund “Theranos” are not scientific. Whatever is observed, it can be explained away by some prevailing circumstance, or some vague modification of the claim. Its claims are not falsifiable. It is not doing science – no matter how much mathematics it applies, or how much mathematics it purports to use to substantiate its claims.

If all that she wanted was to be a billionaire, Holmes should have started a hedge fund.

But wait, maybe she still can. Watch for it.

And she can still call it “science,” because the academic-industrial investment complex doesn’t understand what science is.

Economist and mathematician Michael Edesess is adjunct associate professor and visiting faculty at the Hong Kong University of Science and Technology, chief investment strategist of Compendium Finance, adviser to mobile financial planning software company Plynty, and a research associate of the Edhec-Risk Institute. In 2007, he authored a book about the investment services industry titled The Big Investment Lie, published by Berrett-Koehler. His new book, The Three Simple Rules of Investing, co-authored with Kwok L. Tsui, Carol Fabbri and George Peacock, was published by Berrett-Koehler in June 2014.

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A hacking collective known as The Dark Overlord announced on New Year’s Eve that it had broken into the computer systems of a law firm and obtained files related to the September 11 attacks – threatening to publicly release a large cache of internal files unless a hefty ransom was paid, according to Motherboard. 

Dark Overlord’s demands targeted several insurers and legal firms, including Lloyds of London, Silverstein Properties and Hiscox Syndicates. It is unclear what exact files were stolen by the group, however the hacking collective tweeted “We’ll be providing many answers about 9.11 conspiracies through our 18.000 secret documents leak from @HiscoxComms and others.” 

We’ll be providing many answers about 9.11 conspiracies through our 18.000 secret documents leak from @HiscoxComms and others #thedarkoverlord #911hacked #hacking #leak #cybercrime

— thedarkoverlord (@tdo_h4ck3rs) December 31, 2018

“Hiscox Syndicates Ltd and Lloyds of London are some of the biggest insurers on the planet insuring everything from the smallest policies to some of the largest policies on the planet, and who even insured structures such as the World Trade Centers,” the group’s announcement reads.  

According to a spokesperson for the Hiscox Group, the hackers had breached a law firm which advised the company and had likely stolen files linked to litigation tied to the 9/11 attacks. 

“The law firm’s systems are not connected to Hiscox’s IT infrastructure and Hiscox’s own systems were unaffected by this incident. One of the cases the law firm handled for Hiscox and other insurers related to litigation arising from the events of 9/11, and we believe that information relating to this was stolen during that breach,” the spokesperson told Motherboard in an email. 

“Once Hiscox was informed of the law firm’s data breach, it took action and informed policyholders as required. We will continue to work with law enforcement in both the UK and US on this matter,” they added. 

The hacking group published a small set of letters, emails and other documents that mention various law firms, as well as the Transport Security Administration (TSA) and Federal Aviation Administration (The TSA could not provide a statement in time for publication, and the FAA told Motherboard in an email it was investigating.) Those documents themselves appear to be fairly innocuous, but the group says it may release more.

In its extortion note, The Dark Overlord included a link for a 10GB archive of files it allegedly stole. The group also provided a link to this archive to Motherboard before publishing its announcement. The cache is encrypted, but the hackers are threatening to release the relevant decryption keys, unlocking different sets of files at a time, unless the victims pay the hackers an undisclosed ransom fee in Bitcoin. –Motherboard

“Pay the fuck up, or we’re going to bury you with this. If you continue to fail us, we’ll escalate these releases by releasing the keys, each time a Layer is opened, a new wave of liability will fall upon you,” reads the demand letter. 

The hacking collective is also offering to sell the data on the dark web hacking forum, and has reportedly attempted to blackmail individuals mentioned in the documents themselves. 

“If you’re one of the dozens of solicitor firms who was involved in the litigation, a politician who was involved in the case, a law enforcement agency who was involved in the investigations, a property management firm, an investment bank, a client of a client, a reference of a reference, a global insurer, or whoever else, you’re welcome to contact our e-mail below and make a request to formally have your documents and materials withdrawn from any eventual public release of the materials. However, you’ll be paying us,” reads the post. 

The breach was first alluded to by the Hiscox group, which announced in April that they may have been exposed during a hack on an “unnamed US law firm.”

“Hiscox recently learned of an information security incident affecting a specialist law firm in the US that provided advice to Hiscox or its policyholders on some of its US commercial liability insurance claims. The incident involved illegal access to information stored on the law firm’s server, which may have included information relating to up to 1,500 of Hiscox’s US-based commercial insurance policyholders,” reads the April announcement. 

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Authored by Lance Roberts via RealInvestmentAdvice.com,

When the “bull is running” we believe we are smarter and better than we actually are. We take on substantially more risk than we realize as we continue to chase market returns and allow “greed” to displace our rational logic. Just as with gambling, success breeds overconfidence as the rising tide disguises our investment mistakes. 

Unfortunately, it is during the subsequent completion of the full-market cycle that our errors are revealed. Always too painfully and tragically as the loss of capital exceeds our capability to “hold on for the long-term.” 

As 2018 comes to an end, it is time to review my “New Year’s Investor Resolutions.”

These are the same resolutions I attempt to follow every year. There is no shortcut to being a successful investor. There are only the basic rules, discipline and focus that is required to succeed long-term.

Investor Resolutions For 2019

Here are my annual resolutions for the coming year to be a better investor/portfolio manager:

• I will do more of what is working and less of what isn’t. 

• I will remember that the “Trend Is My Friend.”

• I will be either bullish or bearish, but not “piggish.” (Pigs get slaughtered)

• I will remember it is “Okay” to pay taxes.

• I will maximize profits by staging my buys, working my orders and getting the best price.

• I will look to buy damaged opportunities, not damaged investments.

• I will diversify to control my risk.

• I will control my risk by always having pre-determined sell levels and stop-losses.

• I will do my homework. I will do my homework. I will do my homework.

• I will not allow panic to influence my buy/sell decisions.

• I will remember that “cash” is for winners.

• I will expect, but not fear, corrections.

• I will expect to be wrong and I will correct errors quickly. 

• I will check “hope” at the door.

• I will be flexible.

• I will have the patience to allow my discipline and strategy to work.

• I will turn off the television, put down the newspaper, and focus on my own analysis.

But hey, if you don’t like mine, my friend Doug Kass sent me his always brilliant and insightful resolutions as well.

“I plan to use the New Year to let go of what doesn’t serve me or make me happy and to focus on the great things the future holds.”

• I will remember, throughout 2019, that it is the rate of change in data — not the absolute level of data — that counts.

• I will read more and “watch” less.

• I will grow even more skeptical of “groupstink,” consensus and “first-level thinking.”

• I will think more in terms of probabilities and less in terms of specific price targets in the new regime of volatility.

• I will add some additional factors to my multi-variable calculation of “fair market” or “intrinsic” value.

• I will do more “channel checks” next year.

• I will remind myself not to listen to company management’s forecasts; they are like ministers of finance on the eve of devaluation, rarely admitting to problems or challenges.

• I will do more college and business school teaching because it makes me more connected with young, smart people and keeps me alert and more relevant.

• I will respect the lessons of the great investors of our time more as their knowledge provides a roadway to delivering better investment returns.

• I will more aggressively short the “next shiny object” and I will hold on to those shorts for a lengthier period of time.

• I will incorporate more technical analysis into my trading process, particularly with regard to establishing entry and exit points.

• I will laugh at myself more.

• I will try to be more precise (and less wordy) in my writings, condensing my views/conclusions into shorter bullet points.

• I will say/write “I don’t know” and “I was wrong” with more frequency.

• In my writings I will use the words “maybe,” “might,” “could” and “possibly” more often (again, in the new regime of greater uncertainty).

• I will continue to try to navigate the noise better and not be distracted by baseless and valueless (yet self-confident) input from those who have no documented and historic record of sustained investment success.

• I no longer will be critical of the business media; it takes too much of my time, it doesn’t help my investment/trading process, and the practitioners are mostly merchants of attention, their ideas and views generally ordinary/consensus, and they are too easy a group to target.

• I no longer will watch business shows that are trading-oriented as their opinions are no better than flipping a coin. Explaining what the market did or didn’t do on a daily basis is a fool’s errand and takes up too much time as I can be far more productive elsewhere.

In order to be better managers for our clients, it is important to always review what has worked, and what didn’t, realize mistakes that were made and what needs to be corrected in the future.

How you choose to manage your money, and the inherent risks, is entirely up to you.

However, given the length of the current bull market run from 2009 to present, the risks are mounting the current bull market cycle will end sooner rather than later. That ending will also most likely coincide with the onset of a recession. Such fundamental realities suggest a more conservative approach to investment allocations as we head into the New Year.

While the majority of the financial media and blogosphere suggest that investors should only “buy and hold” for the long-term, the reality of capital destruction during major market declines is a far more pernicious issue.

It is ALWAYS okay to miss out on an opportunity, as opportunities come along as often as a taxi-cab in New YorkCity. However, it is IMPOSSIBLE to make up losses as you can never regain the time lost getting back to even.

It only took six years for the markets to get back to where they were prior to the financial crisis. It took just about as long to get back to even following the “Dot.com” crash in 2000.

Ladies and gentlemen – getting back to ‘even’ is NOT an investment strategy. It is a game that has been played out since the turn of the century and investors have lost out to both time and inflation.

The problem for investors is the time to grow and compound your money for retirement is GONE. You can never regain that time. While the financial press is full of hope, optimism, and advice that staying fully invested is the only way to win the long-term investing game; the reality is that most won’t live long enough to see that play out.

With market valuations elevated, leverage high, economic weakness pervasive, and profit margins deteriorating, investors should be watching the month of January carefully for clues. The weight of evidence suggests that despite ongoing “bullish calls” for the markets in the year ahead, this could be a year of disappointment.

Pay attention, things are beginning to get interesting.

“I mean, I’m not smarter than the market, but I can recognize a good tape and a bad tape. I recognize when it’s right and when it’s wrong and that’s what my strength is.” -Jim Cramer

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With everyone publishing commemorative charts to summarize what in almost every way was the most turbulent year since the financial crisis (appropriately, right after the least volatile year on record), the IMF decided to join the party and on the monetary fund’s blog has published the following 5 charts that “explain” the global economy in 2018.

Here are the trends which, according to the IMF, drove the world economy in the past year.

1. The global economy started 2018 on an upbeat note, buoyed by a pickup in global manufacturing and trade through 2017. As investors’ confidence in the global economic outlook lost steam, so did the upswing.

2. One reason behind this loss in momentum is the implementation of tariffs by major economies—especially the United States—and retaliatory measures taken by others, including China. The increasingly protectionist rhetoric on trade has meant higher uncertainty about trade policy, which weighs on future investment decisions.

3. Despite these actions, the US economy expanded at a fast pace in 2018, as tax cuts and spending increases stimulated demand. The US Federal Reserve has continued to raise the policy interest rate as a result. Interest rates on US long-term bonds have increased less, as investors see risks to future growth and value the safety of US Treasury securities.

4. As growth and interest rates in the United States have outpaced those in other major economies, the US dollar has appreciated against most other currencies in 2018.

5. Some vulnerable emerging market economies have come under strain as the US dollar gained value and the level of risk that global financial investors were prepared to accept dropped. Most of these countries have seen increases in their external borrowing costs, but the extent of these increases varied widely.

What happens in 2019? For the answer, tune in on January 21, when the IMF’s World Economic Outlook Update will present the IMF’s view on where the global economy is headed next.

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Following what was a landmark 2018 for isolated North Korea – a year when leader Kim Jong Un held three historic meetings with his South Korean counterpart and a captivating summit with “imperialist” President Donald Trump – Kim used a New Year’s Eve address to try and browbeat the US into offering some sanctions relief.

In a veiled threat to break off talks, Kim threatened to take a “new path” on nuclear talks if the US doesn’t acquiesce to the Hermit Kingdom’s demands. 

While Kim affirmed his willingness to meet with Trump (the leaders have agreed to a second summit, but the details have not been set), he didn’t offer any concessions to help advance negotiations, which have stalled over the US’s insistence that the North finish the process of denuclearlization before economic sanctions are lifted. Meanwhile, the North has demanded that the US gradually lift sanctions as the North hits certain benchmarks.

The North has continued to flout sanctions by arranging ship-to-ship transfers of oil and other energy products. These have often been facilitated by China, Russia and Iran – a sign that the North has continued to cozy up to Moscow, Tehran and Beijing even as it pursues warmer relations with Washington and Seoul. Some intelligence analysts cite this – as well as satellite images revealing more secret missile bases – as evidence that the North is merely toying with the US to try and wrangle some relief from stifling sanctions, and that Kim has no intention of following through on his denuclearization promises. 

According to Bloomberg, Kim said he’d be willing to work out a compromise that would be “welcomed by the international community.”

“I am willing to sit with the U.S. president any time in the future and will strive to produce outcomes that would be welcomed by the international community,” Kim said, wearing a suit and tie and seated in a plush leather chair overlooked by paintings of his father and grandfather at work.

“However, if the United States does not deliver its promise and misjudge our people’s patience, making unilateral demands to continue sanctions and put pressure on us, we will have no choice but to seek a new path to protect the country’s independence, interests and peace on the Korean Peninsula,” Kim said.

The speech was well received by the North’s neighbors, with South Korea heralding Kim’s decision to publicly reference “complete denuclearization for the first time.

Kim’s remarks also appeared intended to appeal to neighbors such as China and South Korea, who the U.S. needs to help maintain sanctions pressure. Kim touted his meetings with South Korean President Moon Jae-in and China’s Xi Jinping in his speech, expressing a desire to expand ties in 2019.

South Korea praised the speech, noting it was the first time Kim had uttered the term “complete denuclearization” in public. “Chairman Kim’s strong determination will be positive for smoothly resolving the Korean issue in the new year,” Moon spokesman Kim Eui-keum said.

Kim also demanded that any deal between the US and the North include a permanent halt to military exercises on the Korean peninsula. Exercises were temporarily halted this year as the US pursued its talks with the North. Bloomberg also reported that Kim sent a personal letter to Trump ahead of the New Year’s holiday.

However, while Kim demonstrated a measured tone during his speech, analysts said the US and the North were no closer to a breakthrough.

“North Korea has again restated its position, which remains unchanged,” said Go Myong-hyun, a research fellow at the Asan Institute for Policy Studies. “The prospect of the second U.S.-DPRK summit taking place soon is not any better than yesterday,” Go said, referring to North Korea’s formal name.

We now await a response from President Trump, or perhaps another affirmation from the US that the two sides are nearing an agreement on when the second summit will be held.

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President Trump, who has been busy launching off the new year in style with a barrage of tweets following his Happy New Year urge to “JUST CALM DOWN AND ENJOY THE RIDE“…

HAPPY NEW YEAR TO EVERYONE, INCLUDING THE HATERS AND THE FAKE NEWS MEDIA! 2019 WILL BE A FANTASTIC YEAR FOR THOSE NOT SUFFERING FROM TRUMP DERANGEMENT SYNDROME. JUST CALM DOWN AND ENJOY THE RIDE, GREAT THINGS ARE HAPPENING FOR OUR COUNTRY!

— Donald J. Trump (@realDonaldTrump) January 1, 2019

… has invited a bipartisan group of congressional leaders to the White House on Wednesday, now that the House is officially in democrat hands, in a bid to negotiate an end to a partial government shutdown that is now in its second week and rapidly approaching the longest shutdown ever of 21 days, and suggested he wants to “make a deal.”

Border Security and the Wall “thing” and Shutdown is not where Nancy Pelosi wanted to start her tenure as Speaker! Let’s make a deal?

— Donald J. Trump (@realDonaldTrump) January 1, 2019

In the first sign of a possible opening for negotiations, the invitation went to the top eight Republican and Democratic leaders in both the House and Senate, and the meeting is expected to include a briefing on border security from the Department of Homeland Security, a congressional aide told the WSJ.

However, with Democrats – now with a House majority – feeling emboldened in their negotiations with the president, it was unclear if Democrats planned to attend the meeting. Since the shutdown began in late December, Trump and congressional Democrats have largely avoided direct negotiations; the two sides remain at odds over spending for a Southern border wall, with Trump insisting on funding for the wall and Democrats staunchly opposed.

Meanwhile, Trump has remained steadfast in his demand to obtain funds for the wall, and on New Year’s Eve tweeted that “throughout the ages some things NEVER get better and NEVER change. You have Walls and you have Wheels. It was ALWAYS that way and it will ALWAYS be that way! Please explain to the Democrats that there can NEVER be a replacement for a good old fashioned WALL!”

…Remember this. Throughout the ages some things NEVER get better and NEVER change. You have Walls and you have Wheels. It was ALWAYS that way and it will ALWAYS be that way! Please explain to the Democrats that there can NEVER be a replacement for a good old fashioned WALL!

— Donald J. Trump (@realDonaldTrump) January 1, 2019

In recent tweets, Trump has further sought to coax Democrats to negotiate while also portraying their opposition to wall funding as an irresponsible acceptance of what he called “open borders.”

Meanwhile, Congress returns to work later this week when it opens a new session Thursday, with Nancy Pelosi taking over the speakership after Democrats won control of the House in the midterm elections. In light of that, and the upcoming conclusion of Robert Mueller’s investigation which is expected to wrap up in February, Trump’s impeachment odds on PredictIt recently hit 50% for the first time.

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