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Voters in Germany’s economically dominant southern state of Bavaria delivered a stunning rebuke to the ruling Christian Social Union, in an election that underscored the evaporation of support for the parties in Angela Merkel’s grand coalition in Berlin.

With all eyes on Sunday’s Bavaria election, moments ago the first exit polls were published and showed a historic collapse for the ruling CSU party, which has ruled Bavaria continuously since 1957, and which saw its share of the vote collapse from 47.7$ in the 2013 election to just 35.5%, losing its absolute majority and suffering its worst result since 1950, as voters defected in their droves to the Greens and the far-right Alternative for Germany.

The CSU was followed by the Greens which soared in the election, more than doubling to 18.5% from 8.6% in 2013, the FW also rose to 11% from 9.0%, in 2013, while the nationalist AfD was set to enter the Bavarian regional assembly for the first time with 11% of the vote. Meanwhile, the other establishment party, the SPD also saw its support collapse from 20.6% in 2013 to just 10% today.

The full initial results from an ARD exit poll are as follows:

• CSU: 35.5 %
• Grüne: 18.5 %
• FW: 11.5 %
• AfD: 11.0 %
• SPD: 10.0 %
• FDP: 5.0 %
• Linke: 3.5 %
• Sonstige: 5.0 %

Visually:

This was the lowest result for the CSU since 1950.

What happens next? Well, now that we know that the “unexpected comeback” scenario is off, here is what the “historic defeat” would mean for Germany in the coming days, as noted earlier by ING:

Historic defeat: The CSU would probably still lead the next Bavarian government with one or two coalition partners. There would be no significant shift in the federal upper house. Instead, Chancellor Merkel would emerge as the real winner of the election. The CSU would need some time to digest such an election defeat, focusing on inner-party issues and wasting less energy on conflicts with Merkel. As a result, the coalition in Berlin could again focus on implementing the substance of its coalition agreement. At the same time, however, a historic CSU defeat could be a worrying sign for Merkel, marking a new chapter in the deterioration of the conservative bloc. A significant loss would simultaneously fuel the AfD’s position as a strong opposition party, illustrating the increasing frustration of some voters with established parties, a trend which would definitely complicate coalition-building at the next federal election.

It could be worse: as Deutsche Welle noted earlier, the CSU collapse could lead to Seehofer’s resignation from Merkel’s government, and conceivably Söder’s exit from the Bavarian state premiership, which would remove two of the chancellor’s most outspoken critics from power, and give her room to govern in the calmer, crisis-free manner she is accustomed to.

Furthermore, the heavy loss and potentially big resignations in the CSU might push a desperate party in a more volatile, abrasive direction at the national level. That would further antagonize the SPD, the center-left junior partners in Merkel’s coalition, themselves desperate for a new direction and already impatient with Seehofer’s destabilizing antics, and precipitate a break-up of the age-old CDU/CSU alliance, and therefore a break-up of Merkel’s grand coalition. In short: Anything could happen after Sunday, up to and including Merkel’s fall.

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Authored by Sven Henrich via NorthmanTrader.com,

Long term market trends remain intact, yet charts indicate a market on a knife’s edge as significant technical damage has been inflicted. Markets are deeply oversold and the nature of the next rally will be determine whether this bull market can survive or if a larger bear market may begin to unfold. The larger message: New highs or bust.

In this week’s update I’ll give you both some of the bullish and bearish perspectives focusing mainly on technical considerations.

Before I dive into some of the arguments first some context and perspective on this correction because it is so critical to understanding the big picture and why this correction may be different.

In early September in “Lying Highs” I outlined the following:

“A key test may come for markets in the September/October time frame. If prices can sustain above January highs the 3042 technical zone may well be reached in 2018.

If not, the risk dynamic may shift dramatically especially if volatility is breaking out of its wedge pattern”:

Here’s the updated chart:

$SPX fell right into the risk zone tagging the weekly 50MA while volatility broke out of its wedge pattern. In process the 2016 trend line is currently being tested.

Why is this chart so important? Because it ticked off a key element missing in the check list of big market topping patterns: New highs on large negative divergences.

In April I wrote a piece called “The Big Market Tops”. If you haven’t read it I encourage you to have a look as it outlines some of the key elements common to larger market tops.

In that piece I concluded:

“The current market action is exhibiting elements of a market having entered a potential topping process yet several historical elements are still missing to confirm a top being in place, hence staying open minded and flexible may not be the worst course of action”.

Tops are generally processes that advertise trouble in advance in the form of negative divergences as they indicate weakness underneath the exuberant price action. Those are currently not in place.”

Now they are.

Indeed the lead up to this latest correction advertised the weakness underneath and negative divergences well in advance and the consequences are now obvious. A couple of quick, but important examples:

On the day of new all time highs on the $DJIA I highlighted the negative picture in new highs/new lows:

It indeed signaled what was to come:

Another key signal was equal weight diverging negatively:

That lower high on $XVG as $SPX made a new high was a key signal:

And we saw warning signs in the individual stock and index charts. Example here is the $NDX:

And we just saw the results:

As I said on the outset: The technical damage inflicted is severe as markets printed rising wedge breaks and a rejection of new highs.

Examples:

$WLSH:

$TRAN:

$NYSE is just a broken chart:

$SPX:

This is just technically plain ugly as trend line after trend line keeps breaking to the downside.

Indeed the damage is so severe that 3.5 months of relentless summer buying was wiped out in a matter of days:

The main point here: Negative divergences and weakness underneath on new highs produced a major breakdown from new market highs.

And by doing so markets are following a historic script of eventually far reaching consequences:

The most recent bull market tops came on multi year channels and/or rising wedges that eventually broke their trend support on negative divergences. This current wedge is extremely steep and narrow. The 2009 support trend line has not broken yet, but got awfully close last week.

And let’s be clear: If this support line sees a sustained break the bull market is over.

Note the key previous trend line saves came in context of record global central bank intervention in 2016 and 2017 and the blow-off push over the 1987 trend line in January came on the heels of US tax cuts. The most recent highs again pushed against the trend line and failed again on a negative divergence.

The context of rising yields here is critical as yields are threatening to see a sustained break above the long term $TNX trend line, the most recent trend lines tags coinciding with the end of the previous bull markets.

In February in “The Ultimate Bear Chart“, I highlighted a potential key ratio relationship between bonds and stocks.

I said at the time:

 “I’m not calling for an immediate collapse here, but I’m pointing to a possibly huge structural relationship between bonds and stocks, one that will likely take years to play out. But the signs of trouble are already in this chart.”

Here’s is the updated chart:

Back below the 2012 and 2013 highs, just falling out of a bear flag as $SPX is testing its 2009 trend line and $TNX is breaking above the 2013 highs.

Put this all together and you have this macro context:

The main message for markets: It’s a key time here because the potential consequences of a technical breakdown are severe and let me give you one chart to highlight this, the larger market index, the $VTI:

Like many of the index charts it made new highs on a negative divergence. This most recent correction has reconnected with its long standing support moving average the weekly 50MA. And this support tag is highly suggestive of a coming rally and I’ll discuss this further below, but note that the recent highs created a major technical confluence aligning the .382 and .50 fibs with the key price pivots of 2014-2017.  This is suggestive that a confirmed break of the bull market would invite a technical price retests to at least the .382 fib initially, implying that the entire market rally since the US election will be retraced at some stage.

But we do not have a confirmed break and hence I want take some time and focus on the bullish view which is the common perspective here, the one says none of the above matters.

After all every single correction since the 2009 lows has been a buying opportunity during this age of permanent intervention and artificial stimulus.

The bullish argument: Hey, we just tagged the 200 day moving average and look how magically we closed Friday again above it:

A quick look at the larger picture of 200MA corrections lends credence to this perspective:

And note how oversold we are now. This most recent RSI dip is actually quite historic. Just take a look at the $RUT to get the perspective:

It’s the most oversold reading since the 2011 correction. But that may actually be a bad sign, and I’ll address this further below.

Look at $NYMO, it almost hit -100 last week, key reading suggestive of a bounce to come:

At the same time note the key trend line “saves” we witnessed last week besides the 200MA on $SPX.

Examples:

Here’s the $DJIA:

Here are transports:

Here’s $JNK:

Here’s $TLT:

Here’s the $NDX:

All saved. For now.

And note how last week’s correction served to reconnect with key moving averages as support.

Examples:

$NDX tagged its weekly 50MA:

At the same time it reconnected with its quarterly 5EMA which was overdue:

In short: One can make a solid case here as to why we should see a sizable rally off of these trend line saves and MA reconnects in context of the deep oversold readings either from last week’s lows or any new lows.

In fact the bullish view would suggest that this correction is simply another quick washout before year end positive seasonality and as record corporate buybacks will return following their recent blackout period.

After all, the CPI chart shows no breakdown yet (lagging data):

And I would support this view as long as the 2009 trend line does not break and new highs can be made which then leave the technical 3042/43 target zone intact:

But be clear: The road to new highs is paved with brutal resistance:

The January highs are resistance. The broken 50MA is resistance, as are the fib levels above and the chart shows a clear potential double top. The technical damage is so vast that it won’t be easily repaired.

Bottomline: Bulls have a lot to prove here.

I’ve said on previous occasions that there is no evidence that suggests that markets can make and sustain new highs without renewed central bank intervention and/or stimulus in some form. We simply have not seen markets operate without any of these in play in some form or another since 2009 and now, for the first time, there is no clear visible path of new intervention being on the immediate horizon.

As we see markets work off oversold conditions I’ll leave you with 2 charts to consider as well.

Volatility has broken out hard:

$VIX RSI is currently overbought, but note we now have seen 2 major wedge breaks to the upside. The 2017 wedge broke to the upside in February, has since build another, higher wedge, and this has now broken to the upside as well. The message: Volatility, in the big picture, is increasing to the upside and low volume summer conditions simply masked that trend.

One other chart that should raise some eyebrows. Yes we are massively oversold, but are we too oversold perhaps indicating this sell off was different and a bearer of things to come? Sounds counterintuitive, until you look at this chart:

Last week’s decline was so outsized on the oversold front that it printed the largest oversold RSI reading on cumulative $NYAD since 2008.

That print back then, was not a bullish print. It worked off oversold conditions and the rally it produced failed.

If this next rally fails, the 2009 trend line may end up broken and with it the bull market.

New highs or bust.

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President Trump told CBS‘s 60 Minutes that Defense Secretary James Mattis might be one of the next officials to depart his Cabinet.

Asked by Leslie Stahl if the Trump administration was in chaos – citing the high turnover, Trump said It’s wrong, it’s so false… It’s fake news.” 

“I have people now on standby that will be phenomenal,” he continued. “I think I have a great Cabinet. There are some people that I’m not happy with. I have some people that I’m not thrilled with, and there are some people that I’m beyond thrilled with.”

Stahl then asked specifically about Mattis, whose departure has been rumored for weeks, to which Trump replied: “I had lunch with him two days ago, I have a very good relationship with him. It could be that he is [leaving],” adding “I think he’s sort of a Democrat if you want to know the truth. But General Mattis is a good guy. We get along very well. He may leave at some point. I mean, at some point, everybody leaves. People leave, that’s Washington.”

Watch: 

“It’s wrong. It’s so false. It’s fake news.” —President Trump on reports that the White House is in chaos. The president’s full 60 Minutes interview airs tonight. https://t.co/tFUrrwfPmr pic.twitter.com/2xRTBqYJnX

— 60 Minutes (@60Minutes) October 14, 2018

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Authored by Yale Global via OilPrice.com,

Oil is still the world’s leading energy source, with growing demand, a fluctuating pricing system, and much of its production in volatile regions. The oil market’s value is larger than the world’s valuable raw metal markets combined, with an annual production valued at US$1.7 trillion. A flourishing black market is no surprise, with about US$133 billion worth of fuels stolen or adulterated every year. These practices fund dangerous non-state actors such as the Islamic State, Mexican drug cartels, Italian Mafia, Eastern European criminal groups, Libyan militias, Nigerian rebels and more – and are a major global security concern.

The top five countries accused of oil trafficking – Nigeria, Mexico, Iraq, Russia, and Indonesia – are also producers. It is estimated that Nigeria alone loses US$1.5 billion a month due to pipeline tapping, illegal production and other sophisticated schemes. In Southeast Asia, about 3 percent of the fuel consumed is sourced from the black market, estimated to be worth up to US$10 billion a year. In Mexico, drug cartels launder drug revenues through the oil trade

Other countries are not immune. Turkey is not an oil producer yet serves as a major transit route for hydrocarbons flowing to Europe from OPEC countries like Iraq and Iran. As an energy hub, Turkey is strategically situated for the illegal trade and lost an estimated US$5 billion in tax revenue in 2017. An uptick in smuggling oil and other refined products began 2014, when ISIS took control of major Syrian and Iraqi oil fields.

As with most commodities, the volume of oil smuggling is primarily linked to fluctuating prices. With climbing oil prices, illicit trade is expected to increase. The European Union is a prime example on how price disparities of fuel within its own member state countries tend to incentivize illegal trade producing counterintuitive routes. Lower oil prices in Eastern Europe have created maritime smuggling routes to the United Kingdom and Ireland. Ireland estimates it loses up to $200 million annually with fuel fraud, while up to 20 percent of fuel sold in regular gas stations in Greece is illegal.

The legal complexities and ambiguities of the global oil and gas trade often create an opening for illegal activity.

In some cases, subnational actors openly export oil despite official prohibition by central governments. The Kurdistan Regional Government in Iraq maintains it is their region’s constitutional right to export oil independently, in defiance of the central government. With Baghdad withholding the region’s 17 percent of budget share, the regional government sought economic independence through hydrocarbons and found a degree of international sympathy, given its role in combatting ISIS and hosting 1.9 million refugees and internally displaced people. The unrefined product was sent via pipeline through Turkey’s Ceyhan port, loaded by various Greek shipping companies on tankers, then stored in Malta or Israel until buyers were found. Shifting routes of Kurdish oil tankers can be observed on sites like tankertrackers.com.

Authorities who benefit from the trade often stymie efforts to combat illegal trafficking, as seen in countries like Iraq or North Korea, with terrible consequences for citizens. Conflict and illicit trading near the Niger River Delta reduced overall foreign direct investment in recent decades.

With 90 percent of the world’s goods, 30 percent of which are total hydrocarbons, traded by sea, much of the illegal fuel trade is conducted on water. Two thirds of global daily oil exports are transported by sea, reports the UN Conference on Trade and Development, and a staggering 64 percent of international waters are areas beyond any national jurisdiction. Non-state actors offshore West Africa, Bangladesh or Indonesia take advantage of loopholes created by international law and the law of the sea. Transfer of illegal fuel is often done ship to ship on neutral waters – with one ship commercially legal, recognized as carrying legitimate imports at the final port of destination. Thus, illegal crude from countries such as Libya or Syria finds its way to EU markets. Recently Russian ships have been found involved in smuggling oil products to North Korea through ship to ship transfers.

Armed theft and piracy also occur. Hijackings off the coast of Somalia resumed in 2017, the first since 2012, after the international community reduced enforcement. Beyond jurisdictional issues, many governments are overwhelmed by other maritime security threats and cannot prioritize the illegal trade. In fact, fuel traders have reported that the problem is so pervasive that many companies calculate in advance for losses up to 0.4 percent of any ordered cargo volumes.

The industry runs on high risk tolerance.

Transparency International estimates that over the next 20 years, around 90 percent of oil and gas production will come from developing countries. The relatively low average salaries of state employees relative to the private sector in developing countries encourage the temptation to look for other income sources.

Consider Mozambique, where immense offshore natural gas reserves have been discovered. Emerging from decades of civil war, the country has a diverse wasta system – an Arabic term for bribing and asking for favours – along with strong political allegiances and state structures that struggle to withstand internal and external pressures. Estimates suggest that 54 percent of all cargo movements in the capital city, Maputo, involve bribes, and Mozambique risks following the path of Nigeria, a country in need of socioeconomic development despite vast oil and gas reserves under development since 1958. The country is reported to have already lost around US$400 billion since its independence in 1960 due to theft or mismanagement in its oil sector.

The Organization of Economic Co-operation and Development suggests that the impacts of the illegal oil trade go underestimated, and the affected countries suffer from the deteriorating rule of law, loss of biodiversity, pollution, degradation of critical farmland, increasing health problems and armed conflicts. Other opportunity costs include increased financial risk premiums for investors with billions of dollars lost annually due to illegal bunkering, pipeline tapping, ship-to-ship transfers, armed theft, adulteration of fuel and bribery. Illicit trade allows authoritarian states to maintain revenue flows for years despite international sanctions designed to weaken their rule. In the 11th year of UN oil sanctions, Iraq’s dictator Saddam Hussein had managed to become one of the world’s richest men, with an estimated US$3 billion in wealth

Some governments condone the illicit trade. An intertwining of regime structures and corruption – often supported by governments and corporations – is a major stumbling block for the international community’s attempts to contain illegal trading. So far, governmental and industry efforts to halt the practice have been ineffective – and it could be that the illegal oil trade offers enough benefits to consumers, producers and government officials to disincentivize investigation. Some officials suggest that condoning trade in illicit oil and petroleum products helps keep regional and local security intact.

The first global conference on fuel theft, held in Geneva in April, may be a watershed moment. The conference aimed at encouraging discourse among stakeholders within the hydrocarbons industry on how to tackle the scale of this global crime and was based on the work of Ian Ralby, I.R. Consilium and the Atlantic Council’s Global Energy Center, which produced Downstream Oil Theft: Global Modalities, Trends, and Remedies, the most extensive examination of illicit downstream hydrocarbons activity published to date.

Courtesy of: Visual Capitalist

Similar challenges confront the rapidly growing liquefied natural gas market. Strong international cooperation is required, or detrimental effects for global security, the environment and economic prosperity will continue. Unless monitored and addressed by robust policy and regulation, the illegal oil activities will remain a key funding source for terrorism, organized crime, authoritarian states and violent non-state actors.

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Authored by Lance Roberts via RealInvestmentAdvice.com,

Yes, Something Broke

In this missive, we are just going to focus on the “WTF!” moment of this past week. In order to do this properly, I need to start with last week’s missive where we asked the question “Did Something Just Break?” In that article we addressed very specific concerns about interest rates and the problem they were going to cause.

“Speaking of rates, each time rates have climbed towards 3%, the market has stumbled.”

Chart updated through Friday.

“If you note in the chart above, a short-term ‘warning signal’ has been triggered which suggests that if rates remain above 3%, stocks are going to continue to struggle. The last time this occurred was in May when rates popped above 3%, stocks struggled and bonds outperformed.”

We also updated the pathway analysis for the highest probability outcomes over the next couple of months.

Chart updated through Friday – pathways remain unchanged

While the majority of the pathway’s accounted for a continued corrective, consolidation, process through the end of the year. It was Pathway #3 which came to fruition.

“Pathway #3: The issue of rising interest combines with a break in the economic data, or another credit-related event, and sends the market heading back to test supports at 2800 and 2750. This would likely coincide with a more severe contraction in the economic data which is not an immediate threat. Nonetheless, we should always consider the risk of an unexpected, exogenous, event. (10%)”

The recent sell-off coincides with the rising concerns of higher rates coupled with deterioration in economic growth heading into 2019. To wit:

“As such, our best initial take is that yesterday’s repricing of US growth was an overdue gut-check following last week’s monetary and oil supply shocks.”

In other words, as we have been repeatedly stating, the underlying economic growth story, outside of one-time events and natural disasters isn’t nearly as strong as reported. My friend, Danielle DiMartino-Booth, concurs with my assessment:

” Against that backdrop, it’s becoming clear that many companies are rushing to secure products and materials before prices rise regardless of current demand. You could say they are in panic-buying mode. The upside is that this behavior bolsters economic growth in the short term. The downside is that there is likely to be a nasty hangover. The noise in the economic data will be amplified by the rebuilding from Hurricane Florence. The estimates of the storm’s damage span from $20 billion to $50 billion.”

Of course, you can now add Hurricane Michael to the list. But don’t forget the current spat of economic growth this year was from the 3-massive Hurricanes in 2017.

But here is her conclusion:

“In the event you’re hoping the virtuosity of panic buying can become a permanent prop to the economy, you might want to rethink your thesis. 

Rather, artificial, tariff-driven panic buying pumps up GDP growth in the short term but ensures it will disappoint in the future. Look for fourth quarter estimates to be revised upwards and then look out below into the first of the year. And no, the first-quarter disappointment will not be the seasonal anomaly many economists typically ascribe to economic growth in the first three months of the year. In other words, it could be that much worse.”

More Than Just Rates

But it isn’t just the rise in interest rates, and the threat of slowing economic growth, that is most concerning for the outlook of investors going forward. Both of those issues also translate into weaker earnings growth as well.

“As stated, the risk to current estimates remains higher rates, tighter monetary accommodation, and trade wars. More importantly, year over year comparisons is going to become markedly more troublesome even as expectations for the S&P 500 index continues to rise.”

“With the number of S&P 500 companies issuing negative EPS guidance is now the highest since 2016, it is only a function of time until we see forward estimates into 2019 begin to revised substantially lower.”

The issue of earnings, combined with higher rates, tariffs, and valuations, will likely continue to way on asset prices as we move into 2019.

The one bright spot going into the end of this year is that corporations have been in a “blackout” period for buying back their own shares heading into Q3-earnings reporting period. 

“Given a large bulk of the surge in earnings was due to the “one-time” repatriation of overseas profits of $300 billion which flowed directly into share buybacks.” 

By the beginning of November, that restriction will be lifted and the markets will likely get some support from an acceleration of buybacks headed into year end. However, as stated, that growth will become much more muted.

This Time IS Different

With the understanding the economic and fundamental background may not be supportive for higher asset prices heading into 2019, the market is also sending a very different technical signal as well. As I showed on Thursday, this is the FIRST time the market has broken the bullish trend line that began in 2016.

As shown below, that break of the bullish trend pulls in a new dynamic of potential market action over the next several months which is more akin to a market topping process than the continuation of the previous bullish trend. 

“Given the short-term OVERSOLD condition of the market, we want to use rallies to rebalance risks in portfolios.

#1 – A rally back to the bullish trend line will be used to reduce risk (ie. raise cash) in portfolios by selling lagging positions and rebalancing risk in winning positions. Rule: sell losers and let winners run. 

We fully expect an initial rally to fail as investors caught in the sell-off will be looking for an opportunity to sell. However, if that sell-off fails to hold support at the recent lows it will suggest a bigger corrective action is in process. We will be looking to reduce equity risk further, raise cash, evaluate portfolio allocation models. 

#2– If the sell-off following a failed rally holds support at the recent lows, and turns up, such will suggest a rally back to either the January highs or all-time highs. NOTE: A rally back to all-time highs following a corrective pullback will again retest the underside of the bullish trend line from the 2016 lows. Such remains a ‘bearish’ backdrop from equity risk going into 2019 where economic and earnings data is expected to slow further. We will use any rally back to those levels to reduce risk as noted in #1.

#3– If the rally from the recent lows fails at the January highs we will again use that opportunity to reduce equity risk and rebalance portfolio allocations.”

Back in April of this year, I wrote 10-Reasons The Bull Market Ended In 2018. Primarily, that analysis was built around fundamental issues that would potentially plague markets going forward. With the failure of the markets this past week, along with the break of the bull trend, the bull market still has not yet resumed. More importantly, the current actions are consistent with both previous major market peaks as shown below. (Nominal new highs, declining momentum, and weekly MACD sell signal)

What To Expect Next Week

As shown in the chart below, the market was more than 4-standard deviations below its 50-dma on Friday. This is a very rare event and is an extreme oversold condition. However, along with the evidence above, also suggests the recent bull market trend is finished for the time being. Portfolio management processes should be switched from “buying dips” to “selling rallies” until the technical backdrop changes.

Next week, I would expect to see a rally from the short-term oversold conditions. The good news is that the market WAS ABLE TO CLOSE ABOVE THE 200-DMA on Friday which will keep buyers (algos) in play into next week. However, it will be the breadth and strength of that rally that will be important to watch.

If it is a weak, narrow bounce with little conviction, use the rally to lift positions, trim losers, raise cash and potentially look at initiating some hedges.

As I wrote last week:

“Our bigger concern remains interest rates simply for one reason – you can NOT have higher stock prices AND higher interest rates. Period. One or the other will have to give.”

We now know that was indeed the case.

Checklist Summary Of Actions To Take

As stated, it is highly unlikely the bull market will quickly resume without a further shakeout first. This doesn’t mean we can’t have some hellacious rallies in the meantime. However, the entire supportive structure of the market has now changed which suggests a very different set of actions need to be taken on rallies over the next several months.

Here is what we will specifically be doing on subsequent rallies.

1. Re-evaluating overall portfolio exposures. It is highly likely that equity allocations have gotten out of tolerance from the original allocation models. We will also look to reduce overall allocation models from 60/40 to 50/50 or less.

2. Look to add bond exposure to mitigate volatility risk. (Read:  The Upcoming Bond Bull Market)

3. Use rallies to raise cash as needed. (Cash is a risk-free portfolio hedge)

4. Review all positions (Sell losers/trim winners)

5. Look for opportunities in other markets (Gold may finally shine)

6. Add hedges to portfolios (If the market begins to show a negative trend we will add short positions)

7. Trade opportunistically (There are always rotations that can be taken advantage of)

8. Drastically tighten up stop losses. (We  had previously given stop losses a bit of leeway as long as the bull market trend was intact. Such is no longer the case.)

If I am right, the conservative stance and hedges in portfolios will protect capital in the short-term. The reduced volatility allows for a logical approach to further adjustments as the correction becomes more apparent. (The goal is not to be forced into a “panic selling” situation.)

If I am wrong, and the bull market resumes, we simply remove hedges, and reallocate equity exposure.

“There is little risk, in managing risk.” 

The end of bull markets can only be verified well after the fact, but therein lies the biggest problem. Waiting for verification requires a greater destruction of capital than we are willing to endure.

“It’s probably wiser to assume [that God] exists because infinite damnation is much worse than a finite cost.” – Blaise Pascal

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A state election is taking place in Bavaria today which should be a key test for Chancellor Merkel’s political future, and could result in a political landslide in the state that holds 16% of the total German population and is responsible for more than 18% of German GDP.

Polls indicate that both the CSU (the sister party to Merkel’s CDU) and the center-left SPD will both lose votes, though most analysts expect the CSU to be able to form a government with other smaller parties (either the FDP and the Free Voters, or the Greens), which should give Merkel more breathing room in Berlin. She might be able to oust the more combative elements within her government, and could therefore gain leeway over asylum and European policy.

That said, as ING warns (full preview below), regardless of the outcome of Sunday’s elections, be prepared for a political landslide with a long-term impact on German national politics: a dramatic defeat of the CSU would first lead to an earthquake in Bavaria, foreshadowing future political developments and structural shifts at the national level; an unexpected comeback of the CSU would probably prompt a political landslide in Berlin.

Below we publish a complete preview of what to expect, courtesy of ING Economics’ Carsten Brzeski, who notes that Sunday’s regional elections in Bavaria could become an important milestone, either imminently or in the future, and that the result will be a “political landslide – one way or the other.”

Germany: Warning – political landslide in Bavaria ahead

Since the start of the new government in March this year, German politics have been hijacked by the forthcoming regional elections in Bavaria. In a bid to defend its absolute majority in Bavaria, the CSU (the sister party and coalition partner of Angela Merkel’s CDU) has been openly criticizing Merkel, starting several inner-coalition conflicts which almost led to a collapse of the government. In June, the CSU and CDU clashed bitterly over the issue of whether or not German police should be allowed to turn back refugees at the German-Austrian border, even forcing Chancellor Merkel to convene a special European Summit. For much of September, both parties were in an almost permanent fight over the fate of the head of the domestic intelligence service.

When Bavarians go to the polls this Sunday, many observers hope that political tensions in Berlin will ease. They could be wrong.

National politics are often hijacked by regional elections

Regional elections in Germany often leave a mark on national and international politics. Just think of the election in North-Rhine Westphalia back in 2010, which led to a rule-changing delay of the very first Greek bailout package or the series of SPD defeats at the start of last year, which turned Merkel contender Martin Schulz from party savior to disappointing failure within only a couple of weeks. Regional elections can always be a kind of confidence vote on national politics, a vote on pure regional issues, parties and the main actors or a combination of both. Very often the interpretation of what drove the election results only comes after Election Day.

CSU tried to score by being trouble-maker at federal level

In the case of the coming elections in Bavaria, however, the question of what drove the election result seems to have been answered already. While the CSU tried to make the election a kind of referendum on Merkel’s stance on refugees, the continuous nagging and trouble-seeking in Berlin, initiated by the CSU, has completely turned this around. According to the trend of latest opinion polls, the CSU’s strategy to distance itself from Merkel in order to prevent a rise of the AfD in Bavaria seems to have been a double failure. With less than 40% of the votes, the CSU is on track to come in with the worst result since 1954. The AfD is currently polling at 10%, as are the Free Voters, an EU-sceptical group that wants to return political power to local authorities. The Greens could come in a surprisingly strong second, currently polling at 18%, while the SPD stands at 12% and the liberal FDP at 5%.

Impact on national politics

Bavaria matters. The Bavarian elections are not only important due to the sheer size of the state, with some 16% of the total German population and more than 18% of German GDP. They also matter because the CSU’s dominance – 12 absolute majorities in the last 13 elections – has been an integral part of the success of the CDU/CSU bloc in federal elections. Currently, some 20% of the CDU/CSU seats on German parliament come from Bavaria.

Looking ahead, the most important aspect for national politics will be the CSU’s performance in Sunday’s elections. In this regard, two scenarios look plausible: current polls are right and the CSU suffers a historic defeat, garnering less than 40% of the votes, or it sees an unexpected comeback, with the party coming close to or even above the absolute majority of seats in Bavarian parliament.

• Historic defeat: The CSU would probably still lead the next Bavarian government with one or two coalition partners. There would be no significant shift in the federal upper house. Instead, Chancellor Merkel would emerge as the real winner of the election. The CSU would need some time to digest such an election defeat, focusing on inner-party issues and wasting less energy on conflicts with Merkel. As a result, the coalition in Berlin could again focus on implementing the substance of its coalition agreement. At the same time, however, a historic CSU defeat could be a worrying sign for Merkel, marking a new chapter in the deterioration of the conservative bloc. A significant loss would simultaneously fuel the AfD’s position as a strong opposition party, illustrating the increasing frustration of some voters with established parties, a trend which would definitely complicate coalition-building at the next federal election.
• Unexpected comeback: In this scenario, expect many CSU politicians to experience a testosterone boost. The CSU would be emboldened in its criticism of Merkel, continuing to be a permanent thorn in her side and pushing the federal government coalition closer to the edge of the cliff. As the SPD is also in a kind of existential crisis, the chances of the federal government coalition collapsing before the 2021 elections would clearly increase. In this scenario, any bigger and far-reaching European or international projects will probably be further hampered by German national politics.

Political landslide – one way or the other

Regardless of the outcome of Sunday’s elections in Bavaria, be prepared for a political landslide with a long-term impact on German national politics. A dramatic defeat of the CSU would first lead to an earthquake in Bavaria, foreshadowing future political developments and structural shifts at the national level. An unexpected comeback of the CSU would probably prompt a political landslide in Berlin. German politics continue to be anything but boring.

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Attorney Michael Avenatti has come under fire over a now-deleted tweet encouraging people to “chip in for Beto now,” linking to what appeared to be a fundraising page for Texas Democratic Senate candidate Beto O’Rourke.

In the fine print of the now-deleted campaign, however, O’Rourke supporters discovered that half the proceeds went to Avenatti’s Fight PAC, formed a little over seven weeks ago. 

Users were able to manually allocate funds entirely to O’Rourke, however the default sent half of all money collected to Avenatti’s Political Action Committee. 

“It is pretty skeezy,” said Brendan Fischer, the director of federal and FEC reform programs at the Campaign Legal Center, of the fundraising tactic. “If Avenatti wanted to raise funds for Beto O’Rourke’s campaign, he could just share a link to the Beto for Senate donation page. But he didn’t. Avenatti’s tweet gave viewers the impression their donation would support Beto for Senate, and given how easy it is to make a one-click donation through ActBlue, some viewers could miss the fine print disclosing that their donation would be split with Avenatti’s PAC.”-Daily Beast

Avenatti called the criticism “complete nonsense,” noting that Senators Elizabeth Warren and Kamala Harris “do the same thing.” Perhaps sensing he’d made a huge mistake, Avenatti deleted the page – telling the Daily Beast in a text message: “It wasn’t worth the nonsense that resulted from people that don’t understand how common this is.” 

Avenatti, 47, came under fire earlier this month after his introduction of the phrase “gang rape” into the national dialogue may have gotten Brett Kavanaugh confirmed to the Supreme Court, according to angry Democrats. His client, Julie Swetnick, claimed without evidence that Kavanaugh facilitated gang rape orgies at house parties in the early 80’s. Many say the accusation dragged credible allegations into absurd territory, while GOP Senator Susan Collins of Maine – an undecided swing vote – called Swetnick’s claim “outlandish,” and a “stark reminder about why the presumption of innocence is so ingrained in our American consciousness.” 

The left was not pleased: 

The spotlight-stealing lawyer, who also represented Stormy Daniels, is responsible for drawing the media’s attention to Julie Swetnick, an alleged victim of Kavanaugh who told an inconsistent and unpersuasive story. Swetnick’s wild accusation provided cover for fence-sitting senators to overlook the more plausible allegation leveled by psychology professor Christine Blasey Ford, and to declare that Kavanaugh was being subjected to false smears.

Sen. John Kennedy (R–La.) echoed Collins, telling MSNBC’s Chuck Todd, “I think this process changed dramatically when Mr. Avenatti entered the picture. I think a lot of people, including many of my Democratic colleagues, felt like we had gotten into the foothills of preposterous.” –Reason.com

Collins called the Swetnick allegation “outlandish” and Kennedy said “this process changed dramatically when Mr. Avenatti entered the picture.” Michael Avenatti provided cover for Republicans to confirm Kavanaugh. Nice work, dude. https://t.co/yOMHyrOqPF

— Robby Soave (@robbysoave) October 5, 2018

Beto O’Rourke, meanwhile, announced that his campaign raised $38 million in the third quarter – $16 million more than the previous quarterly funding record of $22 million by 2000 Hillary Clinton challenger Rick Lazio. 

Seems like there’s big money in Beto, although that was before he was seen dabbing in public…

Here is a video of Beto O’Rourke dabbing. You’re welcome pic.twitter.com/TqiiCcfS97

— Chris Strider (@stridinstrider) October 8, 2018

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Saudi Arabia warned on Sunday it would respond to any “threats” against it as its stock market crashed the most since 2016 after President Trump’s warning of “severe punishment” over the disappearance of Washington Post contributor Jamal Khashoggi.

On Saturday, Trump said the U.S. could take “very, very powerful, very strong, strong measures” against the country if its leaders are found responsible for the Saudi citizen’s fate. The kingdom, which denies its involvement in Khashoggi’s disappearance, announced it would retaliate against any punitive measures with an even “stronger” response, the Saudi Press Agency reported, citing an official it didn’t identify.

“The kingdom affirms its total rejection of any threats and attempts to undermine it, whether through economic sanctions, political pressure or repeating false accusations,” the kingdom’s statement said. “The kingdom also affirms that if it is (targeted by) any action, it will respond with greater action.”

Saudi Arabia has traditionally been one of Trump’s closest foreign allies, the US president made a point of visiting the kingdom on his first overseas trip as president and has touted arms sales to Saudi Arabia. But both the White House and the kingdom are under mounting pressure as concern grows over the fate of the veteran journalist, who hasn’t been seen since he entered the Saudi Consulate in Istanbul on Oct. 2.

The Saudi response came after Saudi Arabian stocks slumped the most since 2016 amid a broad selloff over collapsing relations with the US, with the Tadawul All Share Index, or TASI, plunging by 7% at one point during the week’s first day of trading, the most since December 2014, with all but seven of the gauge’s 186 members fell, led by Saudi Telecom, which declined 6.2%, Jabal Omar lost 6% and Saudi Basic Industries Corp. retreated 1.9%. Selling volume soared, with the number of shares traded more than double the 30-day average.

At one point, the index fell more than 10% in four days and was virtually unchanged on the year at the close of trading.

The market clawed back some of the losses, closing down just over 4% later on. The Saudi benchmark fell 3.9% on Oct. 11, when the MSCI Emerging Markets Index plunged 3.2% following last week’s S&P rout. While the MSCI EM index recovered part of that loss on Friday, when it gained 2.7%, the Saudi selloff accelerated as a result of the latest threat from Trump.

The escalation in tension between the two allies, and growing calls for Saudi Arabia to explain what happened to the missing writer, have raised concerns whether the kingdom can attract foreign investors needed to overhaul its economy according to Bloomberg. The diplomatic spat comes as the nation has been reforming its financial markets and has won inclusion in FTSE Russell and MSCI Inc. indexes for emerging markets.

“You are talking about a geopolitical situation becoming even worse and Saudi Arabia is going to show its stubborn attitude again,” said Naeem Aslam, chief market analyst at Think Markets UK. “This is not going to sit well with foreign investors. From where we sit, we don’t see any demand for Saudi equities at all.”

Neighboring markets were not spared either, with stock markets in Kuwait and Dubai dropping 1.9% and 1.5%, respectively; the Abu Dhabi’s ADX General Index dropped 0.7%. In Kuwait, all but one of the 16 members of the Boursa Kuwait Premier Market Price Return Index fall, dragging the measure down the most in almost a year. In Dubai, Emaar Properties and Dubai Islamic Bank are the biggest drag on the index, which closes at the lowest level since January 2016.

* * *

Foreign capital is key to Saudi Arabia’s plans to diversify its economy beyond oil and cut a 12.9% jobless rate among its citizens.

But in response to Khashoggi’s disappearance, media firms and some technology executives have pulled out of a major Riyadh investment conference scheduled for next week. As we reported yesterday, numerous company leaders backed away from the “Davos in the Desert” event later this month intended to showcase Prince Mohammed bin Salman’s modernization plan for his nation. Still, Trump said the U.S. would be “foolish” to cancel large arms deals with the Gulf state.

“This is happening at a time when Saudi Arabia is preparing for a big investment event and they don’t need people suspending or pulling out investments,” said Nadi Barghouti, head of asset management at Emirates Investment Bank in Dubai.

“Saudi is one of the world’s top oil producers, so one can’t sanction Saudi in the same way that one could sanction Iran,” Richard Sneller, the head of emerging-market equities at Baillie Gifford & Co. in Edinburgh, said last week. “Having said that, there are aspects of the Saudi regime that some people find less palatable and there are competing interests within Saudi as well. This is a very complicated country.”

* * *

While Trump has not described what punishment Saudi Arabia might face, he did indicate that Washington does not want to harm close defence ties, saying the United States would be punishing itself if it halted sales of military equipment to Riyadh.

But U.S. senators have triggered a provision of the Global Magnitsky Human Rights Accountability Act requiring the president to determine whether a foreign person is responsible for a gross human rights violation. The act has in the past imposed visa bans and asset freezes on Russian officials.

Also, anti-Saudi sentiment in the U.S. Congress could conceivably raise pressure to pass the so-called No Oil Producing and Exporting Cartels Act, which would end sovereign immunity shielding OPEC members from U.S. legal action. Past U.S. presidents have opposed the bill but the chances of it being passed may have increased because of Trump’s frequent criticism of the Organization of the Petroleum Exporting Countries, which he accuses of driving up oil prices.

Meanwhile, as Reuters notes, there is concern Khashoggi’s disappearance could add to a sense that Saudi policy has become more unpredictable under Crown Prince Mohammed bin Salman, who is pushing social reforms to modernize the kingdom but has also presided over a rise in tensions between Riyadh and several other countries.

A Gulf banker said the Khashoggi case, combined with other events, had become a significant factor for some potential investors in Saudi Arabia and that her bank was receiving many queries from foreign clients on how to interpret it.

“It’s cumulative – the Yemen war, the dispute with Qatar, the tensions with Canada and Germany, the arrests of women activists. They add up to an impression of impulsive policy-making, and that worries investors,” the banker said.

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The Pentagon has heavily invested in 2.75-inch precision laser-guided rockets that are usually fired from attack helicopters. 

But now, BAE Systems’ Advanced precision kill weapon system (APKWS) transforms an unguided 2.75-inch rocket into a precision-guided missile, gives warfighters a low-cost surgical strike capability, can be fired from ground-based vehicles or static remote outposts for base defense, said Defense News.

The Fletcher laser-guided rocket launcher system was spotted earlier this year on top of an Oshkosh Special Purpose All Terrain Vehicle, at a defense conference with a BAE APKWS, positioned in the launcher. 

Here are other vehicles with the Fletcher laser-guided rocket launcher system –

St. Louis, Missouri-based Arnold Defense is the primary manufacturer of the launchers for the US military’s 2.75-inch rockets mounted on fixed and rotary wing aircraft, said Scott Amos, a program manager for BAE. 

“They’ve [Arnold Defense] redesigned that technology into a ground-based launcher system,” Amos said.

Instead of launching dumb rockets at the enemy in area-suppression missions, the Fletcher system with APKWS provides pinpoint accuracy of about 3.1 miles from a ground-based vehicle, according to Amos. 

He said multiple services had expressed interest in the new ground launcher. 

Earlier this year, the Fletcher launcher went through a proof of concept demonstration where the system was tested from a stationary platform, Amos added.

Jim Hager, the company’s CEO, recently told Defense News that his company is the only manufacturer of 2.75-inch rocket launchers since the 1980s.

He said the defense industry ignored the rocket launchers for years because of accuracy issues, but when APKWS came around, all that changed. 

Now in hot demand, it is a boom time for 2.75-inch rocket launchers. The launchers have already shown combat worthiness on the modern battlefield. Hager explained: 

“A European special forces outfit was the first to understand the value of such a system, he said. The company along with its partners, have spent a year working closely with the outfit to create the concept that has culminated in the creation of Fletcher, he added. 

A special forces unit told Arnold Defense about a situation where it was pinned down by enemy fire from a mountain and only had a 60mm mortar system on hand. The unit couldn’t get enough elevation to destroy the target so it could move on, and the team was pinned down until darkness when its members were able to exfiltrate undercover. 

With the Fletcher launcher, the degree of elevation is much higher, which gives it utility in an urban environment, too, Hager said, allowing it to point at tall buildings from close in,” Defense News said. 

Before APKWS, operators of the rocket launcher had limited accuracy, “but now we have pinpoint accuracy, now we have a max effective range of about 4.97 miles,” Hager said, adding that a new rocket is in development that could boost range to 7.5 to 9.3 miles. 

The company mounted the Fletcher launcher on an even smaller vehicle than the Oshkosh, dubbed the Polaris Dagor, it is known as the ultimate dune buggy by special operation forces. 

As the Pentagon continues to fight its hybrid wars across Africa and the Middle East, it does not surprise us that special operation forces have been using lightly militarized all-terrain-vehicles. What is astonishing, is that these dune buggies can now fire laser-guided missiles that are generally found on attack helicopters.

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Authored by James George Jatras via The Strategic Culture Foundation,

The “special relationship” between the United States and the United Kingdom is often assumed to be one where the once-great, sophisticated Brits are subordinate to the upstart, uncouth Yanks.

Iconic of this assumption is the mocking of former prime minister Tony Blair as George W. Bush’s “poodle” for his riding shotgun on the ill-advised American stagecoach blundering into Iraq in 2003. Blair was in good practice, having served as Bill Clinton’s dogsbody in the no less criminal NATO aggression against Serbia over Kosovo in 1999.

On the surface, the UK may seem just one more vassal state on par with Germany, Japan, South Korea, and so many other useless so-called allies. We control their intelligence services, their military commands, their think tanks, and much of their media. We can sink their financial systems and economies at will. Emblematic is German Chancellor Angela Merkel’s impotent ire at discovering the Obama administration had listened in on her cell phone, about which she – did precisely nothing. Global hegemony means never having to say you’re sorry.

These countries know on which end of the leash they are: the one attached to the collar around their necks. The hand unmistakably is in Washington. These semi-sovereign countries answer to the US with the same servility as member states of the Warsaw Pact once heeded the USSR’s Politburo. (Sometimes more. Communist Romania, though then a member of the Warsaw Pact refused to participate in the 1968 invasion of Czechoslovakia or even allow Soviet or other Pact forces to cross its territory. By contrast, during NATO’s 1999 assault on Serbia, Bucharest allowed NATO military aircraft access to its airspace, even though not yet a member of that alliance and despite most Romanians’ opposition to the campaign.)

But the widespread perception of Britain as just another satellite may be misleading.

To start with, there are some relationships where it seems the US is the vassal dancing to the tune of the foreign capital, not the other way around. Israel is the unchallenged champion in this weight class, with Saudi Arabia a runner up. The alliance between Prime Minister Bibi Netanyahu and Saudi Crown Prince Mohammad bin Salman (MbS) – the ultimate Washington “power couple” – to get the Trump administration to destroy Iran for them has American politicos listening for instructions with all the rapt attention of the terrier Nipper on the RCA Victor logo. (Or did, until the recent disappearance of Saudi journalist Jamal Khashoggi. Whether this portends a real shift in American attitudes toward Riyadh remains questionable. Saudi cash still speaks loudly and will continue to do so whether or not MbS stays in charge.)

Specifics of the peculiar US-UK relationship stem from the period of flux at the end of World War II. The United States emerged from the war in a commanding position economically and financially, eclipsing Britannia’s declining empire that simply no longer had the resources to play the leading role. That didn’t mean, however, that London trusted the Americans’ ability to manage things without their astute guidance. As Tony Judt describes in Postwar, the British attitude of “superiority towards the country that had displaced them at the imperial apex” was “nicely captured” in a scribble during negotiations regarding the UK’s postwar loan:

In Washington Lord Halifax

Once whispered to Lord Keynes:

“It’s true they have the moneybags

But we have all the brains.”

Even in its diminished condition London found it could punch well above its weight by exerting its influence on its stronger but (it was confident) dumber cousins across the Pond. It helped that as the Cold War unfolded following former Prime Minister Winston Churchill’s 1946 Iron Curtain speech there were very close ties between sister agencies like MI6 (founded 1909) and the newer wartime OSS (1942), then the CIA (1947); likewise the Government Communications Headquarters (GCHQ, 1919) and the National Security Administration (NSA, 1952). Comparable sister agencies – perhaps more properly termed daughters of their UK mothers – were set up in Canada, Australia, and New Zealand. This became the so-called “Five Eyes” of the tight Anglosphere spook community,infamous for spying on each others’ citizens to avoid pesky legal prohibitions on domestic surveillance.

Despite not having two farthings to rub together, impoverished Britain – where wartime rationing wasn’t fully ended until 1954 – had a prime seat at the table fashioning the world’s postwar financial structure. The 1944 Bretton Woods conference was largely an Anglo-American affair, of which the aforementioned Lord John Maynard Keynes was a prominent architect along with Harry Dexter White, Special Assistant to the US Secretary of the Treasury and Soviet agent.

American and British agendas also dovetailed in the Middle East. While the US didn’t have much of a presence in the region before the 1945 meeting between US President Franklin Delano Roosevelt and Saudi King ibn Saud, founder of the third and current (and hopefully last) Saudi state – and didn’t assume a dominant role until the humiliation inflicted on Britain, France, and Israel by President Dwight Eisenhower during the 1956 Suez Crisis – London has long considered much of the region within its sphere of influence. After World War I under the Sykes-Picot agreement with France, the UK had expanded her holdings on the ruins of the Ottoman Empire, including taking a decisive role in consolidating Saudi Arabia under ibn Saud. While in the 1950s the US largely stepped into Britain’s role managing the “East of Suez,” the former suzerain was by no means dealt out. The UK was a founding member with the US of the now-defunct Central Treaty Organization (CENTO) in 1955.

CENTO – like NATO and their one-time eastern counterpart, the Southeast Asia Treaty Organization (SEATO) – was designed as a counter to the USSR. But in the case of Britain, the history of hostility to Russia under tsar or commissar alike has much deeper and longer roots, going back at least to the Crimean War in the 1850s. The reasons for the longstanding British vendetta against Russia are not entirely clear and seem to have disparate roots: the desire to ensure that no one power is dominant on the European mainland (directed first against France, then Russia, then Germany, then the USSR and again Russia); maintaining supremacy on the seas by denying Russia warm-waters ports, above all the Dardanelles; and making sure territories of a dissolving Ottoman empire would be taken under the wing of London, not Saint Petersburg. As described by Andrew Lambert, professor of naval history at King’s College London, the Crimean War still echoes today:

“In the 1840s, 1850s, Britain and America are not the chief rivals; it’s Britain and Russia. Britain and Russia are rivals for world power, and Turkey, the Ottoman Empire, which is much larger than modern Turkey — it includes modern Romania, Bulgaria, parts of Serbia, and also Egypt and Arabia — is a declining empire. But it’s the bulwark between Russia, which is advancing south and west, and Britain, which is advancing east and is looking to open its connections up through the Mediterranean into its empire in India and the Pacific. And it’s really about who is running Turkey. Is it going to be a Russian satellite, a bit like the Eastern Bloc was in the Cold War, or is it going to be a British satellite, really run by British capital, a market for British goods? And the Crimean War is going to be the fulcrum for this cold war to actually go hot for a couple of years, and Sevastopol is going to be the fulcrum for that fighting.”

Control of the Middle East – and opposing the Russians – became a British obsession, first to sustain the lifeline to India, the Jewel in the Crown of the empire, then for control of petroleum, the life’s blood of modern economies. In the context of the 19th and early 20th century Great Game of empire, that was understandable. Much later, similar considerations might even support Jimmy Carter’s taking up much the same position, declaring in 1980 that “outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.” The USSR was then a superpower and we were dependent on energy from the Gulf region.

But what’s our reason for maintaining that posture almost four decades later when the Soviet Union is gone and the US doesn’t need Middle Eastern oil? There are no reasonable national interests, only corporate interests and those of the Arab monarchies we laughably claim as allies. Add to that the bureaucracies and habits of mind that link the US and UK establishments, including their intelligence and financial components.

In view of all the foregoing, what then would policymakers in the United Kingdom think about an aspirant to the American presidency who not only disparages the value of existing alliances – without which Britain is a bit player – but openly pledges to improve relations with Moscow? To what lengths would they go to stop him?

Say ‘hello’ to Russiagate!

One can argue whether or not the phony claim of the Trump campaign’s “collusion” with Moscow was hatched in London or whether the British just lent some “hands across the water” to an effort concocted by the Democratic National Committee, the Hillary Clinton presidential campaign, the Clinton Foundation, and their collaborators at Fusion GPS and inside the Obama administration. Either way, it’s clear that while evidence of Russian connection is nonexistent that of British agencies is unmistakable, as is the UK’s hand in a sustained campaign of demonization and isolation to sink any possible rapprochement between the US and Russia.

As for Russiagate itself, just try to find anyone involved who’s actually Russian. The only basis for the widespread assumption that any material in the Dirty Dossier that underlies the whole operationoriginated with Russia is the claim of Christopher Steele, the British “ex” spy who wrote it, evidently in collaboration with people at the US State Department and Fusion GPS. (The notion that Steele, who hadn’t been in Russia for years, would have Kremlin personal contacts is absurd. How chummy are the heads of the American section of Chinese or Russian intelligence with White House staff?)

While there are no obvious Russians in Russiagate there’s no shortage of Brits. These include (details at the link):

• Andrew Wood, a former British ambassador to Russia

• Stefan Halper, a dual US-UK citizen.

• Ex-MI6 Director Richard Dearlove.

• Robert Hannigan, former director of GCHQ; there is reason to think surveillance of Trump was conducted by GCHQ as well as by US agencies under FISA warrants. Hannigan abruptly resigned from GCHQ soon after the British government denied the agency had engaged in such spying.

• Alexander Downer, Australian diplomat (well, not British but remember the Five Eyes!).

• Joseph Mifsud, Maltese academic and suspected British agent.

At present, the full role played by those listed above is not known. Release of unredacted FISA warrant requests by the Justice Department, which President Trump ordered weeks ago, would shed light on a number of details. Implementation of that order was derailed after a request by – no surprise – British Prime Minister Theresa May. Was she seeking to conceal Russian perfidy, or her own underlings’?

It would be bad enough if Russiagate were the sum of British meddling in American affairs with the aim of torpedoing relations with Moscow. (And to be fair, it wasn’t just the UK and Australia. Also implicated are Estonia, Israel, and Ukraine.) But there is also reason to suspect the same motive in false accusations against Russia with respect to the supposed Novichok poisonings in England has a connection to Russiagate via a business associate of Steele’s, one Pablo Miller, Sergei Skripal’s MI6 recruiter. (So if it turns out there is any Russian connection to the dossier, it could be from Skripal or another dubious expat source, not from the Russian government.) Skripal and his daughter Yulia have disappeared in British custody. Moscow flatly accuses MI6 of poisoning them as a false flag to blame it on Russia.

A similar pattern can be seen with claims of chemical weapons use in Syria: “We have irrefutable evidence that the special services of a state which is in the forefront of the Russophobic campaign had a hand in the staging” of a faked chemical weapons attack in Douma in April 2018. Ambassador Aleksandr Yakovenko pointed to the so-called White Helmets, which is closely associated with al-Qaeda elements and considered by some their PR arm: “I am naming them because they have done things like this before. They are famous for staging attacks in Syria and they receive UK money.” Moscow warned for weeks before the now-postponed Syrian government offensive in Idlib that the same ruse was being prepared again with direct British intelligence involvement, even having prepared in advance a video showing victims of an attack that had not yet occurred.

The campaign to demonize Russia shifted into high gear recently with the UK, together with the US and the Netherlands, accusing Russian military intelligence of a smorgasbord of cyberattacks against the World Anti Doping Agency (WADA) and other sports organizations, the Organization for the Prohibition of Chemical Weapons (OPCW), the Dutch investigation into the downing of MH-17 over Ukraine, and a Swiss lab involved with the Skripal case, plus assorted election interference. In case anyone didn’t get the point, British Defense Secretary Gavin Williamson declared: “This is not the actions of a great power. This is the actions of a pariah state, and we will continue working with allies to isolate them.”

To the extent that the goal of Williamson and his ilk is to ensure isolation and further threats against Russia, it’s been a smashing success. More sanctions are on the way. The UK is sending additional troops to the Arctic to counter Russian “aggression.” The US threatens to use naval power to block Russian energy exports and to strike Russian weapons disputed under a treaty governing intermediate range nuclear forces. What could possibly go wrong?

In sum, we are seeing a massive, coordinated hybrid campaign of psy-ops and political warfare conducted not by Russia but against Russia, concocted by the UK and its Deep State collaborators in the United States. But it’s not only aimed at Russia, it’s an attack on the United States by the government of a foreign country that’s supposed to be one of our closest allies, a country with which we share many venerable traditions of language, law, and culture.

But for far too long, largely for reasons of historical inertia and elite corruption, we’ve allowed that government to exercise undue influence on our global policies in a manner not conducive to our own national interests. Now that government, employing every foul deception that earned it the moniker Perfidious Albion, seeks to embroil us in a quarrel with the only country on the planet that can destroy us if things get out of control.

This must stop. A thorough reappraisal of our “special relationship” with the United Kingdom and exposure of its activities to the detriment of the US is imperative.

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