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South Korean President Moon Jae-in, who suggested on Monday that Donald Trump deserves the Nobel Peace Prize…

…has convinced North Korean leader Kim Jong Un to hold his historic meeting with US President Donald Trump at the demilitarized zone (DMZ) separating the two Koreas – a region Bill Clinton called the “scariest place on earth” in 1993, CNN reports.

Moon and Kim met last Friday at the same location in Panmunjom, as the historically significant event led to an agreement to denuclearize the Korean Peninsula and formally end the Korean War.

There is a “strong possibility” the summit will be held at the site, with some events possibly scheduled on the northern side of the military demarcation line separating the two countries, according to an official with deep knowledge of North Korea’s thinking on the matter. –CNN

The summit, thought to be held in “in late may,” will also mark a historically significant moment in US history – as the agreement between the two Koreas marks the first sitting US President to meet with a North Korean Leader, ending decades of failed US foreign policy as the multi-generational regime pursued its nuclear ambitions.

The idea to meet at the DMZ was on Trump’s mind all weekend – as he raised the possibility in a Sunday phone call with Moon, a senior US official and another person familiar with the conversation told CNN. 

“There’s something I like about it, because you’re there, if things work out, there’s a great celebration to be had on the site, not in a third party country,” said President Trump to reporters on Monday.

.@POTUS on the possibility of holding the North Korea summit at the DMZ: “There is something that I like about it because you’re there. You’re actually there. Where if things work out, there’s a great celebration to be had.” pic.twitter.com/XMZ44kheXa

— FOX Business (@FoxBusiness) April 30, 2018

On Friday Kim Jong Un and Moon Jae-in agreed to finally end a seven-decade war, signing a declaration to pursue the “complete denuclearization” of the Korean Peninsula, although they did not announce any concrete steps to dismantle the North’s nuclear programs..

The two leaders embraced after signing the deal during a historic meeting on their shared border, the first time a North Korean leader has set foot on the southern side. They announced plans to formally declare a resolution to the war and replace 1953 armistice that ended open hostilities into a peace treaty by year’s end.

“We solemnly declare to our 80m Koreans and the world that there will no more war on the Korean peninsula and a new era of peace has begun,” North Korean leader Kim Jong Un and South Korean president Moon Jae-in said in a joint statement. “It is our urgent historic assignment to put an end to this current abnormal state of ceasefire and establish a peace regime.”

#BREAKING: North Korean leader Kim Jong-un makes history with a brief walk into South Korea for an ice-breaking #KoreaSummit pic.twitter.com/hsa4IM7O2v

— Jeffs (@jeffs_araujo35) April 27, 2018

“We have agreed to share a firm determination to open a new era in which all Korean people enjoy prosperity and happiness on a peaceful land without wars,” Kim said, in his first remarks in front of the global press since taking power in 2011.

No Wall, No War, No hate
Today, We are all KOREANS #interkoreansummit #남북정상회담 #KoreaSummit pic.twitter.com/iziTIIEGmW

— JaeKwon Son 손재권 (@gjack) April 27, 2018

The two sides “confirmed the common goal of realizing, through complete denuclearization, a nuclear-free Korean Peninsula.”

Trump loved the images from the inter-Korean summit and the fact the entire meeting was televised, those sources said. –CNN

CNN reports that some in the Trump administration have concerns, however, that a meeting at the DMZ would appear conciliatory towards Kim, and are arguing towards Singapore as an alternate location for the summit. 

The wealthy and glamorous city-state sits on the end of the Malay Peninsula and has often been seen as a gateway between Asia and the West.

A close ally to the United States during the Cold War and currently host to a US military presence, Singapore also has a diplomatic relationship with North Korea. It is one of only 47 countries to feature a North Korean embassy. –CNN

That said, Kim Jong Un is said to be reluctant to travel long distances by plane, due in part to security concerns, so Singapore may be off the table. 

A third location the leaders could meet is the previously suggested is the Mongolian capital of Ulaanbaatar – leveraging diplomatic ties between both Pyongyang and Washington and serving as neutral ground for the summit. It would also allow Kim to travel to the meeting using his father’s armored train. 

“Mongolia is very eager to host this summit, they have come out and said they will host it … They want to be the Switzerland of Asia, they want to be seen as a partner that can have good ties with everybody,” said Jenna Gibson, director of communications at the Korea Economic Institute.

On Monday, South Korean leader Moon Jae-in said U.S. President Donald Trump deserves a Nobel Peace Prize for his efforts to end the standoff with North Korea over its nuclear weapons program, a South Korean official said on Monday.

Just a few short hours after the historic first crossing south of the border by Kim to meet Moon pledging to end hostilities between the two countries and work towards the “complete denuclearization” of the Korean peninsula, Reuters reports that Moon told a meeting of senior secretaries, according to a presidential Blue House official who briefed media:

“President Trump should win the Nobel Peace Prize. What we need is only peace.”

This follows Moon’s comments in January that Trump “deserves big credit for bringing about the inter-Korean talks. It could be a resulting work of the U.S.-led sanctions and pressure.”

Perhaps the most important question of all; will Dennis Rodman be at the signing?

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Via Global Macro Monitor,

Watch Brazilian surfer Rodrigo Koxa ride an 80-foot wave in Portugal last November. Koxa was recently recognized for the feat at the Big Wave Awards in Santa Monica, California.

Please view the video above and respond by choosing the best answer which most closely represents your perception of the ink blots big wave surfer video.  Free association is welcome.

We will run the algorithm to analyze your personality.

Q:   What do you see in the big wave surfing video?

1. Investors riding the coming breakout rally in the S&P500

2. Traders long stocks about to be rushed by a vicious bear market

3. “Blue Wave” November election where Democrats take the House and Senate

4. President Trump surfing opinion polls to a 50 plus percent approval rating

5. Bernie Sanders about to get crushed politically

6. The inflation wave about to break on the U.S. economy

7. The deflation wave about to break on the U.S. economy

8. Google recording your internet surfing

9. FX traders riding the coming dollar rally

10. Gold traders riding the coming rally

11. Bitcoin traders about to get candy crushed

12. The Clintons finally going down in the Whitewater

13. Bitcoin traders riding the price up to $1 million

14. Bond investors about to be destroyed by a U.S. debt crisis

15. A Brazilian surfer killing it

16. Other

17. All of the above (WTF?)

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The Dow is down over 250 points (at the lows of the day) back at one-week lows, Nasdaq is surging (at the highs of the day) as the dollar index just keeps on running higher, breaking key technical resistance on the way amid a low liquidity trading day.

With Europe on May Day holiday, the dollar is untethered…

And Treasury yields are spiking along with the dollar…

And as the dollar spikes, Dow is tumbling…

But Nasdaq is surging…

Meanwhile, Gold is getting monkeyhammered back towards $1300 – the lowest level of the year…

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Confirming that what Jeff Gundlach predicted last December, when the DoubleLine CEO said his favorite trade for 2018 is to be long commodities, has been spot on…

.. this morning Goldman’s head commodity strategist Jeff Currie writes that commodities are the best performing asset class of 2018, and echoes the bank’s recent enthusiasm on the asset class, saying “the strategic case for owning commodities has rarely been stronger.” The reasons for Currie’s enthusiasm, as we discussed previously, are straightforward:

Robust late-cycle growth is depleting global supply chains, creating increasing positive carry. As inflationary concerns push interest rates higher, cross-asset correlations with commodities decline, and the diversification benefits rise with higher rates. Rising geopolitical and trade policy risks only add to the inflationary mix in commodities.

And yet, perhaps in light of the recent sharp move higher in oil prices, Goldman admits that investors remain skeptical of commodity investments “even though Brent carry pays 15% pa and the supermajors are paying dividends north of 4%.” As Goldman lays out, concerns stem from:

• a decade of underperformance with E&Ps destroying 23 cents on a dollar invested,
• fear of buying the top of an ‘artificial’ rally from supply cuts, and
• the lack of a structural catalyst like China in the 2000s.

To boost investor morale, Currie lays out three bullish catalysts, first noting that the weak returns of the past decade are (likely) behind us:

1. The weak returns of the past decade are behind us. The global economy was operating below capacity in the ‘recession/recovery’ phase for over a decade and any early-cycle playbook warns of the poor returns in commodities when the global economy has slack in the system. Today it is operating near or above capacity.

2. The structural story is a lack of long-cycle investment. Short-cycle investments in sectors such as technology and even shale oil and gas have attracted capital over the past decade at the expense of long-cycle investments in oil and commodities. Going forward, short-cycle projects are not sufficient to balance demand and commodity prices need to incent long-cycle investment.

3. Prices are high because inventories are depleted. While supply cuts pulled forward market tightness, inventories are now low and demand levels significantly exceed supply levels.

This in turn leads to the most compelling observation by Goldman, namely that there is no precedent of supply from OPEC or any other producer overtaking demand this late in the business cycle to replenish inventories before a recession occurs.

In other words, the current dynamic may continue until such time as the negative feedback loops from surging oil prices send the world into a freefalling “cost-push” recession, a repeat of what happened in the summer of 2008, when $150 oil was one of the catalyst to unleash the financial crisis.

* * *

And while a recession will clearly end the party, Goldman admits other risks are also present, chief among which is China, arguably the driving catalyst behind the 2015/2016 global recession. The recent Caterpillar warning only underscores these concerns. Here’s Goldman:

To be sure, this does not mean that commodities outperform in every quarter in this stage of the business cycle. For example, China metals demand was weak in Q1 owing to the late Lunar New Year and the uncertainties created by this year’s National People’s Congress in March. Inventories of steel, copper, and aluminum climbed sharply in the first quarter. Machinery sales were strong but mainly driven by replacement demand. Other indicators such as cement production and excavator hours point to weak construction activity. Through its strong trade linkages with other countries like Europe and Japan, it also contributed to the softness in global growth.

However, one important lesson we learned about China during the past year is that the overall growth target is still important to the government and policies are likely to remain flexible to counterbalance perceived risks domestically or from abroad. In fact, the PBOC recently announced an RRR cut to offset risks of trade tensions with the US. The politburo meeting in late April also signaled an easing bias while the country continues to pursue structural reforms. Higher frequency data have already shown demand picking up in China. Taken together, we think the Q1 weakness is temporary and continue to hold a constructive view on metals for the rest of 2018.

China aside, a bigger paradox in Goldman’s overall view is that, as Currie notes, the bank – like Gundlach – is pushing for a more aggressive ‘tilt’ just as growth is slowing, which “seems counterintuitive.”

Advocating for a more aggressive allocation just when economic growth is beginning to slow might sound somewhat counterintuitive. The reason for this is simple. Financial markets depend upon expectations and hence on expected growth rates in economic activity, which are showing signs of slowing.

In contrast to financial markets, however, commodities depend upon activity levels, not growth. So even if
growth slows, as long as demand levels are above supply levels – which creates market tightness – commodities can still generate positive returns. Some more details on this key thesis of a “scarcity premium”:

This observation is at the core of the late-cycle playbook for owning commodities and why commodities typically perform the best when other asset classes perform their worst, particularly in relation to inflation. When demand levels exceed the capacity to produce, i.e. a positive output gap, commodities inventories drawdown. The resulting inflationary pressure slows expected growth rates via higher interest rates, which hurts financial assets. In contrast, even if the growth rate of commodity demand slows, the high level of commodity demand continues to deplete supplies, which maintains the scarcity premium in commodity prices, i.e. spot prices trade a premium to forward prices.

The scarcity premium creates the positive carry in commodities as the investor buys forward at a discount. Think of oxygen: if it became scarce we would pay an enormous premium today for it as we don’t need it tomorrow if we don’t have it today. Financial markets cannot possess this characteristic which is why gold cannot go backwardated since it is not consumed like oxygen, energy or grains. But it is this scarcity premium that creates the late-cycle diversification benefits of commodities, particularly in relation to inflation.

In oil, the current scarcity premium is 14.7% pa, which means oil prices could drop by $10/bbl in and the investor still breaks even. It is important to point out that the scarcity premium is always larger the closer you are to physical spot prices, which means the investor would prefer to roll the front end of the curve 12 times as opposed to buying 12 months out. For example, the second month contract trades at a 1.1% discount to the spot versus the 12-month contract at a 9.2% discount, which means that rolling 1.1% 12 times creates a 14.7% return which is greater than a 9.2% return. This is the essence of scarcity.

The key to this scarcity premium in commodities is the high levels of demand usually associated with a late cycle economy. Underscoring that this commodity market is not artificially driven by supply cuts from China and OPEC/Russia is the increasing number of commodities developing a scarcity premium. Currently we calculate that 13 out of 24 commodities are in backwardation. As Exhibit 19 shows, as the business cycle deepens the number of commodity markets creating a scarcity premium has increased significantly as supply chains are depleted.

In conclusion, Goldman also reverts to another point it popularized last year, namely that while higher oil prices may sap consumer demand, they end up easing financial conditions, as “they lead to more global excess savings.”

And indeed, there is increasing evidence of an improving trend in the international dollar liquidity. BIS data shows that global banks’ cross-border claims and liabilities have been on the rise, indicating easier accessibility of dollar credit. Dollar credit to EM economies has rebounded particularly strongly in 2017. Higher frequency measures such as dollar liquidity of European banks, measured by their dollar claims on the US banks, has been on the rise as well. European banks are at the center of global trade finance/cross-border credit and their dollar claims on US located banks can be seen as liquid reserves which support their dollar balance sheets (Exhibit 22).

Meanwhile, as one would expect in a world of rising commodity prices, EM FX reserves have begun to build again as a result of higher commodity prices and improvement in net capital flows (see Exhibit 23).

As the events of late 2015 taught us, EM FX reserves are significant providers of dollar liquidity to the euro-dollar market, and European banks specifically, both by direct cash lending and indirect lending through the derivatives such as cross currency basis swaps as well as lending out of other dollar assets such as US treasuries. (just ignore the blow-out of the LIBOR OIS spread, which while showing some modest signs of normalizing is still a long way away from “normal.”)

Summarizing the above, the liquidity released due to rising commodity prices, sits at the center of the self-reinforcing loop between the 3Rs, a concept also popularized by Goldman one year ago, one in which higher commodity prices (reflation) and stronger demand growth in EM through credit expansion (releveraging), which reinforces global synchronous growth (reconvergence in growth): these are the 3R’s and they are central to Goldman’s bullish view by creating a positive feedback loop that supports higher commodity prices.

And while all of the above makes sense, even with the troubling implication that the surge in oil will only end with the next recession/depression, things would be much easier if the dollar wasn’t surging in parallel with oil, making any incremental gains for commodities that much more difficult, as the most important driver of easy financial conditions around the globe continues to tighten with every passing day in what may be an extremely painful short squeeze…

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Following Israeli Prime Minister Benjamin Netanyahu’s powerpoint presentation Monday evening – allegedly demonstrating captured evidence, documents, and computer disks, showing a secret Iranian nuclear weapons program much more advanced and ambitious than the Iranian government publicly admits existed – Pat Buchanan joined Sean Hannity on his show to discuss the reality behind Bibi’s warning.

As RealClearPolitics’ Tim Hains reports, Buchanan pulled no punches in his criticism, exclaiming that the Israeli PM has been “crying wolf for decades” about Iran and that “Bibi Netanyahu, with due respect, wants the United States to fight a war with Iran on Israel’s behalf.”

“I don’t want my country getting into another war,” Buchanan said about Netanyahu’s revelation.

“The reason Iran doesn’t have a bomb is because they don’t want it. They could have built a bomb.”

“Tell the IAEA to go in and either confirm or deny what Netanyahu said.

“Don’t rely on him. Rely on our CIA coming out and saying, ‘We were wrong, Netanyahu is right, they have a secret atomic bomb program and they’re working on it right now and they have been and we were lied to.‘“

“If the CIA and DIA do that, I would say first to fire the guys in charge who didn’t cover it. And second, maybe we should act, but certainly not act on second-hand documents and a press conference from Bibi Netanyahu.”

“What are we going to do, rely on a press conference from Bibi Netanyahu to go to war?”

And Buchanan is not alone in his disdain for Bibi’s historic warmongering and lies.

H/T to @snarwani for the above

Liberty Blitzkrieg’s Mike Krieger notes that, of course, this isn’t the first time Netanyahu aggressively pitched the U.S. on war in the Middle East. He did the exact same thing, using the exact same playbook, in the run up to the Iraq war.

Fortunately, we have video evidence of his 2002 testimony to Congress, during which he hyperventilated and exaggerated about Iraq’s grave threat to the world as a result of its non-existsent WMDs. The guy was so incredibly wrong on Iraq, to such a disastrous degree, it’s amazing anyone listens to him at all anymore.

What follows are two must watch video clips from Netanyahu’s 2002 testimony. One of the more memorable — and spectacularly wrong — claims he made back then was when he proclaimed:

“If you take out Saddam, I guarantee, it will have enormous positive reverberations on the region”

Watch for yourself.

Instead, we got a failed state and the creation of ISIS. But hey, everyone makes mistakes that lead to the pointless murder of hundreds of thousands.

But that’s just a taste. In the clip below he all but guarantees (wrongly) that Saddam was putting all his energy into creating a nuclear bomb, and he talks repeatedly about “washing machine” sized centrifuges being surreptitiously moved around Iraq to evade the watchful eye of weapons inspectors.

In reality, Iraq simply didn’t have WMD.

Fast forward to today and Netanyahu is doing the exact same thing he did back in 2002, except he’s dropping a “Q” and replacing it with an “N” and asking the U.S. to hold hands with Israel and they instigate another calamitous conflict in a desperate attempt to solidify regional dominance.

None of this surprises me, and I’ve been warning about it in detail since early last year. I continue to believe another major military mistake in the Middle East will be the final nail in the coffin of the U.S. empire. When exactly this final mistake happens is hard to know, but I expect it to occur over the next several years. The ducks are all being put in a row.

*  *  *

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Despite a tumble in ‘hard’ and ‘soft’ data in April, Markit reports the Manufacturing PMI survey surged to 56.5 (as expected) – its highest since Sept 2014. Output is rising at its fastest pace since Jan 2017 as inflationary pressures intensify dramatically.

As is usual recently in our baffle ’em with bullshit world, ISM Manufacturing disappointed, dropping to 57.3 (exp 58.5) to its lowest since July 2017.

Looks like ISM is fitting real data better than PMI…

ISM saw a big drop in employment, modest drop in new orders, but big jump higher in Prices Paid…

But there was a major divergence between adjusted and unadjusted new orders…

One ISM respondent summed things up well…

“[The] 232 and 301 tariffs are very concerning. Business planning is at a standstill until they are resolved. Significant amount of manpower [on planning and the like] being expended on these issues.

Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“April saw US manufacturers reporting the strongest monthly improvement in business conditions since September 2014. The survey suggests the economy has started the second quarter on a solid footing and sends an encouraging signal for GDP growth to accelerate after the modest 2.3% rate of expansion seen in the first quarter.

“With inflows of new orders rising at an accelerated pace, greater input buying and business expectations regarding future production levels running at one of the highest levels seen over the past three years, there’s plenty of evidence to suggest strong growth will persist through May.

“The upturn is being led by large firms, with smaller companies trailing behind but nonetheless also seeing some of the best business conditions for three years.

However, Williamson leaves the best/worst for last as inflationary pressures are intensifying dramatically…

“Warning lights are being flashed in relation to inflation, however, with factories reporting the strongest rise in prices for nearly seven years. Suppliers are hiking prices in response to surging demand, while tariffs and higher oil prices are also exerting upward pressure on costs.

With the average price of goods leaving factories rising at the fastest rate since 2011, consumer price inflation looks set to accelerate.”

And ISM data shows the soaring Prices Paid index (to its highest since April 2011) diverging from new orders and employment…

That did not end well last time.

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Bloomberg’s macro strategist Mark Cudmore believes the stars are aligning for the Dollar’s ‘summer of love’.

The Dollar just broke above its 200DMA…

Whether the dollar ultimately goes on to test the 2017 highs may be a completely different issue, but the stars are aligned for recent dollar appreciation to sustain for a few months. Here are 10 reasons why the dollar will strengthen this summer…

1. Tuesday is expected to bring confirmation that the U.S. April manufacturing PMI was at a multi-year high. In February, the ISM equivalent — also out Tuesday — printed at the loftiest level since 2004

2. Factory owners are confident this year because the U.S. economy is indisputably strong, whether growth has peaked already or not. February industrial production saw the fastest annual increase since 2011.

3. Add in an outstanding U.S. earnings season that’s making equity valuations more attractive, and it’s clear that the U.S. is relatively fertile ground for putting cash to work.

4. This is happening amid a clear growth slowdown in major developed-market alternatives, notably the U.K. and Europe.

5. Note also that the rise in U.S. yields has been significant enough to start attracting unhedged inflows into Treasuries.

6. That’s important because it has seen the dollar begin to recorrelate to U.S. yields in the last month, just as there’s been further domestic pressure on the U.S. sovereign-debt market from increased issuance.

7. The dollar offers the highest FX-implied carry of G-10 currencies and that’s hard to ignore.

8. This positive growth and yield story isn’t new, but the positive divergence from large liquid peers has widened at the exact time the narrative around trade is evolving to be perceived as more likely to be beneficial for the U.S..

9. The U.S. administration is being consistent in its hardline message: either it gets most of what it wants or it will disrupt global trade. Either outcome will boost the dollar in the short-term.

10. And all this is against a backdrop of a fast-money investor base that has spent the last few months getting themselves short the dollar.

And in case that was not convincing enough, here are BofAML’s 8 reasons for selling EURUSD now…

1. Continued soft Eurozone data in April discredits the “bad weather” theory but lends support to the “euro is too strong” theory.

2. In the US, the recent upturn in business investment is paving the way for higher productivity and wage growth.

3. A NAFTA deal over the next few weeks should increase US leverage in trade negotiations with China.

4. Corporate America may use the Q1 earning season to repatriate their offshore cash.

5. Continued Chinese deleveraging will limit the ability of the PBOC to match further Fed hikes.

6. The flatness (steepness) of the US (Eurozone) yield curve means foreign investors will only consider currency unhedged (hedged) investment in US (Eurozone) bonds.

7. The fiscal risk premium in the USD is already very high.

8. Divergence between momentum and positioning are turning the tables on overextended EUR longs.

And EURUSD broke below its 200DMA…

Everything is coming together for a summer of greenback gains.

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