Author: admin

Return To Reality

Authored by Lance Roberts via RealInvestmentAdvice.com,

Market Is Back To Very Overbought

As I noted last week:

“What happens in the middle of the week is of little consequence to us. We are only truly interested in where the week ends. In that regard, the bulls remained stuck at the ‘Maginot Line’ which continues to keep the majority of our models on hold for now.”

Despite a rough week for Facebook ($FB), which was an outcome which should have been a surprise to no one, the market did manage to clear the “Maginot Line” last week which brings January highs into focus.

In the intermediate-term, the market is moving back to rather extreme overbought conditions. The market can most assuredly get even more overbought from current levels, but does suggest that upside is becoming more limited from current levels. However, with the weekly “buy signal” triggered this past week, we must give the bulls some room to run.

With our portfolios nearly fully allocated, there is not a lot of actions we need to take currently as the markets continue to trend higher for now. We will continue to monitor our exposure and hedge risk accordingly, but with the weekly “buy signal” registered we are keeping our hedges limited and are widening our stops just a bit.

As noted above, a short-term correction is needed before adding further equity exposure to portfolios. That correction likely started on Friday and I will not be surprised to see it continue into next week. A retest of 2800 is likely at this point which would keep Pathway #1 intact. However, a violation of that level will likely trigger a short-term sell signal which could push the market back towards previous support at 2740.

There is a lot of support forming at 2740 which should be supportive of the market over the next couple of months. A violation of that level suggests something has likely broken and more protective actions should be taken. However, until that happens, we will give the markets the benefit of the doubt for now. 

I have updated the current projected paths as we think they will play out over the next couple of weeks.

  • Pathway #1: remains intact currently and a rally next week should push the markets to the January highs and the top of the current bullish trend channel from the April lows.

  • Pathway #2a: a pullback next week that violates 2800, as stated above, will likely test the bottom of the bullish trend channel. This would likely be enough of a short-term correction to re-energize the bulls to make a run towards the January highs.

  • Pathway #2b: A break of the bullish trend channel will quickly find a lot of support at 2740 as stated above. However, such a break will bring more concern in the short-term about the bullish trajectory and will raise the specter of a continued trading range through the end of the year.

  • Pathway #3: has been removed for now as a more bearish outcome is not currently a high possibility.

Currently, all indications currently suggest a test of all-time highs remains likely by the end of the year. 

For now.

It Wasn’t All That

I have a couple of thoughts on market drivers this past week:

  1. While the market popped on Thursday due to a perceived “trade deal” between Trump and Juncker, there was no deal really. There was a lot of hand shaking, back slapping and talk – but nothing of substance came from the meeting. At best, the agreement set the tables with the EU back to where they were before Trump manufactured the whole trade/tariff issue to begin with. So, I guess you can credit Trump for effectively solving the problem he created to start with, but not much more than that. Expect trade-related issues to return to the market sooner rather than later.

    • We remain underweight industrials, materials, emerging and international markets. 

  2. Amazon ($AMZN) had a blow out quarter for earnings which was a good thing given the large contribution it has made to the markets advance this year. However, while the earnings at the bottom line were fantastic it was due almost solely to a sub-3% tax rate. Had it not been for the changes to the tax law last year, it is highly likely the shortfalls in revenue would have equated to a Facebook type plunge in the shares on Friday versus less than a 1% gain. There is no argument the behemoth has turned the corner profitability wise, however, the huge boost to bottom line earnings from a highly-reduced tax rate will fade in the coming quarters and operating margins will again become an issue. At 286x trailing earnings and 90x projected earnings, which will likely prove to be to low, the risk of a deeper correction in the company outweighs the potential reward.

    • We currently have no positions in $AMZN

  3. The 4.1% GDP number left MUCH to be desired. While Trump was busy taking victory laps on Friday following the print, and making claims we could see 8 or 9% in the future, the reality is very little actually changed economically speaking. As I showed on Thursday, when I penciled in a 4% gain (I was 0.1% short on my estimate):

“Making similar adjustments for wages and productivity, we find the 5-year averages change very little. More importantly, current action is more typical of a late cycle expansion as opposed to the beginning of a new one.”

“An unusually large number of one-off factors appear to have boosted 2Q GDP, many of which are directly related to escalating trade concerns. As companies and countries race to secure supplies that may become expensive later on, exports have surged and inventories have swelled. If these trends are one-time adjustments (and our economists believe they are), the ‘payback’ in 2H could be significant. Enjoy the 2Q GDP number, which may be the last best print for a while.”

But more importantly, despite the fact the BEA just revised the trailing GDP numbers UP by almost $1 Trillion (going all the way back to 1967) Trump’s hopes are just a bit more than outlandish when you consider the 10-year trailing average of real GDP just rang in at 1.5%.

While fighting trade wars, pushing tax cuts and increasing government spending may provide short-term boosts to the economy by pulling forward future consumption – they do not address the issues which are detracting from longer-term growth.

  • Debt

  • Spending Hikes

  • Demographics

  • Surging health care costs

  • Structural employment shifts

  • Technological innovations

  • Globalization

  • Financialization 

Our friends at the Committee for a Responsible Federal Budget concurred with our views on Friday stating:

“Unfortunately, even 3 percent growth is unlikely to continue over the medium and long terms. An economy cannot operate above potential capacity indefinitely, as timing shifts and the sugar high fade. And potential GDP – which grows when people work more hours, new factories and machines and software are built, and society learns how to more efficiently produce goods and services – is limited by an aging population. As we outlined in our paper How Fast Can America Grow?, population aging means lower labor force growth, less investment, and perhaps even less productivity. As a result, nearly every forecaster projects a long-term growth rate of around 2 percent per year above inflation. The Congressional Budget Office projects a rate of 1.8 percent.

(Note: there is no assumption by the CBO, or the BEA, for a recession in the next decade. This is highly unlikely to be the case and resultant GDP numbers will be disastrously worse than current projections.)

As I stated on Thursday:

“These factors (noted above) will continue to send the debt to GDP ratios to record levels. The debt, combined with these numerous challenges, will continue to weigh on economic growth, wages and standards of living into the foreseeable future.

So, while the economic report on Friday will be a “rosy” picture in the short-term, it is likely going to be the best print we see between now and the onset of the next recession.”

Seen This Before

Last week, I compared charts from 2007-2008 to the 2017-present run-up. One of the biggest points being made currently for an uninterrupted bullish advance from current levels into the foreseeable future is that with earnings and economic growth strong, there is no reason for the party to end.

I have added GDP and S&P 500 valuations to those charts from last week.

In 2007, both economic growth and earnings were rising along with the market which was not surprising given the bullish exuberance of market participants at the time along with a booming housing market, excess liquidity and rising oil prices. The Fed was hiking interest rates and the “Goldilocks economy” was set to continue indefinitely. (There was no recession predicted at the time for the next decade according to the CBO/BEA)

The current environment is much the same as it was in the first half of 2007. Rising earnings and GDP, no prediction of a recession anywhere (despite a falling yield curve) and the Fed is raising rates and reducing monetary liquidity without consequence.

As I noted last week:

“From an investment management standpoint, there is absolutely ‘no doubt’ how this current evolutionary cycle in the market ends. We just don’t know the “when,” and becoming aggressively under-allocated to equity risk too soon not only impacts performance in the short-term but also subjects us, as portfolio managers, to career risk.”

However, that is a game I must play as a portfolio manager…you don’t. This is particularly if you are within 3-5 years of retirement. 

Investing is not a game, or a competition, that YOU must win. There is no prize for winning but a heavy toll that will be paid for losing. 

As Doug Kass noted last week:

“Investing is a complicated mosaic – making decisions on only one or two factors often leads to a dangerous journey, particularly when valuations and stock prices are elevated, when a market’s leadership seems to be narrowing and certainly with the recent emergence of a ‘two-sided market’ (from a formerly one-sided and bullish market) which often leads to a one -sided and bearish market. And, our investment world is more transparent and the transmission of news quicker and more universal than it has ever been. Communication is instantaneous and through a plethora of broadcasting and social media platforms, we are almost all armed with the same information about at the same time. It is how we interpret and analyze that information and our willingness to be open to changing data is what sets our opinion and investment performance apart.

I worship not at the altar of price momentum but rather at the altar of security analysis and margin of safety. That process provides me with a relatively concise analysis of the relationship of reward and risk.

At the core of my near-term concern are the deterioration (and worsening rate of change) in reward v. risk, the growing ambiguity of the trajectory of global economic growth, the pivot in monetary worldwide monetary policy, the likelihood of a steady move higher in short-term interest rates (and a higher risk free rate of return), evidence of a loss of any fiscal responsibility (on the part of Democrats and Republicans), expanding policy risks in part based on the behavior of our President, the possibility of a ‘Blue Wave’ in November and the evolution of a one-sided (long) market structure (and a rising role of FAANG stocks).”

While we remain long-biased in portfolios currently, Doug’s view of the risk should not go unnoticed.

It is often thought that since we openly recognize and understand prevailing risks, which may or may not come to fruition, that such means we are bearish and sitting in cash. That is never the case. 

Without a thorough understanding of the prevalent risk, making an assumption of the possibilities and probabilities of a given market environment, and associated return and allocation assumptions, is impossible. In other words, without understanding the risk, you are effectively “driving with a blindfold, hoping for a positive outcome.”

Such is rarely the case over the longer-term.

We prefer to drive with our eyes open, aware of our surroundings, and arrive safely at our destination. This is particularly the case when we have passengers (clients) riding along with us.

While we are prudently aware of the risk, we are long equity and allowing the market to work for us. But, we also have a strategy and investment discipline to deal with “accident” should one occur.

Drive long enough, particularly blindfolded, and one will happen.

via RSS https://ift.tt/2OsitUf Tyler Durden

“God Help Us” – British Army Readied In Case Of Hard Brexit

Just as was extremely evident prior to the actual vote in 2016, scaremongering around Brexit (deal or no deal) is escalating among the cognoscenti or desperate Remain ‘told you so’-ers.

Britain’s Sunday Times reports that UK ministers have drawn up plans to send in the army to deliver food, medicines and fuel in the event of shortages if Britain crashes out of the EU without a deal.

Blueprints for the armed forces to assist the civilian authorities, usually used only in civil emergencies, have been dusted down as part of the “no deal” planning, with helicopters and army trucks used to ferry supplies to vulnerable people outside the southeast who were struggling to obtain the medicines they needed.

However, as ominous as this sounds, The Sunday Times admits – a number of paragraphs into their “Army on standby for no-deal Brexit emergency” story – that a source inside the Ministry of Defense said they have not yet received “a formal request” to assist the civilian authorities.

And while desperate not to have this positioned as the work of “Project Fear’, pro-EU opposition MP David Lammy took aim at the news on Twitter saying: “God, help us. This is not coming from Remainers. This is not project fear. Pro-Brexit Ministers are drawing up blueprints for the army to deliver food, fuel and medicine if we leave the EU with no deal,” adding his own touch of hysteria… “We have a duty to prevent this self-immolation.”

However, as RT notes, the former Brexit secretary David Davis, who resigned from the position earlier this month over his dissatisfaction with a possible soft Brexit deal, dismissed the story as an attempt to scare people in order to secure a Free Trade Agreement “which will tank the economy.”

Talk of shortages of food and medicines in the wake of a possible no-deal has come to the fore recently, with NHS bosses planning to stockpile key drugs and blood supplies in the event the service has to go on a permanent winter-crisis footing.

Supermarkets, meanwhile have told suppliers to make plans for a no-deal which could see them stockpile goods such a tea and coffee for periods much longer than normal.

via RSS https://ift.tt/2NTeFdz Tyler Durden

Australia: A Model For Curbing Immigration

Authored by Giulio Meotti via The Gatestone Institute,

Four years ago, the Australian government sparked criticism after it ran an advertisement aimed at discouraging asylum seekers from traveling illegally to the country. “No Way“, the poster read. “You will not make Australia home. If you get on a boat without a visa, you will not end up in Australia. Any vessel seeking illegally to enter Australia will be intercepted and safely removed beyond Australian waters”.

It was an extremely tough message, but it worked. “Australia’s migration rate is the lowest it’s been in 10 years”, said Peter Dutton, Australia’s Home Affairs Minister. Speaking last week on the Today Show, Dutton added that the drop was about “restoring integrity to our border”. The Australians are apparently happy about that. A new poll just revealed that 72% of voters support Prime Minister Malcolm Turnbull’s immigration policy. Australia, a Western democracy, has for years, tried to deal with a migration crisis from the sea.

“Europeans think it’s easy in Australia to control our borders, but they’re just making up excuses for doing nothing themselves,” said retired major general Jim Molan, co-author of Australia’s asylum policy.

In 2013, Tony Abbott was elected Prime Minister under the slogan “Stop the boats“. “Stop the boats” is now also the slogan of the new Italy’s new Interior Minister, Matteo Salvini, who, since the formation of a new government last month, has been totally focused on curbing immigration from “the world’s most lethal” route: across the Mediterranean.

It would seem that the best possible model for Europe to implement is a skills-based immigration system to curb the illegal one.

Last year, EU officials came to Australia for help. At a recent summit, European Union member states agreed to copy the Australian model of turning back the migrant boats and sending them to third-countries, to centers there run by local authorities, on the model of the Manus Regional Processing Centre in Papua New Guinea, which was used to house migrants turned away from Australia. Italy is now looking to create similar reception centers on the southern border of Libya.

The Manus Regional Processing Centre in Papua New Guinea, where Australia used to send illegal immigrants turned away from Australia. It was formally closed on October 31, 2017. (Image source: Australia Department of Immigration and Citizenship)

François Crepeau, the U.N. special rapporteur on migrant human rights, urged Europe not to view Australia as a model; he labelled the idea “cruel, inhuman and degrading“. Stopping migrants from dying at sea, however, is the opposite of cruelty; it is humanity. “We have got hundreds, maybe thousands of people drowning in the attempts to get from Africa to Europe”, Abbott said. The “only way you can stop the deaths is in fact to stop the boats”.

Australia’s Immigration Minister, Peter Dutton, explained that “we are not going to accept people who have sought to come to our country illegally by boat”. Humanitarians, as Abbott put it, were helping them in the name of a “misguided altruism“.

Under the government of Australia’s former Prime Minister Julia Gilliard, in May 2013, Australia excised even the mainland from its migration zone. This meant that migrants might be sent to the detention facilities abroad even if their ships landed.

The Australian model is not only based on keeping the borders safe and prioritizing highly-skilled immigrants. It also revolves around the idea of a cultural legacy that migrants have to embrace. Prime Minister Turnbull says he wants a test, for immigrants, of “Australian values“, including questions on whether it is acceptable to strike your spouse, ban girls from education, or carry out female genital mutilation (FGM). In multicultural Europe, the same test would be taboo. Turnbull has called to “defend” these Australian values. Preserving the nation-state and its cultural Western tradition, he says, is necessary to assimilate the migrants. “My long experience in Australian politics has been that whenever a government is seen to have immigration flows under control, public support for immigration increases, when the reverse occurs hostility to immigration rises” former Australian Prime Minister John Howard wrote.

As Italy is now dealing with boats from Africa trying to reach its shores, it might be helpful to remind the public that Australia also started with the “Tampa Affair“:

In 2001, Australia prevented a Norwegian boat, which had rescued hundreds of asylum-seekers in the Indian Ocean, from bringing them to Australia. It is called, “the boat that changed it all“. The immigration minister at the time, Philip Ruddock, warned Australians that 10,000 people from the Middle East were preparing to embark boats from Asia to Australia. The Australian government ignored a request by the United Nations to let the refugees set foot on their island. Public opinion stood behind the government. Since, several decades ago, the first wave of “boat people” from Vietnam (1976–81) was received by the Australian public with sympathy, new arrivals quickly became a matter of increasing concern, as is happening now in Europe. Since then, Australia’s policy to solve its own migration crisis has been, “no resettlements, no boats“.

Following the Tampa Affair, the defining elements of Australia’s future policy were put into place:

“Islands were excised from the Australian migration zone to prevent asylum seekers lodging visa applications; detention centres were set up on Papua New Guinea’s Manus Island and the tiny and bankrupt republic of Nauru; and a reluctant Navy was engaged to intercept and turn back vessels containing asylum seekers”.

Italy faces a new potential wave of 700,000 migrants currently in Libya. The Italian government should now follow Australia’s example.

It is with a heavy heart that I am making these suggestions. It must be crushing to live in a country where governance might be questionable at best, and economic opportunities limited, if that. People know they are risking their life in search of a better break. But if the West is not to be overwhelmed, these problems seriously need to be addressed.

Illegal immigration is bad for Europe — and bad for migrants, as well.

via RSS https://ift.tt/2vgKntw Tyler Durden

Turkey’s Erdogan Warns US Will Lose “Strong And Sincere” Ally If It Imposes Sanctions

Turkish President Recep Tayyip Erdogan said that his country will not “make a step back” and that the US will lose a “strong and sincere ally” if President Trump imposes “large sanctions” as he threatened to do last week, if an American pastor detained in Turkey is not released, the Turkish press reported.

Speaking to the local media, Erdogan said “you can’t make Turkey take a step back with sanctions”, and accused Trump of waging a “psychological war,” the Daily Sabah reported.

Erdogan also said that the US “should not forget that it will lose a strong and sincere partner” if “the U.S. does not change its stance” regarding pastor Brunson. “Instead of respecting the ruling they are making this a matter of sanctioning Turkey.”

As we reported last Wednesday, Pastor Andrew Brunson, who has lived in Turkey for over twenty years, is being held on charges of supporting the “shadow government” group allegedly led by exiled Turkish cleric Fethullah Gullen, 77, who Ankara says was behind the failed military coup in 2016 and has been demanding his extradition from the US for the past two years. The American pastor has maintained his innocence and faces up to 35 years in jail if found guilty. While last week the Evangelical pastor from North Carolina was transferred to house arrest after being held in a Turkish prison for nearly two years, his trial on terror and espionage charges continues.

Brunson’s fate has become the subject of calls from President Donald Trump and US officials for his release. After US Secretary of State Mike Pompeo discussed the fate of the American pastor with his Turkish counterpart Mevlut Çavuşoglu on Saturday, Erdogan insisted that Brunson’s release was never used in a possible prisoner swap deal with Washington.

Last Thursday, one day after Brunson’s custody was commuted from a prison term to house arrest, Trump threatened Ankara with sanctions. Vice President Mike Pence also echoed threats of “significant sanctions” against Turkey.

“The United States will impose large sanctions on Turkey for their long time detainment of Pastor Andrew Brunson, a great Christian, family man and wonderful human being. He is suffering greatly. This innocent man of faith should be released immediately!” Trump wrote on Twitter.

In response Çavuşoglu said that “we will never tolerate threats from anybody,” before holding a phone conversation with Pompeo.

The drama over the fate of the US pastor escalated after US Congress banned the shipment of F-35 stealth fighter jets to Turkey amid objections over Turkey’s plans to buy S-400 surface-to-air missile systems from Russia. Erdoğan’s government said it was adamant on pushing ahead with the purchase of the American fighter jets, and the Turkish president said he would seek “justice by international arbitration” if the US fails to deliver the fighter jets.

Another key topic of disagreement between the US and Turkey is the fate of Iranian oil imports: Turkey, a long-time client of Tehran, has been resisting US pressure to stop importing Iranian crude which the State Department has demanded its allies do by November 4. Ankara believes that US foreign and economic policy decisions are not binding for Turkey, arguing that any Iranian sanctions must be conducted under the UN-mandated international law.

via RSS https://ift.tt/2OseZBt Tyler Durden

The Democracy Theorist in the Age of Trump: New at Reason

There is a time in the lives of academics, the fortunate ones at least, when the topic of their research aligns with events taking place on the mean streets beyond the ivory tower. Such has been the lucky lot of democracy theorists in the age of Donald Trump, writes Rafia Zakaria in his review of The People vs. Democracy: Why Our Freedom Is in Danger & How to Save It, by Yascha Mounk.

View this article.

from Hit & Run https://ift.tt/2NUSNOX
via IFTTT

Trump Threatens To “Shut Down” Government Over Border Security, Meets With NYT Publisher

Not too long ago, in a less turbulent time before the trade wars, the biggest political risk facing the market was the threat of a government shutdown. Well, as of this morning that too is back on the table when in his latest Sunday morning tweetstorm, president Trump said that he is willing to “shut down” the government over border security.

“I would be willing to “shut down” government if the Democrats do not give us the votes for Border Security, which includes the Wall! Must get rid of Lottery, Catch & Release etc. and finally go to system of Immigration based on MERIT! We need great people coming into our Country!”

The tweet was a follow up to an earlier statement, in which the president said that “there are consequences when people cross our Border illegally, whether they have children or not – and many are just using children for their own sinister purposes” and blasted Congress for existing U.S. immigration laws while urged followers to vote for Republicans.

“Please understand, there are consequences when people cross our Border illegally, whether they have children or not – and many are just using children for their own sinister purposes. Congress must act on fixing the DUMBEST & WORST immigration laws anywhere in the world! Vote ‘R,'”

In a separate tweet, Trump said that he had a “very good and interesting meeting” at the White House with the publisher of the NYTimes, A.G. Sulzberger during which he “spent much time talking about “the vast amounts of Fake News being put out by the media.” and how that Fake News – by which he meant the Times – has morphed into phrase, ‘Enemy of the People’.”

Trump also touched on the economy, saying that the “best results coming out of the good GDP report was that the quarterly Trade Deficit has been reduced by $52 Billion” and, also praised the near record low unemployment numbers, “especially for African Americans, Hispanics, Asians and Women.”

Finally, Trump took a moment to praise himself referring to what he said were the “highest Poll Numbers in the history of the Republican Party” adding that “that includes Honest Abe Lincoln and Ronald Reagan” although it was unclear which poll Trump was referring to.

via RSS https://ift.tt/2AjVojH Tyler Durden

UK Household Debt “Worse Than At Any Time On Record”

Brits are living beyond their means like never before…

In 2017, each household spent or invested about 900 pounds ($1,187) more than they received on average – 25 billion pounds in total, according to an ONS article published this week. Britons were previously net borrowers in 1988, the height of a credit-fueled economic boom generated by then Chancellor of the Exchequer Nigel Lawson. But even then the shortfall was just 300 million pounds.

To fund the deficit people have been borrowing more and saving less, encouraged by years of record-low interest rates.

According to ONS figures, the poorest 10% of households spent two and a half times their disposable income, on average, in the financial year ending 2017 – while the richest 10% spent less than half of their available income during the same period.

As The Guardian reports, StepChange, which provides advice for indebted households, said the poorest were in constant need of credit to keep their heads above water.

The charity’s chief executive, Phil Andrew, criticised the ONS for saying that households were living beyond their means, which he said implied they could cut back if they wanted to.

“It’s really unfortunate that this very useful data is so heavily sprinkled with the phrase that households are ‘living beyond their means’. The reality is that too many households, here in Britain, in 2018, simply cannot make ends meet, however hard they try.”

He added: “Not having enough money to make ends meet is not the same thing as living beyond your means – which implies you have a choice, when too many people do not.”

ONS figures Wednesday showed real disposable incomes grew at the slowest pace in five years in the 12 months through March after the Brexit referendum slammed the pound and drove up inflation.

and it could be about to get considerably worse…

“If any more evidence were needed that the Bank of England has left it too late to raise interest rates, this is pretty compelling,” former BOE policy maker Andrew Sentance, who is now a senior economic adviser at PwC, tweeted. “U.K. households are on a massive borrowing spree.”

via RSS https://ift.tt/2Ooarf7 Tyler Durden

Crime Rate In The U.K. Soars While 90% Of Recorded Crime Goes Uncharged

Authored by Jon Hall via Free Market Shooter blog,

Homicide and crime rates – including sexual assaults, and knife and gun attacks – continue to rise in the United Kingdom, with 90% of recorded offenses not ending in charges.

A report published last week lays bare the shocking numbers – crimes resulting in charges sat at 11%, with the percentage falling two points in just a year to 9%; down from 15% in 2015.

Since March of this year and the 12 months before, only 443,000 crimes out of 4.6 million recorded resulted in charges.

Notably, the number of recorded crimes rose by 11% to 5.5 million offenses – the highest level in over a decade.

Earlier this year, the homicide rate in London overtook New York City – with knife attacks rising by more than 30%. Although crime rates are surging in the U.K.,officer numbers in London have hit a record low.

As it stands, fewer than 1 in 10 of recorded crimes result in a charge, doing little to abate fear that England is undergoing an epidemic of violent crime.

“High-harm” violent offenses involving weapons have soared – with knife, gun, and homicide rates rising rapidly.

Official figures reported by the Office for National Statistics detail that – even excluding incidents with multiple victims, such as the terror attacks in London or Manchester – homicides rose 12% from 74 to 701 in just the span of a year.

At the beginning of the year, after four young men were murdered in separate knife attacks in London during New Year’s Eve celebrations, mayor Sadiq Khan said:

I am doing everything I can to tackle this scourge in our communities. Keeping the country safe should be the Government’s priority too, and it is time ministers stopped shirking this responsibility…

Before being elected in 2016, Khan promised to “challenge gang culture and knife crime head on”. 

However, it comes as no surprise Khan attempted to place the blame elsewhere after making comments claiming that terrorism is “part and parcel of living in a big city”.

Through Khan’s utter refusal to look at the reality before him, the prognosis for the United Kingdom doesn’t look good.

Until politically-correct politicians can admit and recognize they created the crisis  they are experiencing first-hand, crime and homicide rates – and likely eventerrorist acts – will continue to trend upward in the U.K.

via RSS https://ift.tt/2uXStrQ Tyler Durden

Entering A 1984 World, Trump-Style

Authored by Michael Klare via The Strategic Culture Foundation,

The pundits and politicians generally take it for granted that President Trump lacks a coherent foreign policy. They believe that he acts solely out of spite, caprice, and political opportunism — lashing out at U.S. allies like Germany’s Angela Merkel and England’s Theresa May only to embrace authoritarian rulers like Russia’s Vladimir Putin and North Korea’s Kim Jong-un. His instinctive rancor and impulsiveness seemed on full display during his recent trip to Europe, where he lambasted Merkel, undercut May, and then, in an extraordinary meeting with Putin, dismissed any concerns over Russian meddling in the 2016 American presidential election (before half-walking his own comments back).

“Nobody knows when Trump is doing international diplomacy and when he is doing election campaigning in Montana,” commented Danish defense minister Claus Hjort Frederiksen following the summit. “It is difficult to decode what policy the American president is promoting. There is a complete unpredictability in this.”

While that reaction may be typical, it’s a mistake to assume that Trump lacks a coherent foreign-policy blueprint. In fact, an examination of his campaign speeches and his actions since entering the Oval Office — including his appearance with Putin — reflect his adherence to a core strategic concept: the urge to establish a tripolar world order, one that was, curiously enough, first envisioned by Russian and Chinese leaders in 1997 and one that they have relentlessly pursued ever since.

Such a tripolar order — in which Russia, China, and the U.S. would each assume responsibility for maintaining stability within their own respective spheres of influence while cooperating to resolve disputes wherever those spheres overlap — breaks radically with the end-of-the-Cold-War paradigm. During those heady years, the United States was the dominant world power and lorded it over most of the rest of the planet with the aid of its loyal NATO allies.

For Russian and Chinese leaders, such a “unipolar” system was considered anathema.  After all, it granted the United States a hegemonic role in world affairs while denying them what they considered their rightful place as America’s equals. Not surprisingly, destroying such a system and replacing it with a tripolar one has been their strategic objective since the late 1990s — and now an American president has zealously embraced that disruptive project as his own.

The Sino-Russian Master Plan

The joint Russian-Chinese project to undermine the unipolar world system was first set in motion when then-Chinese President Jiang Zemin conferred with then-Russian President Boris Yeltsin during a state visit to Moscow in April 1997. Restoring close relations with Russia while building a common front against U.S. global dominance was reportedly the purpose of Jiang’s trip.

“Some are pushing toward a world with one center,” said Yeltsin at the time. “We want the world to be multipolar, to have several focal points. These will form the basis for a new world order.”

This outlook was inscribed in a “Joint Declaration on a Multipolar World and the Establishment of a New International Order,” signed by the two leaders on April 23, 1997.  Although phrased in grandiose language (as its title suggests), the declaration remains worth reading as it contains most of the core principles on which Donald Trump’s foreign policy now rests.

At its heart lay a condemnation of global hegemony — the drive by any single nation to dominate world affairs — along with a call for the establishment of a “multipolar” international order. It went on to espouse other key precepts that would now be considered Trumpian, including unqualified respect for state sovereignty, non-interference in the domestic affairs of other states (code for no discussion of their human rights abuses), and the pursuit of mutual economic advantage.

Yeltsin would resign as president in December 1999, while Jiang would complete his term in March 2003. Their successors, Vladimir Putin and Hu Jintao, would, however, continue to build on that 1997 foundational document, issuing their own blueprint for a tripolar world in 2005.

Following a Kremlin meeting that July, the two would sign an updated “Joint Statement of the People’s Republic of China and the Russian Federation Regarding the International Order of the 21st Century.”  It was even more emphatic in its commitment to a world in which the United States would be obliged to negotiate on equal terms with Moscow and Beijing, stating:

“The international community should thoroughly renounce the mentality of confrontation and alignment, should not pursue the right to monopolize or dominate world affairs, and should not divide countries into a leading camp and a subordinate camp… World affairs should be decided through dialogue and consultation on a multilateral and collective basis.”

The principal aim of such a strategy was, and continues to be, to demolish a U.S.-dominated world order — especially one in which that dominance was ensured by American reliance on its European allies and NATO. The ability to mobilize not only its own power but also Europe’s gave Washington a particularly outsized role in international affairs. If such ties could be crippled or destroyed, its clout would obviously be diminished and so it might someday become just another regional heavyweight.

In those years, Putin was particularly vocal in calling for the dissolution of NATO and its replacement by a European-wide security system that would, of course, include his country. The divisions in Europe “will continue until there is a single security area in Europe,” he told the Italian newspaper Corriere della Sera in 2001. Just as the Warsaw Pact had been disbanded as the Cold War ended, he argued, so Western Europe’s Cold War-era alliance, NATO, should be replaced with a broader security structure.

Donald Trump Climbs on Board

There is no way to know whether Donald Trump was ever aware — no matter how indirectly — of such Sino-Russian goals or planning, but there can be no question that, in his own fashion and for his own reasons, he has absorbed their fundamental principles.  As his recent assaults on NATO and his embrace of the Russian president suggest, he is visibly seeking to create the very tripolar world once envisioned by Boris Yeltsin and Jiang Zemin and zealously promoted by Vladimir Putin ever since he assumed office.

The proof that Trump sought such an international system can be found in his 2016 campaign speeches and interviews. While he repeatedly denounced China for its unfair trade practices and complained about Russia’s nuclear-weapons buildup, he never described those countries as mortal enemies.  They were rivals or competitors with whose leaders he could communicate and, when advantageous, cooperate. On the other hand, he denounced NATO as a drain on America’s prosperity and its ability to maneuver successfully in the world.  Indeed, he saw that alliance as eminently dispensable if its members were unwilling to support his idea of how to promote America’s best interests in a highly competitive world.

“I am proposing a new foreign policy focused on advancing America’s core national interests, promoting regional stability, and producing an easing of tensions in the world,” he declared in a September 2016 speech in Philadelphia. From that speech and other campaign statements, you can get a pretty good idea of his mindset.

First, make the United States — already the world’s most powerful nation — even stronger, especially militarily. Second, protect America’s borders. (“Immigration security,” he explained, “is a vital part of our national security.”) Third, in contrast to the version of globalism previously espoused by the American version of a liberal international order, this country was to pursue only its own interests, narrowly defined. Playing the role of global enforcer for allies, he argued, had impoverished the United States and must be ended. “At some point,” as he put it to New York Times reporters Maggie Haberman and David Sanger in March 2016, “we cannot be the policeman of the world.”

As for NATO, he couldn’t have been clearer: it had become irrelevant and its preservation should no longer be an American priority. “Obsolete” was the word he used with Haberman and Sanger. “When NATO was formed many decades ago… there was a different threat, [the Soviet Union,]… which was much bigger… [and] certainly much more powerful than even today’s Russia.” The real threat, he continued, is terrorism, and NATO had no useful role in combating that peril. “I think, probably a new institution maybe would be better for that than using NATO, which was not meant for that.”

All of this, of course, fit to a T what Vladimir Putin has long been calling for, not to speak of the grand scheme articulated by Yeltsin and Jiang in 1997. Indeed, during the second presidential debate, Trump went even further, saying, “I think it would be great if we got along with Russia because we could fight ISIS together.”

Though the focus at the moment is purely on President Trump and Russia, let’s not forget China. While frequently lambasting the Chinese in the economic realm, he has nonetheless sought Beijing’s help in addressing the North Korean nuclear threat and other common perils. He speaks often by telephone with President Xi Jinping and insists that they enjoy an amicable relationship. Indeed, to the utter astonishment of many of his Republican allies, he even allowed the Chinese telecommunications giant ZTE to regainaccess to essential American technology and computer chips after paying a $1 billion fine, though the firm had been widely accused of violating U.S. sanctions on trade with Iran and North Korea. Such a move was, he claimed, “reflective” of his wish to negotiate a successful trade deal with China “and my personal relationship with President Xi.”

Trump’s World Reflects That Sino-Russian Plan

Although there’s no evidence that Donald Trump ever even knew about the Sino-Russian blueprint for establishing a tripolar global order, everything he’s done as president has had the affect of facilitating that world-altering project. This was stunningly evident at the recent Trump-Putin meeting in Helsinki, where he repeatedly spoke of his desire to cooperate with Moscow in solving global problems.

“The disagreements between our two countries are well known and President Putin and I discussed them at length today,” he said at the press conference that followed their private conversation. “But if we’re going to solve many of the problems facing our world, then we’re going to have to find ways to cooperate in pursuit of shared interests.” He then went on to propose that officials of the national security councils of the two countries get together to discuss such matters — an extraordinary proposal given the historical mistrust between Washington and Moscow.

And despite the furor his warm embrace of Putin triggered in Washington, Trump doubled down on his strategic concept by inviting the Russian leader to the White House for another round of one-on-one talks this fall. According to White House press secretary Sarah Sanders, National Security Advisor John Bolton is already in preparatory talks with the Kremlin for such a meeting.

The big question in all this, of course, is: Why? Why would an American president seek to demolish a global order in which the United States was the dominant player and enjoyed the support of so many loyal and wealthy allies?  Why would he want to replace it with one in which it would be but one of three regional heavyweights?

Undoubtedly, historians will debate this question for decades. The obvious answer, offered by so many pundits, is that he doesn’t actually know what he’s doing, that it’s all thoughtless and impulsive. But there’s another possible answer: that he intuits in the Sino-Russian template a model that the United States could emulate to its benefit.

In the Trumpian mindset, this country had become weak and overextended because of its uncritical adherence to the governing precepts of the liberal international order, which called for the U.S. to assume the task of policing the world while granting its allies economic and trade advantages in return for their loyalty. Such an assessment, whether accurate or not, certainly jibes well with the narrative of victimization that so transfixed his core constituency in rustbelt areas of Middle America. It also suggests that an inherited burden could now be discarded, allowing for the emergence of a less-encumbered, stronger America — much as a stronger Russia has emerged in this century from the wreckage of the Soviet Union and a stronger China from the wreckage of Maoism. This reinvigorated country would still, of course, have to compete with those other two powers, but from a far stronger position, being able to devote all its resources to economic growth and self-protection without the obligation of defending half of the rest of the world.

Listen to Trump’s speeches, read through his interviews, and you’ll find just this proposition lurking behind virtually everything he has to say on foreign policy and national security. “You know… there is going to be a point at which we just can’t do this anymore,” he told Haberman and Sanger in 2016, speaking of America’s commitments to allies. “You know, when we did those deals, we were a rich country… We were a rich country with a very strong military and tremendous capability in so many ways. We’re not anymore.”

The only acceptable response, he made clear, was to jettison such overseas commitments and focus instead on “restoring” the country’s self-defense capabilities through a massive buildup of its combat forces. (The fact that the United States already possesses far more capable weaponry than any of its rivals and outspends them by a significant margin when it comes to the acquisition of additional munitions doesn’t seem to have any impact on Trump’s calculations.)

This outlook would be embedded in his administration’s National Security Strategy, released last December. The greatest threat to American security, it claimed, wasn’t ISIS or al-Qaeda, but Russian and Chinese efforts to bolster their military power and extend their geopolitical reach. But given the administration’s new approach to global affairs, it suggested, there was no reason to believe that the country was headed for an inevitable superpower conflagration. (“Competition does not always mean hostility, nor does it inevitably lead to conflict. An America that successfully competes is the best way to prevent conflict.”)

However ironic it might seem, this is, of course, the gist of the Sino-Russian tripolar model as embraced and embellished by Donald Trump. It envisions a world of constant military and economic contention among three regional power centers, generating crises of various sorts, but not outright war. It assumes that the leaders of those three centers will cooperate on matters affecting them all, such as terrorism, and negotiate as necessary to prevent minor skirmishes from erupting into major battles.

Will this system prove more stable and durable than the crumbling unipolar world order it’s replacing? Who knows? If Russia, China, and the United States were of approximately equal strength, it might indeed theoretically prevent one party from launching a full-scale conflict with another, lest the aggrieved country join the third power, overwhelming the aggressor.

Eerily enough, this reflects the future world as envisioned in George Orwell’s dystopian novel 1984 — a world in which three great-power clusters, Oceania, Eurasia, and Eastasia, contend for global dominance, periodically forming new two-against-one alliances.

However, as the United States currently possesses significantly greater military power than Russia and China combined, that equation doesn’t really apply and so, despite the mammoth nuclear arsenals of all three countries, the possibility of a U.S.-initiated war cannot be ruled out. In a system of ever-competing super-states, the risk of crisis and confrontation will always be present, along with the potential for nuclear escalation.

One thing we can be reasonably sure of, however, regarding such a system is that smaller, weaker states, and minority peoples everywhere will be given even shorter shrift than at present when caught in any competitive jousting for influence among the three main competitors (and their proxies). This is the crucial lesson to be drawn from the grim fighting still ongoing in Syria and eastern Ukraine: you are only worth something as long as you do the bidding of your superpower patron.  When your utility is exhausted — or you’re unfortunate enough to be trapped in a zone of contention — your life is worth nothing. No lasting peace is attainable in such an environment and so, just as in Orwell’s 1984, war — or preparing for war — will be a perpetual condition of life.

via RSS https://ift.tt/2Ak1dxB Tyler Durden

JPMorgan: QE Might Have Devastating Consequences After All

Approximately 9 years after various “tin-foil” wearing blogs first warned that the long-run negative consequences of QE will drown out and vastly outnumber any positive ones (which have mostly been confined to make the rich richer and create the illusion of economic stability built on the cracking foundations of trillions in newly created dollars), none other than JPMorgan today admits that QE may, indeed, have some devastating financial, economic and political consequences. And by some, we mean a lot.

What prompted this exciting moment of monetary introspection?

According to JPM’s Nick Panigirtzoglou, it was last week’s report that the BoJ has expressed concerns over negative side effects of its QE current policies (especially keeping the 10Y yield fixed around 0%), and which resulted in a sharp, if brief, global bond steepening which demonstrated once  again just how dominant central bank monetization policies are in determining the long-end of the curve.

And, as the market demonstrated, a hawkish policy shift and a subsequent reduction in duration absorption by the BoJ would intensify the quantitative tightening already in place by the Fed and the ECB, and according to JPM represents “a significant tail risk that has generated intense debate among our clients.”

So what are these possible ‘devastating’ side-side effects from unorthodox BoJ – and other central bank – policies?

Here is a list of the key negative consequences arising from QE, from JPMorgan:

1. Results in Asset Bubbles and a Collapse in CapEx: Even as QE has likely exerted downward pressure on bond yields, the significant increase in central banks’ balance sheets makes an exit potentially more difficult, and raises the risk of a policy error or of an increase in perceptions about debt monetization. It potentially creates asset bubbles by lowering asset yields relative to historical norms, that an eventual return to normality could be accompanied by sharp price declines. Perceptions about asset bubbles can thus also increase long term uncertainty. In turn higher uncertainty might prevent economic agents such as businesses from spending, i.e. the collapse in CapEx observed over the past decade as company used cheap debt to purchase their own, making management teams richer.

2. Creates Zombie Companies and Crushes Productivity. Low credit spreads and corporate bond yields are an intended consequence of QE but not without distortions. By allowing unproductive and inefficient companies to survive, helped by low debt servicing costs, QE could potentially hinder the creative destruction taking place during a normal economic cycle. In principle, QE could thus make economies less efficient or productive over time. Which should answer the long-running debate over the chronic lack of economic productivity in the new normal. The debate about so called “zombie” companies has been particularly intense in Japan given the low business turnover rate. According to OECD, Japan’s business startup and closure rate is about 5%, roughly a third of that in other advanced economies with several commentators blaming the BoJ’s ultra-accommodative policies for this problem.

3. Low Rates crush savers, make the rich richer. One of the most visible impacts of QE has been the decline in discount rates, which in turn has created wealth effects via supporting asset prices. However, an argument could be made that these wealth effects are not evenly distributed, and that low discount rates mean savers suffer from an erosion of income.

4. Exacerbates currency wars. QE could exacerbate so called “currency wars”. The value of the Japanese yen collapsed after Abenomics started in November 2012 and has stayed at historical lows since then helped by BoJ’s ultra accommodative monetary policy. This is shown in Figure 5 by the real trade weighted index of the Japanese yen. Japan’s main competitors across EM and DM have been feeling the pressure from this depreciation, though it is not clear that the depreciation necessarily means the yen is undervalued.

5. NIRP hurts the economy, and chokes off credit supply. Beyond a certain threshold, negative interest rates can have unintended consequences such as lower bank profitability, higher bank lending rates, reduced credit creation to the real economy, impaired functioning of money markets and reduced liquidity in bond markets. And there is a good reason to believe that the threshold below which negative rates start having unintended consequences is higher in Japan than in Europe, not least because of the lower interest margins Japanese banks operate with… Deeply negative policy rates had taken their toll on Danish and Swiss banks’ net interest income (Figure 6). Net interest income as % of assets declined in 2015 for both Danish and Swiss banks following the introduction of very negative policy rates in these countries in January 2015.

6. Chokes Repo markets due to collateral shortages. It is not only commercial banks that are hurt as a result of QE. Reduced liquidity in money and repo markets is another side effect. UST collateral shortages have hampered US repo markets. The BoJ and the ECB inflicted similar damage to European and Japanese repo markets as government collateral was withdrawn at an even stronger pace. An argument could be made that the damage to trading turnover and liquidity is likely to have been even bigger with the BoJ’s and ECB’s QE relative to the Fed’s QE, because the BoJ and the ECB went even further than the Fed by lowering its policy rate to negative territory. Negative yields can hamper trading volumes and liquidity as money market participants are less willing to trade at negative yields.

7. Cripples pension funds by increasing funding deficits. Lower bond yields increase pension fund and insurance company deficits putting pressure on pension funds to match assets and liabilities. This pressure to move further away from equities and other high risk assets into fixed income is even stronger in countries like Japan where demographic pressures are more intense. For example, old age dependency ratios, i.e. the proportion of the population aged 65 years and over as a percentage of the population aged 15-64 years, have been rising steadily, with Japan aging more rapidly than the US or Europe (Figure 1). Generally, an aging population means that allocations are likely to shift towards relatively safer instruments as the ability to withstand larger drawdowns on capital diminishes as individuals age.

What is striking in Japan is that in contrast to GPIF, which shifted towards equities post Abenomics most likely under political pressure, private Japanese pension funds did the opposite shifting even more towards bonds (Figure 3).

8. QE Forces consumers to save even more. The yield-to-worst on the Bloomberg Global Agg Yen denominated bond index currently stands at close to 0.15%, around one-sixth of its average in the expansion preceding the financial crisis. In addition to the effect of deleveraging after the financial crisis and the Euro area sovereign crisis, QE has played a role in pushing down on long-term yields. Particularly the QE programs of the BoJ and ECB which have seen net issuance of government bonds outside of the public sector balance sheet turn negative, not just in their domestic economies but for the G4 on aggregate (Figure 4).

These low yields in turn depress the income that investors receive from bonds, inducing them to save even more, in the process making a mockery of the key “widely accepted” economist axiom behind QE.

9. The rise of populism and extreme political frictions. A longer-term tail risk created by QE is the potential for political frictions, which could escalate in the future especially once QE becomes a negative carry trade for
central banks, i.e. when the interest on excess reserves starts rising above the yield they receive on their bond
holdings.

JPMorgan’s punchline:

These political issues could become a big problem in Japan if in the future Abenomics, including BoJ’s ultra-accommodative policies, are perceived as a failed experiment that brought limited benefits to the Japanese economy and society.

Now if readers expand what JPM said about the failure of QE in Japan, they may be reminded of the piece “An Orgy of Blood” by the UK’s Clarmond Wealth, whose conclusion we repost below because with every passing day, the world it previews gets closer:

When historians look back and see the cavalier balance sheets of the central banks they would rightly assume there was a world war going on as every central bank balance sheet is now approaching or exceeding levels not seen since 1945. However, the worrying truth is that there are no external enemies to overcome; the central bankers are only maintaining the growth trajectory that we demand.   

The age of sloganeers

The current social contract is mired in the quicksand of global finance. It is being kept alive by the corpulent balance sheets of central banks, who do their government’s bidding so that the politicians do not have to put unpleasant choices in front of their electorates. This cowardly behaviour gives rise to slogans and sloganeers, who provide familiar but false checklists of remedies. “Take bank control”…”America First”…”One Belt, One Road”…”Ein Volk, ein Reich, ein Fuhrer”…”One Man – One Kill”. Central banks are currently furnishing the excess credit that, in the past, has been followed by an orgy of blood.

via RSS https://ift.tt/2mQYXEC Tyler Durden