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China and Russia appear to be flexing their muscles in the Middle East, as both announced early this week they would boycott a major economic summit on Israel-Palestine peace sponsored by the United States set for late June in the Bahrain capital of Manama. The White House has touted that the US will unveil economic aspects of its long-awaited Middle East peace plan which aims to achieve economic prosperity for Palestinians, or Trump’s so-called “Deal of the Century”.

Crucially, the Chinese statement emphasized a bilateral Russian-Chinese agreement to boycott the talks. Chinese Ambassador to Palestine Guo Wei on Monday visited the West Bank city of Ramallah, where in a meeting he said, “Boycotting the Bahrain conference comes within the framework of a bilateral Russian-Chinese agreement not to participate in it.”

During the statements Wei emphasized Beijing’s position “in support of the Palestinian cause and people, including their right to self-determination and the establishment of an independent state of Palestine within the 1967 borders with East Jerusalem as its capital”.

At the same time Palestinian Authority President Mahmoud Abbas commented Monday, lashing out specifically at the White House-backed Bahrain conference for the first time. Abbas said:

Trump’s ‘deal of the century’ will go to hell, as will the economic workshop in Bahrain that the Americans intend to hold and present illusions.

It’s not only a big victory for the Palestinian side, given it’s rallied countries not to show up, but comes amidst the continuing proxy war in Syria where Russia is ramping up airstrikes in support of Damascus over Idlib, as well as the ongoing US-China trade war. However, as Axios notes the decision “is mainly driven by Russian and Chinese tensions with the U.S. rather than by Palestinian interests.”

The Palestine Liberation Organization (PLO), which is the largely secular backbone of the Palestinian National Authority headquartered in the West Bank, has said it wasn’t even notified of the Bahrain conference before it was announced. 

And interestingly, it’s none other that President Trump’s own son-in-law and senior adviser Jared Kushner who will chair the summit. Al Jazeera reports:

Early last week, the US announced plans to hold a landmark conference in Manama, where Trump administration officials are expected to unveil economic aspects of the “Deal of the Century”, a US backchannel Palestine-Israel peace plan, the terms of which have yet to be made public.

The Manama meeting will reportedly be chaired by Jared Kushner, US President Donald Trump‘s senior adviser and son-in-law, and Jason Greenblatt, Trump’s Middle East envoy.

Last week, Palestinian Prime Minister Mohammad Shtayyeh slammed the planned meeting for neglecting the core issues of “final borders, the status of Jerusalem, or the fate of Palestinian refugees.”

“Any solution to the conflict in Palestine must be political… and based on ending the occupation,” he said. And separately, Axios reports that PLO secretary general Saeb Erekat was told by both Russian and Chinese foreign ministry officials that both countries “support the Palestinian position regarding the Bahrain conference and therefore will not attend it.”

The Palestinian Authority has boycotted any and all US peace talks following last year’s extremely controversial move to give formal US recognition of Jerusalem as the Israeli capital, further buttressed by the US moving its embassy there. Though a number of American gulf allies have predictably said they will attend, the absence of Russia and China is sure to doom any momentum or attempt at international consensus from the start. 

via ZeroHedge News http://bit.ly/2X9GNhz Tyler Durden

Authored by Neils Christenson via Kitco.com,

Investors need to look past gold’s current summer doldrums and focus on the yellow metal’s safe-haven potential as trust in society and financial markets continues to erode, according to one fund manager.

In an interview with Kitco News, Ronald-Peter Stoeferle, fund manager of Incrementum AG and one of the authors of the 13th annual In Gold We Trust report – which clocks in at over 300 pages this year – said that gold remains the last bastion of security in an ever fragile world.

“We have seen an erosion of trust in many parts of our lives; we’ve lost trust in the media, in democracy, in geopolitical alliances and monetary policy,” said Stoeferle.

“There is still some trust in the U.S. economy and the U.S. dollar, which is hurting gold, but we don’t think this will last.”

Stoeferle said that the trust in the U.S. financial system is already being tested following the performance in the fourth quarter, which saw large-cap U.S. equities fall 13.5%, small-cap stocks fall more than 20%, gold prices rise more than 8% and gold equities rise nearly 14%.

“For the first time in many years, the seemingly untouchable competitive advantage of stock markets has been seriously questioned. Gold has outperformed all major domestic equity markets,” the firm said in its report.

Source: In Gold We Trust

Although the perception is that the U.S. economy is “the least dirty shirt in the laundry,” Stoeferle said that the economy is built on debt, which is not sustainable in the long run.

The report noted that next year, “U.S. government debt will exceed the combined debt of Japan and the eurozone, despite the fact that absolute U.S. and Japanese debt were at similar levels until 2011, rising almost in step.”

Stoeferle added that it’s not just government debt that is growing out of control; he said that corporate debt with about $600 billion in bonds at risk of being rated as junk.

“I think we are seeing a little bit too much confidence in the U.S. economy and the U.S. dollar and that will come back to bite investors,” he said.

Source: In Gold We Trust

Stoeferle added that confidence in the U.S. dollar is already starting to weigh as it struggles to push higher from its already lofty valuation. Incrementum AG noted that last year the U.S. dollar rose only 4.3%.

“Given the numerous economic, political, and social trouble spots in the EU – Brexit, Italy’s open rebellion against the Stability and Growth Pact (SGP), the yellow vest protests in France, the economic slowdown in Germany – it is remarkable how little the USD has appreciated,” the firm said.

“A further indication that the U.S. dollar could slowly but surely lose its status as a classic safe-haven currency is the fact that in the course of the sharp correction of the stock markets in Q4/2018 the greenback strengthened only marginally. We regard this as a prime indication of a U.S. dollar bear market, whose starting signal has not yet been apprehended by the majority of investors.”

While the U.S. dollar gold price dominates investor perceptions of the yellow metal, Stoeferle said that it is also important to pay attention to the health of the global market. Gold prices are up in other currencies like the Australia dollar, the euro, the Swiss franc and the Japanese yen, the firm said in its report.

“We think it’s only a matter of time before we start to see higher gold prices in the U.S. dollar.”

Source: In Gold We Trust

But Stoeferle added that the real test will come when the inevitable recession hits.

According to the report, most economists are not expecting to see a recession in the next three years, but the investment firm also noted the terrible track record economists have at predicting a recession.

“According to a study by Fathom Consulting, the IMF has correctly predicted only 4 of 469 downturns since 1988,” the report said.

According to the Federal Reserve’s own indicators last month there is a nearly 28% chance of a recession by 2020.

“In the past 30 years, this figure has never been so high if there was no recession in the following two months,” the report said.

Although the gold market is suffering from a lack of investor interest, Stoeferle said that this sentiment could quickly shift if financial markets start to deteriorate. He added that investors need to watch last year’s highs at $1,360 an ounce. He said that if this price level breaks, then investors will flood back into the market.

“We are sticking to our statement from last year that gold is in the early stages of a new bull market – a bull market that could soon pick up momentum on a U.S. dollar basis as well,” the firms said.

*  *  *

See the compact version of Incrementum’s latest ‘In Gold We Trust’ report below (download Extended Version here)

via ZeroHedge News http://bit.ly/2YUsf6c Tyler Durden

Cash-strapped Illinois is one step closer to passing a new income tax with the potential to seriously accelerate the exodus of high-earning taxpayers from the most financially dysfunctional state in America.

Lawmakers in the Illinois House of Representatives on Monday approved a constitutional amendment aiming to get rid of the state’s flat income tax, clearing the way for the amendment to be included on the November 2020 ballot for ratification by the voters. Governor JB Pritzker is widely expected to sign it the amendment, which has already been passed by the State Senate.

According to the Democrats who backed it, the tax will help fix the state’s recurring deficits by creating a sorely needed new revenue source: The higher taxes on those earning more than $250,000 would raise more than $3 billion annually while leaving taxes on 97% of the state’s residents unchanged.

There’s no question that more revenue (or, perhaps, less spending) is badly needed. Chronic budget shortfalls, drastically underfunded pensions (to the tune of $134 billion) and $7 billion in unpaid bills have left Illinois’ finances in terrible shape. Illinois’ credit rating being pushed to one level above junk, the lowest in the country, Bloomberg reports.

Pritzker, who took over from unpopular Republican Gov. Bruce Rauner in January, has tried to spin the tax as a “fair tax”, while ignoring the state’s Republicans, who have accused Democrats of refusing to accept responsibility for the state’s dire fiscal situation, and instead seeking to tax their way out of the problem.

But anybody who thinks the new tax will make a meaningful difference in the state’s finances is sadly mistaken.

As Mark Glennon of WirePoints explained in a post published last month, the $3.4 billion in revenues expected to be raised by the new tax will cover barely one-third of the “hole” in the state’s pension obligations.

Here’s the central message now being blasted across the state by proponents of a $3.4 billion state income tax increase on high earners: “Illinois is in a $3.2 billion financial hole. A Fair Tax could fix that and reverse the damage.” That’s an epic lie. The “hole” isn’t $3.2 billion. It’s roughly a quarter of total revenue according to this work, which is consistent with our own numbers – about $10 billion – and that’s just at the state level. The new $3.4 billion will go down a nearly bottomless pit.

The follow chart shows just how dire Illinois’ pension situation truly is.

And while the new taxes might make up for some of this shortfall, at least in the short term, once the new taxes start to bite, those wealthy residents saddled with the new tax will almost inevitably start looking for greener pastures – and sun-belt states like Arizona and Florida offer several advantages over chilly Illinois.

via ZeroHedge News http://bit.ly/2XbI5sF Tyler Durden

Authored by Charles Hugh Smith via OfTwoMinds blog,

If you want to identify tomorrow’s superpowers, overlay maps of fresh water, energy, grain/cereal surpluses and arable land.

The status quo measures wealth with “money,” but “money” is not what’s valuable. “Money” (in quotes because the global economy operates on intrinsically valueless fiat currencies being “money”) is wealth only if it can purchase what’s actually valuable.

As the world slides into an era of scarcities, what will matter more than “money” are the essentials of survival: fresh water, energy, soil and the output of those three, food. The ability to secure these resources will separate nations that fail and those that survive.

In a world of abundance, it’s assumed every essential resource can be bought on the open market. Surpluses are placed on the market and anyone with “money” can buy the surplus.

Things work differently in scarcity: “money” buys zip, zero, nada because nobody with what’s scarce can afford to give it away for “money” which can no longer secure what’s scarce.

Parachute into a desert with gold, dollars, euros, yen and yuan, and since there’s nothing to buy, all your money is worthless. Once you’re thirsting to death, you’d give all your money away for a liter of fresh water. But why would anyone who needs that liter for their on survival trade it for useless “money”?

Imagine the longevity of a regime which sold the nation’s food while its populace went hungry. Not very long once the truth comes out.

Having resources is only one component: consumption is the other half of the picture. Having 4 million barrels a day of oil (MBPD) is nice if you’re only using 3 MBPD, but if you’re consuming 8 MBPD, you still need to import 4 MBPD.

Water and soil are not tradable commodities. Nations which share water resources (rivers and watersheds) have to negotiate (or fight wars over) the division of that scarce resource, but as a generality, fresh water and fertile soil can’t be bought and sold like grain and oil.

The number of nations with surplus energy and food to export is small. As I noted in Superbugs and the Ultimate Economic Weapon: Food, there are contingencies in food production which could quickly erase surpluses and exports and trigger widespread shortages that have the potential to unleash social unrest.

Energy exports are also a natural economic weapon with which to reward needy friends or punish desperate enemies (no oil or natural gas for you!).

But energy exports are also contingent: natural gas and oil pipelines can be blown up by non-state players, shipping chokepoints can be closed or mined, regimes can change overnight and so on.

The value of a nation’s currency can be understood as a reflection of its essential resources, what I have called the FEW resources (food, energy, water) which I would now amend to FEWS (food, energy, water, soil).

Nations which are frugal about creating currency (either via printing/issuance or borrowing it into existence) while prudently managing their fresh water, energy, soil and food will in effect be “backing” their currency with their surpluses of what will be increasingly scarce.

Nations which borrow into existence or emit currency profligately while having scarce FEWS resources and enormous needs for imported food and energy will find their currency rapidly loses value.

When there’s not enough energy and food to go around, who will trade what’s scarce and valuable for what’s abundant and worthless (“money”)? The answer is no one.

If you want to identify tomorrow’s superpowers, overlay maps of fresh water, energy, grain/cereal surpluses and arable land: those nations with abundances that can yield sustainable surpluses in food and energy while taking care of domestic needs will have wealth and power.

Those with diminishing resources that are inadequate to meet domestic demand will have very little wealth, no matter how much “money” they print or borrow into existence or how much consumerist “stuff” they produce.

There are two other attributes that matter: being able to defend your FEWS resources from would-be thieves and a widely shared national sense of purpose that enables shared sacrifice for the common good. Without that shared source of unity, the elites with wealth and power will grab more and more, bringing down the house around them with their limitless greed.

Sacrifice either starts at the top or it means nothing. Forcing commoners to suck up sacrifices only exacerbates disunity and national dissolution.

There are no guarantees that any nation will be able to assemble all that it will take to survive an era of scarcity. But some have better odds than others. Place your bets accordingly.

I’m reprinting these charts to emphasize how few nations have geopolitically meaningful surpluses of food.

Corn is often the primary food for livestock. No corn, not much meat.

The exportable surpluses of wheat are concentrated in a few hands.

The same is true of soybeans, a source of protein in Asia and livestock feed everywhere. This chart shows the top producers and the top consumers.

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via ZeroHedge News http://bit.ly/30OUepr Tyler Durden

As the market rolls over to the growing consensus that neither the Fed Put nor the Powell Put will kick in any time soon – if BTFDers always emerge just as Trump may consider resuming negotiations – something we warned about last week when discussing why the trade war will last far longer than expected…

Ironically, all that needs to happen for the trade war to end is for the S&P to drop back to 2,300… but market won’t let that happen as it is convinced Fed or Trump put will kick in first.

— zerohedge (@zerohedge) May 23, 2019

… and which Bloomberg picked up on yesterday, here is some additional gloom from former Lehman macro trader and current Bloomberg markets commentator, Mark Cudmore, who recently turned fully bearish for the first time in five years, and who explains why “equity investors are acting like frogs in boiled water.”

From Mark Cudmore’s Macro View

U.S. equity investors have become inured to trade war news and risk being blind-sided as stocks likely trade much lower in the months ahead.

The relationship between the world’s two largest economies has deteriorated significantly in the past month. The negative ramifications for global growth and company earnings will be immense, and yet the S&P 500 Index has slipped just 4% from its record high. This isn’t proof of resilience — it’s evidence of misplaced complacency. Stocks were already looking overvalued four weeks ago, before the trade war re-ignited.

There’s a lingering belief the U.S. and China will work things out, even though there’s little evidence to support it. A senior Chinese government researcher said last week the countries may be stuck in a cycle of “fighting and talking” until 2035.

Many financial commentators have argued that a deal would be mutually beneficial, whereas the current path just leads to mutual economic harm. That’s entirely rational but also completely irrelevant to analyzing the reality of what’s happening. In theory, a deal could be agreed later this year, but the signs aren’t pointing there yet. And even if some agreement is eventually reached, it will be many months down the line, after much economic damage is done. Damage that’s barely reflected in today’s elevated U.S. stock prices.

The SPDR S&P 500 ETF Trust shows short interest rising to a multi-year high, so why is the equity market not slumping? Mainly because passive investment — funded by retail money — is showing little desire to pull out en masse.

Combine that with trend-followers and a hedge fund industry still stuck on buying the dips, and this market appears way too reactive rather than proactive.

Bullish investors are like frogs in a pot of water slowly coming to a boil. The trade war has been going on so long they haven’t noticed how much things have heated up. They could still get out of the stock market now without getting harmed, but most won’t. They are hoping the chefs will turn off the heat and all will be okay.

Each day until the trade war ends, the environment for equity investors will get a little worse. That may only register when the pot boils over and investors get burnt by the losses that look almost certain to come.

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

If bonds are right, then stocks are…

Chinese markets were rescued by a mysterious beneficiary who panic-bid stocks back into the green on the day…

 

EU markets extended yesterday’s late-day weakness but managed to now ubiquitous bounce – though still ending lower, led by Italy to the downside…

As German bund yields collapsed to within 3bps of record lows…

 

And US markets followed the overnight excitement, opening higher and accelerating at the cash market open once again. But that did not last… the afternoon was brutal…

 

And US markets ended much worse than China and Europe…

This despite proclamations that month-end pension rebalancing would spark buying in stocks this week.

S&P closed just above the critical 2800 level…

 

Semis suffered again with the lowest close since Feb 5th (back below its 200DMA)…

 

Financials are notably outperforming the market and hugely divergent from the collapsing yield curve…

 

Credit markets are blowing out notably while VIX is holding in for now…

HY Spreads are at their widest since Jan…

 

And the VIX term structure re-inverted today…

 

Treasury yields collapsed today on growth fears and a very aggressive 2Y auction…

 

Pushing to fresh cycle lows…

 

Collapsing the yield curve (3m10Y to -9bps) to its flattest since August 2007…

 

The yield curve is inverted to around 15 years…

 

And Breakevens collapsed further to critical support…

 

Before we leave bondland, we note that the probability of a rate cut by end Dec is now 82%

With the market expecting almost 2 full rate cuts now…

 

The dollar rallied on the day, erasing over half of the Thurs/Fri losses…

 

Yuan continued to sink despite another attempt by Guo to threaten shorts today…

 

Cryptos held on to their significant gains over the weekend…

 

With Bitcoin hovering around $8800…

 

After a few days of outperformance, Silver was slapped lower today as WTI managed gains (despite a strong dollar) early on but faded into the close…

 

It seems like 14.50 was the buy/sell trigger for silver…

 

WTI Crude hovered around $59 all day…

 

 

Finally, this won’t end well for one completely-convinced cohort of group-thinkers…

And the only support for this is leaving the building…

It’s not Friday anymore… pic.twitter.com/Euk5x4L0eP

— Sven Henrich (@NorthmanTrader) May 28, 2019

via ZeroHedge News http://bit.ly/2JJdRu4 Tyler Durden