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White House Didn’t Learn About Flynn’s FBI Meeting Until Days Later

Yesterday, the Washington Post reported that Special Counsel Robert Mueller III is hoping to question President Donald Trump during the coming weeks about his decisions to oust national security adviser Michael Flynn and FBI Director James Comey – the latest sign that the prosecutor’s investigation into Russia-Trump “collusion” has pivoted to focusing on obstruction of justice.

With Mueller’s probe increasingly focusing on Flynn, who has agreed to testify in exchange for leniency after being indicted for allegedly lying to the FBI, NBC published a bombshell report Wednesday about the meeting that set this whole saga into motion: Flynn’s initial meeting with the FBI, which took place exactly one year ago today, on Jan. 24, 2017.

According to NBC, the meeting took place after an employee from the office of Deputy Director Andrew McCabe contacted a scheduler for Flynn to set up a time for Flynn to meet with the FBI. The scheduler put the meeting on Flynn’s calendar without asking why the bureau wanted to meet with their boss.

When the agents showed up later that day, Flynn met with them without informing the White House of the National Security Council, or even his own personal lawyer. Apparently, Flynn was unaware that the meeting pertained to his conduct involving agents of the Russian government.

A brief phone call from the office of Andrew McCabe, the deputy FBI director, to a scheduler for Flynn on Jan. 24 set the interview in motion, according to people familiar with the matter. The scheduler was told the FBI wanted to speak with Flynn later that day, these people said, and the meeting was placed on Flynn’s schedule. The scheduler didn’t ask the reason for the meeting, and the FBI didn’t volunteer it, one person familiar with the matter said.

Later that day, two FBI agents arrived at the White House to speak with Flynn. A lawyer for the National Security Council typically would be informed of such a meeting and be present for it, one person familiar with the procedures said. But that didn’t happen in this instance, and Flynn didn’t include his own personal lawyer, two people said. He met with the two federal agents alone, according to these people.

“No one knew that any of this was happening,” said another senior White House official who was there at the time.

“Apparently it was not clear to Flynn that this was about his personal conduct,” another White House official said. “So he didn’t think of bringing his own lawyer.”

White House Counsel Don McGahn III was the first White House official to learn about Flynn’s meeting, when he was informed by acting Attorney General Sally Yates. Yates also reportedly told McGahn that Flynn had lied to Vice President Mike Pence and therefore might be vulnerable to blackmail from the Russians. Yates has been interviewed in Mueller’s probe.

Yet, McGahn did not later ask Flynn if he lied to the FBI, one person familiar with the matter said.

McGahn quickly briefed Trump, Bannon and White House chief of staff Reince Priebus, who left the White House last summer. Still, it would be weeks before Flynn was fired on Feb. 13.

However, it would be months before McGahn realized that Flynn might’ve lied to the FBI, when Mueller’s team requested a trove of documents from Flynn’s tenure at the White House.

By the end of 2017, Mueller’s team had spoken with Director of National Intelligence Dan Coats; Mike Rogers, the director of the National Security Agency; former FBI Director James Comey; and numerous members of Trump’s campaign and White House inner circle. Steve Bannon is expected to meet with Mueller’s team by the end of the month. McGahn has also sat for two days of interviews with Mueller’s team.

One person familiar with the matter described Pompeo, Coats and Rogers as “peripheral witnesses” to the Comey firing. Attorney General Jeff Sessions, who played a key role in Comey’s departure and was a top adviser on the Trump campaign, was interviewed by Mueller last week as the special counsel’s team inches closer to possibly questioning the president himself.

Notably, Trump has taken aim at McCabe lately, accusing the deputy of political bias, while also maintaining that this phenomenon is widespread throughout the bureau.

Interestingly, one of the two agents who interviewed Flynn was Peter Strzok, who was fired by Mueller last summer and is now the object of Republican ire, after Congress received batches of text messages between Strzok and his mistress, FBI Lawyer Lisa Page, expressing their opposition to Trump. At one point, Page texted Strzok about an “insurance policy” to prevent Trump from becoming president.

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Stocks Are Suddenly Tanking…

Weak-Dollar outflows? Trade Wars? Or Pension-fund outflows? Take your pick, but stocks are getting slammed…

The weakness seemed to start around Wilbur Ross’ comments on China’s “Direct Threat” but has extended as Pension flow concerns rise…

A lot of the stock drop was catch-down to bond/dollar reality…

Of course the NYSE breaking did not help…

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Foreign Buyers Jump Into Mediocre, Tailing 5-Year Auction

While nowhere near as impressive as yesterday’s 2Y auction, today’s sale of $34 billion in 5Y Notes was good, if toward average. 5-year note auction went off without any difficulties with metrics that were generally close to average.

The high yield stopped at 2.434% a 0.4bps tail to the 2.430% When Issued, 20bps higher than last month’s 2.23%, and the highest since April 2010. The bid to cover of 2.48 was higher than December’s 2.36 if right on top of the 6 month average of 2.49%, with total bids of $89.4b for $39.0b in notes sold vs six previous auction average of $87.3b in bids for $36.6b in notes sold.

Similarly, the buyside takedown figures were in line with the average: there was a 65.0% Indirect takedown, well above December’s 58.4%, but in line with the 6 month average of 65.4%. Direct bidders took down 9.1%, just below the 6 month average 9.5%, leaving 26% to Direct bidders.

Overall, an unremarkable sale with nothing to write home about; perhaps the only notable feature is that in light of today’s broad selloff across the curve it could have been far worse.

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Tesla Stocks Slides As Trump Weighs Emissions-Standards Changes

A day after his stock-only pay-package was announced, Elon Musk may be a little disappointed this morning as his shares are sliding following a WSJ report that California regulators and Trump administration officials met to discuss for the first time the prospect of controversial changes to vehicle-emissions rules.

The taxpayer-subsidized car-maker is under pressure today, not helped by headlines from The Wall Street Journal that adminstration officials took a significant step in complex negotiations aimed at preventing a legal battle over future environmental regulations on cars and trucks.

President Donald Trump last year charged federal regulators with revisiting the regulations in response to increased purchases of heavier and less-efficient pickup trucks and sport-utility vehicles.

That move triggered concern at Ms. Nichols’ California Air Resources Board, which favors lofty emissions standards including higher sales of electric cars.

In a coffee shop near the White House, Trump administration officials broached whether California is open to easing future emissions and mileage goals, the people said, an approach state leaders have openly resisted for nearly a year. California officials were noncommittal, but agreed to continue discussions and exchange technical analyses ahead of an April deadline for the Environmental Protection Agency to decide whether regulations covering 2022-2025 should be revised.

The reaction was not violent but is clear…

Time for Elon to visit The White House again!!

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Here Come The Sellers: In Coming Days Pension Funds Set To Sell Most Stocks In A Year

Traders are perplexed by today’s market action: not only did the S&P stage a dramatic intraday reversal from session highs, and all three indices are now red on the day, but so far the BTFD ETF flows are missing. What gives?

We may have an explanation courtesy of Credit Suisse, which writes in a trading note that U.S. pension funds that rebalance monthly – which is most of them – will have to sell more than $12 billion of U.S. stocks in the coming days to return to prior asset allocation levels given recent rally in the stock market – the S&P is up 6% YTD while bonds are down just shy of 1%.

As a result, CS calculates that funds are expected to sell a sizable $12BN in equities and buy roughly $24b in fixed income. The amount of selling, CS writes “would be the biggest in at least a year for a month that does not coincide with quarter-end.”

Bloomberg confirms as much writing that today is the trigger day for month-end rebalancing, and warns that today’s action may be a signal to expect pension rebalancing over the next week.

What about in the longer-term?

Over the weekend, JPMorgan’s Flows and Liquidity note revealed that “the average long-term sovereign yield level at which pension funds would start de-risking was 2.8% and the yield at which they would expect to be fully hedged was 3.7%. The 30y UST yield at 2.9% currently has already crossed the 2.8% level mentioned in this survey.”

Furthermore, JPM calculations suggest that this year’s 5% rise in equity prices alone could create up to $125bn of pending rebalancing flow by US defined pension plans.

We look for G4 pension funds and insurance companies overall to buy a lot more bonds than the $460bn bought last year, and for their bond buying to return to at least the 2016 pace of $640bn. In fact, we see upside risks to this projection assuming equity markets remain strong.

To JPM the news is bullish for the long-end of bond curves: “This pension fund rebalancing flow should support the long end of DM bond curves causing further flattening this year.“

As to what forced pension selling of stocks will mean for equities, we may find out in the next few days…

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Silver Spikes Most Since Before Election As Dollar Nosedives

After tagging its 50-DMA yesterday in an ‘odd’ plunge, Silver has screamed higher…

Pushing towards $17.50 on its best day since Nov 1st 2016.

As the dollar nosedives, gold and Bitcoin are also bid…

Gold continues its post-Fed-hike ramp…

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Dianne Feinstein Ignores GOP Lawmakers, Blames #ReleaseTheMemo on Russians and Social Media Instead

Trust Sen. Dianne Feinstein (D-Calif.) to try to turn a political controversy into an excuse to censor social media.

A bunch of Republican lawmakers have been rallying around a classified memo by House Intelligence Committee Chair Devin Nunes (R-Calif.). The memo purports to show FBI abuses connected to the secret surveillance of people involved with Donald Trump’s presidential campaign. The push to declassify the document was national news last week, complete with a hashtag campaign, #ReleaseTheMemo. It was discussed by every major news outlet. Several GOP lawmakers tweeted the hashtag.

Feinstein and Rep. Adam Schiff (D-Calif.) are upset because a bunch of Russian-operated Twitter accounts may have jumped on this and attempted the magnify the hashtag campaign’s reach. The two of them have sent a letter to Twitter and Facebook pretty much demanding that they investigate the extent of the Russian involvement in the hashtag campaign. And they want a response in three days:

If these reports are accurate, we are witnessing an ongoing attack by the Russian government through Kremlin-linked social media actors directly acting to intervene and influence our democratic process. This should be disconcerting to all Americans, but especially your companies as, once again, it appears the vast majority of their efforts are concentrated on your platforms. This latest example of Russian interference is in keeping with Moscow’s concerted, covert, and continuing campaign to manipulate American public opinion and erode trust in our law enforcement and intelligence institutions.

Feinstein is confusing a symptom for a problem, as politicians often do when they have agendas to pursue. It’s absurd to hold Russia responsible for the hashtag in any meaningful sense given that Republican lawmakers were openly, overtly screaming it from the rooftops, on Twitter, and in front of every news camera they could see. A source familiar with how Twitter works told The Hill that the growth of the hashtag appeared to have happened organically. If Russian trolls and bots were involved, they were at most magnifying a conflict that was already underway. They didn’t set this fire, and they weren’t the chief force spreading it.

Feinstein’s political machinations here are twofold. She’s trying to make the case that the feds must regulate social media because of foreign involvement in American elections; and second, she’s using the familiar guilt-by-association logical fallacy to discredit her political opponents.

Feinstein’s love of censorship is well known. She flat-out wants to suppress online content that she deems dangerous. This lack of respect for Americans’ speech rights and privacy is one of the few things she has in common with Trump.

As for the guilt-by-association issue, it’s remarkable how little people on either side are interested in engaging the surveillance issues that undergird this fight and instead want to make it all about attacking or defending Trump. I’ve already mocked Republicans acting outraged about the Nunes memo because a bunch of them just voted to expand the feds’ power to snoop on American citizens for purposes unrelated to terrorism and espionage. On the very same day this hashtag campaign was launching, Trump signed that bill into law.

The discussion of actual surveillance policy got drowned by constant efforts to either discredit Trump (by any silly memes necessary) or to discredit the FBI investigation. What’s most obnoxious about Feinstein and Schiff’s response here is how it simply does not engage the complaint that the surveillance state might have abused its powers when it snooped on and possibly unmasked the identities of people in Trump’s orbit.

Personally, based on my experience covering the federal surveillance apparatus, I doubt the Nunes memo actually reveals illegal conduct by federal officials. That’s actually part of the problem—it’s too easy for the feds to legally justify secretly snooping. Nevertheless, the Nunes memo should be declassified and released, as should the secret court warrant request that serves as the memo’s foundation. Could there be a better example for the American public to be able to pick apart the consequences of our federal surveillance state than by learning exactly how it spied on the staff of a candidate for president?

But no: When Feinstein actually had the opportunity to make surveillance laws better, she abandoned her own amendment and signed on to terrible legislation. And now she wants to make this all about Russian meddling in American elections, and to use that as an excuse for more censorship. We need more sunlight, not more secrecy.

Related: ReasonTV on politicians invoking “fake news” as an excuse to control what people can see on the internet:

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“NYSE Equities Is Experiencing Technical Issues”

With the market experiencing an rare and unexpected intraday reversal, it is only logical that the NYSE would break, which it just did.

In a notice by the exchange, the NYSE warns that “NYSE Equities is experiencing technical issues with the BCCG listed below. Clients may be experiencing slowness with order acknowledgements and drop copy for these systems and are advised to use alternate connections.”

As has traditionally been the case, expect a ramp as soon as the NYSE is fixed.

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Judge Says Defense Department Can’t Transfer U.S. Citizen Without Her Permission

Judge Tanya S. Chutkan Somewhere in Iraq, an unnamed American-Saudi dual citizen has been accused of fighting for ISIS and put into U.S. military detention. After winning a protracted legal fight just to get into federal court, he has initiated a habeas corpus suit for his release. The Pentagon says it can transfer him to another country’s custody, and thus out of the court’s jurisdiction, at any time. U.S. District Judge Tanya Chutkan ruled last night that no, actually, it can’t.

The new permanent order (which coincided with the expiration of an interim order barring transfer for five days) was a limited victory for civil libertarians, who have long opposed the military’s claim of broad authority to detain terror suspects overseas with limited access to judicial review.

In this case, the government has argued that broad “national security and foreign relations concerns” preclude the courts from reviewing the military’s decisions about what to do with terrorism suspects incarcerated abroad, even if they are U.S. citizens. The American Civil Liberties Union (ACLU), representing the prisoner, countered that the government must specify a “positive legal authority” (such as an extradition request pursuant to an established treaty) for transferring a military prisoner, and that a court has the power to review and possibly reject a claim of such authority.

Chutkan largely sided with the ACLU. Her order does not, however, grant the ACLU’s request for a complete ban on transferring the man into foreign custody. Instead, it orders the Department of Defense to notify the ACLU at least 72 hours before it plans to move the prisoner to another country, providing an opportunity to contest the transfer at that time.

Ostensibly a compromise between the two parties’ positions, this resolution is a deft handling of the case’s complex procedural position. Because the government has not specified where it wants to send the man (or indeed, whether it actually wishes to transfer him at all) a blanket ban on any transfer would likely be rebuked as overbroad on appeal. Under current Supreme Court precedent, a valid criminal extradition request would likely provide valid legal basis for a transfer.

But by merely requiring notice prior to transfer, the judge has preserved the ACLU’s ability to argue that transfer to whatever country the government may eventually specify as the intended recipient is unauthorized by existing laws or treaties. In this way, Chutkan has effectively frustrated the government’s desire to do as it wishes with the detainee without any kind of judicial scrutiny.

The order has no effect on the merits of the imprisoned man’s ongoing claim that his detention by the U.S. military is unjustified. Absent an approved transfer out of U.S. jurisdiction, the ACLU says they will continue to pursue those claims on his behalf in the coming months. Although the government’s legal basis for the detention has not been publicly specified at this time, it is likely that the controversy will focus on whether the Authorization for the Use of Military Force passed immediately after 9/11 extends to the ongoing military operations against ISIS in the Middle East.

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One Trader Warns “A Hot Trade War Is Not Priced-In”

It appears the rhetoric coming out of Davos is slowly but surely catching up to markets – after initially just impacting the dollar – as former fund manager and FX trader Richard Breslow details below, the market is not priced at all for a “hot trade war” and Ross/Mnuchin’s rhetoric suggests we are closer to that that not.

Via Bloomberg,

Reading the comments made this morning in Davos by the U.S. Secretaries of Treasury and Commerce, I found myself humming the song “You Did It” from the musical My Fair Lady. And just couldn’t figure out why. Then I realized there were actually two very logical reasons. First of all, it was sung by two self-congratulatory individuals who were celebrating that they had pulled off a terribly clever deception without being aware of the responsibilities attached from having done so. Secondly, I realized that I was subconsciously changing part of the lyrics in my head to now read, “He was born a vulgarian.”

Without even getting into the implications of the policy threats promised, the zero sum understanding of global commerce, let alone the choice of words (“A trade war has been in place for quite a little while, the difference is the U.S. troops are now coming to the rampart”) I was struck by how various asset prices responded. Or didn’t.

But if they carry through on these statements, it’s worth re-evaluating which current winning positions should stay good and which are open to question.

The dollar under pressure story versus the majors seems like a difficult (read potentially volatile) but sensible trade to try to stick with. There will be pushback, and yes, it could make their central banks more dovish at the margins on inflation concerns. But consider what long-term effects such go-it-alone unpredictability will have on reserve allocations.
There’s a belief that the size and depth of the Treasury market makes it too alluring to be shunned. Secretary Mnuchin seems to think so. It’s a big risk to take. Any sort of buyers’ strike would be felt quickly and definitively. The Treasury Secretary said, “Treasuries not an issue in talks with China.” Merely proving the point that some things shouldn’t, or don’t need to be said.
Which makes me very interested in watching what the yield curve decides to do. Flatteners have been a marvelous trade. I’m not sure the lack of term premia will be as justifiable going forward. And it’s unlikely that the short end can keep up in that scenario despite any inflation effects from a secular dollar downtrend. We could get to that elusive 3% level in tens for all the wrong reasons.
Asia seems unfazed so far. Investing in emerging markets from the Pacific Rim is a widely popular expression of risk. But actions so far this week, have put the growth outperformance story for that region squarely in the trade war cross-hairs. Keep a close eye on where the promised “further measures” are aimed. They sell a lot of things into the U.S. market. And also consider what this all means for Chinese hegemony in that part of the world and the standing of the U.S.
Gold feels like it will only get more popular as an essential in a well-balanced portfolio. But I’m torn about other commodities. It’s a mixed bag, with the Bloomberg commodity index looking impulsive to the upside but hard commodities like iron ore and copper looking decidedly wobbly. This may be a case where the components speak louder than the sum. Put that together with a potential Chinese import slowdown and you have to wonder just how high the Australian dollar will want to run.
I hate to say it, but the equity story hasn’t changed and they may continue to look like the best game in town. But I do know that if the other trades that have worked so well this year begin to falter, global macro funds will need to adjust their positions and risk. Your cabbie will be explaining risk-parity to you.
It’s hard to a priori separate bluster from the real thing, but it’s well worth the time to at least revalidate in your mind those trades that have been so consistently compelling to models and risk-takers alike. Investors, and analysts alike, have been perhaps too unconcerned about the real threats to global trade and what it could mean.

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Update: US Equities finally stumbled as the rhetoric stoked…

After earlier, dismissing concerns of a “gigantic” trade war, saying Washington simply wanted a level playing field and was still open to trade talks with the European Union.

U.S. trade authorities are investigating whether there is a case for taking action over China’s infringements of intellectual property, Commerce Secretary Wilbur Ross said on Wednesday, calling Beijing’s 2025 technology strategy a “direct threat”.

Action on intellectual property would open a new front in global trade battles involving the United States. Washington on Tuesday slapped steep import tariffs on washing machines and solar panels in moves billed as a way to protect American jobs by President Donald Trump. They sparked condemnations from China and South Korea.

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