Category: zerohedge

Authored by Lance Roberts via RealInvestmentAdvice.com,

All of a sudden… volatility.

Well, that is what it seems like anyway after several years of a steady grind higher in the markets. However, despite the pickup in volatility, the breaks of previous bullish trends, and a reversal in Central Bank policy, it is still widely believed that bear markets have become a relic of the past.

Now, I am not talking about a 20% correction type bear market. I am talking about a devastating, blood-letting, retirement crushing, “I am never investing again,” type decline of 40%, 50%, or more.

I know. I know.

It’s the “doom-and-gloom” speech to try to scare investors into hiding in cash.

But that is NOT the point of this missive.

While we have been carrying a much higher weighting in cash over the last several months, we also still have a healthy dose of equity related investments.

Why? Because the longer-term trends still remain bullish as shown below. (Note: The market did break the bullish trend with a near 20% correction in 2016, but was bailed out by massive interventions from the ECB, BOE, and BOJ.)

Now, you will note that I keep saying a 20% “correction.” Of course, Wall Street classifies a bear market as a decline of 20% or more. However, as I noted recently:

“During a bull market, prices trade above the long-term moving average. However, when the trend changes to a bear market prices trade below that moving average. This is shown in the chart below which compares the market to the 75-week moving average. During ‘bullish trends’ the market tends to trade above the long-term moving average and below it during ‘bearish trends.’”

In other words, at least for me, it is the overall TREND of the market which determines a bull or bear market. Currently, that trend is still rising. But such will not always be the case, and we may be in the process of the “trend change” now.

The Collision Of Risks

Of course, after a decade of Central Bank interventions, it has become a commonly held belief the Fed will quickly jump in to forestall a market decline at every turn. While such may have indeed been the case previously, the problem for the Fed is their ability to “bail out” markets in the event of a “credit related” crisis. Take a look at the chart below.

In 2008, when the Fed launched into their “accommodative policy” emergency strategy to bail out the financial markets, the Fed’s balance sheet was only about $915 Billion. The Fed Funds rate was at 4.2%.

If the market fell into a recession tomorrow, the Fed would be starting with roughly a $4 Trillion dollar balance sheet with interest rates 2% lower than they were in 2009. In other words, the ability of the Fed to “bail out” the markets today, is much more limited than it was in 2008.

But it isn’t just the issue of the Fed’s toolbox. It is the combination of other issues which have all coalesced which present the biggest risk to a substantial decline in the markets.

Valuations

One of the most important issues overhanging the market is simply that of valuations. As Goldman Sachs pointed out recently, the market is pushing the 89% percentile or higher in 6 out of 7 valuation metrics.

So, just how big of a correction would be required to revert valuations back to long-term means? Michael Lebowitz recently did some analysis for RIA PRO:

“Since 1877 there are 1654 monthly measurements of Cyclically Adjusted Price -to- Earnings (CAPE 10). Of these 82, only about 5%, have been the same or greater than current CAPE levels (30.5). Other than a few instances over the last two years and two others which occurred in 1929, the rest occurred during the late 1990’s tech boom. The graph below charts the percentage of time the market has traded at various ranges of CAPE levels.”

Given that valuations are at 30.5x earnings, and that profit growth tracks closely with economic growth, a reversion in valuations would entail a decline in asset prices from current levels to somewhere between 1350 and 1650 on the S&P (See table below). From the recent market highs, such would entail a 54% to 44% decline respectively. To learn how to use the table below to create your own S&P 500 forecast give RIA Pro a 14-day free trial run.

This also corresponds with the currently elevated “Price to Revenue” levels which are currently higher than at any point in previous market history. Given that the longer-term norm for the S&P 500 price/sales ratio is roughly 1.0, a retreat back towards those levels, as was seen in 2000 and 2008, each required a price decline of 50% or more. 

Demographics

One of the bigger concerns for the market going forward is the simple function of demographics. Famed demographer, Harry Dent, discussed the impact of the trends within the economy as the mass wave of “baby boomers” become net-distributors from the financial markets (most importantly draining underfunded pension funds) in the future. To wit:

“At heart, I’m a cycle guy. Demographics just happens to be the most important cycle in this modern era since the middle class only formed recently — its only been since World War 2 that the everyday person mattered so much; because now they have $50,000-$60,000 in income and can buy homes over 30 years and borrow a lot of money. This was not the case before the Great Depression and World War 2.

And based on demographics, we predicted that the U.S. Baby Boom wouldn’t peak until 2007, and then our economy will weaken — as both did in 2008. We’ve lived off of QE ever since.”

The issue with the demographics is that they have only gotten markedly worse. Furthermore, the strain on pension funds has only mounted as required returns to sustain their viability have failed to appear. As I discussed previously:

“An April 2016 Moody’s analysis pegged the total 75-year unfunded liability for all state and local pension plans at $3.5 trillion. That’s the amount not covered by current fund assets, future expected contributions, and investment returns at assumed rates ranging from 3.7% to 4.1%. Another calculation from the American Enterprise Institute comes up with $5.2 trillion, presuming that long-term bond yields average 2.6%.

With employee contribution requirements extremely low, averaging about 15% of payroll, the need to stretch for higher rates of return have put pensions in a precarious position and increases the underfunded status of pensions.”

“With pension funds already wrestling with largely underfunded liabilities, the shifting demographics are further complicating funding problems.”

George Will summed it up best:

“The problems of state and local pensions are cumulatively huge. The problems of Social Security and Medicare are each huge, but in 2016 neither candidate addressed them, and today’s White House chief of staff vows that the administration will not ‘meddle’ with either program. Demography, however, is destiny for entitlements, so arithmetic will do the meddling.”

Leverage

Of course, what fuels corrections is not just a change in investor sentiment, but an ignition of the leverage that exists through the extension of debt. Currently, leverage is near the highest levels on record which is the equivalent of a tank of gasoline waiting on a match. As I discussed last week:

“What is immediately recognizable is that reversions of negative ‘free cash’ balances have led to serious implications for the stock market. With negative free cash balances still at historically high levels, a full mean reverting event would coincide with a potentially disastrous decline in asset prices as investors are forced to liquidate holdings to meet ‘margin calls.’”

Of course, the key ingredient is ownership. High valuations, bullish sentiment, and leverage are completely meaningless if there is no ownership of the underlying equities. The two charts below show both household and corporate levels of equity ownership relative to previous points in history.

As can be clearly seen, leverage fuels both halves of the full market cycle. On the way up, increases in leverage provide the capital necessary for accelerated share buybacks and increased speculation in the markets. Leverage, like gasoline, is inert until a catalyst is applied. It is the unwinding of that leverage that accelerates the liquidation of assets in the markets causes prices to plunge faster and further than most can possibly imagine.

It has only happened twice already since the turn of the century, and both reversions of that leverage resulted in 50% declines. Yet, less than a decade from the last crash, with margin debt at near historic records, investors have once again fallen prey to excessive exuberance and the belief that somehow this time will most assuredly be different. 

Momentum

Another key ingredient to rising asset prices is momentum. As prices rise, demand for rising assets also rises which creates a further demand on a limited supply of assets increasing prices of those assets at a faster pace. Rising momentum is supportive of higher asset prices in the short-term. However, the opposite is also true.

The chart below shows the real price of the S&P 500 index versus its long-term Bollinger-bands, valuations, relative-strength, and its deviation above the 3-year moving average. The red vertical lines show where the peaks in these measures were historically located.

The Fed’s Got It Under Control

This “Utopian” belief of infinite stability within the financial markets is due to ongoing Central Bank interventions and is a most dangerous concept.  This is particularly the case given the structural and economic shifts in the economy due to the rise in debt which has derailed the efficient allocation of capital. As shown below, the economy is currently mired at the lowest average annual growth rate since 1790. (Data courtesy of Measuring Worth)

As a portfolio strategist, what concerns me most is NOT what could cause the markets rise, as we are still somewhat invested, but what could lead to a sharp decline that would negatively impact investment capital.

[Important Note: It is worth remembering that winning the long-term investment game has more to do with avoidance of losses than the capturing of gains. It is a function of math.]

What causes the next correction is always unknown until after the fact. However, there are ample warnings that suggest the current cycle may be closer to its inevitable conclusion than many currently believe. There are many factors that can, and will, contribute to the eventual correction which will “feed” on the unwinding of excessive exuberance, valuations, leverage, and deviations from long-term averages.

The biggest risk to investors currently is the magnitude of the next retracement. As shown below the range of potential reversions runs from 36% to more than 54%.

That can’t happen you say?

It’s happened twice before in the last 20 years and with less debt, less leverage, and better funded pension plans.

More importantly, notice all three previous corrections, including the 2015-2016 correction which was stopped short by Central Banks, all started from deviations above the long-term exponential trend line. The current deviation above that long-term trend is the largest in history which suggests that a mean reversion will be large as well.

It is unlikely that a 50-61.8% correction would happen outside of the onset of a recession. But considering we are already pushing the longest economic growth cycle in modern American history, such a risk which should not be ignored.

There is one important truth that is indisputable, irrefutable, and absolutely undeniable: “mean reversions” are the only constant in the financial markets over time. The problem is that the next “mean reverting” event will remove most, if not all, of the gains investors have made over the last five years.

Still don’t think it can happen?

“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as they have predicted. I expect to see the stock market a good deal higher within a few months.” – Dr. Irving Fisher, Economist at Yale University 1929

via RSS https://ift.tt/2B5pi8E Tyler Durden

If you didn’t understand that Elon Musk doesn’t quite “get” what being a public company is about, and how not to commit securities fraud from his funding secured tweet, the litany of lawsuits he has catalyzed or his downright insane behavior over the last year, you may be one of the few who were not shocked by his appearance on 60 Minutes Sunday night when he took to a national stage to laugh in the face of $35,000 Model 3 reservation holders and (again) belittle and insult the Securities and Exchange Commission, with whom he recently entered into a settlement with.

Musk said about the SEC on Sunday: “I want to be clear. I do not respect the SEC. I do not respect them.”

When asked about the terms of the settlement he had entered into, which required him to pay a fine and have his public communication monitored by the company, he responded by simply telling Lesley Stahl that he wasn’t holding up his end of the bargain. In fact, Musk responded by acting like the entire settlement never seemed to happen.

Lesley Stahl: Have you had any of your tweets censored since the settlement?

Elon Musk: No.

Lesley Stahl: None? Does someone have to read them before they go out?

Elon Musk: No.

Lesley Stahl seemed positively charmed by Musk’s response:

Further displaying Musk’s confusion about the responsibilities of running a public company, he seemed to muddy the waters between what is constitutionally protected first amendment speech and what constitutes material statements about a public company. Stahl followed up:

Lesley Stahl: So your tweets are not supervised?

Elon Musk: The only tweets that would have to be say reviewed would be if a tweet had a probability of causing a movement in the stock.

Lesley Stahl: And that’s it?

Elon Musk: Yeah, I mean otherwise it’s, “Hello, First Amendment.” Like Freedom of Speech is fundamental.

Lesley Stahl: But how do they know if it’s going to move the market if they’re not reading all of them before you send them?

Elon Musk: Well, I guess we might make some mistakes.  Who knows?

Lesley Stahl: Are you serious?

Elon Musk: Nobody’s perfect.

Twitter was amused by his responses:

When I’m told I can’t give my name as I.P. Freely for my Starbucks order pic.twitter.com/WaUKKFgMN8

— Dave Itzkoff (@ditzkoff) December 10, 2018

In addition, during the interview, Musk offered a broad range of additional whoppers on topics like the production tent and losing “$50, sometimes $100 million a week”. When asked about the $35,000 Model 3, Musk said it would be ready “in probably five or six months”. When Stahl followed up about how firm that deadline was, Musk replied as if the whole thing was one big joke:

Elon Musk: It’s getting there. We’re not that far from being able to produce the $35,000 car and that’ll be ready in probably five or six months.

Lesley Stahl: All right. Here you go. You’ve already set a new deadline. Right? Five or six months.

Elon Musk: That’s just– that’s just my guess.

Lesley Stahl: Okay. It’s not–

Elon Musk: It’s not, like, some promise– or so help me God and strike me dead.

Lesley Stahl: You are notorious for setting, you know, these deadlines for yourself that no one thinks you can meet, and you often don’t meet. And I’m just wondering why you do that?.

Elon Musk: Well, I mean punctuality’s not my strong suit. I think, uh well, why would people think that if I’ve been late on all the other models, that’d I’d be suddenly on time with this one.

We’re sure those who have had reservations in for the Model 3 for over two years will love that response.

Also, when asked about making Robyn Denholm the new chairman of the Board as a condition of his SEC settlement, Musk basically admitted that it “wasn’t realistic” that she watches over him and said he “handpicked” her:

Lesley Stahl: Did you handpick her?

Elon Musk: Yes.

Lesley Stahl: The impression was that she was put in to kind of watch over you.

Elon Musk: Yeah, I mean that’s not realistic. I mean I’m the largest–

Lesley Stahl: Like a babysitter–

Elon Musk: Yeah. It– it’s not realistic in the sense that I am the largest shareholder in the company. And I can just call for a shareholder vote and get anything done that I want.

In response to a question about whether or not he smokes pot, after clearly smoking pot on the Joe Rogan podcast, Musk told Stahl:

Elon Musk: I do not smoke pot, as anyone who watched that podcast could tell, I have no idea how to smoke pot. Or anything. I don’t know to smoke anything, honestly.

Finally, Musk demonstrated Tesla’s Autopilot feature to Stahl – of course, with his hands off of the wheel. Autopilot has been at the center of several questionable and fatal accidents involving Tesla over the last few years. The company has put an increasing focus on the drivers in these situations, reminding Autopilot users that their hands should be on the wheel and that they should stay alert at all times.  

You can watch the entire interview and read the full transcript here. 

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

Blain’s Morning Porridge, submitted by Bill Blain

“Let no tongue on earth be silent, every voice in concert ring, evermore and evermore! ”

Over the weekend I was told recent Porridge’s have been far too Doom and Gloom flavoured. It’s been suggested I should relax about the perilous state of the global economies and stop worrying so much about fractured politics… Even take my own advice about things never being as bad as they look – breathe deep and move on. Although the stories dominating the headlines look profoundly negative – “their collective effect will be little more than light ripples across the teacup of global activity.” (Not sure I believe that… this feels serious…)  

However, the Morning Porridge is not about not worrying or trying to scare readers! It’s about spotting the events likely to discombobulate markets, and how these might be approached as opportunity. Events trigger volatility – and volatile markets present opportunities. On the other hand, I’ve never experienced a December like this – normally markets relax, business activity tumbles, and everyone parties. This time it feels very different. Markets aren’t supposed to stay serious through December! It bodes ill for January.

Sadly, the stories likely to dominate the markets this week do not make me think “its beginning to feel a lot like Christmas”.
There is a definite lack of resilience to current markets. It does not feel like we are on solid foundations – perhaps it’s because its only 2 more Brexit secretaries till Christmas, or maybe it’s because we’re all hoping next year will get better? (Hope is never a strategy!) The facts are we are not in normal markets. After the correction we’ve seen in stocks through October till now, the patterns don’t fit any conventional chart formations. Buy-the-dip rallies have lacked momentum.

What’s changed? It feels there is nothing for investors to hold as “causal”- the smoking gun that triggered the current instability. Instead there are multiple points of fracture: at the strategic level, strategists can point to corporate bond credits and spreads, Tech war, Trade War, overvaluations in the face of the great QE unravel, the travails of Trump (who lost Kelly over the weekend.. how careless), personal and sovereign debt levels and a host of other indicators.

The political news is abysmal. From Brexit to Trump, from Italy to France.. you really cant make it up. Front line news – stories about individual companies in trouble, management failure, personal finance horror-stories, etc, all contribute to the growing sense of negativity.

Meanwhile, market feels less efficient. Institutional buyers are fearful about the unknown risks and consequences of Algo trading, or the amount invested in tracker funds which doesn’t apparently care which direction it heads, the fact their salesman at the favourite bank just got laid off, or just how illiquid their liquid portfolios are proving to be. There is nothing more dangerous to the market’s mood than an imaginative investor looking for reasons to be not cheerful.  

This week, market sentiment will be dominated by the Huawei case in Canada. Trade war or Tech War…? The fact US jobs number was weaker than expected on Friday backs up the recent Fed mumble-swerve about not hiking rates too aggressively – although, at this point, we still expect a 25 hike on Wednesday. A number of commentators note the S&P just did a “death cross” – where the 50 day moving average falls below the trend 200 day MA. Apparently it’s not as significant as its name suggests, but it’s probably just enough to scare markets that little bit more and make this week another bumpy sleigh ride!

Brexit will dominate the UK markets. The problem with toddlers is they don’t know what they want. You’d have to wonder why anyone would want May’s job? Instability will dominate till a Brexit agreement is made. Sadly, peace looks a long way down the road. The UK parliament – for oh so many unnecessary reasons – will not agree this one, and will look to Europe to propose something better. Europe doesn’t want a trade shock from closed UK borders, but isn’t likely to give anything up. And the Yooropeens just played the European Court of Justice saying the UK can revoke Article 50 and become good Europeans again…  

(Digression: Brexit is turning into a classic divorce horror story. Many years ago, I remember sitting down with the first Mrs Blain and together having a very rational and calm discussion about a very simple deal to split our assets to give her money and house. She agreed it was fair and went to instruct her lawyers. The lawyers disagreed. Yet, about 2 years later it was essentially the deal she got – but only after having to sell the house to pay away vast sum to lawyers that got her to where she started from.)

France – how quickly will the yellow vest protests die away? What can a chastened Macron say or do to defuse them? What are the risks of a Populist French backlash, or a right-wing sweep at the  European elections in May. I’m told a Le Pen is now looking increasingly likely – the question is… which one?

What else to worry about? I guess we will know soon enough…

via RSS https://ift.tt/2RO2UaV Tyler Durden

India’s central bank governor Urjit Patel unexpectedly announced his resignation on Monday following a tense stand-off with Prime Minister Narendra Modi’s government over the bank’s independence.

In a statement on the Reserve Bank of India’s website, Patel said that “on account of personal reasons, I have decided to step down from my current position effective immediately.” He stepped down from a position he held since September 2016, when he was selected to replace Raghuram Rajan.

The Oxford-trained Patel, who had tried to stay away from the spotlight, was initially seen playing along with Prime Minister Narendra Modi after he backed a ban on high-value currency notes in November 2016. Since then, he has waged a war to get India’s struggling banking system in order and punish errant borrowers who have stopped servicing their debt even though they have the ability to pay.

His exit comes at a time when India, which is closing in on Italy to become home to banks with the worst bad-loan ratio among major economies, is delivering a bitter pill to resuscitate its banking sector.

Earlier this year, the RBI introduced new rules forcing lenders to declare a delinquent borrower even if payments were overdue by a day. That was aimed at easing mounting bad loans, particularly from the power sector. Patel also moved in to ring-fence weak state-run banks. Currently, a total of 12 banks — 11 in the public sector and one in the private sector– are under the so-called prompt corrective action framework that places curbs on lending, expanding branch network and dividend distribution.

The government wanted the RBI to relax the rules so banks can lend more easily and keep the economic engines firing ahead of a general election next year. But the RBI wants these banks to be slowly nursed back to health. According to the central bank, it needs to be independent so that loan losses of banks aren’t s

India’s government wanted the RBI to relax the rules so banks can lend more easily and keep the economic engines firing ahead of a general election next year. But the RBI wants these banks to be slowly nursed back to health. According to the central bank, it needs to be independent so that loan losses of banks aren’t swept under the rug by compromising supervisory and regulatory standards.

That independence came under threat last month, when the government sought greater oversight on the central bank’s functioning and a review of its economic capital framework.  Patel has also disagreed with the government’s demand for more share of profits from the RBI’s operations. A transfer of more dividend helps the government meet its budget gap aim.

* * *

Patel is the second governor of the Reserve Bank of India to depart amid frictions with the government during Modi’s administration; his widely-respected predecessor, Rajan, left after the government refused to extend his tenure, unhappy with his outspokenness on issues that the administration considered beyond his purview.

Patel’s resignation was the culmination of long-mounting tensions with Modi’s government which erupted into the public view in October, when Patel’s deputy gave an impassioned speech focusing on the need for central bank independence.

As the Financial Times reports, Patel’s decision comes ahead of what was likely to be a tense meeting on Friday, when the RBI’s governing board will be pushing the RBI to make many concessions to governments.

Patel’s departure could clear the way for Modi’s government to appoint a more pliant figure, more amenable to its desire to ramp up the economy ahead of expectations next year, while crushing even the most naive speculation that the central bank of India (or anywhere else for that matter) is independent.

But it is likely to unnerve markets and investors, who have counted on a conservative central bank to maintain macroeconomic stability. Sure enough, futures of the SGX Nifty 50 tumbled as much as 1.5% on the news.

As Bloomberg notes, the Indian central bank is not alone in facing political heat with the challenges to the independence of monetary policy makers a theme of 2018. The Federal Reserve has weathered criticism from U.S. President Donald Trump, while counterparts in Turkey, New Zealand and the U.K. have also been pressured by policy makers.

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

After another painful week for bulls, it’s again a sea of red this morning with the selling extending on Monday as U.S. equity futures slide but off their worst sessions while European stocks follow Asian shares lower as traders focused on the latest dismal trade and inflation data from China over the weekend and the sharp drop in Japan’s GDP, renewing concerns for slowing global growth while the escalation of tensions between Washington and Beijing continues. The dollar was mixed while the euro advanced, and 10Y TSY yields rebounded from session lows.

The biggest surprise may be that Monday is not more in the red, with the following non-exhaustive list of potential risk-off drivers hanging over Monday’s open (as succinctly summarized by Bloomberg’s Garfield Reynolds):

• China summons U.S. Ambassador over the Huawei case
• Trump Chief of Staff Kelly to leave, amid a welter of fresh Mueller developments
• China reports weaker trade and inflation data
• May pushes ahead on Brexit vote despite Cabinet, DUP opposition
• Soggy U.S. payrolls, though not soggy enough to stop a December Fed hike
• France protests intensify, raising concern of economic damage

“Another day, another reason to sell risk. Equity markets remain in a world of pain with everyone in search of a very elusive silver lining,” said Stephen Innes at brokerage OANDA

MSCI’s all-country index has spent four weeks in the red, despite intermittent rallies fueled by hopes of trade war detente, and was set to start the 5th week in the red. The pessimism has been exacerbated by data showing the world’s largest economies — the United States, China, Japan and Germany — are all headed for slower growth. That pushed the index another 0.5% lower, while Europe’s Stoxx 600 fell almost one percent in early trading led by a retreat in chemical, media and auto companies, and U.S. equity futures were down 0.4%, if rebounding from losses as much as 1%, suggesting more pressure on Wall Street later in the session.

Last week’s arrest of Huawei’s CFO for extradition to the United States was seen putting up another hurdle to the resolution of a trade war between the world’s two biggest economies. U.S. trade rep Robert Lighthizer said Sunday there was a “hard deadline” to the 90-day trade ceasefire and without a successful end to talks by March 1, Washington would impose new tariffs on Chinese goods.

“The trade theme will preoccupy the markets through the 90-day truce period between the United States and China, waiting for any signs of concession between the parties,” said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.

Economic data has disappointed, too, underscoring the impact of the trade wars on the world economy. Following weak trade and inflation data on the weekend, China posted far weaker-than-expected November exports and imports…

… reinforcing expectations Beijing will roll out more stimulus to prevent the economy cooling too fast, which in turn depressed  the yuan to a one-week low after the weak data.

“(The data) would suggest China woes go well beyond U.S. tariffs, given that China trade surplus to the U.S. was at a record level. One can only imagine the impact on China terms of trade if the U.S. follows through with a 25 percent tariff,” Innes of OANDA said.

Meanwhile, China’s neighbor Japan posted the worst contraction in over four years in the third quarter…

… as uncertainty over global demand and trade saw companies slashing capital spending the most since the financial crisis.

As a result, MSCI’s index of Asian equities ex Japan slid 1.5% to a near three-week low, Shanghai shares retreated 0.8% and Japan’s Nikkei shed 2.1 percent. EM stocks dropped 1.3 percent.

Asia’s latest weak data came after below-forecast industrial output numbers in Germany and U.S. jobs data showing employers hired fewer workers than expected in November. The U.S. jobs data weakened the dollar by convincing many that U.S. growth has peaked and the Federal Reserve will pause its rate tightening sooner than previously thought, with even Goldman now capitulating and pulling its forecast for a March rate hike. Last week, the dollar posted its worst performance since August against a basket of currencies.

The dollar was a touch firmer on Monday but stayed near two-week lows. The euro rose 0.3 percent at $1.1418 on upbeat German trade data, while the dollar drifted. Treasuries and European sovereign bonds were mixed. The yen was unchanged after earlier climbing toward a six-week high as concern about worsening U.S.-China relations and a slide in Asian stocks boosted demand for havens. Meanwhile, the pound tumbled to 2018 lows as Prime Minister Theresa May was said to delay the “meaningful” Brexit vote to avoid a “huge defeat .”

While that raises fears of a chaotic exit in March, those hoping for a no-Brexit outcome were encouraged by a ruling from the EU’s top court that Britain can revoke its decision to leave the bloc without the consent of other EU members.

France, meanwhile, suffered a fourth weekend of anti-government riots, which the finance minister said could curb economic growth by 0.1 percentage point. French hotel, transport and retail stocks fell amid concerns for French tourism, while the yield premium investors demand to hold French bonds over German peers rose to the highest since May. President Emmanuel Macron, already forced to row back on fuel tax increases, will make a televised address at 1900 GMT.

Elsewhere, India’s rupee fell with stocks and bonds as exit polls showed Prime Minister Narendra Modi’s party is set for tight electoral contests in key states before general elections next year.

“Concern about a bit of political and fiscal capitulation is rarely good for a bond market,” said Chris Bailey, European strategist at Raymond James.

Treasuries steadied and equities fell across the board. Italy’s debt rallied as the ruling League and Five Star Movement are considering making concessions to avoid possible sanctions as their budget wrangling continues. German bond futures snap lower, curve bear flattens along with USTs after US 10Y yields find support at ~2.82%. Gilts curve flattens, long-dated yields lower by ~4bps.

Oil erased some of Friday’s rally triggered by OPEC and its allies agreeing on production cuts. Brent (-1.0%) and WTI (-1.3%) retreated somewhat from gains seen after Friday’s agreement by OPEC+ to cut output by 1.2mln BPD from October levels for 6 months, with the deal to be reviewed in April. Russian Energy Minister Novak stated that Russia is to cut production by 228,000 BPD as part of this agreement. Separately, sources have commented that congress is increasingly likely to vote on the NOPEC bill, which will allow the DoJ to sue OPEC on anti-trust violations.

Gold has remained steady following Friday’s NFP miss which led to some speculation that the Fed may halt interest rates hikes sooner than was previously expected. Elsewhere, a Chinese government consultancy expects 2018 crude steel output to hit an annual record of 923mln tonnes.

Scheduled data include job openings, while Casey’s and Stitch Fix are set to report earnings

Market Snapshot

• S&P 500 futures down 0.4% to 2,626.00
• STOXX Europe 600 down 0.8% to 342.58
• MXAP down 1.7% to 148.66
• MXAPJ down 1.5% to 477.60
• Nikkei down 2.1% to 21,219.50
• Topix down 1.9% to 1,589.81
• Hang Seng Index down 1.2% to 25,752.38
• Shanghai Composite down 0.8% to 2,584.58
• Sensex down 2% to 34,979.01
• Australia S&P/ASX 200 down 2.3% to 5,552.50
• Kospi down 1.1% to 2,053.79
• German 10Y yield unchanged at 0.249%
• Euro up 0.3% to $1.1416
• Italian 10Y yield fell 6.9 bps to 2.766%
• Spanish 10Y yield fell 0.7 bps to 1.444%
• Brent futures down 1.3% to $60.86/bbl
• Gold spot down 0.2% to $1,246.70
• U.S. Dollar Index up 0.1% to 96.60

Top Overnight News

• President Donald Trump’s trade team sought to insulate talks with China from a growing dispute over the U.S. pursuit of a Huawei executive on Sunday, but struggled to address financial markets’ fears that a fragile truce with Beijing was at risk
• U.K. Prime Minister May must decide Monday whether to put her Brexit deal to a vote in Parliament this week and risk a defeat that could plunge the U.K. into more political chaos.
• The U.K. can unilaterally reverse Brexit, the European Union’s top court said in a ruling that will fuel the campaign to thwart the divorce on the eve of a make-or-break vote in the British Parliament
• China’s Vice Foreign Minister Le Yucheng has summoned the U.S. Ambassador to China in a protest over the arrest of Huawei’s Chief Financial Officer Meng Wanzhou, and said it will take “further action” if needed
• President Trump’s trade team sought to insulate talks with China from a growing dispute over the U.S. pursuit of a Huawei executive on Sunday, but struggled to address financial markets’ fears that a fragile truce with Beijing was at risk
• Australian central bank Assistant Governor Christopher Kent reiterated the next interest-rate move would likely be a hike, “but not anytime soon”
• Escalating trade tensions between the U.S. and China risk derailing the global economy by undermining business confidence and increasing the cost of living, IMF’s Managing Director Christine Lagarde said
• Japan’s economy shrank more than initially projected, driven by the biggest drop in business spending in nine years amid a series of natural disasters
• Italy’s government will discuss the results of a highly-awaited cost analysis of its 2019 budget proposals this week, just as the country’s populist leadership’s standoff with the European Union comes to a head with the threat of sanctions
• French President Emmanuel Macron is due to address the nation on Monday, with everyone from Yellow Vest protesters to his dwindling band of supporters awaiting a solution to end the downward spiral of Europe’s second-largest economy

Asian equity markets began the week lower following last Friday’s sell-off on Wall St and Non-Farm Payrolls miss, with
sentiment also dampened by disappointing Japanese GDP and Chinese trade data, as well as uncertainty regarding US-China
trade relations. As such, ASX 200 (-2.3%) was led lower by tech and financials to print lows last seen in around 2 years, while
Nikkei 225 (-2.1%) was pressured by a firmer JPY and larger than expected downward revision to Q3 GDP which had already
been in contraction territory. Hang Seng (-1.2%) and Shanghai Comp. (-0.8%) were also negative after Chinese Exports and
Imports data fell short of estimates and amid concerns regarding US-China trade tensions. This was after USTR Lighthizer
declared the 90-days was a ‘hard deadline’ for China, while there were also reports China’s Vice Foreign Minister summoned the
US and Canadian Ambassadors to China regarding the arrest of Huawei’s CFO and warned of consequences if she is not
immediately released. Finally, 10yr JGBs were underpinned by safe-haven demand and with the BoJ also present in the market for
a respectable JPY 1.2tln of JGBs with 1yr-10yr maturities.

Top Asian News

• Investors in ‘Get-Me-Out-of-Here Mood’ as Asian Stocks Spiral
• SoftBank Sticks to IPO Price Despite Market Drop, Network Outage
• Ali Pictures Surges on HK$1.25b Share Sale to Alibaba
• Alibaba Is Said to Discuss Joining Megvii Funding of Over $500M
• China’s Bond Rally Is Turning Into a Bubble, Guotai Junan Says

Major European bourses are red across the board (Euro Stoxx 50 -0.3%) with the FTSE 100 (unch.) outperforming its peers amid currency effects (with the ongoing Brexit turmoil) and a boost by BAE Systems (+0.8%) following the Co. being shortlisted to build the next Royal Navy frigates. Over in Germany, DAX (-0.5%) is hampered by shares in heavyweight BASF (-4.9%) after the Co. significantly lowered their 2018 EBIT forecasts. Major sectors are largely in the red, with underperformance seen in materials in the wake of softer-than-expected Chinese CPI alongside further strain on US-China trade relations after the Huawei CFO is to face
prosecution in the US for fraud charges as China demands her release. Other notable movers include technology names such as Dialog Semiconductor (-2.5%) who are in the red in sympathy with poor performance in tech names overnight in Asia, while Standard Chartered (-1.5%) declined amid reports that the Co. was amongst the banks who have been misled by Huawei.

Top European News

• Bruised Euro-Zone Economy Stumbles On After Its 2018 Beating
• Will Merkel Leave Germany Fit for the Future? Probably Not
• Yellow Vests Protests Put a Dent in French Economic Growth
• Italy Banks Face $273 Billion Headache Replacing Cheap ECB Funds
• Italy, EU Stage Sideshow Fight As Recession Risk Looms

In FX, the DXY is still on the backfoot, albeit off worst levels, in a continuation of the move following Friday’s NFP miss with the index and broad dollar closer to the top of a 96.684-358 range and awaiting more impetus data in the form of JOLTS and employment trends.

• AUD, NZD – Antipodeans deriving support from their softer US counterpart having initially wobbled on weaker Chinese trade data overnight. Kiwi hovers just below 0.6900 as the AUD/NZD remains capped ahead of 1.0500 and AUD/USD struggles to hold above 0.7200.
• GBP,EUR – More volatile trade for the Pound amidst ongoing Brexit uncertainty with all eyes on the 11.30GMT Cabinet conference call where Minister are now assuming PM May will delay the meaningful vote due to wide anticipation that the deal will be rejected in Parliament. GBP/USD currently languishing below 1.2700 ahead of the recently-made YTD low of 1.2657 having seen some reprieve following the ECJ ruling that the UK can unilaterally reverse Brexit without consulting the EU27 members. However, the upside was short-lived ahead of UK data which was weaker overall, with industrial productions considerably weaker than forecasts. Meanwhile, EUR benefits from the softer buck and pound with EUR/GBP near the top of a 0.8988-57 range.
• NOK, SEK – Stronger than expected Norwegian inflation data just ahead of Thursday’s Norges Bank interest rate decision, weighed on EUR/NOK with the pair making a substantial move sub-9.7000 post-data with a low print of around 9.6500, before paring back a fraction of the move to stabilise around 9.6700. Conversely, further political angst in Sweden after the Centre party leader Loof noted that talks with Social Democrats have failed, adding they will not support their leader Leader Lofven as PM. This subsequently (alongside the NOK/SEK spillover) pushed EUR/SEK to session highs north of 10.3350 vs. a low print of 10.2973.
• JPY – Moving in tandem with swings in risk sentiment more so than the wider-than-expected contraction in Japanese Q3 GDP, with USD/JPY currently nearer the highs of a 112.75-25 range with the downside contained by big options (1.13bln at 112.40-50) and a fib at 112.46.
• EMs – USD/CNY rose to just shy of 6.9150 in the wake of lower-than-expected inflation data alongside continuous US pressure after US Trade Representative Lightizer solidified the 90-day negotiating period as “a hard deadline” with new tariffs imposed by March 1st should the parties not reach an agreement. Meanwhile, TRY has largely recovered from the miss in Turkish GDP with USD/TRY clipping 5.3000 post-data before edging lower to around 5.2800. Elsewhere, ZAR is on the backfoot on a more technical note as traders cite the USD/ZAR breach above 14.2000 as the catalyst

In commodities, Brent (-1.0%) and WTI (-1.3%) have retreated somewhat from gains seen after Friday’s agreement by OPEC+ to cut output by 1.2mln BPD from October levels for 6 months, with the deal to be reviewed in April. Russian Energy Minister Novak stated that Russia is to cut production by 228,000 BPD as part of this agreement. Separately, sources have commented that congress is increasingly likely to vote on the NOPEC bill, which will allow the DoJ to sue OPEC on anti-trust violations. Elsewhere, Libya’s NOC has declared a force majeure following a production suspension at the Sharara oil field due to safety concerns because of protestors at the oil field; which will result in a 315k BPD production cut, while Zawiya refinery is also at risk due to its dependence on the Sharara field. Gold (Unch) has remained steady following Friday’s NFP miss which led to some speculation that the Fed may halt interest rates hikes sooner than was previously expected. Elsewhere, a Chinese government consultancy expects 2018 crude steel output to hit an annual record of 923mln tonnes Iraq oil Minister Ghadhban says that the county’s oil exports have improved after November’s drop in exports due to bad weather.

US Event Calendar

• 10am: JOLTS Job Openings, est. 7,100, prior 7,009

via RSS https://ift.tt/2Qk1aJL Tyler Durden

A spokesperson for Theresa May shocked investors on Monday when they insisted that Tuesday’s ‘meaningful vote’ on her ‘final’ Brexit plan would move ahead as planned, countering rumors that May had been planning to tell MPs that the vote would be cancelled during an ’emergency’ conference call. EU ministers have apparently stood by their position that the deal on the table is the only possible deal, and that negotiations would not be reopened.

All of this is happening against a backdrop that one might expect would be favorable for the pound and UK markets: As was widely expected, the ECJ formally ruled on Monday that Parliament could unilaterally cancel Brexit by voting to revoke Article 50, according to the Financial Times.

Mere minutes after reports about the spokesman’s comments hit the tape, Bloomberg reported that May has indeed called for Tuesday’s vote to be rescheduled because it is facing a “huge defeat” that could potentially destabilize her government. By rescheduling the vote, May will have time to return to the EU and try to “handbag” its leaders for a better deal, though they have insisted at every turn that the deal on the table is the “final” deal. On Monday, a spokeswoman for Jean Claude-Juncker insisted that “we won’t renegotiate.

Citing two sources, the BBC added that the word on the street is that the vote will be cancelled – though that has yet to be officially confirmed.

Two cabinet sources tell me vote being pulled – not, repeat not, yet officially confirmed

— Laura Kuenssberg (@bbclaurak) December 10, 2018

A reporter from Sky News said, citing a senior government source, that May will need a reason to justify delaying the vote, such as plans for a “dash to Brussels”.

The pound slid to a fresh YTD low on the news:

Nobody knows what could happen if/when Parliament votes down the deal, according to the Telegraph.

If May were to lose the vote on Tuesday, the Telegraph sees four possible outcomes:

Setting aside that more than 100 Tory MPs have joined with the DUP and SNP in pledging to vote against Theresa May’s draft Brexit deal, May’s purported “plan” to force the deal through in a second vote as turbulent markets scare MPs into voting for the deal or risk economic chaos has never looked more tenuous. May’s deal is opposed by both Brexiteers and remainers, and even those who support the deal admit that it is “imperfect” but preferable to “no deal.”

Should her conservatives lose the vote, Labour is planning to call for a vote of no confidence in the government (for which it would only need the support of a handful of Tory defectors) as leader Jeremy Corbyn seeks to push for a second referendum. Meanwhile, Tory ministers are considering a range of options, including pushing for a “Plan B” deal that would resemble the increasingly popular “Super Norway” scenario, to throwing their support behind a second referendum.

Amid the chaos of the conflicting headlines, one thing is increasingly clear: The possibility that Brexit may be cancelled has almost never looked so high.

via RSS https://ift.tt/2B4IjrD Tyler Durden

After languishing in an austere Tokyo jail cell for three weeks, former Nissan and Mitsubishi executive Carlos Ghosn has finally been formally charged by Japanese prosecutors with knowingly underreporting his income by some $44 million between 2010 and 2015. The charges, which came on the last day that Ghosn could be detained without charge under Japanese law, weren’t the only legal action taken against the former executive: He was also rearrested, along with former Nissan director Greg Kelly, on charges they conspired to underreport Ghosn’s income by $38 million between 2015 and the present day, according to the Financial Times.

Monday’s indictment is the first official indication of the charges facing Ghosn, though a steady stream of media leaks had suggested that Ghosn would be charged for underreporting his income by as much as $100 million between 2010 and this year. Last week, a Tokyo judge granted prosecutors an extension, allowing them to hold Ghosn for an additional 10 days before charges would need to be filed.

Separately, an internal Nissan probe that was reportedly triggered by a whistleblower’s complaint is being carried out in connection with Ghosn’s alleged misuse of company funds to buy luxury homes and also possibly reports that he shifted trading losses onto Nissan’s books during the financial crisis.

Prosecutors also indicted Nissan for filing false financial statements, meaning that the Japanese carmaker could face fines of up to $700 million for underreporting Ghosn’s income, according to Reuters.

Though, unsurprisingly, Nissan tried to deflect the blame on to Ghosn by claiming that the executive had masterminded the scheme. According to Kelly and Ghosn’s attorneys, Ghosn’s income was reported in accordance with advice from outside consultants.

Nissan said it took the situation seriously, and that it planned to cooperate with investigators. However, legal experts quoted by Reuters said Nissan CEO Hiroto Saikawa might find it difficult to extricate himself from the situation now that prosecutors are formally moving against his company.

Analysts and legal experts have said it could be difficult for Nissan and its Chief Executive Hiroto Saikawa to avoid the fallout, whether it turns out that other executives had knowledge of Ghosn’s misconduct, or that the company lacked internal controls.

“Now suddenly the issue of CEO Saikawa becomes bigger. It becomes difficult to overlook Saikawa’s role in all of this. That becomes the main focus now,” said prominent lawyer and former prosecutor Nobuo Gohara.

Though speculation about the straining relationship between Nissan and its ‘alliance’ partner Renault has subsided since Ghosn’s arrest, Reuters said the indictments should revive it, as reports about Nissan’s dissatisfaction with Renault’s influence over the much-larger Japanese carmaker are once again trickling out into the media.

Putting aside rumors that Ghosn’s downfall was orchestrated by Saikawa and other senior Nissan officials who had grown tired of Ghosn’s untrammeled influence over the firm (according to media reports published over the weekend, Ghosn had been seeking to oust Saikawa at the time of his arrest), the backlash against Ghosn and his family has taken on an unmistakably personal dimension. Over the weekend, the company sought to bar the Ghosn family from accessing the home in the Copacabana neighborhood of Rio De Janeiro. However, a Brazilian court overruled Nissan and ordered that they must be allowed in.

via RSS https://ift.tt/2En5guc Tyler Durden

Authored by Judith Bergman via The Gatestone Institute,

“Right-wing extremists are growing more confident. They continue to focus on protesting against the perceived Islamisation of the Netherlands, the arrival of asylum seekers and the perceived loss of Dutch identity…” [emphasis added] wroteDutch authorities in a September threat assessment.

Islamization in the Netherlands, however, is not merely a “perception” of “right-wing extremists” but an increasingly established trend.

The threat assessment by the country’s National Coordinator for Security and Counterterrorism, for example, shows that Islamic terrorism has been growing for several years. “Despite stagnating growth, the size of the Dutch jihadist movement is cause for concern,” it wrote.

“This group, which grew significantly between 2013 and 2016, may be inclined to embrace a ‘revenge narrative’ that blames the West for the collapse of the ‘caliphate’…Jihadists now no longer have a compelling reason to travel to that part of the world, and their focus has shifted to da’wa, or spreading the jihadist message. This may lead to a rise in the number of jihadists in the Netherlands. In addition to adherents of jihadism, there are also several thousand jihadist sympathisers, and ISIS sympathisers in particular, in the Netherlands.”

The Netherlands has been the scene of several attempted jihadist terrorist attacks in recent months. In late September, police arrested seven suspected jihadist terrorists who were planning a massive attack there, including attacking a large event — the police did not say where — by attacking the site with automatic rifles and a car bomb. Earlier in September, an Afghan man who had a “terrorist motive” according to Dutch officials, stabbed two Americans at a train station in Amsterdam. “It is apparent from his statements that he believes that in the Netherlands, the Prophet Muhammad, the Quran, Islam and Allah are repeatedly insulted,” prosecutors said. In August, another man was shot and arrested at a supermarket in the city of Naaldwijk, where he was waving a knife at people while shouting “Allahu Akbar”.

The threat level for the Netherlands remains at “substantial” (level 4 on a scale of 1 to 5), which means that the risk of an Islamic terrorist attack in the Netherlands is very real, although not necessarily imminent.

There are several other factors, apart from Islamic terrorism, that show an increase in the Islamization of the Netherlands:

One is the growth of Islamic parties. In the last parliamentary elections, Denk, a Muslim party that was formed six months ahead of the elections by two Turks who were former members of the Socialist party, received one-third of the Muslim vote and three seats in parliament. The party does not hide its affinity for Turkey: Criticism of Turkey is taboo, as is its predictable refusal to name the Turkish mass-slaughter of the Armenians during the First World War a genocide. The Denk party ran on a platform against the integration of immigrants into Dutch society (instead advocating “mutual acceptance”, a euphemism for creating parallel Muslim societies); and for the establishment of a “racism police” that would register “offenders” and exclude them from holding public office. In July, a former political activist for Denk, Hussein Jamakovic, sent an email to the Telegraafnewspaper, as well as three other news organizations. The email said, “May you get cancer, you filthy, far-right cancer Jews.” The email came after the news outlets brought reports claiming that Jamakovic had expressed sympathy for ISIS. In June, a van was deliberately driven into the entrance of the Telegraaf newspaper’s building, where it burst into flames.

Another facet of the increasing Islamization is the preaching of jihad in mosques. The Religious Affairs Directorate of the Republic of Turkey (Diyanet) distributesits official Friday sermons to Turkish mosques across the world; the mainstream media in the Netherlands have publicized at least one case of such a sermon being preached, at the mosque in the city of Hoorn. It is unclear in just how many mosques this sermon was preached, but it is estimated that 140 mosques in the Netherlands are affiliated with the Diyanet. The sermon was about jihad and martyrdom:

“Our soldiers show the whole world that we are sacrificing everything to protect our faith, flag and country. (…) Every son of our country who, in the power of his life, drinks the sweet nectar of martyrdom, shouts at us. (…) The one who dies in the way of Allah, never call him dead, but call him alive”.

According to the Diyanet representative in The Hague, Dutch-Turkish imams write their own sermons. He then claimed that the war sermon was not preached anywhere in the Netherlands. That is simply not credible — why would the Diyanetmake an exception for Turkish Muslims in the Netherlands of all the places it seeks to influence?

The new mayor of Amsterdam, Femke Halsema, said in September that she would close down mosques if imams are spreading messages of hate, but “only as a last resort”. According to DutchNews.nl, Halsema said that closing mosques is “a very rigorous [action] and that is something you only do as a last resort.” You must be able to act if “an imam gives disgusting sermons, such as saying women should be subservient or that homosexuality is a crime”. According to the news report, she also said that, unlike her predecessor, Jozias van Aartsen, she did not plan to develop links with fundamentalist and Salafist organizations. “I will not invite people who are not democratic and who do not take equality between men and women seriously to the office,” she said.

Another aspect of the increasing Islamization is that vandalism and violence against Jews have risen dramatically. A report published by the Dutch Public Prosecution Service in April listed 144 confirmed criminal offenses in 2017 involving hate crimes, including intimidation, vandalism, assault and incitement to hate or violence. Of those cases, 41 percent were “directed against Jews,” who only account for 0.2 percent of the Dutch population.

A poll of 557 Dutch Jews published in November showed that nearly half of them were afraid of identifying themselves as Jews, with 43% saying they take active steps to hide their Jewish identity and 52% saying anti-Semitism on the street has become more common. In addition, 34% said they had experienced anti-Semitic remarks directed against them and 11% had experienced anti-Semitic violence directed against them.

In December 2017, a Syrian asylum seeker, Saleh Ali, smashed the windows of a kosher restaurant in Amsterdam. For that, he served just 52 days in prison even though he had reportedly told an officer that the attack was “only the first step.” Asked about the next step, he said: “I will tell you later, no one needs to know.”

In May, a Syrian asylum seeker, Malek F, stabbed three people in the Hague, while looking to harm “Christian and Jewish kuffars ” according to the prosecution’s report of the recent trial. He said that “kuffars” [unbelievers] were akin to “animals or retarded people”. Two days earlier, Malek F. had brought a knife to a church in The Hague but when no one opened the door when he knocked, he left.

Yet another disquieting characteristic of the Islamization is the grooming and rape of under-age girls, as seen for more than a decade in the UK. According to recent reports, “The number of Dutch victims of grooming gangs has risen sharply in recent years”. It is estimated that rape-groomers force around 1,400 under-age girls into sex-slavery every year. Known in the Netherlands as “loverboys”, they groom the girls with drugs, alcohol and gifts and then blackmail them into sex-slavery. Research has shown that 89% of the rape-groomers have migrant origins and that 60% are Muslims. Some young girls have 20 “customers” a day. “Minors are set to work in another country [Belgium] as a method to keep them from running away” according to reports. The men can earn “up to 800 euros a day on a girl”.

Does the Netherlands have a problem?

via RSS https://ift.tt/2EoGY2O Tyler Durden

The tension in Rome may have lessened since the Italian leadership opted to try and work with the EU by lowering their projected 2019 budget deficit to 2%, but that doesn’t mean passions aren’t still running high in the Chamber of Deputies.

Two mystery MPs in the Italian parliament were reportedly busted having a quickie in a bathroom in the Chamber of Deputies after someone secretly recorded, according to Italian media outlets. The video, captured on a smartphone, reportedly involved an MP from the Five Star Movement and another from the League – which, as RT joked, suggests that the coalition partners aren’t only close in a professional sense.

Il Giornale, the Italian newspaper that broke the story, opted not to disclose the identities of the two MPs.

“Obviously we know their names. We are not releasing them because privacy is a right,” the paper said. It also didn’t say who made the recording. A director at the Il Tempo newspaper said only that the two MPs are “tall and beautiful” and that “everybody knows their names.”

Ettore Rosato, the vice president of the Chamber of Deputies, appeared to condone the bathroom rendezvous, joking that it was a more productive use of the MPs time than the interparty

While some might say that having sex on the taxpayer’s watch should be condemned, the vice president of the Chamber of Deputies, Ettore Rosato of the Democratic Party, seemed absolutely fine with the restroom tryst. “Finally, a good way to use the time in here,” he said.

And on the bright side, at least they did not do in public like Berlusconi…

Talk abut la dolce vita…

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

Authored by Vladimir Kozin via Oriental Review,

There is a rather embarrassing negative perspective for maintaining rational military strategic parity between Russia and USA and Russia and NATO as a whole in the coming decades due to future tremendous expenditures of the USA for modernizing strategic and tactical nuclear forces that will require $ U.S. 1.2-1.7 trillion during next three decades for hammering out a qualitatively new strategic nuclear triad only. Substantial amount of money will be allocated for procurement of the Ballistic Missile Defense System (BMDS), space-based strike assets and conventional arms as well. No other nation in the world can afford to spend such enormous amount of money.

The problem is complicated by the existing 15 unresolved issues in arms control between Moscow and Washington due to lack of desire of the latter to resolve the most burning issues, like limiting BMDS, taking the U.S. tactical nuclear weapons (TNW) from Europe and refraining from weaponization of outer space, etc.

A potential withdrawal of the USA from the INF Treaty no doubt:

1) will undermine the global strategic equation, push all nuclear-weapon states into a deep-seated mistrust, destroy the NPT regime and prompt all 32 states capable to produce intermediate-range missiles without any limitations;

2) will create a negative domino-style effect that will complicate nuclear arms control, namely:

1. In military sphere it will block the potential resolution of the nuclear arms deal to be applied to the Korean Peninsula, may bring the U.S. nuclear weapons to Japan and the Republic of Korea, and

2. In political domain such step will undermine specific solutions at the upcoming 2020 NPT Review Conference and erect unsurmountable obstacles for entry into force of the Treaty on Prohibition of Nuclear Weapons.

The reality is that the USA has de facto already withdrawn from the INF Treaty by having violated it 95 times since 2001 while testing the efficiency of its BMDS when using dummy (mock) medium and shorter-range missiles, prohibited by the INF Treaty, as intercepted targets. Russian experts believe that they can be converted into nuclear-tipped ballistic and cruise missiles any moment.

There are three questions related to this fact:

a) has the USA not destroyed all of them under the 1987 treaty (totally 846)?

b) has Washington produced new INF missiles after destroying the old ones, and how many?

c) does the Pentagon plan to make them nuclear-tipped?

Therefore, Moscow calls on Washington to ensure full and transparent compliance with INF Treaty.

The Trump administration’s recent announcement that the United States will withdraw from the 1987 Intermediate-RangeNuclear Forces (INF) Treaty represents an unfortunate, though perhaps inevitable, end to one of the Cold War’s cornerstone arms control.

On the other hand, Russia has not violated the INF Treaty and is not going to be the initiator to torpedo it. During the last 6 years Washington has not tabled any vivid fact that Moscow has ‘violated’ the treaty. The purpose of such U.S. disinformation of the world community is: a) to camouflage its own new INF assets; b) to prompt Moscow to scrap 4 types of Russian missiles that are not covered by the INF Treaty provisions, namely two ICBMs, one operational missile and the newest system named “Avangard”; c) to proliferate the 1987 Treaty to the PRC who is not the party of it; d) to deploy in Europe its new mobile ground-based nuclear-capable medium-range cruise missile in order to repeat the 1979 ‘double-track decision’ of NATO.

The cruise missile designated as 9M729 does not fall into limitations of the Treaty. Other types such as ‘SSC8’ or ‘SSC8-X’ does not exist. The USA has got detailed Russian explanations on this matter.

There is the risk of further intentions of nuclear weapon states to pool back from other international treaties in arms control area. The USA alone has assumed negative stance towards 12 bilateral and multilateral accords in this domain. It has either violated them (e.g., INF and the Open Sky Treaty), or unilaterally withdrawn (from the ABM accord), or refused to ratify them (like CFE-1A and CTBT), or declined to debate (like European Security Treaty and Treaty on Prevention of Arms Race in Outer Space).

The possibilities for using of low-yield nuclear weapons of less than 5 kiloton has sharply increased: there are 14 pretexts of using all kind of nuclear weapons in the current U.S. NPR versus two cases in the contemporary Russian nuclear doctrine. Such doctrine does not have any instructions to use tactical nuclear weapons or ‘low-yield NW’; in does not have any paragraph on ‘escalation of de-escalation” or vice versa. Current Russia’s nuclear doctrine is rooted on “conditional defensive nuclear deterrence” while the new U.S. one can be labelled as “unconditional offensive nuclear deterrence”. That is a striking difference between them.

Conventional arms race may be characterized by a huge accumulation of conventional arms in the form of stockpiling forward-based assets and conducting a large-scale military drills. In recent years the number of such exercises conducted by NATO have increased two-fold. Many NATO-led initially conventionally military exercises at the end of them are transformed into nuclear-borne drills. Half of them have anti-Russian feature. There will be more NATO forward-deployed troops in the Eastern and Southern Europe. The high-caliber heavy weapons deployments of the transatlantic alliance moving closer to Russia’s doorstep cause concern in Moscow.

The Baltic Air Policing Operation has been uninterruptedly conducted by NATO aircraft, including dual capable fighter-bombers of three Western nuclear powers in the Baltic airspace, since 2004. One more factor: the number of reconnaissance flights of NATO aircraft near Russian borders has increased 10 times – actually, there are such 15-20 reconnaissance aircraft per each week approaching Russian territory from all directions.

The confrontational situation that has emerged during last several years has even worsened due to the continuation of the Cold War that from 2014 has acquired a new image – the Colder War or the Cold War 2.0 – that has five striking differences with the first one.

The world community is witnessing not a new arms race, but rather new three-dimensional arms races: the nuclear one (it started last century), the newly-born missile defense arms race (it started in 2002 after the demise of the ABM Treaty) and the initial beginning of the outer space arms race (it commenced in 2008 when many nations refused to accept the PAROS Treaty).

Therefore, military confrontation in Europe can start under any pretext – be it a deliberate provocation or unintentional action. But any potential conflict here – either backed by conventional, nuclear and BMDS capabilities – can evolve into severe armed conflict between NATO and Russia that will be very difficult to contain. No doubt, it will bring a devastating effect to this densely-populated continent.

What are the practical suggestions how to avoid such a gloomy and highly unwelcomed scenarios?

A Special Arms Control Summit involving NATO, the OSCE, the Collective Security Treaty Organization and the Shanghai Cooperation Organization has to be convened. It has to declare a legally-binding no-first use of nuclear weapons pledge.  Such Summit should stop spreading of hostile information and painting each other black. To convene such Summit is a challenging task. It is not ‘a snap-type’ arrangement. But nevertheless the idea is knocking the door leading to the European security.

It is also expedient to reach an agreement on limiting the total number of strategic BMD interceptors and their geographic deployments. The U.S. operational BMDS bases in Romania and Poland that have both defensive and offensive capabilities have to be closed down comletely.

It is also vital to reach an accord not to field for more than 24 hours any kind of nuclear weapons, both strategic and tactical, outside national territory of the nuclear weapon states; to sign a new CFE Treaty applied to Europe covering the same five types of heavy weapons specified in the earlier CFE accords, and to cancel the Baltic Air Policing Operation for good.

It is important to reach a multilateral treaty banning space-based striking weapons in outer space.

Russia and Europe do not need any kind of arms race or any type of war – be it limited or all-out one.

So, why not to reach arms control agreements between Russia and Europe separately from the USA in order to maintain stable European security on completely different footing?

Only political will is required.

via RSS https://ift.tt/2Ed8VKn Tyler Durden