Category: zerohedge

Three weeks before midterms, California Senator Kamala Harris (D) floated new legislation which would give American families making less than $100,000 an annual tax credit of $6,000 per year, while those making under $50,000 would be eligible for up to $3,000 per year, reports the Sacramento Bee. 

“Americans are working harder than ever but stagnant wages mean they can’t keep up with cost of living increases,” Harris said in a Thursday statement, citing a 2017 survey from Bankrate.com which found that more than half of Americans can’t afford a $500 unexpected expense – such as a medical bill, rent increase or child care. 

According to Harris’ office, recipients could receive the money in either monthly payments or annually.

“The Institute on Taxation and Economic Policy estimates the (bill) would impact one in every two workers and two out of every three children in America,” according to Harris’ office, in addition to approximately 1 million Pell Grant-eligible college students. –SacBee

Harris’ plan has the support of several prominent liberals, such as California NAACP president Alice Huffman, Sacramento Mayor Darrell Steinberg, Stockton Mayor Michael Tubbs and the mayors of Los Angeles, San Francisco, Oakland and Long Beach.

Tubbs made national headlines in January over a “basic income” scheme that will take effect next year, offering $500 per month to residents who meet income requirements.

Many are skeptical of Harris’ basic income proposal, such as Jack Pitney, professor of government at Clairemont McKenna College, who said “There’s no real chance that this will become law in the next couple of years.” 

In part, that’s because it’s unlikely that Democrats will win enough seats to gain a majority in the U.S. Senate in 2018; political polling website FiveThirtyEight gives Democrats just a 21 percent chance of turning the Senate blue.

“Even if it did, (the bill) would need 60 votes to overcome a certain filibuster,” Pitney said.

So why introduce a bill that’s unlikely to become law?

“It appeals to the Democratic base, it appeals to low-income voters, it’s a very clever tactic to turn the tax issue against the Republicans,” Pitney said. “Republicans were hoping their tax cut would be a political bonanza but it backfired on them. People don’t like it and this is an effort to ride that sentiment.” –SacBee

Pitney suggests that the introduction of the bill, despite its low probability of passing, is yet another sign that Harris may be a serious contender for a 2020 presidential bid. 

If it did become law, Pitney says “as a policy, it would be problematic,” as it would mean reversing tax cuts that have been in place for years. 

“But as politics right now, it’s probably going to give her quite a boost,” concluded Pitney. 

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Authored by Sven Henrich via NorthmanTrader.com,

Last week’s inside week produced a massive rally off of heavily oversold conditions, but then gave a large part of the gains back, closing just above the weekly 50MA, but below the 2016 support trend line leaving markets on a knife’s edge. My suggestion to both bulls and bears here: Pay really close attention and keep a very open mind. Make no mistake here: This is a critical phase for these markets.

Let me walk you through some considerations.

As mentioned in previous updates from a technical perspective the underlying weakness in the internals leading up to the September/October peaks amidst tightening technical patterns and negative divergences (Lying Highs) was not a surprise.

And if you view this recent correction through the lens of simply supply & demand, this correction also makes perfect sense. After all insiders cashed out aggressively in September and then 2018’s biggest artificial liquidity infusion, buybacks, temporarily ceased into the earnings window.

From a bullish perspective this correction will be simply another temporary dip before buybacks return and then stocks can embark on another major rally into the positive mid term seasonality window:

This may well happen and that is clearly the script many expect.

However, for counter balance, I’d like to offer a couple of other considerations.

Firstly, in regards to the mid term seasonality window, let’s be clear, 2018 so far has not followed the mid term seasonality script very well. It would have called for a market peak in April, then a low in to late September/early October. None of that has happened in 2018. We saw a first peak in January and a low in February and then another peak in September. So if one is relying on a mid term seasonality script they are relying on a pattern that hasn’t really applied all year.

But as you see in the chart above typical market seasonality is also strong into year end, between the end of October and late December specifically. Think FOMO and mark-ups as lagging funds need to play catch-up. Add returning buybacks into the mix and you have a solid argument as to why markets can back on program.

So bulls have a historically strong case for a major rally to emerge into year end.

And frankly they need one. Badly.

Because if you can’t rally on supposed 4% GDP growth, a $1.5 trillion tax cut, record buybacks and record earnings what can you rally on?

$SPX is barely up 3% on the year and while $DJIA and $NDX are still up on the year many indices and sectors are either flat or down on the year:

Transports, semis, the banking index, I could list others, but you get the point: Where’s the bull market in these?

However let’s be clear there is precedence for markets not to rally into end of year.

Look to 2007 and you get the perspective:

Back then markets corrected in late February/March, proceeded to make several new highs and finally peaked in October. A bull market that suddenly saw several corrections creep in and make a new all time high on a negative monthly divergence.

Similar to what we are currently seeing:

The stakes couldn’t be higher as a repeat of this setup would invite the end of the bull market inviting a complete technical retrace of the rally since 2016 at least:

And when I say on a knife’s edge I really mean it:

Last week’s intra-week bounce not only came on massively oversold conditions, but also a retreat in yields again validating the pivotal relationship between stocks and bonds.

Why the sell off late in the week? Well one could argue the rally in bonds has not exactly been impressive so far:

The message remains: Both bonds and stock markets are at critical trend support.

Next week earnings will be in full swing and many of the big hitters will be reporting. Earnings continue to be expected to be solid on tax cuts, buybacks, and a still strong economy riding the tax cut sugar high. However, the reaction to earnings is more important than earnings themselves and hence need to be closely watched.

Some banks started reporting last week and so far the reaction has not exactly been convincing as seen in the banking index:

So bulls need to see a stronger and more convincing reaction to the upside.

And be clear, the potential firepower for a massive bounce is there. After all some long term oversold readings moved to even steeper levels.

I could show you a number of examples, but I’ll just use the highs/lows chart to illustrate the point:

This is near an area that has produced sizable bounces and even meaningful bottoms before. Some of these produced rallies that led to a double bottom retest for a major low, and some have produced rallies in context of an emerging bear market. As I said: Stay open minded.

Let’s run through some charts:

While equal weight also experienced a bounce last week it too gave much back of the bounce:

The risk for bulls here is that $SPX may be forming a bear flag suggesting a retest of lows or even new lows before this current correction can act on these oversold signals.

Note, at the point of this writing we do not have new lows yet, but I’m outlining the potential based on the pattern risk.

New lows from here would actually not necessarily be bad for bulls as they could produce positive divergences. And the potential for these are very notable in a number of charts.

Firstly note $NYMO printed such a positive divergence on a new $SPX low earlier in the year:

$RUT would also print a positive divergence on new lows:

It’s underlying volatility index also leaves room for a potential bull flag suggesting potentially more volatility yet to come.

And we can see such a potential for a positive divergence on $SPX:

The problem with this scenario of course is that new lows would break the 2016 trend line and markets would fall below the weekly 50MA which in turn would open the road the larger fib retraces:

But it’s a weekly chart an hence it leaves room to repair any new low damage into week’s end and of course month’s end on the monthly charts.

What’s potential support on a break to new lows?

I’ve outlined the .618 fib at 2684/85 as potential support on any new lows. The recent low was at 2710 and this 2684/85 area may well serve as a new low on a positive divergence. It’s also just below the weekly Bollinger band.

Should this area break then further support can be found near 2645:

Hence, if lows break in conjunction of oversold signals one should not be surprised if either see a sizable rally or major bottom could potentially emerge from the 2645-2685 area.

But there are problems with the major bottom in the making theory and I want to highlight just a couple of them.

Check Rydex bullish/bearish positioning. Where’s the fear?

In major corrections past investors showed signs of fear and capitulation. Even 2016 produced a shift in positioning. Since then? Nada. Zilch. Zip. Flat lined. Full bullish positioning no matter what.

Even the 2018 February correction didn’t manage to even produce a blip in positioning. So while money flows have produced a negative divergence along with the market itself investors simply do not appear to care or worry. Permanent complacency? ETFs for the win? Stocks always come back?

I can’t say what the sentiment driver is here, but historically this chart suggests we are miles away from a capitulation bottom.

And as much as we’ve seen many individual stocks get clobbered in the big picture the biggest and baddest market cap monsters have barely even begun to correct.

Take $AAPL and $AMZN as examples:

So the reaction to earnings will be key. Cause if these baddies break lower then $NDX is unlikely to hold onto its trend line it just defended:

And if it breaks below that next trend line is much lower still.

To summarize: Markets are in a critical phase here that threatens the long term bull market trend. Many signal charts are heavily oversold which make a larger rally to come very probable. If a retest or new lows emerge they would produce positive divergences leaving room for trend line breaks to be repaired before month end.

Any such a rally then has to produce new highs or this bull market is likely to have seen its end (see also New Highs or Bust).

If new lows are made and key trends and moving averages cannot be recaptured by month end then much further downside could emerge rapidly into November.

*  *  *

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Jordan announced a bombshell on Sunday in relation to its peace treaty with Israel, stating it would not renew a 25-year lease of two tracts of territory along its border which is set for renewal on Thursday. 

Under the 1994 historic treaty brokered under Bill Clinton, Israel retained private land ownership and special travel rights in Baquora — called Naharayim by the Israelis — in the northwestern part of the kingdom, and Ghumar — or Zofar in Hebrew — in the south. Part of the agreement signed at the White House in which Jordan became only the second Arab country after Egypt to make peace with Israel was that Jordan would lease sovereign Jordanian land to Israel.

But after sizable protests last Friday in Amman involving marchers demanding that Jordan reclaim full sovereignty over the territory, King Abdullah announced the cancellation of this part of the treaty, saying an official message has been relayed to Israel on the matter. 

“Baqoura and Ghumar were at the top of our priorities,” King Abdullah tweeted via his official account. “Our decision is to terminate the Baquoura and Ghamar annexes from the peace treaty out of our keenness to take all decisions that would serve Jordan and Jordanians.”

Both sites, which Israel had leased and utilized primarily for agriculture and considers key strategic security points, are located on the Jordan-Israel border. Israel is expected to attempt to retain lease rights to the land as strategic locations essential to its border security. 

Israeli Prime Minister Benjamin Netanyahu reacted to the news at a memorial for the late Prime Minister Yitzhak Rabin on Sunday: “There is no doubt the agreement is an important asset,” he said. He called the peace deals with Jordan and Egypt “anchors of regional stability.”

King Abdullah has been under intense domestic pressure not to renew the lease deals — not only the face of the recent Amman protests, but as eighty-seven lawmakers in parliament have signed a petition demanding the restoration of Jordanian sovereignty over the lands. Relations between the two countries have been severely strained over the past years over an array of key issues from the status of Jerusalem and the Temple Mount to lack of progress in Israeli-Palestinian talks to deep uncertainty over Trump administration offers of new peace talks. 

But the more immediate issue which has inflamed tensions on both sides of Israeli-Jordanian relations was the July 2017 shooting by an Israeli Embassy security guard in Amman of two Jordanian citizens. The shooting happened as one allegedly tried to attack the guard with a knife, while the other Jordanian was an innocent bystander who was shot in the ensuing chaos.

The whole event sparked a diplomatic crisis with Israel, which caused Israel to withdraw its embassy staff and ambassador. Israeli embassy operations resumed only after Israel paid a total of $5 million in compensation to the two families of the men killed. 

Currently, there are dozens of Israeli farmers and their families living on the strips of land Jordan has said it will repossess when the treaty fails to be renewed on Thursday. 

According to Haaretz:

“This announcement would mean a catastrophe for agriculture. It’ll affect about 20-30 farmers and about 1,000 dunams that will be transferred to the Jordanians. It’s a disaster for Zofar. As it is, the situation of agriculture is not great,” Eyal Blum, the head of the Central Arava Regional Council, where Zofar is located, said in response.

The Israeli official further called in “inconceivable” that the territories would be given up by Israel: “The agricultural areas in the Zofar enclave are very significant for the security of the region, the state, for livelihoods and agriculture in the central Arava. It is inconceivable that after so many years, the world order will change. I call upon the prime minister of Israel to solve this crisis immediately,” he said. 

Many of the protesters in Amman in recent weeks have actually demanded a complete Jordanian pullout of the historic 1994 treaty signed at the White House. After the recent US recognition of Jerusalem as the official capitol of Israel, it is likely a swell of domestic anger in Jordan will only fuel the worsening of relations. 

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Authored by Adam Taggart via PeakProsperity.com,

When it goes up, prices go down. It’s going up…

This is a revisitation of a report I wrote back in late 2016, predicting the imminent end of zero-bound interest rates and warning of the downward pressure that rising rates, mathematically, must place on today’s elevated asset prices.

Since the publication of that report, interest rates have indeed vaulted higher. Look at how the 3-month US Treasury yield has exploded since the start of 2017:

A Little Background

When I was fresh out of college in the mid-90s, I landed a job at Merrill Lynch. I was an “investment banking analyst”, which meant I had no life outside of the office and hardly ever slept. I pretty much spoke, thought, and dreamed in Excel during those years.

Much of my time there was spent building valuation models. These complicated spreadsheets were used to provide an air of quantitative validation to the answers the senior bankers otherwise pulled out of their derrieres to questions like: Is the market under- or over-valuing this company? Can we defend the acquisition price we’re recommending for this M&A deal? What should we price this IPO at?

Back then, Wall Street still (mostly) believed that fundamentals mattered. And one of the most widely-accepted methods for fundamentally valuing a company is the Discounted Cash Flow (or “DCF”) method. I built a *lot* of DCF models back in those days.

I promise not to get too wonky here, but in a nutshell, the DCF approach projects out the future cash flows a company is expected to generate given its growth prospects, profit margins, capital expenditures, etc. And because a dollar today is worth more than a dollar tomorrow, it discounts the further-out projected cash flows more than the nearer-in ones. Add everything up, and the total you get is your answer to what the fair market value of the company is.

The Weighted Average Cost Of Capital

The DCF approach sounds pretty straightforward. And it is. But it’s still much more of an art than a science. Your future cash flow stream is entirely dependent on the assumptions you bake into the model. The difference between a 5% or 15% assumed EBITDA compound annual growth rate becomes huge when projecing over 10+ years.

But one assumption in the model has far more impact on the final valuation number than any other. And it has nothing to do with the company’s projected operations.

Recall that the DCF approach projects out the expected future cash flows, and then discounts them (back to what’s called a “present value”). This raises a critically important question:

At what rate do you discount these future cash flows?

Well, to address this, you need to ask yourself a few questions. How will the company be financing itself? It will need to deliver an acceptable return to both its stockholders and bondholders. What kind of return can investors get out in the market for a similar investment? If they can get a better expected rate of return, or similar return with less risk, they’ll put their money elsewhere. 

Enter a calculation known as the Weighted Average Cost Of Capital (or “WACC”). Again, without getting too technical on you, the WACC looks at how a company is capitalized (what % with debt, what % with equity) and what blended annual rate of return the investors who contributed that capital expect. Once you’ve calculated the WACC, you put that number into your DCF model as the annual discount rate and — Voilà! — your model spits out the present value for the company.

It’s All About The “Risk Free” Rate

So, to recap:

1. Companies (really, any asset with an income stream) are valued off of the present value of their discounted future cash flows

2. This present value is highly dependent on the discount rate used

We just talked about how the WACC is commonly used as the discount rate (or, at least, its foundation). So how is the WACC calculated?

Here’s its formula (Don’t let it scare you; I’m not going to get all mathy on you here):

I want to point your attention to two important factors in this equation: the cost of equity (re) and the cost of debt (rd). The size of these variables has a big impact on the final number calculated for the WACC.

Re, the cost of equity, is made up of two components: the market’s current “risk free rate” + the “equity premium” that investors demand on top of that to hold stocks, which have more risk. Most folks use the current yield on the 10-year US Treasury bond as the risk free rate (which is now over 3%).

Similarly, rd, the cost of debt, has two components: the market “risk free rate” + the premium that the company’s bondholders are charging to hold debt riskier than a Treasury bond.

Note that the “risk free rate” is a critical component of both re and rd. 

So, as interest rates (i.e., 10-year Treasury yields) rise, the cost of equity goes up and the cost of debt goes up, too.

Why is that so important? Glad you asked…

The Future Of Rising Rates (And Falling Asset Prices)

Most reading this are aware that we’ve been living in a falling interest rate environment for most, if not all, of our adult lives. And since the 2008 financial crisis, interest rates were held down at essentially 0% (or even lower) by the world’s central banks:

While not the only reason, this decline in interest rates has been a huge driver behind the tremendous rise in valuations across assets like stocks, bonds and real estate over the past 30-odd years.

Which begs the question: What will happen to asset prices now that interest rates have started rising again?

Well, as I hope the above lesson on the Weighted Average Cost Of Capital hammered home, when the core interest rate rises, both the cost of equity and the cost of debt go up. Mathematically, this increases the WACC used as a discount factor, thereby reducing the present value of future cash flows.

Or in layman’s terms: When interest rates rise so does the WACC, which mathematically makes valuations fall.

In my original report back in December 2016, I penned the following:

Now, we only need to care about this if we’re worried that interest rates will start rising. Maybe the central banks have everything under control. Maybe we’re at a “permanent plateau” of sustainable zero-bound interest rates.

Well, we now know the answer: It’s time to worry.

Remember how the “risk free rate” used in calculating the WACC is often the 10-year Treasury bond yield? Since writing the above, the yield on the 10-year Treasury has nearly tripled, and has recently cracked above the much-feared 3% level, the milestone at which many analysts have predicted it would cause a major correction in the financial markets:

It has taken a while for the higher cost of capital to ripple through the system, but the repercussions are now becoming apparent.

Bonds have been in sell-off mode the longest, pretty much since since l gave warning at the end of 2016:

The housing market, which is sensitive to interest rates given the see-saw mathematical relationship between mortgage rates and real estate prices (i.e., higher rates = lower prices, all else remaining equal), has started cooling off after an eight year bonanza. As we’ve recently detailed in our report Trouble Ahead For The Housing Market, the most popular formerly red-hot markets are all showing signs of stalling/declining prices.

Nationwide, versus last year, mortgage applications have tanked 15% and home refinance loan applications have declined 34%. Mortgage rates are now the highest they’ve been since 2011 — but of course, houses are substantially pricier than they were then, too. Affordability is now a huge issue increasingly restricting the pool of potential buyers, as starkly presented in this CNBC video:

Meanwhile, the stocks of homebuilding companies have been selling off hard since the 10-year Treasury cracked above the psychologically-important 3% threshold:

Speaking of stocks, many pundits have been attributing much of last week’s market plunge to the bite today’s higher interest rates are starting to have across the economy:

The biggest change has been an acknowledgement that rising interest rates could cool a strong U.S. economy and also put a dent in corporate earnings. The combination of the Federal Reserve hiking short-term rates last month and another increase expected in December, coupled with a spike in the 10-year U.S. government bond to a seven-year high has made stocks less attractive compared with lower-risk bonds. 

Low rates and cheap money resulted in a flood of money into stocks in recent years, as people searched for bigger returns.

But now financial conditions are getting tighter.

“The wave of money that was moving into the market is now reversing,” says Savita Subramanian, head of U.S. equity strategy at Bank of America Merrill Lynch. “As liquidity is withdrawn from the market, it amplifies market volatility” and price swings.

Higher borrowing costs also make it tougher for Americans to afford houses and buy cars on credit, analysts say.

(Source)

Rising interest rates are quickly creating a political snafu. President Trump, who has enthusiastically claimed credit for the market rally that ensued after his election, is now lambasting new Federal Reserve Chairman Jerome Powell (whom Trump appointed) for departing from his predecessors’ path of quantitative easing (i.e., bringing interest rates to historic lows). 

Trump is now accusing Powell of having “gone crazy“, going as far to claim that “The Fed is my biggest threat“:

Trump Blames ‘Out of Control’ Fed for Rout But Says He Won’t Fire Powell (Bloomberg)

President Donald Trump said he won’t fire Federal Reserve Chairman Jerome Powell but blamed an “out of control” U.S. central bank for the worst stock market sell-off since February.

Trump also told reporters in the Oval Office Thursday morning that he knows monetary policy better than the Fed’s leaders and continued criticizing them for interest-rate increases.

“The Fed is out of control,” Trump said. “I think what they’re doing is wrong.”

The president added that the Fed’s interest rate increases are “not necessary in my opinion and I think I know about it better than they do.”

Is this a sign Trump will pressure the Fed to reverse path, possibly even replacing Powell? Or is this just deliberate theatre on his part to position Powell as the fall guy should a full-blown market correction be in the cards?

Either way, these higher rates were inevitable and eminently predictable by the administration. Back when I wrote the original version of this report in late 2016, Trump’s newly-selected Treasury Secretary Steve Mnuchin clearly declared the following:

“We’ll look at potentially extending the maturity of the debt, because eventually we are going to have higher interest rates, and that’s something that this country is going to need to deal with.”

(Source)

Indeed, like it or not, we’re now being forced to learn how to deal with higher interest rates.

Prepare Now

The conclusion from all the above? Get ready to live through the new era of rising interest rates. It’s going to be unfamiliar territory for all of us…

What will likely happen? The unrelenting upward march in asset prices we’ve enjoyed over the past several decades is over. People won’t be able to pay as much for stuff because the financing costs will be higher.

Falling asset prices should be in the cards. We’ve already been seeing that with bonds, and housing and stocks look like they are finally following suit. The higher rates go, the farther the fall should be.

The Fed will be in a tough spot as this unfolds. Right now, the Fed is in quite a box after years of habituating the market to ZIRP. Powell seems serious about continuing to raise rates as far as the financial markets will tolerate, provided he can do so without killing the economy — which is a big “if” at this point. There’s a lot of precedent for this; historically, the Fed’s interest rate has usually followed the market vs leading it. The Fed wants to gain some maneuvering room to drop rates at some point in the future if it feels it needs to.

At some point, if we risk entering a full deflationary rout, the world’s central planners may well indeed pull out an arsenal of tricks similar to what we saw following the 2008 crisis. We may eventually see liquidity-injection programs so extreme that hyperinflation becomes a valid concern. But that time is not now.

For now, we recommend the following:

• Get out of debt. Especially variable rate, non-self-liquidating debt (credit cards being a great example). As we’ve said many times, in periods of deflation, debt can be a stone-cold killer.

• Read the Financial Capital chapter from our book Prosper! (we’ve made it available to read for free here).

• Read our primer on hedging.

• Talk with our endorsed financial adviser (again, free of charge) if you’re having difficulty finding a good one to discuss this topic with. Be sure to have positioned your financial portfolio to take into account the risks to stocks/bonds/etc raised here.

And put today’s rising interest rates to work in your favor. If you have substantial cash savings, consider putting them in short-term T-bills using TreasuryDirect, which now yield between 2.14-2.45%. That’s over 30x what the average bank savings account is currently yielding. To learn more about this program, read our (free) report here.

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A new CNBC expose on Tesla, the product of conversations with 35 current and former employees, has revealed Elon Musk to be a polarizing and wasteful boss who micromanages too much.

The extended report gives yet another look into a personality and work environment that helps explain the exodus of senior executives that the company has suffered over its short lifespan; it also touches on some “creative” accounting allegedly taking place at the company, like defining extra work on production lines as “training” or “research and development”. 

Primarily, the expose notes that Musk often does not take the advice of his team and instead insists on what he envisions, regardless of whether or not it’s practical. An example of Musk’s chaotic method is his promise to crank out 500,000 electric vehicles a year by 2018. He made this promise without having the infrastructure in place. Instead, it was only afterwards that Musk tried to “automate everything”, according to the article. Despite being warned by his team that robots and automation were not practical to install some vehicle parts, like door seals, Musk insisted that it was possible and it was what he wanted.

As a result, the door seals became one of several automation failures that forced Musk to starkly rearrange his production facility this past summer and replace this automation with manual labor. Musk later admitted on camera with CBS that his vision for automation didn’t go off as he planned. Some of the 35 current and former employees interviewed by CNBC claim that this hard headedness, along with “ignoring methods pioneered by other automakers and industry veterans”, is how Musk has been regularly managing Tesla.

Musk’s style of promising first and figuring out a way to deliver later is the same style that has many analysts and investors worried that Tesla may not meet the Q3 profitability goals it set for itself at the beginning of the year. At the same time Tesla’s deliverables are mounting with the company carrying about $3 billion in accounts payable, and has a total of more than $1.5 billion in debt coming due by March of next year.

Other employees echoed stories about Musk’s wasteful style. For example, Tesla had at one point tried to set up a “vision system” which was supposed to help speed up end of the line quality inspections for the Model 3. It was designed to help take high resolution photos and send them to elsewhere in the plant so that humans could do a visual inspection of the vehicles coming off the line. But former employees told CNBC that the cameras didn’t work well: they couldn’t get a clear shot of some parts of the car and that certain key parts of quality inspections were getting overlooked. While these cameras are still used in other parts of the company’s factory now, they have been removed from this part of the line.

Then there’s the alleged $40 million that Tesla spent trying to set up a system of software controlled conveyors and slides to move parts to workers on the Model 3. The company dedicated 20 engineers to set up the system. It took them three months and ultimately never worked. Instead, employees now bring parts to the line using traditional methods, like pallet jacks and tow motors. Tesla disputes the $40 million figure in the CNBC article, despite Musk’s admission in the company’s Q2 earnings call that the original plan didn’t work.

“So we actually didn’t have time to order new equipment because it would have taken too long to arrive. So we took the conveyors that we discarded from the GA 3 line, which didn’t work. Or it was way too complex to actually move our products.” – Elon Musk, Q2

Employees also noted that Musk rejects approaches taken by carmakers like Toyota, GM and Volkswagen. They even reject the acronyms and terminology used within the industry. Obviously, ignoring best practices in the industry, especially a capital intensive industry like automobile manufacturing, is going to make like life more difficult than it has to be. 

Musk also often addresses individual problems with drastic “solutions”. For instance, the Model X line in 2016 found itself unorganized, with boxes and parts stacking up and clutter on the line. When Musk heard about the drag it was creating on Model X production, he reportedly went down the line and implemented a solution of solving part shortages by moving a warehouse of pallets closer to the line and bringing in more parts than needed. According to CNBC, the solution didn’t work and only created even more clutter.

So instead, Musk’s employees went behind his back and implemented a method called kanban, that was pioneered by Toyota. With this method, workers put up workflow chart schedules and cards around a production line that helps them keep track of the items they need and the items that they have. Because the system had been pioneered by Toyota, Musk’s workers hid it from him. A half dozen current and former employees said that they were warned by supervisors that if Musk discovered they were using this method, they would be in danger of getting fired. Tesla disputes this, claiming that kanban methods are widely used in their factories and that no workers have ever been fired for using them.

Musk has also encouraged Tesla to build its own software, when possible. The company’s internal WARP software system, used for purchasing orders, work orders and service centers, is “seemingly never complete” and has made it hard for employees to keep track of whether or not their projects are staying within budget. Factory workers told CNBC that they can’t see what’s been invoiced to the projects they’re responsible for and how much their team has left to spend. Instead, they wind up sending a litany of emails to accounts payable. Several employees said that accounts payable is often too busy to send a detailed report back.

Other workers said that the WARP system made it difficult to find detailed invoices. One person said that he discovered $1 million in charges invoiced to his team by unknown colleagues. He never found out why or who was responsible, and it put him over budget.

Buried deep in the CNBC expose, are additional comments from employees that should give cause for concern about Tesla’s accounting. Some employees told CNBC that when they would send mechanics to help out build “bursts” of new vehicles at Fremont, the mechanic’s time was billed to either “training” or “research and development”, instead of service or vehicle assembly.

Often, the solution that Musk proposes isn’t as loved by his employees as it first seems. For instance, when trying to troubleshoot battery production at the company’s Gigafactory in Nevada, Musk worked to take out a number of “parts, production steps and specs” in assembling batteries. To illustrate that his solution was prudent, he attached a flattering message he got from an employee in an email to the rest of his employees. This email to Musk stated:

“I just wanted to express my gratitude for CEO Elon Musk coming down to the ‘front lines’ at Giga 1 this last week. I can not speak for everyone; but from where I work he came in and eliminated 80% of the problems we were having in about 20 minutes. It was amazing. He re-engineered process and final product on the spot and in ‘real-time.’ In completely cool fashion he actually ‘talked and listened’ to the workers on the line where the work is being done and the ‘tires hit the road’…That same night we blew away the record for the most production by a long shot! My coworkers and I were all giving high fives at the end of shift.”

But not everybody was excited about the changes that Musk made. Employees told CNBC that changes Musk made meant that vehicles and batteries being made were done so omitting parts, including fasteners that connect the battery to the body of a Model 3.

While under pressure from Musk to continue to improve production numbers, a manager at the Gigafactory told engineers to keep using parts that were red-tagged for scrap or further review, according to one current and two former employees. Employees that were responsible for quality control say that they repeatedly saw battery modules come through with cells that were raised too high or slightly out of place. 

When employees raised concerns about this and went to HR, at least one of them was asked to leave after pressing the matter.

These claims seem to corroborate the whistleblower suit currently in the midst of litigation filed by former Tesla employee Martin Tripp. 

Some industry experts give Musk credit for his ability to move on quickly from mistakes. They know the tent used for Model 3 production is a huge step back to the basics of automobile manufacturing and represents what Tesla should have been doing from the get go, had they adopted best practices in the industry instead of trying to chase down the gimmicky but inefficient and useless solutions put forth by Musk.

The only question now is whether or not Musk will continue his newly diverted path towards becoming a traditional auto manufacturer or if his stubborn “vision“ will make things for Tesla and its shareholders even worse. And, if the company winds up becoming a traditional auto manufacturer, will it be valued by the market as such?

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In the latest bombshell report involving the Khashoggi murder, Saudi Crown Prince Mohammed bin Salman reportedly spoke on the phone with journalist Jamal Khashoggi moments before he was murdered in the Saudi consulate in Istanbul. Turkish pro-government daily Yeni Safak disclosed the new alleged details of the case in a report on Sunday, contradicting claims by Saudi authorities that Prince Mohammed played no part in Khashoggi’s murder.

“Khashoggi was detained by the Saudi team inside the consulate building. Then Prince Mohammed contacted Khashoggi by phone and tried to convince him to return to Riyadh,” the report said.

“Khashoggi refused Prince Mohammed’s offer out of fear he would be arrested and killed if he returned. The assassination team then killed Khashoggi after the conversation ended,” it added.

While the report is so far unconfirmed, the New Arab reports that so far Turkish pro-government media have been receiving a steady stream of leaks many of which turned out to be accurate, including pictures of the hit team as they entered Turkey and reports of audio recordings of the murder said to be in the possession of Turkish authorities.

Meanwhile, the Saudi version of events has been changing significantly over the past two weeks with authorities conceded Saturday that Khashoggi, the Washington Post columnist and a Riyadh critic, was killed inside the kingdom’s Istanbul diplomatic compound following a “brawl”. The admission came after a fortnight of denials with the insistence that the journalist left the consulate alive, starting on October 5, when Crown Prince MBS told Bloomberg that Khashoggi was not inside the consulate and “we are ready to welcome the Turkish government to go and search our premises”.

On Saturday, the kingdom announced it had fired five top officials and arrested 18 others in an investigation into the killing – a move that has widely been viewed as an attempt to cover up the crown prince’s role in the murder.

The shifting Saudi narrative of the killing has been met with scepticism and condemnation from the international community, and has left the U.S. and other allies struggling for a response on Sunday. As Bloomberg reports, France demanded more information, Germany put arms sales to Riyadh on hold and the Trump administration stressed the vital importance of the kingdom and its economy to the U.S.

In Sunday radio and TV interviews, Dominic Raab, the U.K. politician in charge of negotiating Britain’s exit from the European Union, described the latest Saudi account as not credible; French Finance Minister Bruno Le Maire called for “the truth’’; and Germany’s Foreign Minister Heiko Maas said his government would approve no arms sales so long as the investigation was ongoing.

Earlier on Sunday, Saudi Foreign Minister Adel al-Jubeir acknowledged a cover-up attempt. The dramatic reversal, after Saudi officials had previously said the columnist left the building alive, has only complicated the issue for allies.

Saudi Arabia’s al-Jubeir told Fox News on Sunday that the journalist’s death was an “aberration.”

“There obviously was a tremendous mistake made and what compounded the mistake was the attempt to cover up,” he said, promising that “those responsible will be punished for it.” 

More importantly, he said that Prince Mohammed had no knowledge of the events, although if the Turkish report is confirmed, it will be yet another major flaw with the official narrative.

Several senior members of US President Donald Trump’s Republican Party said they believed Prince Mohammed was linked to the killing, and one called for a “collective” Western response if a link is proved. In an interview with The Washington Post, President Trump, too, said the Saudi narrative had been marked by “deception and lies.’’ Yet he also defended Crown Prince Mohammed bin Salman as a “strong person,’’ and said there was no proof of his involvement in Khashoggi’s death. Some members of Congress have questioned his willingness to exonerate the prince.

“Obviously there’s been deception and there’s been lies,” Trump said on the shifting accounts offered by Riyadh.

On Sunday, Turkish President Recep Tayyip Erdogan promised to disclose details about the case at a meeting of his AK Party’s parliamentary faction on Tuesday, Haberturk newspaper reported.

Meanwhile, as Western firms and high-ranked officials scramble to avoid any Saudi involvement, Russia is more than happy to step in and fill the power vacuum void left by the US. As a result, Russian businesses are flocking to attend the investment forum in Saudi Arabia, as Western counterparts pull out.

Russian President Vladimir Putin has had considerable success boosting Moscow’s influence in the Middle East at U.S. expense, by standing by regimes that fall afoul of the West, including in Syria and Iran. Last week Putin signed a strategic and partnership agreement with Egypt’s President Abdel-Fattah El-Sisi, backed by $25 billion in loans to build nuclear reactors. Until El-Sisi came to power, Egypt had been closely allied to the U.S.

Meanwhile, all eyes are fixed squarely on the Crown Prince whose position of power is looking increasingly perilous. Congressional leaders on Sunday dismissed the story proffered earlier by the Saudis, with Republican Senators Lindsey Graham of South Carolina and Bob Corker of Tennessee saying they believed the crown prince was likely involved in Khashoggi’s death.

Lawmakers said they believe the U.S. must impose sanctions on Saudi Arabia or take other action if the crown prince is shown to have been involved. Speaking on NBC’s “Meet the Press,” Senator Dick Durbin of Illinois, the chamber’s No. 2 Democrat, said the Saudi ambassador to the U.S. should be formally expelled until a third-party investigation is done. He said the U.S. should call on its allies to do the same.

“Unless the Saudi kingdom understands that civilized countries around the world are going to reject this conduct and make sure that they pay a price for it, they’ll continue doing it,”’ Durbin said.

The obvious question is what happens and how the Saudi royal family will respond if it is pushed too far, and whether the worst case scenario, a sharp cut in oil exports, could be on the table if MBS feels like he has little to lose from escalating the situation beyond a point of no return.

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Submitted by Eric Peters of One River Asset Management

Hypothetical

“I was asked to lay out the case for the US being mid-cycle,” said my favorite strategist. “Residential housing is 4% of GDP now, that’s consistent with past recessionary levels. So perhaps it jumps to 8%,” he continued.

“Equipment and machinery spending is just 6% of GDP.” Pretty consistent with previous recessions. “So maybe both expand, and incomes rise.” Which leads to higher inflation and shrinking profit margins. “Then perhaps the Fed tolerates rising prices which means that nominal growth remains strong even if real growth rates slow,” he postulated.

“So in that case, workers do better, and companies are worse off on a relative basis. But in that 7% nominal GDP world, inflation might mask the pain well enough to allow stocks to sail through,” continued my favorite strategist.

“You think about that hypothetical and it’s possible,” he said. “But then you listen to what the companies are saying, and you walk away with the sense that there’s just no way.” Homebuilding stocks are -30% from the January highs.

“If you just look across the spectrum, interest-sensitive equities are screaming late-cycle.”

“Making the mid-cycle case raised my conviction that we’re late-cycle,” he said. “America’s fiscal boost masked the natural cycle dynamics.” The US is the outlier. In dollar terms, of the major markets, only American stocks are higher on the year.

“So if US stocks catch up and crash from here, what happens next?” he asked rhetorically. “I think most people will conclude we’re headed into another depression. But I think there will be great things to buy. Probably in the places that are already crashing and burning.”

Positioning

“Hidden dollar shorts throughout the global banking system were overwhelming and ill understood in 2008,” said the strategist. “So when the dollar began to appreciate, you hit stop loss after stop loss.” Mexico’s peso plunged from 11 to 14 versus the dollar in no time.

“You thought, could this happen? And it could, anything can.” That’s how markets work. “It was difficult to understand the magnitude of the dollar shorts, but they were interwoven into almost every conceivable product. Everyone had the position. Just like the short-volatility trade today.”

Overall

“What song shall I play?” wondered Draghi, heart racing faster than in that moment before his first dose of QE. “Dancing Queen of course!” shrieked Mario, a closet ABBA fan. On went the headphones, out came the bone saw.

There on the table lay Matteo Salvini, European dissident, Italian patriot, strapped tight, bug eyed, gagged. “Let’s start with your fingers,” said Draghi, unable to hear his own voice, “Just scream when I’ve cut enough to bring down your deficit.” Salvini nodded frantically, panting, convulsing. Moody’s downgraded his nation’s debt late Friday to one notch above junk, outlook stable.

“Is That All There Is,” whispered Trump to himself, naming his all-time favorite song, Peggy Lee’s nihilistic 1969 hit, an exploration of life’s disillusionments, meaninglessness. On went the headphones, out came the bone saw. Before him sat Xi Jinping, China’s newly-anointed ruler for life, American rival, adversary, tightly bound, pouting, naturally. “Let’s make this really hurt,” said Trump, Peggy Lee blaring in his Bose. He rolled in a Bloomberg, images of the Shanghai Composite plunging to new 4yr lows, the renminbi teetering near the key 7.00 level, the ticker declaring: America Exits 144yr Old Postal Treaty. “Leave me my middle fingers,” taunted Xi.

Theresa May scrambled for a fitting song, Junker did too, neither yet sure who will wield the bone saw in the gruesome finale.

And of course, Dr. Salah al-Tubaigy, autopsy expert, advised Mohammed bin Salman’s security officers to crank their favorite songs. On went their headphones. They dismembered Jamal Khashoggi, Saudi Arabian dissident, patriot, critic, writer. As the rest of the world listened intently, for even the smallest sound. To understand whether, when forced to choose in broad daylight between money and morality, today’s western leaders turn up the volume and pull out the bone saws.

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A Central American migrant caravan which was temporarily delayed by the Mexican government has regrouped, resuming their advance towards the US border on Sunday, according to AP. 

The number of migrants swelled overnight to approximately 5,000 as the mile-long caravan set out toward the Mexican town of Tapachula. Several hundred asylum seekers have reportedly applied for refugee status in Mexico, while an estimated 1,500 remain on the Guatemalan side of the Suchiate River in the hopes of entering Mexico legally. 

It was not immediately clear where the additional travelers had materialized from since about 2,000 had been gathered on the Mexican side Saturday night. They seemed likely to be people who had been waiting in the Guatemalan town of Tecun Uman and who decided to cross during the night.

They marched on through Mexico like a ragtag army of the poor, shouting triumphantly slogans like “Si se pudo!” or “Yes, we could!”

As they passed through Mexican villages on the outskirts of Ciudad Hidalgo, they drew applause, cheers and donations of food and clothing from Mexicans.

Maria Teresa Orellana, a resident of the neighborhood of Lorenzo handed out free sandals to the migrants as they passed. “It’s solidarity,” she said. “They’re our brothers.” –AP

The group has been referred to as an “attack caravan” by former GOP House Speaker Newt Gingrich, who cited a figure by Fox News host Laura Ingraham that the caravan would cost around $7,000 per person, or $28 million total when the size of the group was estimated at 4,000 people. At 5,000 strong, the caravan would cost $35 million. 

If the new reports are correct the “attack caravan” from Central America is up to 4,000 people. If Laura Ingraham’s estimate is right and it costs about $7,000 per person where is the $28 million coming from. This is $28 million to attack American sovereignty.

— Newt Gingrich (@newtgingrich) October 19, 2018

Meanwhile, two men in white t-shirts were seen handing out what appears to be cash to the migrants last week, fueling speculation that the second such group this year has been professionally organized and funded. 

Watch the two guys in white t-shirts. Apparently paying those joining the #CaravanaMigrante. Who is funding this attack on the American mid-terms? #MAGA2018 pic.twitter.com/S36q4B4wYZ

— Katie Hopkins (@KTHopkins) October 17, 2018

The migrant caravan regrouped after Mexican authorities refused mass entry via a bridge over the Suchiate River – instead allowing small groups of migrants to enter for asylum processing, while giving 45-day visitor permits to others. That said, many of the migrants found ways to circumvent the Mexican government despite the deployment of hundreds of riot police upon President Trump’s request. 

But many became impatient and circumventing the border gate, crossing the river on rafts, by swimming or by wading in full view of the hundreds of Mexican police manning the blockade on the bridge. Some paid locals the equivalent of $1.25 to ferry them across the muddy waters. They were not detained on reaching the Mexican bank.

Sairy Bueso, a 24-year old Honduran mother of two, was another migrant who abandoned the bridge and crossed into Mexico via the river. She clutched her 2-year-old daughter Dayani, who had recently had a heart operation, as she got off a raft.

“The girl suffered greatly because of all the people crowded” on the bridge, Bueso said. “There are risks that we must take for the good of our children.” –AP

The Mexican Interior Department reported the receipt of 640 refugee requests by Hondurans at the border. 

Federal police monitored the Caravan on Sunday via helicopter, while approximately 500 officers briefly shadowed the group on the highway – however according to AP, officers say taht their instructions were to allow the caravan to continue while maintaining traffic. 

Trump isn’t having it

President Trump reiterated his commitment to deploying the US military if the caravan isn’t stopped. At a Friday rally in Scottsdale, Arizona, he said “But as of this moment, I thank Mexico. If that doesn’t work out, we’re calling up the military — not the Guard.”

Trump reiterated his statements to reporters: 

President Trump: “You have some very, very bad people in the caravan. You have some very tough criminal elements within the caravan. But I will seal off the border before they come into this country, and I’ll bring out our military.” https://t.co/SJoYwvF4mt pic.twitter.com/9TRUjfpmyr

— The Hill (@thehill) October 21, 2018

On Sunday, Trump tweeted: “Full efforts are being made to stop the onslaught of illegal aliens from crossing our Souther Border. People have to apply for asylum in Mexico first, and if they fail to do that, the U.S. will turn them away. The courts are asking the U.S. to do things that are not doable!” 

Full efforts are being made to stop the onslaught of illegal aliens from crossing our Souther Border. People have to apply for asylum in Mexico first, and if they fail to do that, the U.S. will turn them away. The courts are asking the U.S. to do things that are not doable!

— Donald J. Trump (@realDonaldTrump) October 21, 2018

The Caravans are a disgrace to the Democrat Party. Change the immigration laws NOW!

— Donald J. Trump (@realDonaldTrump) October 21, 2018

On Saturday, State Department spokeswoman Heather Hauert said: “The Mexican Government is fully engaged in finding a solution that encourages safe, secure, and orderly migration, adding: “both the United States and Mexico continue to work with Central American governments to address the economic, security, and governance drivers of illegal immigration.”

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Authored by  Judith Bergman via The Gatestone Institute,

The internet, especially social media, has become one of the primary places for people to exchange viewpoints and ideas. Social media is where a considerable part of the current national conversation takes place.

Arguably, big tech companies, such as Google, Twitter, Facebook and YouTube, therefore carry a responsibility to ensure that their platforms are equally accessible to all voices in that national conversation. As private commercial entities, the social media giants are not prima facie legally bound by the First Amendment to the US Constitution, and are free to set their own standards and conditions for the use of their platforms. Ideally, those standards should be applied equally to all users, regardless of political or other persuasion. If, however, these companies choose what to publish and what not to publish, they should be subject to the same licensing and requirements as media organizations.

The current media giants’ favoring one kind of political speech over another — progressive over conservative — and even shutting down political speech that does not conform to the views of the directors, certainly skews the national political conversation in a lopsided way that conflicts with basic principles of democratic freedom of speech and what presumably should be the obligations of virtual monopolies.

The question of whether such discrimination against conservative viewpoints constitutes a breach of law is currently the subject of a number of lawsuits. In October 2017, PragerU, a conservative educational website, filed a lawsuit against YouTube and its parent company, Google, for “intentional” censorship of conservative speakers, saying that they were “engaging in an arbitrary and capricious use of their ‘restricted mode’ and ‘demonetization’ to restrict non-left political thought.”

PragerU claimed that “Google and YouTube’s use of restricted mode filtering to silence PragerU violates its fundamental First Amendment rights under both the California and United States Constitutions,” YouTube, for instance, restricted a video by a pro-Israel Muslim activist, discussing how best to resist hatred and anti-Semitism, as “hate speech”. The US District Court Judge in the case, Lucy Koh, however, dismissed PragerU’s claims because Google, as a private company, is not subject to the First Amendment. “Defendants are private entities who created their own video-sharing social media website and make decisions about whether and how to regulate content that has been uploaded on that website,” Koh wrote. PragerU has appealed the decision.

In August, Freedom Watch filed a $1 billion class-action lawsuit against Apple, Facebook, Google, and Twitter, claiming that they act in concert to suppress conservative speech online. Freedom Watch claims, among other things, that the four media giants have violated the First Amendment to the Constitution and that they have engaged “in a conspiracy to intentionally and willfully suppress politically conservative content.”

PragerU and Freedom Watch are not the only conservatives to have experienced suppression of their voices on social media. In April, the conservative Media Research Center released a report detailing the suppression of conservative opinions on social media platforms.

The 50-page report, “Censored! How Online Media Companies Are Suppressing Conservative Speech,” which looked at how conservative political speech fared on Google, Facebook, Twitter, and YouTube, found that the tech companies stifle conservative speech and that in some instances, staffers have admitted that doing so was intentional. The report found that Google showed a “tendency toward left-wing bias in its search results”, and that Twitter (by admission of its own employees) had “shadow-banned” some conservative users. (“Shadow banning” means that their content did not appear to other users, but the account owners themselves had not been notified of this “banning” of their content).

The apparent leftist bias, however, not only shows itself in the suppression of conservative speech on social media giants’ websites. Censorship and selective presentation of speech has also led to unfortunate policy decisions by some of the big tech companies. Google, for example, has decided it will not renew a contract with the Pentagon for artificial intelligence work when it expires next year, because Google employees were upset that the technology they were working on might be used for lethal military purposes.

Yet, according to leaked documents, Google is planning to launch a censoredversion of its search engine in China, code-named “Dragonfly,” which will aid and abet a totalitarian “Big Brother is watching you” horror state. China, according to the Economist, is planning to become “the world’s first digital totalitarian state.” The Chinese government is in the process of introducing a “social credit” system by which to score its citizens, based on their behavior. Behavior sanctioned by the government increases the score; behavior of which the government disapproves decreases the score. Jaywalking, for example, would decrease the score. China is reportedly installing 626 million surveillance cameras throughout the country for the purpose of feeding the social credit system with information.

According to Gordon G. Chang, Chinese officials are using the social credit system for determining everything from being able to take a plane or a train, to buying property or sending your children to a private school. Officials prevented a journalist, Liu Hu, from taking a flight because he had a low score. According to China’s state-owned Global Times, as of the end of April 2018, authorities had blocked individuals from taking 11.14 million flights and 4.25 million high-speed rail trips. “If we don’t increase the cost of being discredited, we are encouraging discredited people to keep at it,” said the former deputy director of the development research center of the State Council, Hou Yunchun. He added that an improved social credit system was needed so that “discredited people become bankrupt”.

According to a legal expert at the Chinese Academy of Social Sciences in Beijing, Zhi Zhenfeng:

“How the person is restricted in terms of public services or business opportunities should be in accordance with how and to what extent he or she lost his credibility…. Discredited people deserve legal consequences. This is definitely a step in the right direction to building a society with credibility.”

The goal, straightforwardly, is to control citizen behavior by aggregating data from various sources such as cameras, identification checks, and “Wi-Fi sniffers” so that Chinese citizens will end up being controlled completely. As Chinese officials have reportedly put it, the purpose of the score card system is to “allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step.”

It is, in other words, an excellent deliberate tool to suppress the human rights of the Chinese people.

Although Google has refused to comment on the concerns about Dragonfly, the leaked documents indicate that this censored version of Google’s search engine will help the Chinese government do just that by blacklisting websites and search terms about human rights, democracy, religion, and peaceful protest. It will also, reportedly, link users’ searches to their personal phone numbers, thereby making it possible for the Chinese government to detain or arrest people who search for information that the Chinese government wishes to censor.

“Linking searches to a phone number would make it much harder for people to avoid the kind of overreaching government surveillance that is pervasive in China,” said Cynthia Wong, senior internet researcher with Human Rights Watch. Fourteen organizations, including Amnesty International, Human Rights Watch, Reporters Without Borders, Access Now, the Committee to Protect Journalists, the Electronic Frontier Foundation, the Center for Democracy and Technology, PEN International, and Human Rights in China, have demanded that Google stop its plans for a censored search engine. They say that such cooperation would represent “an alarming capitulation by Google on human rights” and could result in the company “directly contributing to, or [becoming] complicit in, human rights violations.”

In a recent speech, US Vice President Mike Pence also asked Google to end Dragonfly: it “will strengthen Communist Party censorship and compromise the privacy of Chinese customers,” he said.

So, while Google claims it has moral qualms about cooperating with the US government, the company evidently has no moral issues when it comes to cooperating with Communist China in censoring and spying on its billion citizens with a view to rewarding or punishing them via opportunities in real life. Google employees, according to the Intercept, have circulated a letter stating that the censored search engine raises “urgent moral and ethical issues,” and saying that Google executives need to “disclose more about the company’s work in China, which they say is shrouded in too much secrecy, according to three sources with knowledge of the matter”.

Google is apparently all too eager to work with China on micromanaging its citizens, and there is plenty to work on, according to a recent Amnesty International report :

“China has intensified its campaign of mass internment, intrusive surveillance, political indoctrination and forced cultural assimilation against the region’s Uighurs, Kazakhs and other predominantly Muslim ethnic groups.”

Up to 1 million people have been detained in “China’s mass re-education drive,” many of them tortured, according to the report.

Eight years ago, Google co-founder Sergey Brin — who was born in the highly repressive Soviet Union — at least had the decency to hesitate on (if not turn down) doing business in China if it involved censorship. “[W]e have decided we are no longer willing to continue censoring our results,” Google had announced two days before “company spokesman Scott Rubin started singing a different tune.”

Perhaps totalitarian Communist repression is of no consequence to Google, so long as it gets still more market share?

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Until the last couple of weeks, net speculative positioning in financial markets was all on one side of the boat with speculators are woefully unprepared for a major risk-off event, suggesting complacency had reached epidemic levels as equities broke out to new highs.

Then the calendar rolled over to October and everything changed…

In the last two weeks, the aggregate net speculative positioning in futures in what are considered traditional risk-off assets – gold, 10-year Treasuries, and the VIX – surged by the most since Brexit…

As speculative shorts in VIX, Treasuries, and precious metals were pummeled last week.

As VIX spiked from under 12 to almost 29…

VIX speculators net positioning suffered a dramatic short-squeeze as once again picking up pennies in front of that Minsky-steamroller, snapped a few fingers…

This is the second biggest short-squeeze in the vol complex in history (and this time no ETF-driven collapse drove it)…

And as leveraged speculators abandon their ‘no-brainer’ short-vol trades, Treasury speculators continue to slowly but surely abandon their record short bond positions…

And given the moves in gold and copper recently, bond yields are set to push notably lower squeezing those record shorts even more…

Finally, as gold surged from under $1190 to over $1230…

Gold’s net speculative positioning flipped from short to long for the first time in two months..

The last time gold speculators went from that short with a huge cover was March 1999…

And all this is happening as Speculators pile long into the USD, but the dollar won’t rally…

Additionally, Russia added the most gold to its reserves in two years in the last month…

And as Russia piles into precious metals, it is dumping Treasuries…

Finally, we note that as reality starts to chip away at complacency, China has suddenly lost control of its currency…

As we noted previously, something broke (and we’re just now finding out the consequences)

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