The Tyranny Of “The Collective” By The Illusions Of Narratives

Authored by Doug “Uncola” Lynn via TheBurningPlatform.com,

“We know that no one ever seizes power with the intention of relinquishing it. Power is not a means; it is an end.”

    – George Orwell, “1984”, part 3, chapter 3,

Tyranny:

1 : oppressive power  especially : oppressive power exerted by government

4 : an oppressive, harsh, or unjust act : a tyrannical act

It is a fact the election of Donald Trump exposed certain undeniable realities in the United States for those willing to see.   Perhaps first and foremost of the various revelations is the bona fide existence of The Collective.  Also known as the Uniparty or The Establishment, The Collective is comprised of the following:  The Democratic Party, Republican’s in Name Only (RINOs), Neo-conservatives (Neocons), the Mainstream Media, the Corporatocracy, globalists, elite bankers and unelected government bureaucrats and officials; also often referred to as The Deep State or Military Industrial Complex.

All of these entities have attained singularity through the decades while, for the most part, retaining some “plausible deniability” of their collusive connectivity prior to the 2016 Presidential Election.  But now the veil has been lifted.  As The Collective has unified in polar opposition against everything Trump, so has its immorality and lawlessness been additionally exposed; like nude streetwalkers performing dirty tricks in broad daylight on busy corners.

Over the past half century, if not before, The Collective has politicized, and weaponized, everything it could subvert.  From the Federal Bureau of Investigation (FBI) to the courts, from professional football to late night comedy, from Hollywood to advertising, from social media to education, from race to gender, to sex. Especially sex; and in ways seemingly derived from the nightmares of George Orwell and Aldous Huxley.

Paradoxically, however, it is more often the values of conservatives onlythat are called into account. The Collective will string up blacks like Clarence Thomas via high-tech lynchings and bully free-thinking Afro-Americans like Kanye West, Candace Owens, and Stacy Dash by labeling them “Uncle Toms”. The Collective will pass judgement on conservative Supreme Court nominees with no evidence beyond slander and innuendo.  In fact, it is The Collective desiring One World Under Them, which wields Orwellian Newspeak terminology such as racistmisogynisthomophobicxenophobe, and Islamophobia, like the proverbial pitchforks and torches.

The Collective sows the politics of personal destruction in order to reap the whirlwinds of division. It shills rancor and broken dreams in order to form a new reality in its own image.  A world where timeless moral principles are set aside for (they claim) the good of all.

Notwithstanding, The Collective’s new religion is as phony as Michael Avenatti’s concern for clients.

Now social media companies have purged “thought criminals” on their respective platforms, even as the rogue special counsel investigator, Robert Mueller, has exploited imaginary crimes in order to conceal actual government corruption and, likely, treason.  The Collective preaches the tolerance of transgender men in the bathrooms of our daughters and wives while actively bullying and defaming those they consider as dissidents.  Falsehoods from contrived, and illegal, government “leaks” are published and broadcast as being true while real facts are slandered as “fake news”.

A public that can no longer distinguish between truth and fiction is left to interpret reality through illusion.  Random facts or obscure bits of data and trivia are used either to bolster illusion and give it credibility, or discarded if they interfere with the message…

When opinions cannot be distinguished from facts, when there is no universal standard to determine truth in law, in science, in scholarship, or in reporting the events of the day, when the most valued skill is the ability to entertain, the world becomes a place where lies become true, where people can believe what they want to believe.  This is the real danger of pseudo-events and pseudo-events are far more pernicious than stereotypes.  They do not explain reality, as stereotypes attempt to, but replace reality. Pseudo-events redefine reality by the parameters set by their creators. These creators, who make massive profits selling illusions, have a vested interest in maintaining the power structures they control.

– Hedges, Chris (2009). “Empire of Illusion”, Nation Books, New York, NY, 2009, page 51

Kabuki Theater? Or Political Darwinism?  Either way, conservatives lose political ground whenever they swallow the moral premises of The Collective.  This is because The Collective utilizes deception to conceal their actual motives while simultaneously gaslighting and blackmailingconservatives by means of conservative values.

In a manufactured reality, pseudo-events are designed to create consensus in order to manipulate outcomes.  In other words, The Collective spins illusionby means of narrative.

In the gun control and immigration debates, for example, The Collective doesn’t really care for “the children”. In truth, they use “the children” as a means to consolidate political power. Certainly, The Collective weaponizes the morality of conservatives against said conservatives; and whenever the twisted virtue of The Collective is accepted, the new global religion expands.

Consider the Kavanaugh debacle.  Underlying all of the Supreme Court nomination theater, the desire of those opposing the judge is simply this: To project a woman’s right to choose.  Whether or not Kavanaugh is actually a threat to that right is beyond the point. He is perceived as a threat to “Roe v. Wade” by his opponents. This means a man’s reputation has now been slandered, and without any real evidence, in order to protect a woman’s right to abort her fetus at will.

At the same time, it’s quite possible The Collective has staged the Kavanaugh production in order to further decimate America’s institutions in pursuit of global objectives.

You win, they win. You lose, they win.

Dirty politics are merely a subset of politics; and politics define Man’s relations with Man. If the U.S. Constitution was set-up to facilitate political, economic, and religious freedom – then wouldn’t an ideal system designed to control the masses, tear down these same conceptions?  And how would such a system take hold? Perhaps by combining opposites through a twisted sort of immoral ecumenicalism: law plus corruptionandrogynyrace and gender divisions by means of political correctnessslanderaccusations, and lies – and all for the purposes of a new global singularity.

It’s no surprise how The Collective confounds the logical. It loudly laments children being separated from their parents at the border AND Judge Kavanaugh for threatening the freedom of mothers who choose separation in the womb.  If old-fashioned virtues such as logic, reason, morality, and law, no longer apply in politics today, then progress now simply requires faith; or, rather, what people believe. Even so, who says the theological premises currently conveyed by The Collective should be accepted at all?  They do. That’s who.

Unfortunately, in all circumstances electronically programmed, or manufactured, the consensus remains real nevertheless.

Therefore, the actual enemy of common sense and decency currently, is not only The Collective, but moreso those who support The Collective with their votes, and by believing its liesinnuendoaccusations, and slander.  Therein also lies the dialectical dilemma of the mushy-minded middle; including Republican Senators like Jeff Flake, Susan Collins, and Lisa Murkowski:  As The Collective descends further into criminalitycorruption, and dishonor, these blind centrists now lament the lack of “cooperation” and “compromise” in America.

Turning and turning in the widening gyre

The falcon cannot hear the falconer;

Things fall apart; the centre cannot hold;

Mere anarchy is loosed upon the world,

The blood-dimmed tide is loosed, and everywhere

The ceremony of innocence is drowned;

The best lack all conviction, while the worst

Are full of passionate intensity.

– Yeats, William Butler (1920). “The Second Coming”.

Only one of the bimodal goalposts has significantly moved over the past six decades, yet the lukewarm lament the widening gyre and blame both teams. In the long term, these people cannot save the nation.

So is it all just politics, or reality television? The differences, of course, are in the consequences. Reality can never be denied for long and this is reality: We’ve passed the point of no return.  America is circling the drain. All of her institutions are under attack currently and, barring any great and unforeseen circumstances, won’t survive. In order to truly drain the swamp, a lot of people would have to die. Conversely, so, too, must others be removed prior to the establishment of the New Faith.

Therefore, a larger question remains:  Who dies and who survives?

The Russian investigation has decimated the trust of fifty-percent of the country in the voting system. The credibility of the FBI and Department of Justice (DoJ) has been destroyed in the eyes of the other fifty percent. Half of America hates Trump as Congress now experiences abysmal approval ratings.  Most recently, the Kavanaugh affair has acted as a splitting maul in a country of felled trees; while the Supreme Court nomination process, and likely the Court itself, now falls to the sound of “timber”.

Is it that simple? As easy as left and righthe saidshe said, and black and white? Either way, there are no participation trophies awarded in Political Darwinism. Many on the right are playing the voting game while The Collective establishes its new religion In truth, The Collective will sacrifice everything you have and blame you all the way down. Be assured it is their plan because compromise is no longer an option.  The Rubicon has been crossed and there are those who will die to defend their New World Order. How about you?

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Anti-Kavanaugh Protesters Descend On Senate; 100 Arrested Including Amy Schumer

At least 100 protesters were arrested on Thursday afternoon after a mob descended on the Hart Senate Office building to protest the confirmation process of Supreme Court nominee Brett Kavanaugh. 

Loud chants could be heard throughout the Senate building, which is structured so the hallways of each floor open up and look out onto the first floor, where dozens of protesters were staged.

Kavanaugh’s nomination has been embroiled in controversy since Christine Blasey Ford, a college professor from California, accused him of sexually assaulting her when the two were in high school more than three decades ago. Two women have since come forward with their own sexual misconduct allegations against Kavanaugh, all of which he has denied. –The Hill

Among those arrested was comedian and Chuck Schumer relative, Amy Schumer. 

Model Emily Ratajowski says she was also arrested. “Today I was arrested protesting the Supreme Court nomination of Brett Kavanaugh, a man who has been accused by multiple women of sexual assault. Men who hurt women can no longer be placed in positions of power,” she tweeted. 

Prepare for weeks of protests after Kavanaugh’s likely confirmation to the Supreme Court.  

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Elon Musk Openly Mocks the SEC on Twitter, Calls them “Shortseller Enrichment Commission”

Just hours after we reported that a judge was seeking further explanation on the fairness of the settlement between Elon Musk and the Securities and Exchange Commission, a tweet from Elon Musk’s Twitter account openly mocked the government agency. In a Tweet by Musk just after 4PM EST, he referred to the SEC as the “Shortseller Enrichment Commission“.

When called out about the typo (of leaving the word “say” out in between “to” and “that”), Musk doubled down on his comments, seemingly saying about the SEC, that it’s “their mission” and “what they do”.

As a reminder, one of the conditions of Elon Musk’s proposed settlement with the SEC was that he was to have all of his tweets vetted by the company before he put them out. The settlement required “Tesla Inc. to put in place a system to monitor his public communication.” 

So did Musk just jeopardize the terms of his settlement? As we also noted earlier, Musk’s agreement with the SEC still has not been finalized as a judge is awaiting further details before signing off on it. 

Following Musk’s tweet, Tesla shares fell 2.4% to $275 in after hours trading on concerns that Musk might again be in jeopardy with the SEC, threatening the considerable “Musk premium” that has for years been the most valuable component of Tesla stock.

Tesla shares erased nearly all of their gains from September last week when Musk revealed that he would fight the SEC as it sought to hold him accountable for a reckless tweet that he had secured private funding to take Tesla private at $420 a share. The agency revealed that Musk knew the tweet was disingenuous – in fact, the $420 takeout figure was meant to be “an inside joke” between Musk and ex-girlfriend, the Canadian musician Grimes, involving “drug culture.”

But after Musk rejected the SEC’s initial offer, sending shares sharply lower, he changed his mind and agreed to pay a $20 million penalty (while Tesla would pay another $20 million) and surrender his chairman role on the company’s board, while agreeing to pre-clear tweets with the company in the future.

We wonder what that judge – and more importantly – the SEC, are thinking right now. 

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Venezuela Has Officially Launched Its Oil-Backed Cryptocurrency

Authored by Tsvetana Paraskova via Oilprice.com,

Venezuela has officially launched what its President Nicolas Maduro claims is a first state-backed oil-backed cryptocurrency, El Petro, which analysts and experts see as nothing but a scam and another effort to skirt sanctions and mask the inability to overhaul the ailing domestic economy.

Over the past months, Maduro has been touting a new plan for economic recovery, which includes a new policy on gasoline pricing that would raise Venezuela’s ultra-cheap gas pricesfor the first time in two decades. The plan to ease the severe economic crisis also featured a devaluation of the currency and pegging the new bolivars to the Petro.

Maduro claims that the Petro is strengthening his recently announced economic overhaul plan and will “revolutionize” the global crypto economy with a new form of trade, finance, and monetary exchange.

The official public sale of the Petro – which Venezuela say is backed by oil, natural gas, diamonds, and gold—will begin on November 5, Maduro has said.

According to authorities in Venezuela, the “Petro is an instrument to consolidate Venezuela’s economic stability and financial independence, coupled with an ambitious and global vision for the creation of a freer, more balanced and fairer international financial system.”

Just a few months after Maduro first announced the idea of the oil-backed Petro, the U.S. prohibited in March U.S. dealings with any digital currency, coin, or token issued by Venezuela.

Experts and analysts are skeptical that the Venezuelan cryptocurrency is really backed by oil assets and minerals.

“Reaction from the cryptocurrency community has been a mixture of dumbfoundedness and anger,” Alex Tapscott from the Blockchain Research Institute told the BBC.

According to Tapscott, there isn’t any proof at all to back up Venezuela’s claim that each unit of the Petro is backed by oil.

“There is very little technical information about it,” he told the BBC, adding that the launch of the Petro is eclipsing a more significant development in Venezuelan economy – the trade of Bitcoins in bolivars has soared since the start of the year as people are trying to keep the value of their money amid inflation currently running at 13,860 percent, as per IMF estimates.

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How The Kavanaugh Vote Could Make Or Break Trump’s Legacy

As the US Senate prepares for an initial Friday cloture vote and subsequent confirmation vote on Supreme Court nominee Brett Kavanaugh as early as Saturday, many view the outcome as a “make or break” moment in President Trump’s legacy. 

If confirmed, Kavanaugh will shape US law for decades to come. As The Telegraph‘s Rozina Sabur notes, “The nine-member US Supreme Court will likely preside over cases that touch on issues ranging from abortion, gun rights, immigration, labour rights to campaign financing – and Mr Kavanaugh may be a key swing vote.” 

Kavanaugh’s ascension would likely give the US Supreme Court its most conservative bench in several decades – although as Sabur points out, his characterization of Democrats as organizing an “orchestrated political hit” may raise questions over whether he might have to recuse himself from a vast number of cases which might appear before the court. Rozina also suggests that a Kavanaugh confirmation could spark backlash among female voters, “who may punish Republican candidates standing in November’s midterm elections.” 

Ongoing investigations?

The Telegraph notes that if Democrats take control of the House of Representatives in the midterm elections, which pollsters deem likely, they might demand further investigations into Kavanaugh’s past conduct – and may even float the notion of impeaching him if he is confirmed. 

Impeaching a judge follows the same process as impeaching a president, requiring the House of Representative to vote on the motion then move to the Senate for a trial.

However two-thirds of the Senate must vote in favour of removing an official from office. –The Telegraph

What happens if they vote no? 

If the Senate fails to confirm Kavanaugh, “the first question for Mr Trump is whether to pick another nominee or give Mr Kavanaugh a second shot,” writes The Telegraph. This suggestion was supported by Senator Lindsey Graham – a former “Never Trump” Republican who, at least in this case, is a Trump ally. Graham argues that it would make the Supreme Court nomination a key ballot issue in November, and might create a surge of conservative voters heading to the polls, out of concern over Democrats wrestling power back

the political makeup of the next Congress will have a huge impact on who Mr Trump puts forward for America’s highest court.

The president will have to pick another nominee which has the support of his base but one that can get the bipartisan support needed to be confirmed by the Senate.

Republicans have been determined to rush through Mr Kavanaugh’s nomination before the November elections because passing their preferred candidate will be a far greater task if they lose their majority. –The Telegraph

A “no” vote will also have great implications for the Supreme Court, which has been sitting with just eight judges since October 1; four Democrats and for Republicans. 

Referendum on Trump

As The Telegraph also points out, the biggest fallout from a failure to confirm Kavanaugh will be political – and a “massive failure for the president” to be unable to secure a conservative USSC nominee while enjoying a Republican-controlled Congress. “Who would be held responsible for the blunder?” Sabur asks. 

“whether Mr Trump’s supporters will blame the president’s party or the Democrats remains to be seen – either way it will add pressure on him to produce results ahead of his re-election battle in 2020” –The Telegraph

Meanwhile, liberal USSC Justice Ruth Bader Ginsburg is 85-years-old and takes frequent naps.

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De-FANG’d – Bond Bloodbath & China Cheating Monkeyhammers Market

Do you feel like the rabbit today?

 

China remains closed for Golden Week, but Offshore Yuan broke significant support and is pushing back down to its cycle lows…

 

And Gold in Yuan bounced back to its relatively stable levels…

 

We warned yesterday (courtesy of Bloomberg’s Cameron Crise) that the velocity of the bond yield spike was not the friend of stocks… this yield move is entering the “danger zone” for stocks. The 30bps spike in the last 5 weeks falls into the cohort where average and median equity performance has been negative over the following five weeks. Do with that information what you will, but realize that with this kind of price action the bond market is not the equity market’s friend.

 

 

And sure enough – it wasn’t…Nasdaq was the day’s worst performer…Selling really escalated when Europe closed…

 

But Small Caps remain worst on the week…

 

Nasdaq broke down below its 50DMA…

 

VIX broke above 15.50 intraday…

 

FANGs were proper f**ked…

 

All the FANGs are down hard this week…

 

TSLA Tumbled too…

 

Semis were slammed on the China spying allegations…

 

Financials started the day off well but rapidly gave it all back before a late bounce…

 

But financials erased all of Tech’s relative outperformance from September…

 

Homebuilder stocks are down 12 days in a row…

 

Hedge funds are back to their weakest level in 10 months…

 

High yield bond ETF prices plunged…

 

After yesterday’s ugliness in the bond market, today was sideways trading (higher in yield) as the pain was transmitted to stocks via RP strategies…

10Y ended the day higher in yield but well off the highs…

 

The Dollar rallied after the close last night on hawkish Powell headlines then dumped back into the red during the European day… rallying back into the green once Europe closed…

 

Cryptos bounced today with Ripple and Ether just in the green for the week…

 

Dollar’s rebound stalled commodities and WTI finally sold off…

 

Gold held above $1200 and Silver failed to hold above its 50DMA again…

 

In dollar terms, the past six months have seen the largest ever reduction in the combined balance sheets of the ECB, PBOC, BOJ and the Fed

Finally we note that the divergence between the US and the rest of the world is now at a 30 year high…

As Bloomberg notes, the MSCI U.S.A. Index is up about 10 percent in 2018 through Wednesday, compared with a drop of 6 percent for the MSCI AC World ex-U.S. gauge, as investors flock to American equities amid rising profits fueled by the U.S. tax-code overhaul. Credit Suisse Group AG analysts see the “extreme” performance gap as a sign of stretched valuations and expect the U.S. dominance to end soon.

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Flip-Flop Flake “Still Having Issues” With Kavanaugh Despite “Thorough” FBI Report

Elaina Plott of The Atlantic reports that GOP Senator Jeff Flake (AZ) – the key holdout in the Kavanaugh confirmation, and retiring lame duck – is “still having issues” despite calling the FBI report that he insisted upon “thorough” and agreeing that it did not corroborate claims made by Kavanaugh accuser, Christine Blasey Ford. 

How has Flake flip-flopped throughout the Kavanaugh confirmation process? Plott counts the ways…

Flake’s waffling is undoubtedly troublesome for Republicans, however if GOP Senator Susan Collins of Maine still votes “yes” as was implied by comments she made earlier Thursday, and/or the vote is otherwise tied, Kavanaugh could still be confirmed by Vice President Mike Pence. 

Meanwhile, Flake’s – after a 15-year career on Congress – will be remembered as a Democratic shill. 

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How Will The Surge In Oil Prices Impact US GDP: One Bank Answers

Back in late 2014, when oil prices tumbled after the OPEC “thanksgiving massacre“, the conventional narrative was that dropping oil prices were a boon for the economy as they resulted in lower gas prices and thus greater discretionary income. The stark reality emerged quickly, however, once US corporations halted capex spending, resulting in a mini-recession for business investment coupled with dozens of shale bankruptcies.

Fast forward 4 years when Brent oil prices are trading back near $85/barrel, their highest level since October 2014, right before they tumbled. And with the “lower oil is beneficial for GDP” narrative discredited, following the recent rally, questions about the economic impact of oil prices have resurfaced, among them: have higher oil prices contributed to the upside surprises to 2018 growth via higher energy capex, as Chairman Powell suggested last week? Can US shale further ramp up production when capacity constraints are looming? Do higher energy prices still exert a meaningful drag on consumer spending and boost core inflation in an era of increased energy efficiency?

This is an analysis that Goldman conducted this week, and found that higher oil prices have had a neutral impact on GDP growth so far this year with a -0.25pp contribution from lower real consumption roughly offset by a +0.25pp contribution from higher energy capital spending. However, if oil prices remain at their current level the net growth contribution will decline to -0.1pp to -0.2pp in 2018Q4 and 2019H1.

The key reason is that while higher oil prices will remain a steady drag on consumption growth, the boost to energy capex is likely to shrink as the shale industry runs into transportation capacity constraints. It is only in 2019 H2 that the eventual arrival of new pipelines will likely trigger a re-acceleration of energy capital spending.

Stepping back for a look at the big picture, Goldman adds up the consumer spending and energy capex channels, with the estimated net effects of energy price moves on GDP growth shown in the chart below.

Overall, Goldman expects that oil prices will turn from a roughly neutral factor for GDP growth year-to-date into a 0.1-0.2pp headwind in Q4 and 2019H2, as the 0.25pp drag from lower consumer spending will soon outweigh a shrinking 0.1pp contribution from energy capex.

And, as noted above, it is only in 2019H2 that oil is likely to turn roughly neutral as capacity constraints ease and the drag on consumer spending dwindles. Importantly, the binding constraint of a lack of transportation solutions leaves the risks to this growth impulse as skewed to the downside if prices rally further, given the lopsided negative impact on consumption in coming quarters.

What about the impact of oil prices on US inflation?

Goldman finds that in addition to substantially lifting headline inflation, the recent rise is likely also contributing to the rise in core inflation. It then estimates the energy contribution to year-over-year core PCE inflation will peak at 0.15% around the turn of the year before edging lower to 0.1pp by end-2019. The peak core inflation boost from energy prices is therefore likely to occur around the time Goldman expects to see a meaningful boost from additional tariffs on imports from China.

In summary, Goldman expects higher oil prices to contribute to its forecasts of moderating GDP growth and gradually rising core inflation over the next several quarters.

The negative growth effects and positive inflation effects from higher oil prices bring us back, at least directionally, to the pre-shale era where oil shocks were often followed by sharp growth slowdowns or even recessions.

However, the bank does not see the recent rally as a major threat to its outlook for still “solid growth” in 2019 because consumers are now less vulnerable to rising energy bills than in prior cycles (the energy share in personal consumption has fallen from 10% in the early 80s to 4% today) and because the lifting of capacity constraints should bring the capex boost from shale back to life in H2.

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Big Name Funds Make A Killing As “Perfect Storm” Hits Bond Market

With a record pile up of shorts stalking the benchmark 10Y US Treasury…

… institutional funds who have been patiently betting against low yields in the United States and Europe are about to enjoy a big payday, as rates continue to rise across the globe and inflation finally picks up as the Phillips curve stirs from its decade-long coma.

Money managers like Goldman Sachs, Franklin Templeton and Aviva Investors are all part of a group of brand name investors who recently doubled down on short positions on long dated government debt. According to JPMorgan data , the largest 20 Euro mutual funds will also profit from the move as most of them shifted aggressively to short duration stances last month, suggesting they are in a good position for the “perfect storm” that has hit rates markets in recent days. 

Bonds are falling as a result of “strong” macroeconomic data in the US, continued “hawkish” sentiment from the Federal Reserve and strong commodity prices. At the same time German bund prices have dropped precipitously in sympathy, and also as a result of receding fears over Italy’s fiscal policy and the country’s corresponding economic trajectory (at least for now, that is as the Italian turmoil is far from over).

As such, all those who have been betting for some type of “normalization” in the bond market may receive their validation soon. James McAlevey, portfolio manager of the Aviva Investors Multi-Strategy Fixed Income Fund, told Bloomberg:

“We have a structural short duration position in the U.S. because we expect the Federal Reserve will continue normalizing policy and that inflation will increase as jobs growth and wage pressure builds. Market participants are at a point where they can start to have a conversation about shorting the European bond market.”

In anticipation of the move, Goldman went underweight European rates in its $3.4 billion strategic income fund over the summer. That added to the fund’s already negative duration stance and was catalyzed by the expectation that the ECB would start rising interest rates, following in the footsteps of the United States.

Franklin Templeton similarly reduced duration in its flagship global bond fund to minus 1.14 years at the end of the second-quarter. The manager of that fund stated on Bloomberg that he believed treasury yields could rise as high as 4%. Both of these funds have outperformed most of their peers over the last month.

And while the strong, if not overheating, US economy is the primary catalyst for the selloff, the double whammy has been the absence of new buyers. Yesterday, we highlighted Bill Gross’ thoughts on why foreign buyers – traditionally among the most passionate purchasers of US duration – have been absent. As Gross explained, the reason is the same as what we had noted in previous reports: a jump in hedging (or funding) costs.

“Euroland, Japanese previous buyers of 10yr Treasuries have been priced out of market due to changes in hedge costs,” Bill Gross tweeted Wednesday. “For insurance companies in Germany/Japan for instance, U.S. Treasuries yield only -.10%/-.01%.”

Gross was referring to the falling cross-currency basis, which has driven U.S. 10-year equivalent, or hedged yields to -0.06% for European investors and 0.09% for Japanese buyers who hedge against currency fluctuations through swaps, as the following Bloomberg chart shows:

Whatever the reason behind the sharp drop in US paper, others have been focused on Europe where yields are far lower. DWS Group reduced the European interest-rate risk in its $130 billion multi-asset portfolios. Money manager Christian Hille told Bloomberg, “The risk of being wrong on the long-duration side in Europe is much higher than in the U.S.”

Many funds have struggled with this trade over the course of the last year. Funds like Franklin Templeton have underperformed as they waited for yields to climb. They believe now, more than ever, that the time is right for such positioning. 

Hille and other strategists expect the growth and inflation trajectory for the Euro area to stay on course, ultimately resulting in the ECB to normalize policy next year.

Now, if only they knew what “normalize” meant, and perhaps more to the point, how long before “normalized” rates result in the next recession, sending yields plummeting as the ECB is forced to renew its QE, and restarting the yield cycle from scratch.

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Traders Afraid To Drop F-Bombs Thanks To AI-Powered “Big Brother-Style Surveillance” 

Currency traders – monitored by “24-hour Big Brother-style surveillance” in the wake of a global scandal which resulted in $14 billion in fines – are so petrified of AI-powered compliance systems that they’ve stopped swearing over the phone, reports Bloomberg

Traders today are subject to 24-hour Big Brother-style surveillance that goes beyond the scrutiny of equity and bond desks. It uses machine learning and artificial intelligence to lurk in chatrooms, listen in on phone conversations and flag anything that might carry the whiff of criminal or abusive practices. The clampdown was described by more than a dozen industry participants, including those flagged for rough language, who requested anonymity because they weren’t authorized to speak publicly. –Bloomberg

“It’s been a nightmare” said Swiss asset manager Thomas Wind. “No one can do anything.” 

Wind was flagged by the compliance department from his friend’s bank after he sent a publicly available news story. After he argued that he should be able to send a public document, he was told that the bank would continue to monitor the conversation. 

Former HSBC Holdings Plc currency boss Mark Johnson was the first to be convicted, and three ex-traders from other banks are scheduled to go on trial Oct. 9 in New York. –Bloomberg

Trading records analyzed

The silicon sleuths are also poring over trading records, scanning for unusual transaction sizes, abnormal prices or suspicious timing, according to Steve LoGalbo, a director at compliance software vendor NICE Actimize. 

The advanced snooping was implemented following a price-rigging scandal that led to massive fines and sweeping reforms by regulators and foreign-exchange executives. “The three ex-traders — Richard Usher, formerly of JPMorgan Chase & Co.; Chris Ashton, previously at Barclays Plc; and Rohan Ramchandani who was at Citigroup Inc. — are charged with conspiring to fix the market while participating in an electronic chat room known as “the Cartel,“” writes Bloomberg

Between 2014 and 2017, broker-dealer divisions at several banks spent around $2.3 billion on compliance, with surveillance accounting for roughly half of that according to Danielle Tierney, a senior analyst at Aite Group. 

Extreme caution

Dishonest traders have “opened the eyes of buy-side participants to be very cautious and wary,” when interfacing with banks, according to Vanguard’s head of FX trading, Andy Maack. Two years ago Maack was critical of a controversial practice known as “last look,” which allowed traders to back out of losing trades at the last second. 

“The pendulum always swings, and swings hard, the other way after periods of scandals and fines,” said Maack. 

Some financial firms are taking fingerprints to prevent financial crimes, and several banks have moved front-office staff into risk departments to police their ex-colleagues, according to the currency traders who asked not to be identified. Some bankers say they avoid meeting socially to prevent the appearance of collusion. Even jokes are discouraged. –Bloomberg

BNP Paribas SA co-head of FX local markets and commodity derivatives, Adrian Boehler, says that bolstering standards is a “commercial opportunity.” BNP agreed to pay $686 million in fines over the last 24 months for misconduct, and now segregates order information while automating various trades to avoid conflicts of interest. 

According to a February statement by Boehler, he is “personally liable for anything untowards that happens on my watch,” and “Consequently, I sleep much better at night knowing that I have embedded in the first line of defense, i.e., embedded in the business, a surveillance mechanism which gives me feedback from the front line.”

At the Federal Reserve Bank of New York, audit and compliance teams are “pretty tough,” said Simon Potter, head of its markets group. The bank’s operations are reviewed by independent risk teams, separate from the trading desk, forming a second line of defense against misconduct, Potter said. Companies that sit on the foreign exchange committee overseen by the New York Fed also have a similar setup, Potter said at a July conference. –Bloomberg

The Fed’s Potter is currently spearheading an effort to overhaul standards and rebuild trust in the FX trading market, which is mostly over-the-counter, global, and doesn’t fit very well under the authority of any one single regulator. 

Concerns remain

Despite the billions spent on AI-powered surveillance and other compliance measures, concerns still remain over the controversial practices of last look and front-running. 

The zero-tolerance approach among many industry executives means that FX staff have to accept heightened scrutiny if they want to stay in the business. Some market participants complain that the tactics used are inefficient and ineffective. –Bloomberg

Former FX analyst for the New York Fed, Maya Rodriguez, believes that “Only when traders see that they can go to jail will they improve their behavior.

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