The Collapse Of Venezuela’s Imaginary Oil Currency

Submitted by Nick Cunningham at Oilprice.com

Earlier this year, Venezuelan President Nicolas Maduro rolled out his latest scheme to rescue his economy, offer an alternative to the increasingly worthless bolivar, and skirt U.S. sanctions on financial transactions. But Maduro’s cryptocurrency, supposedly backed by Venezuela’s oil reserves, is a very hollow promise.

To be sure, few analysts expected much from the “petro,” Maduro’s hastily launched cryptocurrency. One petro was supposed to be backed by one barrel of oil, and the vast reserves of oil located in a specific part of Venezuela were promised as a backstop for the new cryptocurrency. It was always an odd scheme. After all, what makes the petro any different from the bolivar, Venezuela’s official currency? Isn’t the value of and faith in the bolivar also effectively backed by the country’s oil wealth?

Well, the bolivar is worthless, and Maduro wanted to start anew. Maduro thought the petro would help the government avoid the reach of U.S. sanctions, at least in theory. But the new cryptocurrency has unsurprisingly failed to catch on.

The petro is supposed to be backed by 5 billion barrels of oil located in Atapirire, a small town in Venezuela’s remote savanna in the middle of the country. Reserves in this region are the lynchpin of the petro, and as such, they are intended to underwrite the regime’s plan for economic recovery.

But as Reuters details in a special report, the region is not only lacking in oil production, but there is no visible effort at developing oil in this area at all. The only evidence of an oil presence were old rigs that have clearly been inoperable for a long time, as they are rusted out and covered in weeds. “There is no sign of that petro here,” a local resident told Reuters. Worse, the town suffers from blackouts, hunger, poverty and decrepit infrastructure, an increasingly common plight for the country on the whole.

More broadly, there is “little evidence of a thriving petro trade,” Reuters correspondent Brian Ellsworth concluded, after interviewing dozens of cryptocurrency experts over a period of months. Maduro says that the sale of the petro have translated into $3.3 billion in funds for the government, a claim that is suspect, to say the least.

Even a cabinet minister involved in the project told Reuters that “nobody has been able to make use of the petro…nor have any resources been received,” and that the technology for the digital token is still under development. And unlike other initial coin offerings (ICOs) for startup cryptocurrencies, which can point to digital records of transactions, there is little evidence that supports Maduro’s notion that trading activity of the petro is thriving.

Adding to the monetary confusion is the assertion by Maduro that the bolivar is now pegged to the petro. It’s not even clear what that means in practice, and experts say its “unworkable,” according to Reuters. “There is no way to link prices or exchange rates to a token that doesn’t trade, precisely because there is no way to know what it actually sells for,” Alejandro Machado, a Venezuelan computer scientist and cryptocurrency consultant who has closely followed the petro, told Reuters.

It would all be laughable if the economic meltdown in Venezuela wasn’t so dire and the oppression and mismanagement from the Maduro government didn’t exact such massive a human toll.

Meanwhile, Venezuela’s oil production continues to erode at a rapid rate. Output fell to just 1.278 million barrels per day in July, down roughly 50,000 bpd from a month earlier and down more than 500,000 bpd since the fourth quarter of 2017.

There is almost no chance of improvement for the foreseeable future. Argus Media reported last week that Venezuela’s crude exports could fall by a third in September because of a tanker collision at an export terminal run by PDVSA. The terminal’s capacity could be hampered by around 425,000 bpd for the month. “But this assumes that PdV manages to repair and restart the dock operations by 30 September at the latest,” a PDVSA terminal official told Argus.

Thus, the meltdown continues. Maduro is going to need to come up with something better than a hapless and inept attempt at a new cryptocurrency to resolve the country’s deep depression.

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Senior Diplomat Exposes US Meddling In Russian Election

…It seems the tables have turned.

As Russian citizens prepare to head to the polls on Sunday to vote in regional elections, a senior Russian diplomat has revealed that Moscow has uncovered a US interference effort involving a Silicon Valley tech giant and activists opposed to the government of Russian President Vladimir Putin.

Google

Following a briefing on the matter, senior Russian diplomat Andrey Nesterenko told Russia’s Interfax news agency that the US “certainly does” meddle in the Russian electoral processes, as RT reported. The revelation followed reports that Russia has resumed a major airstrike of a reputed terrorist stronghold in Idlib province over the objections of President Trump, who warned that such a strike would be a humanitarian disaster.

“Our collective opinion is that electoral sovereignty is a principle that all civilized nations should respect” the diplomat said, adding that Moscow will notify “our American partners that the actions of their media outlets allow us to state that they are close to breaking Russian law.”

Specifically, Nesterenko was referring to a possible violation of Russian election laws by Google parent Alphabet, which hosted advertisements for an illegal campaign rally organized by Russian opposition leader Aleksey Navalny. Navalny is calling for protests to denounce the vote, which he believes is biased. To help spread the word, Navalny’s public movement is using paid ads on Google services like YouTube. However, holding an event dedicated to an election campaign on the same day as the vote goes against Russian law. The Russian Central Election Commission, media watchdog Roskomnadzor, and the Russian Anti-monopoly Service have reportedly informed Google about these illegal activities being carried out on its platform.

“Living in a proper law-abiding nation, we expect every actor to play by the rules. Especially an informed player. If the opposite happens, I believe we have tools at our disposal [to address that],” Andrey Kashevarov, the deputy head of FAS, said.

Vadim Subbotin, the deputy head of RKN, said YouTube ads “serve as a conduit for incitement of anti-social behavior during the election campaign.” He said Google and other social media platforms “offer virtually unrestricted instruments” to “individuals seeking to destabilize the situation in Russia.”

The revelations are just the latest example of US hypocrisy when it comes to election interference following reports that the FBI tried to recruit Russian oligarchs as informants. Aluminum magnate Oleg Deripaska, who was targeted by US sanctions earlier this year,  recently admitted in an interview with the Hill’s John Solomon that he colluded with the US government between 2009 and 2016, working as an FBI asset to try and free kidnapped former agent Robert Levinson. 

While the US hoped to glean information about Russian interference from these assets, they provided little help. Meanwhile, the cooperation of President Trump’s purported “Russian backchannel” with the US government is the latest piece of evidence pointing to the US government’s duplicity when it comes to interfering in the affairs of other nations.

As a reminder, the US is no stranger to this type of interference, as the map below clearly shows:

Russia

 

 

 

 

 

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Chuck Todd Blames Fox For Press Distrust, Urges Liberal Media To ‘Rise Up’

In what we initially assumed was a satire piece, NBC News’ ‘fair and balanced’ political chief Chuck Todd has taken to the auspiciously open-minded pages of The Atlantic to pen an op-ed  explaining how we’ve all got it all wrong – it is Fox News’ Roger Ailes who is to blame for press distrust and in fact, it is time for the mainstream liberal media to ‘rise up’ and defend their work.

Presented with no comment (but some emphasis), here is Chuck Todd explaining that “It’s time for the press to stop complaining… and start fighting back.”

Via The Atlantic,

A nearly 50-year campaign of vilification, inspired by Fox News’s Roger Ailes, has left many Americans distrustful of media outlets. Now, journalists need to speak up for their work.

I’ve devoted much of my professional life to the study of political campaigns, not as a historian or an academic but as a reporter and an analyst. I thought I’d seen it all, from the bizarre upset that handed a professional wrestler the governorship of Minnesota to the California recall that gave us the Governator to candidates who die but stay on the ballot and win.

But there’s a new kind of campaign underway, one that most of my colleagues and I have never publicly reported on, never fully analyzed, and never fully acknowledged: the campaign to destroy the legitimacy of the American news media.

Bashing the media for political gain isn’t new, and neither is manipulating the media to support or oppose a cause. These practices are at least as old as the Gutenberg press. But antipathy toward the media right now has risen to a level I’ve never personally experienced before. The closest parallel in recent American history is the hostility to reporters in the segregated South in the 1950s and ’60s.

Then, as now, that hatred was artificially stoked by people who found that it could deliver them some combination of fame, wealth, and power.

Some of the wealthiest members of the media are not reporters from mainstream outlets. Figures such as Rush Limbaugh, Matt Drudge, and the trio of Sean Hannity, Tucker Carlson, and Laura Ingraham have attained wealth and power by exploiting the fears of older white people. They are thriving financially by exploiting the very same free-press umbrella they seem determined to undermine.

Much of the current hand-wringing about this rise in press bashing and delegitimization has been focused on the president, who – as every reporter in America sadly knows – has declared the press the “enemy of the people.” But, like much else in the Trump era, Donald Trump didn’t start this fire; he’s only spread it to a potentially more dangerous place.

The modern campaign against the American press corps has its roots in the Nixon era. President Richard Nixon’s angry foot soldiers continued his fight against the media even after he left office.

Roger Ailes, who went on to help found Fox News, was the most important of those figures. His sustained assault on the press created the conditions that would allow a president to surround himself with aides who argue for “alternative facts,” and announce that “truth isn’t truth.” Without Ailes, a man of Trump’s background and character could never have won. Roger Ailes was the godfather of the Trump presidency.

Nixon’s acolytes blamed the press for drumming a good man out of office. From their perspective, his crimes were no different from the misdeeds of the Kennedys or Lyndon B. Johnson—but only Nixon was held to account. Did they blame this on Nixon? On the voters? No, they blamed the stars of the Watergate drama, the heroes of All the President’s Men. They blamed the media.

Enter Roger Ailes.

He first made his name by taking credit for Nixon’s rise in Joe McGinniss’s campaign book, The Selling of the President 1968. Ailes was a media genius who understood better than most how to use television to move people. There’s a fine line between motivating people through TV messages and simply manipulating them. Ailes’s gift, and the secret to his success, was his comfort in plunging across that line and embracing the role of TV manipulator.

He made his name as a political TV-ad man, one of the pioneers of the field, but he couldn’t help dabbling in news and talk. As a network programmer, Ailes excelled at matching a mood with an audience. From Mike Douglas to Limbaugh to, later, Chris Matthews and Bill O’Reilly, Ailes had a gift for promoting engaging, smart, man-of-the-people talkers.

In the early ’90s, while he was president of CNBC, Ailes had a hunch that an evening lineup catering to a culturally conservative audience would thrive. He wanted to give his theory a chance, but he was passed over for the leadership of the network’s new channel, MSNBC. Enter Rupert Murdoch. The mogul bought into Ailes’s theory, and in 1996 they launched Fox News with the slogan “Fair and balanced.”

From the very beginning, Ailes signaled that Fox News would offer an alternative voice, splitting with the conventions of television journalism. Take the word balanced. It sounded harmless enough. But how does one balance facts? A reporting-driven news organization might promise to be accurate, or honest, or comprehensive, or to report stories for an underserved community. But Ailes wasn’t building a reporting-driven news organization. The promise to be “balanced” was a coded pledge to offer alternative explanations, putting commentary ahead of reporting; it was an attack on the integrity of the rest of the media. Fox intended to build its brand the same way Ailes had built the brands of political candidates: by making the public hate the other choice more.

Ailes’s greatest gift as a political strategist lay not in making his clients more electable, but in making their opponents unelectable. His last formal presidential campaign was in 1988. Then–Vice President George H. W. Bush was on his way to defeat when Ailes helped orchestrate a devastating campaign against Michael Dukakis, exploiting a series of superficial issues that touched many voters’ cultural beliefs and fears about everything from the Pledge of Allegiance to furloughs for violent felons. Ailes helped destroy Dukakis by making him seem an other to many Americans.

Fox News adopted a similar strategy, rarely showcasing its own reporting or journalism. There are some great journalists at Fox, including Chris Wallace, Bret Baier, and Shep Smith, but it’s not an organization that emphasizes journalism. Instead, Ailes created an organization that focuses on attacking the “liberal media” whose “liberal bias” was ruining America. Almost anybig story that was potentially devastating to a conservative was “balanced” with some form of whataboutism. The Ailes construction has been so effective that these days, I often get mail from viewers who say: Now that you’ve focused on all of President Trump’s misdeeds, you are biased if you don’t dedicate the same amount of time to Hillary Clinton’s misdeeds. It seems completely lost on this segment of the population that one person is the leader of the free world, and the other is a retiree living in the suburbs of New York City. Because journalists report on new and controversial ideas all the time, it’s not uncommon for us to be accused of championing an idea—think of same-sex marriage—that some members of our audience find objectionable. Letting folks know that a movement is afoot, and documenting its successes and failures, is our job. But Ailes exploited the public’s lack of knowledge of journalistic conventions, portraying reports aboutsocial change as advocacy for such change. He played up cultural fears, creating the mythology of a biased press.

Reporters, I fully acknowledge, bring their own biases to their work. The questions they ask, and the stories they pursue, are shaped by things as simple as geography. I grew up in Miami; I follow Cuban politics more closely than many other Americans did. As a result, when I covered the White House, I was more likely than my colleagues to ask questions about Cuba. A New York–based reporter may approach reporting on guns, or on evangelical Christianity, differently than a reporter in Pensacola, Florida.

The charge of media bias can encompass a great many different problems. Critics, for example, may be pointing to the way that certain journalists pay more attention to some issues than to others, or complaining about the unquestioned assumptions reflected in journalists’ work. These are real issues, and most journalists labor to correct them. At the other extreme, critics may be accusing journalists of having deliberately and consciously shaped their reporting to serve some political end. That sort of overt bias is far rarer. Ironically, the best example of this kind of bias airs regularly in prime time on Fox News.   

But this was the genius of Roger Ailes. He didn’t sweat the nuance; he exploited it. Errors of omission and commission, inadvertent inattention and willful disregard, unconscious assumptions and deliberate distortions—Ailes collapsed all of it into the single charge of bias.

And what did we reporters do in the face of this cable onslaught that would eventually turn into a social-media virus and lead us to the election of the most fact-free presidential candidate in American history? Nothing.

We did nothing, because we were trained to say nothing. Good reporters know that they have to let the chips fall where they may, and that criticism comes with the gig. We know that the loudest squealers are usually the ones we’ve exposed doing something untoward—and that eventually they’ll get theirs.

“Don’t engage” is a phrase I’ve heard internally at NBC over the decade I’ve been here. And “Don’t engage” was a mantra that I actually believed in. I embraced it. On most days, I still want to believe that eventually, the truth will matter. That eventually, folks will see through the silly name-calling and recognize good reporting.

In fact, we not only failed to defend our work in real time from this onslaught; we helped accelerate the campaign to delegitimize the American press corps. From unforced errors by high-profile anchors to the biggest missed news story of the 21st century—the lack of weapons of mass destruction in Iraq—we have handed critics some lethal ammunition. There’s not a serious journalist alive who hasn’t had one of those “gulp” moments when you realize that you really messed up. But serious journalists correct the record, serious journalistic organizations allow themselves to be held to account, own up to mistakes, and learn from them so they can do a better job the next time. I’m fully aware that some entity will try to tarnish this piece simply because I work at a news organization that, yes—gasp—has made mistakes. Here’s what comforts me: The record is there for all to see. The same can’t be said for the manipulators who aren’t playing by any set of serious journalistic rules.

The American press corps finds itself on the ropes because it allowed a nearly 50-year campaign of attacks inspired by the chair of Fox News to go unanswered.

If you hear something over and over again, you start to believe it, particularly if the charge is unrebutted. The Trump team now keeps pounding this message, compounding the challenge. And the president faces little penalty with his voters, no matter how disparagingly he talks about the press corps; it’s precisely what Ailes conditioned them to believe.

For me, idle death threats are now the norm. (I don’t take them seriously, because if I did, I’d never feel at peace.) But forget the personal animus or safety issues reporters now face. American democracy requires a functioning press that informs voters and creates a shared set of facts. If journalists are going to defend the integrity of their work, and the role it plays in sustaining democracy, we’re going to need to start fighting back.

The idea that our work will speak for itself is hopelessly naive. Fox, Limbaugh, and the rest of the Trump echo chamber have proved that. Meanwhile, even in Ailes’s absence, Fox seems more comfortable than ever pushing the limits of responsible behavior by a supposed news organization. It recently allowed a sitting state attorney general to co-host a show for three days. The network effectively gave a GOP candidate for Florida governor nearly unfettered access to its airwaves during his primary campaign, providing a more significant boost than any super pac can offer. The fact that so few viewers batted an eye shows how conditioned they have become to the network’s unique ethical standards.

Does this mean that other cable-news networks should follow Fox News’s lead and become advocates? That’s not the answer. Newspapers did this in the early 19th century, when they operated as arms of the political parties. And while American democracy survived, the polarization of the early republic produced threats, brandished weapons, and even open violence on the floors of Congress with shocking regularity.

Instead of attacking rivals, or assailing critics—going negative,in the parlance of political campaigns—reporters need to showcase and defend our reporting. Every day, we need to do our job, check our facts, strive to be transparent, and say what we’re seeing. That’s what I’ve tried to do here. I’ve seen a nearly 50-year campaign to delegitimize the press, and I’m saying so. For years, I didn’t say a word about this publicly, and at times I even caught myself drawing false equivalencies because I was afraid of being labeled as biased. I know that stating the obvious will draw attacks, but I’ve also learned that the louder critics bark, the more they care about what’s being reported.

I’m not advocating for a more activist press in the political sense, but for a more aggressive one. That means having a lower tolerance for talking points, and a greater willingness to speak plain truths. It means not allowing ourselves to be spun, and not giving guests or sources a platform to spin our readers and viewers, even if that angers them. Access isn’t journalism’s holy grail—facts are.  

The truth is that most journalists, in newsrooms large and small across the country, are doing their best each day to be fair, honest, and direct. These values are what Americans demand of one another, and it should be what they demand of their media. The challenge for viewers and readers is this: Ask yourself why someone is so determined to convince you not to believe your lying eyes.  

*  *  *

Congratulations Chuck, Orwell would be proud.

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In Olive Branch To Trump, Xi Jinping Sends Right-Hand Man To North Korea

President Xi Jinping will send his right-hand man to North Korea as nuclear negotiations between Pyongyang and Washington recently hit a snag. SCMP reports that Li Zhanshu – chairman of the National People’s Congress and the third-ranking official in the ruling Communist Party’s Politburo Standing Committee – will go to North Korea on Saturday.

Li will attend the 70th anniversary event to mark North Korea’s founding on Sunday. He will be travelling as a special representative of Xi, indicating that the president is not likely to attend the event himself as an earlier report suggested. Li will be the highest level Chinese official to visit North Korea since Xi came to power in 2012. The last Politburo Standing Committee member to go to Pyongyang was Liu Yunshan, in 2015.

President Trump said in late August that he did not believe Beijing was “helping with the process of denuclearisation as they once were” – a remark that sparked anger in China whose foreign ministry described as “contrary to the facts.” Li’s visit comes as progress has stalled between Washington and Pyongyang following the landmark summit between Trump and North Korean leader Kim Jong-un in Singapore in June.

Critically, late last month, Trump cancelled a planned trip to the North by Secretary of State Mike Pompeo. That was followed by Jim Mattis saying America did not plan to suspend more joint military drills with South Korean forces amid reports Pyongyang was rejecting US demands to give up its nuclear warheads.

So why not Xi?

A Pyongyang official told South Korean media in July that the North had invited Xi for the 70th anniversary event, but Beijing did not confirm the reports. Analysts said sending Li was the “most appropriate” arrangement for China.

“With Trump stepping up his rhetoric against China over trade and North Korea, Xi going to Pyongyang would probably reinforce his thinking that Beijing has not been enthusiastic enough about denuclearisation,” said Zhang Baohui, an international relations professor at Lingnan University in Hong Kong. “Sending Li as a top official representative will help as a goodwill gesture to North Korea, but it avoids reinforcing Trump’s thinking.”

Boo Seung-chan, a research fellow at the Yonsei Institute for North Korean Studies in Seoul, said Xi appeared to have made a strategic decision to protect China’s national interests by trying to improve its relations with the US.

“If Xi went to Pyongyang after Trump’s warning, it could worsen the US tariffs situation for China and this ‘assertive China’ view held by other nations,” Boo said, adding that more trade actions would also make it difficult for China to pursue its goals.

“However, this does not mean relations between China and North Korea will worsen. Xi has carefully chosen his right-hand man, who he trusts to go in his place, which will show Pyongyang that it’s still important to Beijing … China’s strategy has not changed and so its relations and policies towards the North are also unlikely to change,” Boo said.

The anniversary on September 9 is one of the hermit kingdom’s most important annual holidays, along with the birthdays of late leaders Kim Il-sung and Kim Jong-il.

Lu Chao, a Korean affairs expert at the Liaoning Academy of Social Sciences, said sending Li to the anniversary celebrations was a sign China wanted to keep the momentum going in its relations with North Korea, even though Xi did not appear to be attending the event: “It means that China still holds its relations between the state and party of North Korea in high regard, and it’s a sign of China’s support for North Korea’s strategy.”

Finally, Michael Kovrig, senior adviser for Northeast Asia at the International Crisis Group, said Li would have the political savvy and foreign policy experience to gather insights about Pyongyang’s intended approach to negotiations with the US and South Korea. He added that sending Li to the event showed that North Korea’s standing had improved in China’s eyes.

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Chaos Erupts During Kavanaugh Hearings After Hecklers Begin Shrieking

Chaos erupted less than 30 minutes into Brett Kavanaugh’s Tuesday morning confirmation hearing with the Senate, as hecklers interrupted the session with loud shrieking. 

Meanwhile, the hearing itself got off to a contentious start after Democratic Senators began interrupting Senate Judiciary Committee Chairman Chuck Grassley (R-IA). The Democrats, starting with Sen. Kamala Harris (D-CA) demanded that Grassley adjourn the hearings, while Sen. Klobuchar (D-MN) called for the same.  

“We cannot possibly move forward,” said Harris, to which Grassley said she was out of order. Protesters erupted in the gallery upon the Democratic Senators’ interruptions. 

Democrat Cory Booker of New Jersey asked “what is the rush?” to confirm Kavanaugh amid the largest release of documents in USSC nominee history. 

“What are we trying to hide? Why are we rushing?” asked Sen. Patrick Leahy (D-VT), to which Grassley responded: “I think if I answer those questions it is going to fit into the effort of the minority to continue to obstruct, and I don’t think that that’s fair to our judge.”

Democrats slammed the Trump administration on Sunday for refusing to release thousands of documents related to Kavanaugh, after attorneys for the Bush II administration – in which Kavanaugh worked –  said that approximately 27,000 records would be off limits under “constitutional privilege.” 

In a Saturday press release, the Senate Judiciary Committee said that they had “expanded access to confidential material beyond that for any other Supreme Court nominee.” 

*Productions for Judge Brett Kavanaugh records are nearly complete.

Developing…

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Ron Paul: Why Can’t The United States Just Leave Syria Alone?

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Assad was supposed to be gone already. President Obama thought it would be just another “regime change” operation and perhaps Assad would end up like Saddam Hussein or Yanukovych. Or maybe even Gaddafi. But he was supposed to be gone. The US spent billions to get rid of him and even provided weapons and training to the kinds of radicals that attacked the United States on 9/11.

But with the help of his allies, Assad has nearly defeated this foreign-sponsored insurgency.

The US fought him every step of the way. Each time the Syrian military approached another occupied city or province, Washington and its obedient allies issued the usual warnings that Assad was not liberating territory but was actually seeking to kill more of his own people.

Remember Aleppo, where the US claimed Assad was planning mass slaughter once he regained control? As usual the neocons and the media were completely wrong. Even the UN has admitted that with Aleppo back in the hands of the Syrian government hundreds of thousands of Syrians have actually moved back. We are supposed to believe they willingly returned so that Assad could kill them?

The truth is Aleppo is being rebuilt. Christians celebrated Easter there this spring for the first time in years. There has been no slaughter once al-Qaeda and ISIS’ hold was broken. Believe me, if there was a slaughter we would have heard about it in the media!

So now, with the Syrian military and its allies prepare to liberate the final Syrian province of Idlib, Secretary of State Mike Pompeo again warns the Syrian government against re-taking its own territory. He Tweeted on Friday that:

“The three million Syrians, who have already been forced out of their homes and are now in Idlib, will suffer from this aggression. Not good. The world is watching.”

President Trump’s National Security Advisor, John Bolton, has also warned the Syrian government that the US will attack if it uses gas in Idlib. Of course, that warning serves as an open invitation to rebels currently holding Idlib to set off another false flag and enjoy US air support.

Bolton and Pompeo are painting Idlib as a peaceful province resisting the violence of an Assad who they claim just enjoys killing his own people. But who controls Idlib province? President Trump’s own Special Envoy for the Global Coalition to Counter ISIS, Brett McGurk, said in Washington just last year that, “Idlib province is the largest al-Qaeda safe-haven since 9/11, tied to directly to Ayman al Zawahiri, this is a huge problem.”

Could someone please remind Pompeo and Bolton that al-Qaeda are the bad guys?

After six years of a foreign-backed regime-change operation in Syria, where hundreds of thousands have been killed and the country nearly fell into the hands of ISIS and al-Qaeda, the Syrian government is on the verge of victory. Assad is hardly a saint, but does anyone really think al-Qaeda and ISIS are preferable? After all, how many Syrians fled the country when Assad was in charge versus when the US-backed “rebels” started taking over?

Americans should be outraged that Pompeo and Bolton are defending al-Qaeda in Idlib. It’s time for the neocons to admit they lost. It is time to give Syria back to the Syrians. It is time to pull the US troops from Syria. It is time to just leave Syria alone!

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US Manufacturing Survey Slumps To 9-Mo Lows Or Explodes To 14-Yr Highs

Following July’s drop in US manufacturing surveys, expectations remained lower for August as ‘hard’ data slumps to 11-month lows – but – as has become so ubiquitous in recent months – the surveys vehemently disagreed with each other.

Markit’s Manufacturing PMI survey fell from 55.3 to 54.7 (the lowest since Nov 2017), but was very modestly better than the 54.5 flash print earlier in the month. Under the hood, Markit showed Output slowed to weakest since Sept 2017 and New Orders slipped to the weakest growth since Nov 2017.

ISM’s Manufacturing soared from 58.1 to 61.3 (smashing expectations of a modest drop to 57.6) – The highest since May 2004’s all-time record high.

 

Which as the chart below shows, is utterly idiotic!!!

 

Under the hood in ISM, New Orders and Production surged (channel-stuffing ahead of tariffs?) as Prices Paid dropped and Export Orders contracted…

New Orders rebounded notably…

However, Chris Williamson, Chief Business Economist at IHS Markit said something very different from ISM:

“Manufacturers reported the smallest output rise for almost a year in August, suggesting production growth could be as weak as 0.2% in the third quarter.

Williamson continues:

“Exports remain the key source of weakness for producers, with foreign orders barely rising in August after two months of modest declines. The strongest growth is being seen in consumer-facing companies, reflecting robust domestic demand, in turn linked to the strong labour market and buoyant consumer confidence, though even here growth has slowed.

“However, at least some of the slowdown compared to earlier in the year reflects production being curbed by widespread shortages of inputs, hauliers and labour, leading to a further build-up of backlogs of work. For producers of investment goods such as plant and machinery, order books are backing-up at a rate not exceeded in over ten years.

Tariffs and trade wars were also commonly cited as factors behind companies building safety stocks of inputs to ensure supply or lock-in lower prices, exacerbating supply shortages and also driving prices even higher.

“Looking at the survey responses, almost two-thirds (64%) of companies reporting higher input prices explicitly blamed tariffs as the cause of increased costs. Almost one-in-three went on to cite tariffs as the cause of having to hike prices to customers. Overall price pressures eased somewhat, however, which if sustained could take some heat off consumer price inflation in coming months.”

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Peso, Rand Plummet As Emerging Market Crisis Deepens

The EM contagion is slamming currencies around the globe, and while the Turkish Lira remains relatively immune for the time being, traders are now focusing their attention on the South African rand and the Argentine peso, both of which are in freefall this morning.

The ZAR has plunged 3.2%, the most since Nov. 10, 2016 on a closing basis, after the country reported that it had unexpected slumped into recession, which in turn is reigniting concerns about a rating agency downgrade. At the same time, the yield on rand-denominated government bonds has jumped 24bps to 9.24%, the highest since Dec. 1.

The Argentine peso is the other EM currency in freefall this morning, dropping 5.5% to 39 per dollar (vs the Friday close dueo the Monday US holiday) when the market opened in Buenos Aires Tuesday following a new series of measures announced by the government on Monday, including new export tariffs to help close fiscal gap by 2019, a move which the market clearly finds insufficient.

As Bloomberg notes, NY-traded shares of Argentine companies opened down, with the Bank of New York Mellon Argentina ADR Index dropping 4.4 percent at the open. Bank stocks led declines with drops of as much as 13 percent.

 

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The First Global Domino Tips

Authored by Jeffrey Snider via Alhambra Investment Partners,

It’s hard to believe it was only about three months ago. Time flies when disaster unfolds all around you. In early June, Brazil’s central bank arranged a press conference where its President Ilan Goldfajn would set everyone straight. The currency was falling, he admitted, but it would be easily handled by closely following the Portuguese version of the global central bank handbook.

Sometimes you just have to admire the unrivalled brazenness of these guys and gals. Or, as I put it at the time, Goldfajn just called everyone stupid. He would have to believe that of us because Brazil has been through this before. Not in some long distant past disgrace, but just a few years ago. In fact, as he spoke, Brazil still hadn’t yet begun its recovery from the last time.

I couldn’t resist what I still think was appropriate snark in response:

We are just short of five years from when the last Banco chief called a press conference in 2013 to declare pretty much the same exact thing. Only then, Banco acted and had initiated a swap program that by early 2015 had extended to more than $115 billion. It ran so smoothly, the Brazilian economy is today celebrated as the model for how all EM crises should be handled.

Just kidding. Of course not. The real crashed and with it the Brazilian economy.

Is that ahead for Brazil, repeating the nightmare? Today’s statistics for Q2 2018 aren’t looking good, not that anyone who isn’t stupid would have expected otherwise.

Brazil’s economy had been decelerating for some time before. The currency, meaning dollar, and economy go hand in hand in that regard. Both BRL as well as Brazil’s economy each fell into an obvious “L” pattern. That’s not a very good template to follow in either direction, but it makes the potential re-emerging downslope that much more precarious.

Since the middle of last year when renewed “dollar” troubles arose (Q3), Brazilian GDP has been slowing. In the latest quarter, Q2 2018, real GDP grew by just 1% year-over-year. Not only is that the weakest in over a year, it’s becoming obvious in which direction everything is heading.

At its best point, real GDP expanded by a little more than 2%, the disappointing fruits of 2017’s globally synchronized growth. Following several years of the worst sustained contraction (inarguable depression) in the country’s history, to only “recover” that little suggests more than recent issues holding back not just Brazil’s economy.

If last year disappointed, this year was supposed to make up for it. That’s no longer likely to happen (it wasn’t a good bet to begin with). While GDP remained positive, the key internals did not.

Both industrial output and gross capital formation fell in Q2 reversing again only small gains during the last “reflation.” Industry declined by an annual rate of 2.4% (Q/Q, seasonally-adjusted) while capital formation fell by a sharp 7.2%.

The relative overperformance of overall GDP expansion, if it can be called that, during 2017 was due to the usual export contributions. As a resource economy, at the margins the export sector is a big contributor. In Q2 2018, however, exports dropped by an annual rate of 20%.

That big of a contraction for Brazilian exports is usually an indication of serious global trade distress. I’m sure the media will work in trade wars here, but there is no way that can account for these results. A dollar disruption, on the other hand, not only would, it has been behind each instance of global trade distress the last eleven years.

Household spending in Brazil was slightly positive, but has been essentially flat for a year now. Consumption is up just 0.4% in the three quarters since Q3 2017, and up only 3% from the bottom at the end of 2016. This despite HH consumption dropping by an incomprehensible 9% during the 2014-16 depression, the one that Banco officials in summer 2013 assured their people would never happen because of their monetary expertise.

To purposefully understate the situation, this is bad and it is likely just getting (re)started. It is therefore pretty understandable why the political and social situation is at times chaotic. People will put up with a lot, a sort of human societal inertia. They will even suffer an immense economic contraction and still look to the status quo for answers – but only if it seems reasonable the status quo might be able to offer any.

That’s what was so repugnant about the June 7 press conference. The consequences of central banker ineptitude are very real and at times so disastrous we just have no frame of reference for them. What you see above is a catastrophe, and all signs pointing to its unfortunate renewal, but one that isn’t unique.

The proportions are different in different places, but this global “L” is, well, global.

What you see above is not China’s economy controlling Brazil’s, rather it’s a pretty good reflection of the same force acting on both producing the same marginal ups and downs as well as the intensity and duration of each. Reflation #3 is unraveling and the reasons for its disappointing end are the same as those that came before it. There is no global growth because there can’t be. Central bankers don’t offer answers because they don’t have any. They don’t deliver solutions because they are the problem. They really, really don’t know what they are doing. 

After enough happy, optimistic time reality sets back in. Everyone gets hooked on hopes for the “V” until it becomes clear enough we are all stuck with the “L.” At that point, the whole thing, not just Brazil, starts to sink back into the red (below).

Eurodollar (and Eurobond) markets turn ugly on the downslope of the green, rolling the global economy over piece by piece, domino by domino, so that increasingly dark economic prospects feed into more ugliness in “dollars” and so on and so on. Soon enough, it becomes self-reinforcing leading eventually to the entirely-too-familiar downside and downturn. Reflation is the only thing that is transitory, the artificial, intermittent interruption in otherwise background eurodollar deflation.

Q2 2018 doesn’t appear to have been an outlier, either. So far, Q3 isn’t shaping up any better. Adjusting for interventions, and not just those of braindead Banco central bankers, this current quarter may have been worse.

In each of the prior eurodollar episodes, Brazil’s economy has every time been the first domino to tip. It wasn’t quite falling over in Q2, though now we know it is already leaning and unstable.

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Goldman Reinstates Coverage Of Tesla With Scathing “Sell” Report, $210 Price Target

Two weeks after JPM predicted that the Tesla “going private” transaction was bunk and slashed its price target on the electric car maker by $113 to $195, overnight it was Goldman’s turn, and now that the bank is once again unrestricted from advising Musk on the imaginary deal, Goldman analyst David Tamberrino is out with a scathing reinstatement of coverage, which carries a Sell rating and a $195 price target.

Goldman’s investment thesis, or lack thereof, is familiar to those who have read the company’s report on Tesla in the past. And while the core issue remains Tesla’s cash burn and the “exhaustion of higher price point buyers “, what is notable is that Goldman now focuses on growing competition – the same risk we highlighted several months ago – as the biggest challenge facing Elon Musk:

We have removed the NR designation from TSLA shares. We add TSLA to the Sell List with a 6-month price target of $210.  While we see the potential for a better near-term backdrop with growth in Model 3 production/deliveries driving positive FCF in 2H18, we believe this will likely not be sustained as working capital tailwinds abate and as spending ramps back up after a period of cash conservation. Further, we see the medium-to-longer term industry backdrop as challenging for Tesla’s products; this follows from an increasing number of EV launches from both traditional OEMs and other start-up competitors – at a time when the company’s product cadence hits a gap. Ultimately, we believe the intensifying industry dynamics combined with the phase out of the US Federal EV Tax Credit for Tesla customers – driving an exhaustion of higher price point buyers – could weigh on company gross margins and profitability. Altogether, we remain bearish on the company’s ability to execute, achieve its targeted production ramp/margins, and sustain FCF generation.

Goldman then focuses on the following 5 key points behind its bearish outlook:

  1. Electric vehicle competition on the come up … as Tesla product cycle takes a pause. With regional mandates and tightening CO2 standards, both traditional and new entrants are expected to launch several EVs in the coming years (Exhibit 2) – with a large crescendo in the early-to-mid 2020s. With Tesla not expecting to launch the Model Y until 2020 (and likely not ramp volume until 2021), we believe the company will see pressure to its lead in EVs as competition catches up.
  2. Demand / margins further tested as tax credit phases out. In addition to growing competition, TSLA will face the phase-out of the $7,500 US Federal EV Tax Credit beginning in 1Q19 – which has been a key point by sales associates when up-selling customers on the current offering of higher trim packaged Model 3s; as the incentive declines and base Model 3s are offered, we expect a downward trajectory to mix. Further, the loss of EV tax incentives has typically corresponded with declines in demand for EVs. We expect both to present challenges to TSLA hitting its gross margin targets.
  3. Balance sheet a concern. The company has seen net-debt balances increase each quarter – partly due to its on-balance sheet lease activities, but also as cash has declined. Customer deposits have helped keep the company above our estimate for minimum cash balance (i.e., a $2bn level given historical quarterly FCF burn of $1bn), but recently saw a sequential decline. With looming maturities on convertible debt (Exhibit 10), we believe the company would likely need to come back to the capital markets in 1H19.
  4. Estimates still well below the Street: Our 2018 through 2020 adjusted EBITDA estimates remain an average 19% below FactSet consensus expectations, largely from a slower demand cadence and lower forecast gross margin trajectory.

As a result of the above, Goldman sees downside to TSLA shares:

Our 6-month $210 price target (based on Automotive, Energy, and SolarCity segment valuations) implies 30% downside risk vs. 6% upside potential on average for our Americas Autos coverage. We believe investors that are looking to be long TSLA are essentially under-writing growth to approximately 3.5mn annual units by 2025 – which we believe will likely be challenging to achieve given incremental competition coming, current capacity levels, capex requirements, and historical operational execution.

As noted above, what is most notable in the latest report is Goldman’s focus on the changing competitive landscape as more and more EVs – many at lower price points – come on line. Here is the key excerpt:

While TSLA has developed a lead relative to OEM peers with respect to electric vehicle technology, we see increasing competition from new EV models launching from both traditional OEMs and new entrants leveling the playing field. This is coming as OEMs bring technologies to scale, battery pack costs decline, and the consumer payback period reduces. And while we still expect overall EV penetration to remain relatively low near-term, there is a multitude of new electric vehicles due to come to market on the back of increased spending (Exhibit 1-2). We believe this could lead to a more challenging demand environment and ultimately profitability trajectory for TSLA especially as the new models are launching across vehicle segments and price points – while TSLA has a slower launch cadence planned (historically a new vehicle every three years), and we believe the higher price point buyers for the Model 3 could be exhausted for TSLA by year-end. However, we recognize that timelines for some of these vehicle launches could be aspirational and execution issues could arise (from project funding, manufacturing issues, and/or market acceptance) from potential new-comers —driving less intense competition in the market.

Looking specifically at the products launching, Goldman points out that “we are seeing model variants across regions, product segments, and price points. This has come as battery electric vehicle (BEV) plans and launches have moved from being more niche at specific EV companies to increased investments from traditional OEMs focusing on launching EV models for mass production.”

Further, traditional OEMs are also launching a cadence pick up with multiple models and variants launching in succession, versus the slower launches typically seen from EV specific companies and startups.

And while the lower price point of the Model 3 should allow TSLA to be more competitive, it is still priced at a higher ASP than what is planned to be launched by many of the mass market models traditional OEMs and we believe this may come at a time where there is an exhaustion of higher price point buyers for EVs.

* * *

In addition to the competition, Goldman also highlights the gradual phase out of of tax incentives in the future, which the bank says is somewhat exacerbating the competitive environment, to wit:

TSLA is losing the US tax credit ahead of competition, posing further challenges to affordability at a time when competition is intensifying. This comes as we still believe the higher up-front costs of EVs require an equalizer to match internal combustion engine (ICE) as the current price differentials (approximately $8k on a like-for-like basis comparing just propulsion costs) to ICE vehicles still put EVs out of the mainstream. Even with cost savings versus ICE powertrains, we estimate that the payback period today is approximately 10 years. We believe that the payback period needs to decrease to around 2-3 years for mass-market consumer adoption (similar to the payback period that drove rapid hybrid adoption in the mid-2000s).

However, we do not see that occurring until 2025-2030. Looking at cases where EV incentives were cut or reduced in the past, EV sales saw significant reductions. Notably, we saw this occur in both Denmark and Hong Kong where TSLA previously had high market penetration (Exhibits 5-6). Ultimately, we see similar risk as the US Federal EV incentives will begin to phase out at the end of 2Q18 for TSLA and will completely end by the end of 2019, as other OEMs and competitors launch models (Exhibit 7).

It is worth noting that while the phase out of US tax credits would drive an increased price point to potential Tesla customers, even with the Federal Credit, TSLA pricing remains above comparable ICE models. Given this, Goldman believes the phase out will particularly impact demand for TSLA’s higher priced models (Model X and S, and higher trim Model 3 offerings), while TSLA will begin offering a lower priced variant of the Model 3. This could further weigh on the company’s ability to hit its gross margins and profitability targets.

* * *

Going back to the traditional complaints about Tesla, Goldman then focuses on the company’s balance sheet, and specifically its growing debt load. As a reminder, the company ended 2Q18 with a net-debt position of $9.2bn, up from $8bn at 1Q18 and $4.8bn at 2Q17, and gross debt of $11.6bn. This implies a net-debt leverage ratio of approximately 88x TTM adjusted EBITDA, increasing from 14x at the end of 2017. On our 2018E EBITDA this is a much lower 6.4x, however, it is still a relatively high level of leverage for an automotive company (most are net-cash, excluding pension obligations).

Further, the company has looming maturities of convertible debt – with a conversion price that is currently higher than the company’s current share price. When combined with the company noting that it does not want to raise additional equity capital to fund growth – and there is likely incremental capital needed to enter China, net-debt levels could likely increase going forward (dependent upon cash flow generation). This could add incremental interest expense that weighs on cash generation and adds more risk in our view.

Here, Goldman also notes that Tesla’s cash balance has been helped by its customer deposits –taking reservations for future product offerings in advance to gauge interest (i.e., the Roadster 2.0 and the Semi-truck) as well as for the currently offered Model S, X, and 3. However, the company’s cash balance less that deposit line item is now down to approximately $1.4bn – and has been declining sequentially each quarter from $3bn in 3Q17.

In light of the above, Goldman now expects that Tesla’s next capital raise will take place in the first half of 2019. It explains the math below:

That said, with the expectation for positive FCF in 2H18 (resulting from a large working capital benefit as the Model 3 production ramps), we do see the company ending the year with approximately $3bn in cash. However, as we expect growth capex to resume in 2019, in combination with incremental spending on new product development, and potential cash needs for debt-maturities (given conversion prices and the prevailing share price), we believe TSLA would likely need to come back to the capital markets in 1H19.

Finally, on the operational front, Goldman sees Tesla continuing to miss its production targets:

We increase our estimates minimally (2018-2020 Adj. EBITDA moves to $1,372mn/$2,821mn/$3,572mn from $1,367mn/$2,814mn/$3,572mn, and our EPS estimates become a loss of $7.12, a loss of $0.34, and +$1.86 respectively) as we update the model for incremental 10-Q details. However, we continue to forecast approximately 48k Model 3 deliveries in 3Q18 (vs. consensus of 55k) and for the company’s Model S/X 2H18 deliveries to achieve 45,500 units (vs. consensus of 54,800 and implied guidance of 56,000). When combined with our expectation for slower growth to the demand curve and some pressure to gross margins relative to the company’s targets, our 2018 through 2020 adjusted EBITDA estimates remain approximately 19% below the Street.

Which brings us to Goldman’s conclusion and why the company remains a sell:

We add TSLA to the Sell list with a 6-month price target of $210. Our price target is derived from our probability-weighted valuations for the Automotive segment ($185), Tesla Energy segment ($20), and the SolarCity segment ($5). For the Automotive segment valuation, we model our base case, a downside case, and three “disruptive” upside cases based on the potential upside to the EV market – similar to historical precedents. We then run P/E valuations off the five separate P&Ls, taking the average stock valuation from years 2019 through 2025 and discounting back to present at a 25% discount rate. For Tesla Energy, we value the potential ramp of the business through 2020E based on our forecast for the company’s gigafactory output, apply P/E multiples based off of earnings growth and a 1.2 PEG ratio, and discount back to the present. For the SolarCity segment, we model the business (PPAs and cash/loan sales) out to 2025E, apply peer average EV/EBITDA multiple to the business, and discount back to the present.

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