2018 Summarized In Two Photos

Nothing lasts forever...

And these two photos (no matter how coincidental or misconstrued), appear to sum up the quo’s shifting status and the accelerating demise of the unipolar order (or at least that’s the way Chinese state-owned media would prefer you think about it).

An editorial (link in Chinese) in state-owned tabloid Global Times published yesterday (June 10). proclaimed…

“Against the backdrop of the chaotic meetings of the G7 of the West…”

“the SCO summit in Qingdao was particularly fruitful, and caught the world’s attention…”

Unilateralism is strong on the surface, but in reality it’s difficult to sustain…”

Difficult indeed.

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The History (And Rising Power) Of Central Banks

Authored by Alex Deluce via GoldTelegraph.com,

Until the early twentieth century, the purpose of central banks was to stabilize and control the value of the currency. When currency was backed by gold, that was reasonably easy to do. The amount of money placed into circulation was limited to the amount of gold held in reserve. By the early twentieth century, however, countries, including the U.S. shifted away from a gold-backed currency to fiat money. This changed the functions of central banks from stabilizing currency to actively affecting global economic decisions.

When Great Britain gave the Bank of England the power to determine interest rates twenty-one years ago, a questionable and dangerous trend was confirmed. The role of central bankers changed from bit players in the economic realm to all-powerful stars on the global stage. This trend has continued as central banks are buying up billions of dollars in assets and determining and managing policies far beyond economics. The Reserve Bank of India has opined on religious tolerance, while the Bank of England has been vocal on the subject of climate change. As a result, central banks have been criticized for overstepping their role as a monetary stabilizer to determining economic policies, as they widely did during and after the 2008 financial crisis.

Since the 17th century, the powers of central banks have fluctuated. Much of these powers were given or restricted by the needs of governments, who demanded stabilization of currency, protection against inflation, and manipulation of global policies. Bankers have been seen as experts, and governments have happily used them when it suited their needs. The relationship between government and central banks has become so symbiotic, it is frequently difficult to determine which entity holds the real power.

Since the Federal Reserve was established in 1913, it has had its hands in manipulating the Great Depression, the inflation of the 1960s, and the financial crisis of 2008. Instead of allowing market forces to stabilize the economy, the Federal Reserve has become an active participant, working hand in glove with the government to achieve its ever-changing goals.

Perhaps William III of England (and the Netherlands) opened the floodgates. When King William, who desperately needed funds after invading England at the request of Parliament, he created his own bank, the Bank of England, which was then a private organization. In return, he allowed the bank to issue banknotes and trade in bonds.

A few decades later, John Law persuaded the then child-king Louis V to establish a central bank in France and had all revenues paid from a bank. John Law convinced the hapless monarch that this would fill empty coffers and help alleviate financial difficulties.

The bank took over the country’s debts, while its investors traded bank bonds for shares in what was known as the Missouri Company. John Law’s financial scheme caused the financial ruin of many French citizens, and currency became gold-backed. A lesson learned the hard way.

While John Law’s and King Louie V’s plans came to naught, it did demonstrate the usefulness of paper money in a trade vs. gold. Paper was easier to use and carry. While less reliable than gold, when the paper currency was issued by a central bank, it was deemed as trustworthy. From the government’s perspective, issuing money at an inflated value was a nice benefit when it came time to pay off its debts since the debt to be paid off automatically decreased in value. As someone might have said, it’s good to be king.

America’s first Secretary of the Treasury, Alexander Hamilton, looked to Europe for guidance as he faced unchartered financial territory. He supported a powerful central bank to stabilize the currency and help the new U.S. economy to thrive. His was a minority view. Hamilton’s opponents saw any centralized power as a new danger. In the current popular musical “Hamilton,” Thomas Jefferson says derisively, “But Hamilton forgets/His plan would have the government assume state’s debts/Now, place your bets as to who that benefits/The very seat of government where Hamilton sits.” Hamilton won the fight, but his central bank lasted for only 20 years.

Jefferson was not the only one suspicious of central banks. It was believed that such government banks would favor lenders over debtors. The Bank of England moved to the gold standard, which allowed bank notes to be exchanged for the precious metal. This policy ensured that currency remained stable and could be not manipulated. This lasted until 1825.

In France, gold-backed currency was abolished during the chaos of the Napoleonic wars. As a result, inflation was out-of-control and debt spiraled. France learned its lesson the hard way and restored the gold standard in 1819. Financial stability was restored for decades, although the central bank was forced to raise interest to attract foreign investors. This hurt the working poor more than the wealthy, but only property owners had the right to vote. France set its priorities accordingly.

By the 19thcentury, central banks expanded their powers in the area of crisis management. The freedom inherent in capitalism brought with it great financial fluctuations and could lead to panic. In 1825, the British economy crashed following questionable investments in dubious South American enterprises. The Bank of England entered the fray as the “lender of last resort.” It was able to lend money to solvent banks at high interest rates. This involved increasing the supply of money, which was contrary to the purpose of the central bank.

This “lender of last resort” concept caught on. Following the creation of the Federal Reserve, it was quickly placed in crisis mode by WWI. The Bank of England refused to exchange banknotes for gold, a policy which still partially exist to the current day.  Most other countries simply printed money at an alarming rate, only to experience inflation and hyperinflation, as in the Weimar Republic.

If central banks mismanaged money during the post WWI era, it continued its manipulations in the 1930s. During the Great Depression, almost half of American banks collapsed, along with their customers’ assets.

Following WWII, the Federal Reserve continued its easy monetary policy, despite the resultant inflation. President Truman wanted Fed Chairman Martin to maintain low rates, but Martin had no such intension, thereby causing further inflation. President Johnson resorted to bullying Martin. President Nixon used the power of the press to leak false rumors about Martin’s successor, Arthur Burns. President Nixon proved to be the champion bully of the three heads of state and won that round. Interest rates were kept low. The post-WWII era saw the power of central banks increase as they went head to head with their own governments.

Many central banks have become more independent of their governments. This has led to increased power, and economic chaos, global debt and inflation continues almost unabated. The central banks’ response of the 2008 financial crisis, which was to create new fiat currency as fast as the printing presses would allow, placed the recovery emphasis on bailing out banks rather than helping the economy, as a policy labeled, “favoring Wall Street over Main Street.”

The initial purpose of central banks has clearly changed as their powers and responsibilities have broadened. They have become crisis managers, but have not always proven effective in that role. What their future role will be is uncertain. But once power is acquired, it is rarely given up easily.

Since the 2008 financial crisis, the Federal Reserve’s balance sheet, consisting of assets, liabilities, and equity, has come under closer scrutiny.

As indicated in the chart above, central banks have increased their assets considerably since 2008. At $4.476 trillion, the Federal Reserve assets comprise 23 percent of GDP. That number is actually low when compared to the 93 percent held by the Bank of Japan.

The big question is, who will bail out the central banks this time around in the “everything bubble?” 

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Netflix Is Down: They “Appreciate Your Patience”

Maybe the internet giant was just not burning enough cash this quarter…

A number of Netflix users are experiencing what the professionals call “a glitch” which is ruining the average Millennial’s ‘chill’ session after working so hard all day.

So most of Europe and many major cities in North America including New York, Montreal and LA…

Source: DownDetector

Do Not Panic!!!

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Boris Johnson Leaked Recording: “I Am Increasingly Admiring Donald Trump. There’s Method In His Madness”

Britain’s foreign secretary, Boris Johnson, told a closed-door gathering of conservatives that he had become “increasingly admiring of Donald Trump” and that he had “become more and more convinced that there is a method in his madness,” according to a recording of the discussion which lasted over an hour obtained by BuzzFeed.

Imagine Trump doing Brexit,” Johnson said to the group of 20 Torries. “There’d be all sorts of breakdowns, all sorts of chaos. Everyone would think he’d gone mad. But actually you might get somewhere. It’s a very, very good thought.”

Johnson’s comments at the Institute of Directors to the right-wing group, Conservative Way Forward, comes as pressure mounts on UK Prime Minister Theresa May from within Parliament over Brexit.

The UK is set to leave the European Union in march, however internal strife within the government has left Britain’s post-Brexit relationships with the rest of Europe in limbo. 

Johnson remarked that May would soon become “much more combative with Brussels,” per BuzzFeed. 

Speaking about Brexit, Johnson told the Tory activists the talks are approaching a “moment of truth”.

I’m not going to hide it from you,” Johnson told the activists. “There is an argument going on.”

Brexit will happen, “and I think it will be irreversible”, Johnson said. But he added: “The risk is that it will not be the one we want.” –BuzzFeed

You’ve got to face the fact there may now be a meltdown. OK? I don’t want anybody to panic during the meltdown,” he said. “It’s going to be all right in the end.

Johnson also told the group that there’s a high probability of Britain ending up with an agreement which stands in violation of the Brexiteers’ “red lines,” which would keep it “locked in orbit around the EU, in the customs union, and to a large extent still in the single market.” 

“So not really having full freedom on our trade policy, our tariff schedules, and not having freedom with our regulatory framework either.”

That outcome was being pushed particularly by the Treasury, which Johnson said was “basically the heart of Remain”. It would mean the UK had left the EU without taking back control over its own affairs.

Clarifying his own red lines, Johnson said he would be willing to accept staying close to the EU beyond March 2019, when the UK formally leaves the EU, but will not budge when it comes to the final terms of the future relationship.

I will be prepared to compromise over time, but I will not compromise over the destination,” the foreign secretary told the activists.

The Remainers in government are so worried about the potential for short-term disruption after Brexit that they’re blind to the long-term benefits, Johnson said.

BuzzFeed

More of Johnson’s (far less intelligible) comments on Brexit can be heard below:

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Senate Releases Facebook Hearing Responses: Treated Trump, Clinton The Same, Willing To Write Regulations

After responding “let me get back to you on that” over 2,000 times during the marathon hearings at the House and Senate Committees in early April, Senator John Thune has just released the 229 page pdf tome of all the responses.

While there is plenty to shew through, a few things stood out things stood out:

First, Facebook CEO Mark Zuckerberg wasn’t aware of allegations until March that Cambridge Analytica may not have deleted Facebook user data obtained from Aleksandr Kogan’s app, according to June 8 letter to Senate Commerce, Science and Transportation Cmte.

“In March 2018, Facebook received information from the media suggesting that the certification we received from SCL may not have been accurate and immediately banned SCL Group and Cambridge Analytica from purchasing advertising on our platform. Since then, Facebook has been actively investigating the issue, including pursuing a forensic audit of Cambridge Analytica, which is currently paused at the request of the UK Information Commissioner’s Office (which is separately investigating Cambridge Analytica).   

Mr. Zuckerberg did not become aware of allegations that Cambridge Analytica may not have deleted data about Facebook users obtained from Kogan’s app until March of 2018, when these issues were raised in the media.”

And additionally, when asked about whether the Trump campaign had special access or supported more than the Clinton campaign, or that the Clinton campaign had received cheaper ads, Facebook denied it…

“…we offered identical support to both the Trump and Clinton campaigns, and had teams assigned to both. Everyone had access to the same tools, which are the same tools that every campaign is offered.   “

And Facebook is more than willing to write it own regulations:

Facebook is generally not opposed to regulation but wants to ensure it is the right regulation. The issues facing the industry are complex, multi-faceted, and affect an important part of peoples’ lives. As such, Facebook is absolutely committed to working with regulators, like Congress, to craft the right regulations. Facebook would be happy to review any proposed legislation and provide comments.

*  *  *

Full Responses

2018.06.11zuckerberg by Zerohedge on Scribd

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A Way Forward With North Korea: The Comprehensive Nuclear-Test-Ban Treaty

Authored by Stephen Herzog via WarOnTheRocks.com,

Given the vitriolic rhetoric between the United States and North Korea over the past year, few could have predicted that Supreme Leader Kim Jong Un would choose this time to implement a near-term moratorium on nuclear testing. Yet, here we are. On April 20, Kim announced precisely such a moratorium, along with closure of the Punggye-ri test site and a freeze on ballistic missile tests. Han Tae-song, the regime’s ambassador to the United Nations in Geneva, took the message a step further at the multilateral Conference on Disarmament, stating that the “DPRK will join international disarmament efforts for a total ban on nuclear tests.”

Experts are justifiably skeptical of the prospects for voluntary North Korean denuclearization. However, the regime’s rhetoric raises an opportunity for Kim and President Donald Trump to negotiate a formal end to the controversial testing program that has produced six underground nuclear explosions. One way to do this would be for North Korea to join the Comprehensive Nuclear-Test-Ban Treaty (CTBT).

The treaty has 183 state signatories — 166 have ratified — and bans “all nuclear explosions on Earth whether for military or for peaceful purposes.” Prior to returning to academia, I led U.S. Department of Energy technical delegations around the world to support the CTBT. Our team collaborated with foreign counterparts and the CTBT Organization (CTBTO) to enhance monitoring of nuclear explosions and other geophysical events, as well as prepare for future on-site inspections.

Based on my experience, North Korean accession to the CTBT deserves a hard, thoughtful look in both Washington and Pyongyang. Termination of nuclear tests on the Korean Peninsula is clearly in line with U.S. national security interests, and joining the treaty is a feasible concession for Kim to offer Trump. And the experts of the CTBTO are uniquely prepared to verify the permanent closure of Punggye-ri. Most importantly, the CTBT offers the best prospects for quickly rolling back elements of the North Korean nuclear weapons program.

With few up-front costs, Kim could signal his goodwill

Contrasting U.S. and North Korean definitions of denuclearization make nuclear disarmament appear unlikely in the next few years. North Korea recoiled at initial suggestions by U.S. officials that the regime should adopt the “Libya model” of complete, verifiable, irreversible dismantlement. Indeed, assessments by the CIA as well as the Pentagon have cast doubts on the possibility of denuclearization. Trump himself has now even tried to walk back expectations for the nuclear diplomacy.

But even if Kim isn’t prepared to give up his arsenal anytime soon, there are good reasons to believe he would be willing to accept the CTBT. Beyond North Korea’s statement in Geneva, Kim’s announcement of the moratorium strongly suggests he would be amenable to the treaty. He declared, “Under the proven condition of complete nuclear weapons, we no longer need any nuclear tests” and “the nuclear test site … has also completed its mission.” That wording sounds bad for immediate denuclearization prospects, but great for the test ban.

Joining the treaty would also be a demonstration of North Korea’s long-term intentions and goodwill. In the short term, the regime would simply be legally foreswearing the tests Kim says they no longer need. Beyond that, however, Kim would be tying his hands by ending the provocative nuclear testing program.

Calling it quits after carrying out six test explosions would do much more than limit Kim’s ability to send the international community into a frenzy with each test. It would close off numerous opportunities for North Korea to qualitatively improve its nuclear weapons by developing more advanced warhead designs, making weapons smaller and lighter (hence more deliverable), or investigating how to deploy multiple-independently targetable reentry vehicles on missiles. Given the regime’s limited amount of testing data and lack of supercomputing simulation capabilities, these advances would be extremely difficult — or in some cases nearly impossible — without foreign technology transfers.

Since Kim seems satisfied and confident in existential deterrence and the regime’s ability to deliver nuclear warheads mounted on ballistic missiles, adopting the CTBT would be both a very feasible and a very significant concession.

Verification matters

Verification measures, not informal pledges or even treaty texts, are the heart of nuclear arms control. For instance, while the New Strategic Arms Reduction Treaty between the United States and Russia was only 17 pages long, its protocol laid out an additional 165 pages of procedures for intrusive inspections, telemetry, and other verification measures.

North Korea did indeed destroy facilities at its test site on May 24 in the presence of a group of international journalists. But the journalists watching the show were not technical experts in on-site inspection. They were not geophysicists who could analyze local seismic data to measure the magnitude of exploding tunnels to make sure they were actually being destroyed — not just temporarily sealed off. Nor were they versed in multi-spectral imaging to detect terrain abnormalities, or magnetic and gravitational field monitoring to locate hidden underground testing infrastructure and cavities. The journalists watching from afar also weren’t prepared to take environmental samples in the tunnels prior to their alleged destruction, which might help the world understand the activities that have taken place at Punggye-ri in the past.

A series of worrisome reports have emerged in the aftermath of North Korea’s publicity stunt. Apparently, the regime rescinded invitations for U.S. and South Korean technical experts to observe the fireworks. Some facilities at the site remain untouched, and personnel may have removed sensitive equipment in the days leading up to the demolition activities. If Kim is serious about the path toward disarmament, verification is sorely needed at the test site. Informal pledges simply will not cut it.

By joining the test ban, North Korea would establish ties with the CTBTO, which is the most qualified organization to verify its test site dismantlement. Many followers of arms control know the organization best for its global International Monitoring System of seismic, infrasound, hydroacoustic, and radionuclide stations that easily detected all six North Korean tests. But the CTBTO also has a dedicated corps of inspectors from around the world with expertise in all aspects of on-site inspection of nuclear tests, from visual observation, to environmental sampling, to drilling. While the treaty doesn’t technically permit on-site inspections until it has entered into force (and entry into force is notoriously complicated), to prove his nonproliferation bona fides, Kim could still invite the CTBTO to inspect the test site.

CTBTO Executive Secretary Lassina Zerbo has taken the lead by offering the organization’s support to verify the closure of Punggye-ri. In recent weeks, I attended the Second CTBT Science Diplomacy Symposium in Vienna and spoke with numerous CTBTO staffers about this proposition. They reminded me that the organization successfully tested its on-site inspection procedures in major field exercises in Kazakhstan in 2008 and Jordan in 2014. The CTBTO also visited the shuttered French test site at Mururoa Atoll and has carried out on-site inspection training at the former U.S. Nevada Test Site and Soviet Semipalatinsk Test Site.

Other transparency and verification deliverables could, of course, be emerging from ongoing U.S.-North Korean diplomacy. Perhaps the United States or the International Atomic Energy Agency might be given access to inspect limited North Korean nuclear facilities. These could include a centrifuge enrichment plant toured by former Los Alamos National Laboratory Director Siegfried Hecker, who was blown away by its sophistication. Unlike the centralized nature of testing, however, North Korea has widely dispersed its other fuel cycle and weapon activities throughout the country — posing stark verification challenges.

Thus, of all the options on the table, CTBTO verification of the test site’s closure should be a top priority. It is well-developed, effectively proven, and the most likely way to comprehensively and impartially verify the elimination of a segment of Kim’s nuclear program in the near-term future. If Kim is hiding something at Punggye-ri, the CTBTO will find it. 

Joining the treaty raises the stakes politically for Kim

Notwithstanding these points, some critics will contend that it is hardly a concession for Kim to join a treaty outlawing something he says he doesn’t need to do. But in addition to limiting North Korea’s nuclear advancement as I outlined above, the treaty would place further constraints on the regime in the form of international pressure.

Historically, some states that have chosen not to comply with nuclear arms control agreements have simply refrained from participating in international nonproliferation treaties. North Korea falls into this camp with respect to the CTBT. But in the case of the Nuclear Non-Proliferation Treaty (NPT), North Korea joined and then withdrew, and the international community’s reaction offers a hint at the pressure that might come to bear if the regime did the same with the CTBT.

The different treatment of North Korea on one hand, and India and Pakistan on the other, for their noncompliance with the NPT is illustrative. Pyongyang withdrew in 2003 before conducting its first test three years later. Even though the regime wasn’t obligated by the treaty, UN Security Council Resolution 1718 nonetheless levied harsh multilateral sanctions against North Korea for that first test. By contrast, India and Pakistan, which had never been parties to the treaty when they tested in 1998, each received only verbal condemnation in UN Security Council Resolution 1172.

Put simply, the international community doesn’t take kindly to states that commit to nuclear treaties and then abrogate their responsibilities. North Korea is already under significant pressure for backing away from the NPT. If Kim signed the test ban and then reversed course on yet another arms control treaty, it would become increasingly difficult for China to shield the regime from the Security Council’s wrath.

It’s mutually agreeable and a win for U.S. national security

The United States and North Korea appear headed toward a stalemate. The Trump administration’s hope to apply the “Libya model” of denuclearization is almost certainly a non-starter in Pyongyang, where Kim counts on nuclear weapons for regime survival. In pursuit of this goal, North Korea has carried out 6 nuclear tests and 117 ballistic missile tests. Looking at Kim’s rhetoric, it is clear that he only announced the current moratoria on both types of tests when he had gained confidence in the technical capabilities of his arsenal. Experts are rightly convinced that there is essentially no chance that the regime will suddenly agree to denuclearize or eliminate missiles that raise the risk of mutual vulnerability with the United States.

As such, the negotiators need to focus on obtainable low-hanging fruit. If North Korean denuclearization is going to occur down the road, it will be a lengthy process that requires mutually agreeable confidence-building measures along the way. And getting North Korea to join the CTBT may be a better start than any other proposal on the table.

Regarding the possible outcomes of diplomacy with North Korea, Trump has stated, “The prize I want is victory for the world.” Besides preventing nuclear tests that threaten to destabilize the peninsula, it is obviously in the interests of U.S. and global security to lock Pyongyang into arms control commitments and prevent qualitative advancements in its nuclear arsenal.

The American public would almost certainly agree. Recent research my colleague Jonathon Baron and I published in the Nonproliferation Review shows that a convincing majority of all U.S. demographic groups (gender, race, income, education, region of the country, political party affiliation, etc.) support Senate ratification of the CTBT. These results, of course, showed support for permanently halting U.S. nuclear tests. It’s safe to assume North Korean nuclear tests are even less popular among Americans. Getting Kim to commit to the CTBT could be a major national security policy win on both sides of the aisle.

 

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UN, Red Cross Evacuate Staff From Yemen Port City Ahead Of “Imminent” US-Saudi Coalition Assault

The New York Times reports that the United Nations is pulling its staff from the besieged Yemeni port city of Al Hudaydah as a massive assault on the country’s only major humanitarian lifeline appears imminent. 

UN staff have played a key role in delivering foreign aid through what is now one of the besieged country’s only humanitarian access points to the outside world, through which 80% of all humanitarian aid flows. 

The NYT details that the UN evacuation comes after “member countries were told that an attack by forces led by the United Arab Emirates was imminent, according to two diplomats briefed on the matter.”

Image source: Al Masdar News

Houthi and other allied Yemeni tribal forces have held the port city of 600,000 for the last two years after ousting the Saudi backed government in Sanaa three years ago. The Saudi-US military coalition currently besieging the country through airstrikes and sea blockade claims Al Hudaydah is a key arms smuggling point through which Iran supplies the Shia Houthis, including sophisticated ballistic missiles which have hit locations inside Saudi Arabia within the past year

Iran has denied that it is a party to the war which has claimed many tens of thousands of casualties — both through direct fighting and through starvation and disease. 

While acknowledging the US to be a major part of the coalition preparing for the attack on Al Hudaydah, the NYT has still managed to paint the US-Saudi-Emirati forces as benevolent-minded saviors bent on rescuing Yemeni civilians. 

While first noting that “Yemen is already classified as the world’s worst humanitarian disaster” with “more than 75 percent of the population… dependent on food aid” and as “millions are on the brink of starvation” the NYT report absurdly emphasizes that only the Americans can stave off disaster: “Diplomats in the region say they believe that only more pressure from Washington will stop the planned assault.”

Thus while the Pentagon has long been at the forefront of the war on Yemen which has caused the deaths of thousands of children, according to one leaked UN report from last summer, the NYT presents the US role as, in our words, ‘reluctant humanitarian aggressors’ of some sort. 

The NYT report continues:

But any full-scale attack on the port would be highly contentious. American officials have warned the Emirati and Saudi governments that an offensive would result in a quagmire. The United Nations says it could cause more than a quarter of a million civilian casualties.

So the NYT wants us to believe that American officials have constantly “warned” the Saudis against committing war crimes on a massive scale while simultaneously leading the very coalition committing the aggression with overwhelming firepower? It’s really just par for the MSM course.

It bears continually repeating that the US itself has played a lead and integral part of the coalition (also including Bahrain, Kuwait, UAE, Egypt, Sudan, and with the UK as a huge supplier of weapons) fighting Shia Houthi rebels, which overran the Yemen’s north in 2014. Saudi airstrikes on the impoverished country, which have killed many thousands of civilians and displaced tens of thousands, have involved the direct targetting assistance of US intelligence and use of American military hardware.

Meanwhile, Cholera has made a comeback amidst the appalling war-time conditions, and civilian infrastructure such as hospitals have been bombed by the Saudi-US operations. 

The humanitarian situation is set to escalate further, however, as the International Committee for the Red Cross has already removed its staff from Al Hudaydah over the weekend ahead of impending coalition aerial attack. 

According to the Times, UN negotiators are working on a deal with Houthi authorities in control of the port city to hand it over to the temporary administration of the United Nations:

The United Nations Special Envoy to Yemen, Martin Griffiths, has been working to forge an agreement with the Houthis to hand over control of the city and its port to the international body, depriving the Emiratis and Saudis of their rationale for an attack. Diplomats familiar with the situation say that while he has made progress, it is unclear whether Riyadh and Abu Dhabi would back any such breakthrough.

The NYT further reports that Secretary of State Mike Pompeo “said in a statement that he had spoken to Emirati leaders to emphasize the American wish to keep humanitarian supply lines open and to preserve a political process between the opposing sides in Yemen.” Pompeo emphasized the US “desire to address their security concerns while preserving the free flow of humanitarian aid and lifesaving commercial imports,” according to the statement

This appears code for we will keep bombing the hell out of Yemen but reserve the right to dress it up as ‘humanitarian’.

The Houthis are not likely to trust such a scheme as the UN is seen as a Western and US-dominated institution that does the Saudis’ bidding. 

After all, it remains the case that Saudi Arabia sits on the UN Human Rights Council and within the past years has even held leadership positions within the body. Not only is Saudi Arabia currently massacring civilians in Yemen, but each year sets new record-breaking numbers of domestic sharia court ordered beheadings, including for non-violent offenses like drugs or bizarre accusations of “sorcery” (often a euphemism converting from Islam).

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Russian Military Prepares For WW3 By Creating “Giant War Cloud”

Authored by Mac Slavo via SHTFplan.com,

The Russian military is building a massive cloud which will serve as backup internet in the event of a war. The cloud will be ready in two years and will allow Russia to survive in wartime, even they are totally disconnected…

This new move is part of the country’s ongoing modernization drivereported The Daily Mail The intent is for Russia to survive during a major world war, one in which they’d be cut off from everyone else. The “war cloud” will connect to the Russian military’s vast internal network.

President Vladimir Putin’s top IT adviser Herman Klimenko has previously stated that during wartime the country could run on the military’s pre-existing internal network – called the Closed Transfer Segment. “Technically, we are ready for any action now,” he told Russian TV station NTV back in March.

It was first revealed the country was creating an “independent internet” at the end of last year, which would operate separately from the Domain Name System (DNS) used worldwide. During a meeting of the Russian Security Council, officials discussed an initiative to create an alternative to the DNS, claiming the move could protect Russia and a handful of other nations in the event of a large-scale cyber attack. However, there is some speculation that this “war cloud” could be a way for Russia to launch its own malicious operations, Defense One reported at the time.

According to a new report, the country could run commercial traffic using its own internal network aptly dubbed the “war cloud.”  The war cloud, which is being built at a cost of 390 million rubles ($6 million/ £4.5 million), will rely on data centers all over the country and the first one has purportedly already been completed in the military’s Southern District.  The creation of this first center increased Russian power and influence in the area as well. According to a report by Defence One, this is an area that includes the illegally annexed Crimean peninsula as well as parts of eastern Ukraine.

According to Sam Bendett, an associate research analyst at non-profit research organization CNA, Russia sees this as key to helping protect its data from Western interference. “Russia is investing in military high-tech development, and especially in domestically produced software and hardware,” he told Defence One. The data centers working with this cloud are all made with ‘Russian components,”  said Bendett, who is also a fellow in Russia studies at the American Foreign Policy Council.  “Until recently, many IT components in the military and civilian sectors were Western – that is starting to change,” he said.

“There is a deep irony in Russia citing the increased capabilities of Western nations going attacks in the informational space,” technologist Peter Singer told DefenseOne. 

“It is like the fake social media account of the pot calling the kettle fake.”

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Stocks Gain, Bonds Feel No Pain As Cryptos Crash & Dollar Triggers ‘Golden Cross’

Stocks are higher… so the economy must be doing great and Trump must be awesome and trade wars don’t matter, right?

 

Trannies outperformed and Small Caps managed to extend gains as US equity markets shrug off the weekend’s rhetoric and any potential for errors this week…all spoiled with an ugly close…

 

Tech managed to scramble back and ended flat relative to financials today…

 

VIX was practically unchanged despite the stock market gains…

 

In credit-land, even Goldman Sachs has started to notice the dramatic divergence between IG credit and stocks…

 

Treasuries inched higher in yield with 2y notably underperforming…

 

10Y Yields traded in a crazy narrow range of less then 2bps…

 

The yield curve flattened notably on the day ahead of the start of FOMC tomorrow…

 

And while all eyes were on America’s northern neighbor after this weekend’s G-7 debacle, it is the southern neighbor that is struggling as Mexico’s credit risks surges to the highest since Trump’s election and furthermore, above the credit risk of Russia for the first time since March 2008…

 

The Dollar Index managed a small gain but remains in the extremely narrow closing range for the 18th day in a row…(1168, 1170, 1169, 1168, 1169, 1168, 1171, 1173, 1177, 1170, 1171, 1172, 1171, 1172, 1170, 1170, 1170, 1172…)

 

The Dollar Index also completed its Golden Cross today (50DMA crosses above the 200DMA)…

 

Emerging Market FX tumbled…

 

After a couple days of resurgence, Brazils’ Real rolled over today as Argentina’s peso puked to new record lows…

 

Finally in currency land – cryptos were clubbed like a baby seal after news of a hack of the 98th biggest exchange in the world…

 

Silver managed solid gains despite dollar strength and copper’s recent ramp ended abruptly…

 

Big intraday swing in crude today…back above $66 again

 

Gold rebounded off $1300 once again…

 

The gold-to-silver ratio tumbled back to unchanged for the year…

 

Finally, in the “this won’t end well” file; Canaccord Genuity’s Tony Dwyer notes that the Federal Reserve’s monetary policy uncertainty index has only been this low in four other instances, each which was followed by a sudden swing in equity prices…

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The Two Rules Of ‘Stockbroker-nomics’

Authored by John Coumarianos via RealInvestmentAdvice.com,

How an advisor should talk to clients and what rhetoric leads to big sales are often at odds. It can be death to an advisory business if the advisor is negative. Although this isn’t universally true, clients tend to want reassurance from an optimistic advisor. That’s why economist Andrew Smithers refers to broker happy talk as “stockbroker economics.”

The two rules of stockbroker economics are:

1. All news is good news, and;

2. It’s always a good time to buy stocks.

On the role of news, a strong economy fills clients will all the optimism and willingness to buy that they need. A weak economy simply prompts a broker to say that falling interest rates and future rising profits are good for stocks, never mind that profits and prices had only moved in tandem 54% of the time when Smithers wrote his 2006 article. On the second rule, nothing has succeeded as well as what Smithers calls the “bond yield ratio,” another name for which is the “Fed Model.” That model compares bond yields to the earnings yield of the stock market (the reciprocal of the P/E ratio or E/P). This ratio worked from 1977 to 1997, but didn’t from 1948 to 1968. Using the full dataset shows no relationship between bond yields and earnings yields, according to Smithers.

Other forms of nonsense used to support the second rule include using a current P/E ratio to appraise stocks. Of course, a current P/E ratio has little ability to forecast long-term returns. It sometimes shows stocks are expensive when they are actually cheap, and vice versa.

A third piece of nonsense that Smithers doesn’t mention is the assertion that all forecasting is bunk. But while forecasting next year’s returns might be bunk, metrics like the Shiller PE and Tobin’s Q have strong records in forecasting future long-term returns. Even if the Shiller PE has been elevated for the past 25 years, the S&P 500 Index has delivered tepid returns (5.4% annualized) from 2000 through 2017 with the entirety of that return occurring only in the last 5-years.

All of this means the first rule for investors judging their advisors is whether their advisors engage in too much happy talk – especially about future returns. If an advisor says a balanced portfolio should deliver a 7% annualized return for the next decade with starting 10-year U.S. Treasury yields at 3% and stocks at a 32 CAPE, be wary.

Second, investors should avoid advisors who avoid making forecasts to the point where they disparage anyone who does. That’s because it’s not hard to make a bond forecasts. With high-quality bonds, yield-to-maturity will get you close to the total return. Although stocks are harder, the Shiller PE can help. And, the more it’s stretched by historical standards, the more accurate it gets. No advisor should be dogmatic about pinpointing future returns; anyone who thinks they can be precise is crazy. But it’s also outlandish to expect long term historical returns from the stock market when valuations are as stretched as they are today. Stock market forecasts are hard, but don’t let your advisor squirm out of them completely.

Making a forecast is also necessary for constructing a financial plan. And, while it’s true that an accurate forecast doesn’t have to be available just because advisors and clients need one, decade-long projections are easier, if imperfect, than guessing what next year’s market move might be. When the Shiller PE stretches to more extreme levels, low future returns become more likely. So, when you hear an advisor making fun of something, that should raise warning flags.

We think advisors with integrity aren’t afraid to tell clients stocks are expensive even when it might hurt the advisor’s business. An advisor constructing a financial plan owes you an honest assessment of future returns. Currently, the Shiller PE is at 32. And while nothing is impossible, it’s very unlikely that stocks will deliver more than a 2% real annualized return for the next decade.

Third, consider if your advisor goes beyond the risk questionnaire he gives you. Nearly every financial advisory firm has a risk questionnaire that it gives to prospects and clients. The questionnaire often has many questions about how much risk the investors think they can handle and what portion of their assets they’d like to put at risk in exchange for possibly getting a higher return than a low risk investment will deliver. But risk questionnaires ask about percentages, and most people don’t think in percentages. Consider if your advisor asks you how you might feel if you opened up your statement and your account was down by a certain dollar amount. That’s more meaningful than a percentage question. Consider it a positive thing if your advisor pursues this line of questioning a bit, including asking you how you felt and how you reacted to the market plunge in 2008.

Risk often boils down to how much of a portfolio decline a client can tolerate before selling out, and everyone has a point at which they sell. This is important because it shows how investors do themselves damage. The tendency should be to buy stocks when they get cheaper, not sell them. But investors rarely think of buying when the prices of their holdings are declining.

Advisors have other ways of trying to train clients about how to treat price declines in their portfolios. Many advisors focus on long–term asset class returns, trying to persuade investors that they can overcome declines if they have the willpower to stay the course and not be discouraged. Other advisors do the opposite, focusing on how severe declines can be and trying hard to get clients into allocations that they can live with at the outset and to prepare them for the difficulty that lies ahead in the inevitable downturns.

The advisors who emphasize long term returns often come close to shaming clients into owning stocks. In my experience, such has made some clients feel inadequate for not wanting to assume more risk – or have encouraged clients to take more risk than they would have for fear of being deemed inadequate in the eyes of the advisor. Make sure your advisor isn’t shaming you into owning more stocks than you’d like.

At Clarity Financial, our focus is not only on the growth of savings, but also the minimization of emotional duress which leads to poor investment decision making over time.

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