Blain: “We All Know What Really Caused The VIX Storm”

Submitted by Bill Blain of Mint Partners

Stock Resilience – why, and how to avoid an earful of cider

“People stop buying things, and that is how your turn a slowdown into a recession.”

What a difference a day makes…

As suddenly as it came, the mini-crisis VIX-Storm, dissipated. Stock markets demonstrated incredible resilience – so strong some observers wonder if it might have been “enhanced” with a pharmaceutical-like shove from Central Banks (perish the thot!). If you didn’t buy yesterday – and that’s exactly what we’re wondering: who did? – then maybe you missed the buy-the-dip opportunity? Most sensible money was sitting on the sidelines watching. What did fuel yesterday’s strength? I guess a lot of hedge fund managers must be high-fiving themselves this morning….

In fact, the day went pretty much as our stock pickers expected – a rally off the low yesterday, but they caution we are likely to re-test a new low in the medium term before any new direction is established. They see buy signals – but suggest stock markets will remain choppy in the meantime, so most folk will be watching and waiting – certainly through this week. This is not over yet.

What about bonds? – the 10-year Treasury back up to 2.77%, but there are sure fire signs its headed higher as the narrative changes back to inflation threats, overheating in the job markets, and normalisation. If the global economy remains on the Global Macro Growth alignment trend – and no real reason to think it isn’t – then we’re still going to see the bulk of Central Banks tighten this year, and rates rise.

It’s the BIG THEME of 2018 – the normalisation trend. We’re expecting rates to rise back towards higher “normal” levels – not towards the elevated levels you’d expect in overheated economies. (Well not yet anyway.) Bonds yields are going to rise – but the question is: when do they reach levels where yields are attractive enough to choke off the equity market?

It does worry me that we might be missing something. We talk blithely of normalised markets, but what about Quantitative Tightening? How much hidden damage and unintended consequences has the massive distortion of years of QE done to market driven economies? Or, what about the amount of money that is now invested in passive EFTs and likely to prove non-sticky? The unwind on the Short-VIX products demonstrates we never know as much as we think we do about what really underlies markets – although the rumoured $8 bln losses on short-VIX are the kind of thing a naughty bank gets fined on a regular basis. Perhaps the losses on VIX ETNs will wake up the punters to ETF risks?

Rising bond yields will draw investors back to bonds – some say 3% US treasuries is as good a level as any in a market where inflation is more imagined than real – limiting the amount of cash rotating into equity. That’s why we’re watching announcements from the big money piles – like US firms repatriating cash – on where their money is going: for instance, share-buys backs are good for stocks, but bar-belling the bond market suggests others anticipate bond becoming more attractive.

With stock markets now looking distinctly toppy – we’re not expecting the dramatic gains of last year to be repeated long-term, or for the lost month of January to be repeated any time soon – then the levels at which bonds look attractive again get lower!

The bottom line is nothing has really changed. We’ve got: i) a weak bond market, iii) a stock market that’s looking fully priced, iii) expectations of growth, and iv) uncertainty about the effects of normalisation.

My conclusion is simple: Buy assets that are correlated to global growth, but uncorrelated to financial assets (ie bonds and stocks).

Its easy to say, but what counts? Property, infrastructure, renewables, private equity, transport (including aircraft and shipping) would all be on the list. These are all real assets producing real returns – and some are as volatile as markets. The trick is finding exposure to them. As an example, if anyone is interested I’ll give them an illustration of a transport asset correlated to growth showing steady 8% returns. All you have to do is call..

Meanwhile, market is full of horror stories about inverse VIX trades… Last week it was the latest “Hot Wall Street Product”.. ahem. I am reminded of a great scene in Guys and Dolls: One of these days in your travels, a guy is going to show you a brand-new deck of cards on which the seal is not yet broken. Then this guy is going to offer to bet you that he can make the jack of spades jump out of this brand-new deck of cards and squirt cider in your ear. But, son, do not accept this bet, because as sure as you stand there, you’re going to wind up with an ear full of cider.

Nomura have apparently apologised after investors in low-vol ETN were wiped out, while CS are liquidating VelocityShares.

Yesterday I put out a mid-day comment saying: You have to feel sorry for new Fed Head Jerome Powell starting his new job yesterday: Powell is going to find he has three jobs: Inflation, Jobs, and Managing Trump who might well think a falling stock market is a Fed Plot to discredit him. Does that increase the risk of a policy mistake?

Well, we all know what really caused the VIX Storm:

It was Janet Yellen’s parting gift to Trump. As she walked out the door of the Fed for the last time, surrounded by the media, she politely posed the question: “Don’t you think stocks look overvalued?”

Don’t underestimate the power of a very smart and clever woman with an Axe to grind… I’d like to think it was true.. hell, maybe it is.

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Goldman Will Soon Finance Your iPhone Purchase

Two weeks after Goldman reported its worst revenue growth in two years – driven by a 50% plunge in bond trading – the push by the FDIC-backed hedge fund, which has realized that traditional trading just won’t cut it any more in a low vol world – into traditional banking and consumer finance reached a new milestone when the WSJ reported that the investment bank, which famously evaded responsibility for its role in disseminating toxic mortgage securities, is in talks to provide financing for iPhone purchases. 

This would mean customers purchasing a $1,000 iPhone X could soon take out a loan from Goldman’s recently launched consumer loan unit, Marcus, instead of charging it to credit cards that often carry far high interest rates.

And with interest rates climbing and consumer revolving credit – a fancy term for credit-card debt – reaching all time highs, according to the latest data, the competition to offer affordable loans is intensifying.

goldman

While talks between the companies are reportedly still in progress – and the deal could still fall apart – the deal would be a crucial victory for Goldman as it struggles with falling trading revenues thanks to the unprecedented placidity across markets due to post-crisis centrally planned markets (though if the turbulence from earlier this week proves resilient, traders could find themselves back on top of the bonus pool).

Goldman’s retail-banking push began in 2015, when it became an FDIC-insured lender capable of accepting customer deposits by acquiring GE Capital Bank’s online deposit platform, including $8 billion in online checking deposits and $8 billion in brokered CDs – thereby providing Goldman with a virtually costless source of $16 billion in funds. It since launched other consumer-facing products, like Marcus, an online credit-card refinancing tool.

The partnership would be a coup for Goldman as it tries to grow its new consumer bank. Better known as an elite adviser to corporations and governments, Goldman is embracing retail banking and plain-vanilla lending in pursuit of growth as some traditional areas of strengths, namely trading, slump.

In 2016 Goldman launched Marcus, an online lender that helps people refinance credit-card debt. The firm is now building a “point-of-sale” financing business that will offer loans to shoppers at checkout, according to people familiar with the firm—effectively finding those customers one step earlier.

This combination of consumer offerings verges on deviousness: First, Goldman’s Marcus tool can help you refinance your credit card debt; then Goldman will help you plunge right back in with a “low-interest, don’t-miss” financing offer for that shiny new phone.

Per WSJ, shoppers in 2017 borrowed more than $200 billion using retailer-affiliated credit cards or point-of-sale loans, consulting firm First Annapolis estimates. Some $80 billion of that was spent on big-ticket items like furniture and electronics, which can take months to pay off, all the while accruing interest charges.

By offering a lower-cost loan, Goldman hopes to siphon off some of that business. Partnering with a consumer-tech giant like Apple would almost certainly bring in millions of customers that Goldman wouldn’t have had otherwise.

That said, this wouldn’t be the first time Apple partnered with a bank to offer zero-interest loans on upgrades and “other options” on different devices. And as Tim Cook reminded us, even though the “sticker shock” from the iPhone X could be daunting, consumers should think of it more like giving up “a few coffees a week.”

Apple introduced a program in 2015 with Citizens Financial Group Inc., in which the regional bank offered zero-interest loans for iPhone upgrades and higher-interest options for other device purchases. Part of Goldman’s talks with Apple involves taking over some form of the upgrade program. It is unclear whether anything will change with the handling of the outstanding Citizens loans. The Providence, R.I.-based bank didn’t have an immediate comment.

The program started as wireless providers were scaling back subsidies for iPhones. It allows customers to pay for a new iPhone with a 24-month financing plan and upgrade to a new device after making 12 payments, a strategy that helps keep customers coming back for the newest models.

For Apple, the upgrade program is taking on increasing importance as its high-priced devices create sticker shock for some. Facing questions about the affordability of the new $1,000 iPhone, Chief Executive Tim Cook said it works out to $33 a month. “That’s a few coffees a week,” he told analysts during an earnings call in November.

Goldman’s move into online consumer banking also puts it at odds with fintech companies like Affirm Inc., which also provides consumer credit online.

While consumer banking is subject to myriad more consumer protections, the death of the CFPB could make it easier for lenders to take advantage of their customers. The question now is, will the Vampire Squid treat regular Americans with the same ruthlessness that it treats its corporate clients?

To be sure, the deal is a two-way street: by pursuing this transaction, Apple is confirming sales are slowing, and the company is seeking to boost sales at any APR as that “sticker shock” we mentioned above has apparently convinced its legions of loyal customers to hold on to their old devices for just a little bit longer, despite Apple’s questionable practice of deliberately slowing down older phones, which recently attracted the scrutiny of federal investigators.

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US Futures Resume Slide As VIX Rises: Dow Set To Open Down 200 As Dip Buying Fails In Asia

“To Buy, or not to buy the dip”, that is the question this morning across the world.

In the US, for now, the answer appears to be no, as yesterday’s dead cat bounce is hanging, with S&P futures retreating, even as European stocks rebound, and while Asia started off well higher, it faded almost all gains paring earlier gains, with Chinese shares dropping and Japan and South Korea fading gains of as much as 3%. Meanwhile, S&P 500 futures are down 0.6% after gaining 1.7% Tuesday, and the Dow is set to open around 200 points lower after adding 2.3%.

Understandably, attention is squarely focused on the VIX, which is elevated and remains glued to 30 where it was at the Tuesday close, not providing much clarity in terms of direction.

“The stock market has a way of “cleansing out” the emotion and rhetoric. While we never like to see clients lose money, investors need to remember that pullbacks, corrections, and pauses are vital components to any secular or cyclical bull market. Yes – the bull market is very much alive. This too shall pass,” Brian Belski, chief investment strategist at BMO Capital Markets, wrote in note. “As such, allow the market to do its job and focus on the fundamentals of investing relative to the noise, machines, and emotion.”

Asian markets were mixed, mostly higher as the region attempted to track Wall Street’s rebound where stocks found shelter from the 2-day violent market turmoil on dip buying, which saw S&P 500 briefly reclaim 2700 and the DJIA home in on the 25000 level. Australia (+0.8%) traded positive in which energy and resources names led the recovery as commodities rebounded, while Japan’s Nikkei 225 (+0.2%) was initially the best performer and gained over 3% in early-trade before it gradually pared most the advances amid a choppy currency and as momentum waned. China, meanwhile, saw surprising weakness, with Hang Seng (-0.9%) and the Shanghai Comp. (-1.8%) both lifted at the open by the early rising tide, although mainland stocks then retreated amid Shenzhen volatility and after the PBoC continued to drain liquidity from the banking system with its inaction.

The broad Asian weakness was especially evident in Korea, which saw the Kospi open at the highs, only to fade all day and close at session lows.

After yesterday’s sharp losses, Europe’s Stoxx 600 gains 0.8% in early trade, bouncing after a seven-session selloff which sent the index to its lowest level since August 2017. The benchmark still remains down 7% since peak on Jan. 23; and is below both the 50- DMA, 200-DMA. Euro Stoxx 50 up 0.7%, DAX up 0.7%, CAC up 0.5%, FTSE 100 up 1%, FTSE MIB up 0.9%, IBEX up 1.1%.

Over in FX, it has been another day of choppy price action for the major currencies, and yet the ranges remain tighter compared to other asset classes, as they remain buffered and – so far – immune to the stock turbulence. The dollar picked up as U.S. futures pointed to a lower open and Treasury yields fell, while VIX rebounded.

The yen led gains in G-10 even as European equities traded in the green and Asian counterparts were mixed. The EUR/USD reversed gains to trade as much as 0.3% lower, with the retreat coming amid a strong BBDXY rebound that reverses an early drop of 0.2%; the USD/JPY stayed near day low of 108.92 as Treasuries remain supported; Cable dropped by 50 pips within 10 minutes, heads below 1.39 after reaching a day-high of 1.3994 in European morning as algo trading in the pair continues to dominate. According to Bloomberg, sellers of FX volatility in the majors emerged across tenors.

WTI and Brent crude futures are trending lower this morning, with the latter breaking below USD 67.00/bbls despite the last nights API crude inventory data showing an unexpected drawdown. Some of the bearish sentiment could be attributed to the latest EIA forecasts, in which the agency upped their US oil production led by shale to 11.2mln bpd in 2019 from 10.85mln bpd. In metals markets, spot gold is modestly higher whilst copper was supported during Asia-Pac trade amid the improved risk appetite.

Several Fed representatives are due to speak. Economic data include mortgage applications, consumer credit. Scheduled earnings include Fox, Tesla, Suncor Energy

Market Snapshot

  • S&P 500 futures down 0.6% to 2,673.00
  • STOXX Europe 600 up 0.8% to 375.85
  • MSCI Asia Pacific up 0.2% to 173.46
  • MSCI Asia Pacific ex Japan down 0.1% to 567.73
  • Nikkei up 0.2% to 21,645.37
  • Topix up 0.4% to 1,749.91
  • Hang Seng Index down 0.9% to 30,323.20
  • Shanghai Composite down 1.8% to 3,309.26
  • Sensex unchanged at 34,196.75
  • Australia S&P/ASX 200 up 0.8% to 5,876.81
  • Kospi down 2.3% to 2,396.56
  • German 10Y yield rose 0.2 bps to 0.694%
  • Euro down 0.2% to $1.2359
  • Italian 10Y yield fell 3.7 bps to 1.72%
  • Spanish 10Y yield fell 5.2 bps to 1.374%
  • Brent Futures up 0.07% to $66.91/bbl
  • Gold spot up 0.4% to $1,329.84
  • U.S. Dollar Index up 0.2% to 89.73

Top Overnight News

  • House passes stopgap spending bill to fund U.S. govt until March 23
  • Prime Minister Theresa May is unlikely to provide the kind of clarity on her government’s Brexit blueprint that the European Union wants by the end of this week, according to a senior U.K. official; Banks must continue to prepare for any outcome, including a hard Brexit, ECB Executive Board member and Supervisory Board vice chair Sabine Lautenschlaeger says
  • German Chancellor Angela Merkel’s bloc and the Social Democratic Party have agreed on the ministries each will get in a coalition government, people familiar with the matter said; Hamburg Mayor Olaf Scholz will be Germany’s next finance minister, DPA reports without saying where it got the information
  • Nomura Holdings Inc. issued an apology after investors in a $300 million product betting on low volatility were all but wiped out during this week’s stock-market turmoil. Nomura said it will redeem the exchange-traded notes at 1,144 yen per unit, a 96 percent discount to the previous day’s close
  • Fed’s Bostic sees slow gradual rate hikes pace if growth robust: CBS
  • China Jan. FX Reserves rise $21.5b from Dec. to $3.16t, 12th consecutive increase
  • India: holds rates unchanged at 6.00% as expected; policy stance stays neutral
  • API inventories according to people familiar w/data: Crude -1.1m; Cushing -0.6m; Gasoline -0.2m; Distillates +4.6m

In Asia, equity markets were mostly higher as region attempted to track the rebound on Wall St. where stocks found reprieve from the 2-day market turmoil on dip buying, which saw S&P 500 briefly reclaim 2700 and the DJIA home in on the 25000 level. ASX 200 (+0.8%) traded positive in which energy and resources names led the recovery as commodities nursed losses, while Nikkei 225 (+0.2%) was initially the best performer and gained over 3% in early-trade before it gradually pared most the advances amid a choppy currency and as momentum waned. Elsewhere, Hang Seng (-0.9%) and Shanghai Comp. (-1.8%) were both lifted at the open by the early rising tide, although mainland stocks then retreated amid Shenzhen volatility and after the PBoC continued to drain liquidity from the banking system with its inaction. Finally, 10yr JGBs shrugged off the initial safe-haven outflows and returned flat, as price action proved to be as indecisive as the recovery in Japanese stocks. Furthermore, the BoJ’s Rinban  announcement failed to spur any market reaction as the bank kept its purchase amounts in line with the previous. PBoC skipped open market operations again today for a net daily drain of CNY 100bn.

Top Asian News

  • India Holds Rates Again to Balance Weak Growth, Strong Inflation
  • Masayoshi Son Plans Push to Cut Discount on SoftBank’s Stock
  • More Rich Chinese Forgo Hong Kong, Invest in Singapore Instead
  • Even Mainland Chinese Investors Are Abandoning Hong Kong Stocks
  • Yuan Nears Pre-Devaluation Level Despite China’s Policy Hints

European equities (Eurostoxx 50 +0.7%) are broadly higher this morning in a typical dead cat bounce. US equity futures are pointing to a negative open on Wall Street, which has capped the upside this morning. European bourses are also failing to be excited by the reports of an agreement between the CDU, CSU and the SPD to form a grand coalition. In terms of stock specific movers, earnings continue to dictate price action with earnings from Rio Tinto (flat), ABN Amro (-2.7%), Sanofi (-1.8%). The healthcare sector will come into focus when GSK report their latest financial reports at midday.

Top European News

  • Osram Sees Slowdown in Headlamps as China Car Sales Dip
  • ARM Embraces Tech Revolution Under SoftBank and Loses Money
  • Spain Nominates de Guindos as Candidate for ECB Post

In FX, the Dollar is broadly firmer against all G10 rivals apart from the Jpy, which has tested the resolve of bids at 109.00 again amidst more topside flow/heavy offers in Jpy crosses such as Eur/Jpy and Gbp/Jpy. However, the DXY has failed to sustain a rebound above near term resistance (89.600 treble top and then 89.700-750) or seriously challenge the next key tech levels above 90.000 (between 90.113-150). Hence, Wednesday could be key for the Buck in terms of whether its recent recovery continues or the end-2017 through January bear market resumes, and this also applies to Wall Street and equities in general after Monday’s rout and partial recovery yesterday. Looking at headline currency pairings, Eur/Usd is drifting lower having breached the 1.2400 level amidst conflicting headlines about a deal or no deal struck on a German grand coalition, but comfortably above the 20 DMA at 1.2303, while Cable has retreated further from 1.4000 and through a similar MA at 1.3958 to a 1.3920 low amidst reports that the EU will insist on harsh Brexit transition conditions if terms are violated. Usd/Cad remains anchored around 1.2500 after trade deficit misses on both side of the NA divide, while the Aud and Nzd are both hovering nearer recent lows around 0.7860 and 0.7300 respectively, with the Kiwi not getting much traction from better than expected NZ jobs data as attention quickly shifts to the RNBZ policy meeting later today.

In commodities, WTI and Brent crude futures are trending lower this morning, with the latter breaking below USD 67.00/bbls despite the last nights API crude inventory data showing an unexpected drawdown. Some of the bearish sentiment could be attributed to the latest EIA forecasts, in which the agency upped their US oil production led by shale to 11.2mln bpd in 2019 from 10.85mln bpd. In metals markets, spot gold is modestly higher whilst copper was supported during Asia-Pac trade amid the improved risk appetite.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -2.6%
  • 3pm: Consumer Credit, est. $20.0b, prior $28.0b
  • 8:30am: Fed’s Dudley Speaks in Moderated Q&A
  • 10:15am: Fed’s Evans Speaks on Economic and Policy Outlook
  • 5:20pm: Fed’s Williams Speaks in Hawaii

 

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German Parties Reach Grand Coalition Deal

After a month of negotiations and two days of post-deadline delays, what UBS’ economist Paul Donovan has dubbed the “world’s most tedious political crisis” is finally over and on Wednesday morning, Germany reached a grand coalition, as news broke that Angela Merkel’s conservatives block reached a deal with the the Social Democratic SPD on forming a new government, ending a deadlock that gripped Germany since inconclusive elections last September.

“Tired but happy,” SPD leaders said in a message to party members. “We have an agreement! Finally.”

According to the FT, talks between the SPD and CDU/CSU were dogged for weeks by disagreements over health and labour policy. The SPD wanted a crackdown on short-term contracts, and also wide-ranging reform of Germany’s health system — though it backed away from an earlier demand to effectively phase out private health insurance.

As a result of the compromise, the Social Democrats will take the finance and foreign ministries in a future grand coalition government – with SPD’s Olaf Scholz, mayor of Hamburg, set to become Germany’s all important finance minister – giving the leftist party a critical role in shaping Berlin’s policy on Europe over the next four years.

Scholz’ appointment is a coup for the SPD and marks a major concession by Ms Merkel, long seen as the sole architect of German policy on the EU. As the FT notes, the ministry was previously a Christian Democrat bastion, and is synonymous in many people’s minds with the inimitable Wolfgang Schäuble, who was Europe’s most powerful finance minister before moving on to become Bundestag speaker last December.

Now the ministry will be run by a party that has called for the creation of a “United States of Europe” by 2025 and has enthusiastically welcomed Emmanuel Macron’s plans for deepening EU integration.

In addition to running German finances, the SPD was also granted the crucial Labour and Foreign ministries, and was also granted the family, justice and environment ministries.

On the other side, Horst Seehofer, leader of the CSU, the Bavarian sister party of Ms Merkel’s CDU, will head up an expanded interior ministry, which will also take responsibility for the construction industry and a new “homeland” department. The CSU will also continue to run an expanded transport ministry and the international development ministry.

* * *

The reason for the dramatic concessions is that Merkel was under enormous pressure to indulge the Social Democrats in order to win them round to another grand coalition; the alternative was a new election and potentially the end of Merkel’s political career.

After her earlier attempt to form a coalition with the greens and liberals failed in November, an alliance with the SPD was her only chance of staying in power for a fourth term as chancellor.

Meanwhile, there is still no certainty that a grand coalition will be formed. The coalition deal must now be put to the SPD’s 460,000 members, many of whom are fiercely opposed to propping up Ms Merkel for another four years. Additionally, there is also deep distrust of Martin Schulz, the SPD leader, who vehemently rejected the idea of a grand coalition in the immediate aftermath of the election but then changed his mind.

In that regard, moments ago Suddeutsche Zeitung reported that Schulz is said to step down as SPD head.

In recent weeks, the SPD’s youth wing has been waging a noisy No campaign and urging anyone opposed to another coalition with the conservatives to join the SPD and vote it down in the members’ referendum.

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Turkey Detains 449 People For Criticizing Invasion Of Syria On Social Media

Authored by Jason Ditz via AntiWar.com,

Erdogan Spokesman: Opposing War Means Glorifying Terrorism

As Turkey’s invasion of northern Syria continues, so too does their policy of arresting anyone seen as even sort of opposed to the attack.

The Turkish Interior Ministry now says 449 people have been detained for criticizing the war on social media, and 124 more detained for taking part in actual protests.

Riot police detain a demonstrator during a protest against Turkey’s military operation in Syria’s Afrin region, in Istanbul, Turkey

Turkey’s Erdogan government doesn’t have a lot of patience for dissent, or for Kurds.

Unsurprisingly, dissent about a war against Kurds is being cracked down on intensely. Erdogan’s spokesman warned that statements criticizing the war amount to statements “glorifying terrorism,” and that the government is just enforcing the law as written.

With Turkey’s largely state-run media praising the war, public support for it is still relatively strong.

Opposition is mostly in the ethnic Kurdish region, which Turkey is more than willing to crack down on at any rate, and political opponents.

When other NGOs issue statements against the war, as did a medical union in the country, President Erdogan has condemned them as traitors, and arrested 11 of their senior members for a statement calling for “peace immediately.”

With the war continuing and casualties rising, war exhaustion is inevitable. For now,however, expressing opposition to the conflict is a very dangerous crime indeed in Turkey.

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Boeing’s Hypersonic Strike-Aircraft Can “Buzz Around The World In 1-3 Hours”

Last month, we noted that “hypersonic aircraft and missiles are being developed and tested by the United States, Russia, and China at an accelerating pace.” While the race for hypersonic technologies has certainly flourished among global superpowers, who realize that the first to possess these technologies will not just revolutionize their civilian and military programs, but will also dictate the future path for civilizations on planet earth.

There is a fierce competition between Lockheed Martin’s Skunk Works team and the Boeing Company to harness such technologies. Back in January, a Skunk Works Executive hinted that a U.S. hypersonic bomber has “already been made.”

Oddly enough, internet sleuths on Google Earth last month discovered a secret hypersonic aircraft hiding at a mysterious Florida airbase located down the street from President Trump’s Mar-a-Lago resort.

Undoubtedly, all hypersonic programs are top secret, but appear to be much further along than what is preached in the headlines.

Last week, Boeing dropped more breadcrumbs regarding their hypersonic program, featuring an aircraft with surveillance and strike capabilities. The Russian Times says Boeing proposes to develop the aircraft in the next 10 to 20 years but already faces substantial competition from Lockheed Martin.

RT says in the latest Aviation Week report, the design for Boeing’s hypersonic aircraft, believed to be dubbed “Valkyrie II,” was unveiled at the American Institute of Aeronautics and Astronautics SciTech forum in Orlando, Florida back in January. Even though the hypersonic project has yet to be officially green-lighted, Boeing says the aircraft can fly around the world “in one to three hours” and serve as a multi-purpose aircraft.

“This is one of several concepts and technologies we’re studying for a hypersonic aircraft,” said Kevin Bowcutt, Senior Technical Fellow of hypersonics at Boeing Research & Technology.

“This particular concept is for a military application that would be targeted for an intelligence, surveillance, and reconnaissance, or ISR, and strike capabilities,” he added.

In a Facebook Live video on February 01, Bowcutt said the hypersonic craft would be able to cut through the air faster than a bullet fired from a gun.

“It’s two-and-a-half times the speed of a speeding bullet,” Bowcutt told Facebook Live viewers.

“It’s more than twice as fast as the Concorde. So basically you can get anywhere in the world in one hour across the Atlantic, two hours across the Pacific – pretty much anywhere between two points in one-to-three hours,” Bowcutt added.

 

If Boeing’s hypersonic project gets the green-light, it would further heat up the competition between Lockheed Martin, which built the SR-71 and is currently planning to develop a replacement called the SR-72.

Popular Mechanics says both Boeing and Lockheed’s hypersonic aircraft are relatively the same with the idea of ramjet/scramjet technology to make the aircraft fly at Mach 3 to March 5.

Boeing and Lockheed’s designs are very similar, both planning to use a combined-cycle engine that uses a conventional turbojet to accelerate to roughly Mach 3, and then a dual ramjet/scramjet to make the jump to hypersonic speeds. Boeing is working with Orbital ATK to develop an engine, while Lockheed has partnered with Aerojet Rocketdyne.

Below is the Defense Advanced Research Projects Agency’s (DARPA) family of Falcon-Hypersonic aircraft that are comparable in shape to Boeings proposed hypersonic aircraft.

If there is one thing that keeps the military–industrial complex from sleeping at night, it is “hypersonic.”

Hypersonic flight is no longer a pipe dream. As we have noted before, “hypersonic aircraft and missiles are being developed and tested by the United States, Russia, and China at an accelerating pace.” The race towards hypersonic technologies is now, and whichever global superpower acquires the technology first, will change the economic and geopolitical playfield across the globe. Let’s just hope the United States is the winner here, otherwise, other countries acquiring the technology first could be splinter the U.S. empire.

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France: Migrant Crisis Spirals Out Of Control

Authored by Soeren Kern via The Gatestone Institute,

Hundreds of Africans and Asians armed with knives and iron rods fought running street battles in the northern port city of Calais on February 1, less than two weeks after French President Emmanuel Macron visited the area and pledged to crack down on illegal immigration.

The clashes plunged Calais — emblematic of Europe’s failure to control mass migration — into a war zone and reinforced the perception that French authorities have lost control of the country’s security situation.

The mass brawls, fought in at least three different parts of Calais, erupted after a 37-year-old Afghan migrant running a human trafficking operation fired gunshots at a group of Africans who did not have money to pay for his services. Five Africans suffered life-threatening injuries.

Within an hour, hundreds of Eritreans, Ethiopians and Sudanese took to the streets of Calais and attacked any Afghans they could find. More than a thousand police officers using batons and tear gas were deployed to restore order. Two dozen migrants were hospitalized.

French Interior Minister Gérard Collomb described the level of violence in Calais as “unprecedented.” He attributed the fighting to an escalating turf war between Afghan and Kurdish gangs seeking to gain control over human trafficking between Calais and Britain, which many migrants view as “El Dorado” because of its massive underground economy. Each day around 40 ferries depart Calais for Britain.

Vincent de Coninck, director of the charity Secours Catholique du Pas-de-Calais, said that rival gangs were trying to secure control over access to the port of Calais in order to induce payments of €2,500 ($3,100) from migrants seeking to stow away on trucks crossing the English Channel.

De Coninck added that the situation in Calais had deteriorated since January 18, when Macron and British Prime Minister Theresa May signed the so-called Sandhurst Treaty, in which May pledged to speed-up the processing of migrants hoping to travel to Britain from Calais.

According to de Coninck, Macron and May failed adequately to explain the contents of the new treaty. This failure, he said, had created false hopes among migrants from Africa and elsewhere that the treaty would improve their chances of reaching Britain. De Coninck further said that hundreds of new migrants had arrived in Calais during the two weeks since the treaty was signed. The surge of new arrivals, he said, had created an “imbalance” between Africans and Asians — thereby increasing inter-ethnic tensions.

François Guennoc, vice-president of the Calais charity L’Auberge des Migrants, echoed the view that the new treaty had created false expectations. “It gave people hope to reach England,” he said.

“People arrived suddenly, about 200, mainly underage people and women who arrived in Calais because they thought that the Home Office said they could go directly to England. Then they thought the Home Office was lying. People were upset. It was crazy.”

Europe’s migration crisis has emerged as the first major test facing President Macron, who appears to be seeking out a middle-ground compromise position on the issue: he has promised to pursue “humanitarianism” by speeding up the processing of asylum requests while also pledging to pursue “firmness” by deporting those who do not qualify.

During the presidential campaign, Macron, who ran as a centrist, repudiated the anti-immigration positions of his opponent, Marine Le Pen. He campaigned on a platform of open borders and promised to establish France as “the new center for the humanist project.” Since assuming office on May 14, 2017, however, Macron appears to have incorporated many of Le Pen’s ideas.

In an essay published by Le Monde on January 2, 2017, Macron wrote that German Chancellor Angela Merkel’s decision to allow in more than a million migrants from Africa, Asia and the Middle East had “saved the collective dignity” of the European people. He added that he would not tolerate the “rebuilding of walls in Europe” and criticized the “abject simplifications” made by those who say that “by opening the borders to migrants, the chancellor exposed Europe to severe dangers.”

On July 27, 2017, however, after less than three months in office, Macron warned that 800,000 migrants in Libya were on their way to Europe. He announced a plan to establish immigration centers in Libya to vet asylum seekers there. He said his plan would stem the flow of migrants to Europe by discouraging economic migrants from embarking on the Mediterranean crossing to Europe. “The idea is to create hotspots to avoid people taking crazy risks when they’re not all eligible for asylum,” Macron said. “We’ll go to them.”

In that same speech, though, Macron appeared to encourage migrants to make their way to France. He pledged housing for all newcomers “everywhere in France” and “from the first minute.” He added: “By the end of this year, I do not want to have any men and women living on the streets, in the woods. I want emergency accommodations everywhere.”

On August 8, 2017, the French Interior Ministry reported that more than 17,000 migrants attempted to board UK-bound trucks and trains at the port and Eurotunnel in Calais during the first seven months of 2017. The figures showed that the closure of “The Jungle” in October 2016 had failed to deter migrants in Calais from reaching Britain.

Pictured: Migrants at “The Jungle” migrant camp in Calais, France on October 28, 2016, shortly before the camp was closed by French authorities. (Photo by Christopher Furlong/Getty Images)

 

In September 2017, the French government asked the European Union for permission to maintain border controls within the passport-free Schengen zone for as long as four years due to the continuing threat of Islamic terrorism, according to a classified document leaked to The Guardian. On October 3, France extended border controls for another six-month period, to April 30, 2018.

On October 15, two weeks after a Tunisian migrant stabbed to death two women in Marseille, Macron pledged to deport any migrant who commits a crime. “We will take the most severe measures, we will do what we must do,” Macron said. “We are not taking all the steps that should be taken. Well, that is going to change.” Analysts said that nuances in French law would make the pledge impossible to implement.

On November 20, in a circular leaked to the press, Interior Minister Gerard Collomb ordered prefects, representatives of the state in each of the 96 departments in mainland France, to deport all failed asylum seekers. He also ordered them to submit a report, by the end of February 2018, that would provide

“details about the fight against irregular immigration in your department in 2017, and your plan for the implementation of these instructions in the coming months. (…) The fight against irregular immigration is the responsibility of each prefect of each department. It is necessary to act quickly.”

The leak of the so-called Collomb Circular marked the beginning of an organized resistance movement among French political and media elites to Macron’s migration policies. In an open letter published by Le Monde, for instance, a group of intellectuals and trade unionists, many of whom had supported Macron during the presidential campaign, criticized his migration policy: “Mr. Macron, your policy contradicts the humanism you advocate!”

On December 4, in an interview with RTL, Interior Minister Collomb said the government was working on a reform of migration policy. “There are 95,000 asylum applications a year, that is, a big city every year. If we welcomed everyone, we could not do it in good conditions. We have decided to welcome those who are refugees from theaters of war, who are political prisoners, but at the same time to try to pursue a policy that allows economic migration to be carried out in other ways.”

On December 12, Interior Minister Collomb ordered regional authorities to establish “mobile teams” to force undocumented migrants out of emergency shelters. The measure produced a strong backlash from charities, which said the shelters are sacrosanct.

On January 9, 2018, the French Office for the Protection of Refugees and Stateless Persons reported that in 2017, more than 100,000 people had requested asylum in France, a “historic” number and an increase of 17% compared to 2016.

On January 14, Interior Minister Collomb announced a plan to establish 400 detention centers to deport economic migrants in the country illegally. “Refugees are welcome, economic migrants are not,” he said.

On January 16, during his visit to Calais, Macron outlined his government’s new immigration policy: food and shelter for those entitled to remain in France, and deportation of those in the country illegally.

On January 18, Macron traveled to Britain, where signed the Sandhurst Treaty, which reduces the processing time for migrants hoping to travel to Britain from Calais from six months to one month for adults, and 25 days for children. The new treaty, far from solving the migrant crisis, appears to be exacerbating it.

In an analysis published by Paris Match, pollsters Chloé Morin and Marie Gariazzo said that conflicting voter reactions to the “Macron method” of compromise on migration policy “reflects the contradictions of his electorate”:

“Quantitative studies indicate, a priori, that a clear majority of French voters support a more restrictive migration policy…. The heart of the government’s policy…guarantees the inviolability of the right to asylum while challenging the country’s ability to welcome all the world’s misery….

“It is not certain that the Macronian gamble — finding a balance between firmness and humanity — is a long-term winner. Emmanuel Macron appears at this stage to be supported by his base. But we find among them an expectation of firmness (‘we must not be overwhelmed,’ ‘laxity would have negative consequences for our country’) as well as one of humanity (‘we must help those fleeing wars and persecutions,’ ‘It is morally indisputable to welcome foreigners in emergency, distress’) ….

“This discourse is thus systematically caught between those on the one hand who — often on the right, but sometimes even in the heart of the Macronian base — judge his policy as too ‘lax,’ and on the other hand, those who are indignant over its firmness ….

“It is very likely that a large part of those at the center of the political spectrum, particularly in the center-left, will accept the government’s narrative and subscribe little-by-little to the logic of ‘selective immigration.’ Thus, the official discourse could contribute in the long term to a shift of the ‘moderate’ population on the subject of migration from one of humanity towards one of firmness.”

Macron’s popularity ratings have experienced an “unprecedented” rebound since he pursued a harder line on immigration, according to the French pollsters Ifop. His job approval rating jumped by 10 percentage points since October to 52%. Previously, Macron’s popularity rating registered the biggest decline for a new president since 1995.

“Emmanuel Macron did it,” Paris Match reported. “Never before has a president of the Republic fallen into unpopularity so fast and then become popular again.”

*  *  *

Appendix: A Brief History of the Migrant Crisis in Calais

Migrants from across the developing world view Britain as “El Dorado” because of its massive underground economy, which totaled approximately £223 billion (€250 billion; $311 billion) in 2016, or 11.5% of GDP, according to the International Monetary Fund.

In addition, the Identity Documents Act 2010, which entered into effect January 2011, abolished national identity cards. The change, driven by civil liberties concerns over unnecessary data collection and intrusion by the state, allows illegal migrants in Britain to remain inconspicuous.

Moreover, unlike France, migrants from war-torn countries who reach Britain can easily apply for refugee status, which provides them with permission to reside in the United Kingdom for an initial period of five years — with the right to work and access welfare benefits. Lawful residence in the UK for a continuous period of five years qualifies an individual to apply for British citizenship.

This combination of factors has turned Britain into a magnet for migrants. More than 865,000 non-EU migrants were granted permission to live in Britain in 2016 — a rate of one every 36 seconds, according to Eurostat.

Migrants have been gathering in Calais, France’s closest point to Britain, in large numbers ever since the Channel Tunnel linking France and Britain opened in May 1994, and the Schengen Agreement, which abolished border controls between France and most of its EU neighbors (but not the UK), entered into force in March 1995.

In 1999, the French government asked the Red Cross to build a migrant “reception center” in Sangatte, situated around ten kilometers west of Calais, to accommodate a growing number of migrants on the streets of Calais and surrounding areas. The Sangatte camp, which was housed in a giant warehouse near the entrance to the Channel Tunnel, had a capacity for 600 people.

Far from resolving the migrant problem in Calais, the Sangatte facility served as a magnet, quickly drawing thousands more people to the area. Within months, some 2,000 migrants were living in the camp in increasingly cramped conditions. Many of those staying at Sangatte tried to jump onto slow-moving trains at the entrance to the Channel Tunnel, or hide inside trucks crossing to Britain on ferries.

At the time, French authorities reported a massive increase in the number of arrests in or around the Channel Tunnel. In 1999, 8,000 people were arrested in Calais for immigration offenses. By 2001, that number had jumped ten-fold to 80,000 arrests. Eurotunnel, the company that manages and operates the Channel Tunnel, said that in 2001 alone, 54,000 people had “attacked” the terminal in Calais and 5,000 had gotten through. Many of those were living in Sangatte.

The Sangatte camp was closed in late 2002, after a series of riots between Afghan and Kurdish migrants. In all, some 67,000 migrants stayed at the facility during its three years in operation.

In February 2003, France and Britain signed the Treaty of Le Touquet, which allows for so-called juxtaposed controls, meaning that travelers between the two countries now clear immigration in the country of departure rather than upon arrival. In effect, the treaty pushed parts of the British border to France. By doing so, it exacerbated the migration bottleneck in Calais.

As part of the agreement to close Sangatte, Britain took in 1,200 migrants. Those who remained in France were sheltered in at least a dozen different squats both inside Calais and on its outskirts. These camps — Africa House, Fort Galloo, Leader Price/Sudanese Jungle or Tioxide Jungle — have been repeatedly raided or bulldozed by French police, only for other squats to crop up elsewhere.

Many of the migrants housed at Sangatte moved a few kilometers east to a disused industrial zone called “The Dunes.” Situated just steps from the Port of Calais, the area would eventually become known as “The Jungle.”

On September 22, 2009, French police bulldozed “The Jungle” and rounded up hundreds of migrants hoping to stow away on trucks headed for Britain. A day later, Calais Mayor Natacha Bouchart said she had “spotted between fifteen and twenty new squats” nearby. She also reported that Afghan migrants were establishing makeshift camps at the Hoverport, an unused collection of buildings which closed in 2005 after the last hovercraft sailed from Dover to Calais.

September 12, 2014. Police in Calais warned that migrants were becoming increasingly violent in their quest to reach Britain. Gilles Debove, the Calais area delegate for the French police union, said tear gas was being used to stop “mass onslaughts” on vehicles about to cross the Channel:

“The other day, two to three hundred migrants tried to get into a lorry park and we fired tear gas to scatter them because there are too few of us to control situations like this any other way. We’re also facing an increase in crimes by migrants who mug people, steal mobile phones and carry out sexual assaults.”

November 11, 2015. More than 250 French riot police were deployed to “The Jungle” after weeks of unrest. Local government official Fabienne Buccio said the rise in violence was due to the frustration of migrants at being prevented from reaching Britain.

December 17, 2015. Around 1,000 migrants stormed the Channel Tunnel in a bid to reach Britain. Police, who used tear gas to disperse them, said the number seeking to cross the Channel in a single day was “unprecedented.” Many of the migrants who were turned away moved back to “The Jungle” to try again.

January 19, 2016. French authorities leveled one-third of “The Jungle” to create a 100-meter “buffer zone” between the camp and an adjacent highway that leads to the ferry port.

February 7, 2016. The migrant crisis spread to other parts of France due to an increased police presence in Calais. Migrant camps sprouted up in the nearby ports of Dunkirk, Le Havre, Dieppe and Belgium’s Zeebrugge, as migrants sought new ways to cross the English Channel to Britain.

February 29, 2016. After a court in Lille approved a plan by the French government to evict 1,000 migrants from “The Jungle,” demolition teams began dismantling the southern part of the camp. The government tried to relocate the migrants to official accommodations inside converted shipping containers in the northern part of the camp. But most refused the offer, fearing they would be forced to claim asylum in France. “Going to Britain is what people here want,” Afghan migrant Hayat Sirat said. “Destroying part of the jungle is not the solution.”

March 7, 2016. Migrants evicted from “The Jungle” moved to a new camp in Grande-Synthe near the northern port of Dunkirk, just up the coast from Calais. Critics said that the new camp risks becoming a “new Sangatte,” referring to the Red Cross center in Calais that was closed in 2002.

May 31, 2016. Migrants evicted from Calais moved to Paris and established a massive squatter camp at the Jardins d’Eole, a public park near the Gare du Nord station, from where high-speed Eurostar trains travel to and arrive from London. The area, which became so dangerous that the government classified it as a no-go zone (Zone de sécurité prioritaires, ZSP), has become a magnet for human traffickers who charge migrants thousands of euros for fake travel documents, supposedly for passage to London.

August 11, 2016. In an interview with Le Figaro, a French counter-terrorism officer warned that Islamic State jihadis were hiding in “The Jungle” camp. “What is happening in ‘The Jungle’ is truly mind boggling,” he said. “Our officers are rarely able to penetrate the heart of the camp. It is impossible to know if a jihadi from Belgium, for example, is hiding in the camp. This camp is a blind spot for national security.”

September 5, 2016. Hundreds of French truck drivers, businessmen and farmers blocked off the main route in and out of Calais, in an attempt to pressure the French government to close “The Jungle.” The blockage brought to a standstill the route used by trucks from all over Europe to reach Calais and Britain.

September 12, 2016. A document leaked to Le Figaro revealed the government’s plan, dated September 1, to relocate 12,000 migrants from Calais to other parts of France. The migrants would be relocated to around 60 so-called Reception and Orientation Centers (centres d’accueil et d’orientation, CAO), each with a capacity for between 100 and 300 migrants.

September 13, 2016. The President of the Alpes-Maritimes region, Eric Ciotti, criticized the government’s “irresponsible” plan to relocate migrants in Calais to other parts of France. He said the plan would “proliferate a multitude of small Calais, genuine areas of lawlessness that exacerbate lasting tensions throughout the country.” He added:

“This plan reflects the resignation of the government in the face of massive illegal immigration. It weakens national cohesion under a false pretext of humanity which hides a dangerous ideology that denies any distinction between foreigners who seek asylum, who France should decently receive, and those who are economic migrants, whom we can no longer tolerate, and who should be returned to their countries of origin.

“The only solution is to deport, without delay, all illegal immigrants who do not intend to remain on our territory, and to place asylum seekers in centers dedicated to the study of their cases.”

September 14, 2016. The President of the Auvergne-Rhône-Alpes region, Laurent Wauquiez, expressed anger at the government’s “diktat” to relocate 1,800 migrants from Calais to his region. He said: “This is madness and it is not a matter of solidarity. The problem of Calais is not solved by multiplying Calais throughout France. We expect the government to solve the problem of Calais, not move it to other parts of the country.”

September 16, 2016. Steeve Briois, the Mayor of Hénin-Beaumont and Vice President of the National Front, criticized the government’s plan to relocate migrants from “The Jungle” to the rest of the country. He said:

“This crazy policy would consequently multiply mini-Calais on the entire national territory, without consulting the people and local elected officials. This forced policy of the Socialist government is simply unacceptable; it seriously threatens public order and the safety of our citizens.”

September 20, 2016. Construction work began on a wall to prevent migrants at the camp from stowing away on cars, trucks, ferries and trains bound for Britain. Dubbed “The Great Wall of Calais,” the concrete barrier — one kilometer (half a mile) long and four meters (13 feet) high on both sides of the two-lane highway approaching the harbor — will pass within a few hundred meters of “The Jungle.”

September 21, 2016. A whistleblower reported that volunteer aid workers at “The Jungle” were forging sexual relationships with migrants, including children. “I have heard of volunteers having sex with multiple partners in one day, only to carry on in the same vein the following day,” he wrote. “And I know also, that I’m only hearing a small part of a wider scale of abuse.” He added that the majority of cases in question involved female volunteers and male migrants. “Female volunteers having sex enforces the view (which many have) that volunteers are here for sex,” he wrote.

October 25, 2016. French authorities began dismantling “The Jungle.” The government said that 4,014 migrants had been relocated or re-sheltered from the camp.

March 3, 2017. Calais Mayor Natacha Bouchart banned local aid groups from distributing free food near the former “Jungle” camp. “I took this decision to make sure that no permanent base or squat is created around Calais,” she said.

April 28, 2017. Emmanuel Macron pledged that, if elected president, he would seek to renegotiate the Le Touquet treaty, which allows British border police to operate in Calais.

June 19, 2017. A Polish truck driver was killed when his truck crashed into another truck that had been stopped on the A16 motorway about 15 kilometers from Calais by migrants seeking to stow away to Britain. Nine Eritrean migrants found in one of the trucks were arrested and were expected to be charged with involuntary homicide, disrupting traffic and endangering people’s lives.

July 7, 2017. French police forcibly removed 2,500 African migrants from Porte de la Chapelle in northern Paris, which has become a gathering point for migrants since the closure of “The Jungle” in Calais.

July 26, 2017. Human Rights Watch accused French police of systematically abusing asylum seekers and migrants, disrupting humanitarian assistance, and harassing aid workers, “behavior that appears to be at least partly driven by a desire to keep down migrant numbers.”

August 8, 2017. The French Interior Ministry reported that more than 17,000 migrants attempted to board UK-bound trucks and trains at the port and Eurotunnel in Calais during the first seven months of 2017. The figures showed that the closure of “The Jungle” in October 2016 had failed to deter migrants in Calais.

August 18, 2017. French police forcibly removed 2,000 African migrants living on sidewalks at Porte de la Chapelle in northern Paris. Interior Minister Gerard Collomb said the police action proved that the system for handling migrants is “dysfunctional.”

September 17, 2017. French police forcibly removed hundreds of migrants from a forest on the northern coast near Calais over fears it could become a magnet for others hoping to head to Britain. Some 350 men, women and children, most of them Iraqi Kurds, had been living for weeks in squalid conditions on the edge of Grande-Synthe.

October 25, 2017. A year after “The Jungle” camp in Calais was razed, the charity Help Refugees reported that between 800 and 2,000 migrants were still gathered there.

November 8, 2017. French police arrested three Iraqis accused of smuggling up to 40 migrants a day to Calais and into Britain in refrigerated trucks.

December 10, 2017. Paris residents furious that hundreds of migrants are sleeping on the streets of their neighborhood threatened to launch a hunger strike unless French authorities remove the squalid makeshift camps. Pierre Vuarin, a spokesman for a neighborhood association, said: “The pavement is sometimes soaked in urine and the streets aren’t cleaned every day. Some people have sold their flats at knockdown prices and others have suffered mental breakdowns.”

December 22, 2017. Abdullah Dilsouz, a 15-year-old Afghan migrant, was crushed to death after he was run over by a truck near the port of Calais.

January 9, 2018. More than 100,000 people requested asylum in France in 2017, a “historic” number and an increase of 17% on the year before, according to the French Office for the Protection of Refugees and Stateless Persons (OFPRA). The principal country of origin for asylum seekers in France in 2017 was Albania, followed by Afghanistan, with 5,987 requests. Of that number, 83% were granted refugee status.

January 16, 2018. On an official visit to Calais, President Emmanuel Macron said he would not tolerate building another “Jungle” camp in Calais: “In no way will we allow illegal routes to be developed here. In no way will we let a ‘Jungle’ spring up, or an illegal occupation of the territory.”

January 18, 2018. President Macron and British Prime Minister Theresa May signed the so-called Sandhurst Treaty, which “complements” the Le Touquet treaty. The treaty requires Britain to reduce the processing time for migrants hoping to travel to Britain from Calais from six months to one month for adults, and 25 days for children. It also requires Britain to pay £44.5 million (€50 million; $62 million) for extra security measures in France to prevent another “Jungle” camp from forming in Calais and other ports. The extra cash will go towards fencing, CCTV and other detection technology.

February 1, 2018. Hundreds of African and Asian migrants armed with knives and iron rods fought running street battles in Calais. Two dozen migrants were injured in what the French government dubbed “unprecedented” scenes of violence among those seeking to reach Britain.

February 3, 2018. The Guardian reported a 25% increase in the number of migrants in Calais. It attributed the surge on the Sandhurst Treaty, which raised “false hopes” that it would be easier to reach Britain.

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Why FX Volatility Is Lagging VIX (And What Happens Next)

We noted last night that, for now, it appears there is no contagion to other asset-classes from the explosion in equity volatility expectations…

While rates, FX, and oil vol has picked up, it remains notably low (and well below longer-term averages).

Credit Agricole’s Valentin Marinov explains why and what happens next…

FX volatility gauges have clearly lagged behind other vol measures like VIX during the latest bout of escalating risk aversion. Indeed, whereas the VIX has recently hit its highest levels in almost seven years, our index of G10 USD-crosses implied volatility has barely managed to scale its highs from September 2017 and has remained well below its long-term averages.

In addition, a look at the relative G10 performance since last week would highlight that the biggest losers were the European currencies like EUR, GBP, NOK and SEK rather than the ‘usual suspects’ AUD and especially NZD. At the same time, USD emerged victorious even against safe havens like JPY and CHF. It seems therefore that a positioning unwound rather than the FX sensitivity to risk aversion could explain the moves.

Does the above discrepancy indicate that the FX markets are lagging the equity markets so that investors should turn even more negative on risk-correlated and commodity currencies?

We think that cautiousness is certainty warranted and as a result we maintain our relatively bearish outlook for AUD and NZD in the near-term. That said, there are other factors that make us think that the FX volatility may continue to lag the equity volatility. The main reason seems to be the relatively subdued correlation between USD and US rates and UST yields. This has been attributed to the flattening of the UST curve that has been in place for most of 2017. In turn, this reflected investors’ belief that the Fed tightening cycle how now matured so that any future rate hike would have less of a positive impact on USD. All this also implies that the recent surge in UST yields is less positive for USD than it is negative for US stocks.

There has been some contained bear steepening of UST curve since the start of February and this may explain the renewed recoupling between USD and the elevated US rates and UST yields that helped the dollar regain some ground across the board in the last few days.

The question for us is whether this correlation will grow in intensity so that higher yields result in stronger USD, trigger more unwinding of USD-funded carry trades and thus fuel realized and implied FX volatility.

That may indeed be the main risk in the near term especially if the Fed officials or a potential US government shutdown trigger further bear steepening of the UST curve. Over longer-term, however, the UST curve may resume its flattening trend and this should, once again, deprive USD from any US rates or UST yields support.

As a result, the moves in the USD-crosses may remain relatively more contained than in the stock markets and the FX volatility may continue to lag the stock market volatility.

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Turkey’s Offensive In Syria: The US Falls Into A Trap Of Its Own Making

Authored by Peter Korzun via The Strategic Culture Foundation,

In the heat of the battle for Afrin, Turkey has warned it will go farther to establish control over vast swathes of land in northern Syria. The offensive  is supposed to take Turkish forces as far as Syria’s border with Iraq. On Jan. 28, Ankara called on Washington to withdraw its military from Manbij (100 km from Afrin) before it launches an operation to clear that area of Kurdish militias. It’s important to note that the US had provoked Turkey’s action by announcing its decision to set up a new border security force in the areas under Kurdish control. So Washington has created this situation all by itself – a trap of its own making. Having sown the wind, it reaps the whirlwind.

A push to the east will potentially force a confrontation between Turkish troops and the US-led Syrian Democratic Forces (SDF). The Kurdish combat units in Afrin missed their opportunity to avoid a worst-case scenario.

Some Pro-Kurdish sources say Russia had betrayed the Afrin Kurds by pulling its peacekeepers out before the Turkish attack began. This is a very misleading statement. Let’s look at the facts. Moscow believes all regions west of the Euphrates should be under the control of the regular Syrian army, because these areas belong to Syria – a territorially cohesive country with a legitimate government. Russia had asked the Kurds in Afrin to interact with Damascus and allow its regular army into the area. They refused. Moscow is still ready to act as a mediator to broker talks on autonomy within Syria. So far that initiative has been rejected. The Kurds have preferred the US as their protector. Now they are on their own. They’ve made their bed, now they must lie in it.”.

The US military has not defended the Kurds in Afrin, claiming it does not regard them as allies on par with the Kurds who are part of the SDF farther east. The US maintains that the Kurds in Afrin did not fight the Islamic State (IS). But even so, those Kurds did protect Afrin and kept their land from being invaded by jihadi militants. Perhaps the US never committed itself to defending the Kurds in Afrin, but it did accept the responsibility of protecting the SDF in Manbij. What will happen now? It is next to impossible to make predictions with any degree of accuracy, but we can contemplate some potential scenarios.

The Turkish Hürriyet Daily News reported that the US and Turkey are in talks over ways to de-escalate the conflict. NATO Deputy Secretary General Rose Gottemoeller has confirmed that fact, but it’s not clear how that would jibe with the offensive announced by Ankara to capture the land held by the SDF. In any event, it would be too humiliating for Washington to give in to Turkey’s demand. If the US fails to protect its Kurdish allies, it will have no reason to maintain its military presence in Syria. It will have to leave the country, just as Russia and Syria have requested.

One potential scenario would include inciting a broader uprising of Kurds that would encompass Turkey, Iran, and Iraq. That might reshape the regional map. A development like that is not outside the realm of possibility.

Another consequence – NATO’s cohesion has already been undermined now that Turkey and the US are supporting opposite sides. If the situation continues to deteriorate, the US will either blink first or it will ask NATO to suspend, or even expel, Turkey from that organization, at least as long as President Erdogan is in power. This would naturally push Ankara in the direction of Moscow and Beijing, if it should move from NATO to the Shanghai Cooperation Organization. President Erdogan only recently mentioned how tired he was of the whole EU membership process.

A political defeat for the US is the most probable outcome. Washington will have to pay for its lack of a clear action plan in Syria and its inability to fully grasp the situation. Obviously Washington is in a predicament. It is up against a very hard choice.

If the US intends to stay in northern Syria, it certainly needs the Kurds. But if America sides with the Kurds, it will lose Turkey. It might find itself excluded from the entire nation-building process, since it is hostile toward all the major actors: the Syrian government; Russia; Iran; and Turkey. If it abandoned the Kurds, that would be a blow to its credibility in the Middle East, given its recent split with the Palestine Authority over the recognition of Jerusalem.

If the US manages to reach an agreement with Turkey, that will mean farewell to the prospect of Syrian Kurdistan obtaining a special status that would make it an independent state, whether just in practice or perhaps even officially. The Turkish offensive is likely to make the Kurds more willing to negotiate with Damascus. A future alliance with the Syrian government is an alternative that would push the Kurds into the peace process. It would boost Syria’s chances of remaining an undivided state. Moscow could act as a mediator between Damascus, the Kurds, and Ankara. After all, Moscow is one of few capitals where the Syrian Kurds maintain a representative office.

All efforts should be exerted within the framework of the Astana peace process, which is being directed  by Moscow, Ankara, and Tehran. Washington has always emphasized that its goal in Syria was to fight against IS. But that jihadist group is now so diminished as to be insignificant in Syria. The mission has been accomplished. Why should Washington expend more time and effort, balanced on the brink of armed conflict with Ankara or with any other actor in Syria? After all, if the Astana peace process succeeds, America’s European allies will heave a sigh of relief as the waves of refugees from Syria abate. The best thing the US could do under these circumstances would be to pull out of Syria, focus on diplomacy, and just give peace a chance.

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Germany Still Holds The Most Winter Olympics Medals

The first ever Winter Olympic Games were held in Chamonix in the French Alps in 1924 – 16 nations took part, competing for medals in 9 disciplines.

The most recent winter games were held in the Russian resort of Sochi in 2014, where 88 nations competed in 15 disciplines.

This week, the 23rd games will start with an opening ceremony in Pyeongchang in South Korea on Saturday. They will go on for two weeks, until February 25.

As Statista’s Dyfed Loesche notes, Germany has so far been able to rake in most medals at the Winter Olympics, standing at 377 today. This is counting in all medals German teams have acquired, from Nazi Germany, through to Germany divided in to East and West and after reunification in 1990.

Infographic: Germany Still Holds Most Medals | Statista

You will find more infographics at Statista

In second place, Russia had a good run in Sochi, but the International Olympic Committee (IOC) decided to bar 43 Russian athletes from competing at this year’s winter games, as they stand accused to have profited from systematic doping in 2014.

On Thursday the international sports court CAS overturned some of these suspensions.

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