Category: zerohedge

It has been a confusing 24 hours, with US futures slumping after yesterday’s unexpectedly hawkish-yet-dovish FOMC, which first slammed the dollar, then sent the USD surging, and sparking an equity selloff even as rates remained relatively unchanged. Today’s this confusion spilled over into international markets, with both Asian and European shares retreating, as traders are on edge ahead of the US-China trade talks taking place today and tomorrow.

The weakness continued this morning, when another disappointing euro-zone core CPI number (1.1%, Exp. 1.2%, last 1.3%) led to sharp rally across EGBs, dragging Treasurys higher in response, and bull-flattening the curve as 10Y yields slumped.

And while U.S. equity futures are slowly trying to grind higher from overnight lows, the response among US equities to what has so far been an impressive earnings season has left most of the bulls very disappointed, and judging by recent analyst commentary, 2018 is clearly not going according to plan (to echo what Citi said last month): 

“A slightly disappointing growth reaction thus far to the late 2017 tax cuts, no sign of a meaningful pick-up in inflation pressures and uncertainty generated by the potential for a trade war were always likely to commit the Fed to a steady as she goes message,” said Lee Ferridge of State Street Global Markets. “There might also be a little concern over recent market moves, with stocks flat so far in 2018 while US Treasury yields have moved meaningfully higher, doing some of the Fed’s tightening work for it.”

European equities opened on the backfoot (Eurostoxx 50 -0.2%), perhaps anxious as US-China trade talks start in Beijing. Major bourses are lower on the day whilst Switzerland’s SMI 20 outperforms its peers. Most sectors are in the red with the exception of energy and IT. Logitech (+7.0%) shares soared following earnings, buoying the IT sector along with it. Financials underperform after euro-zone inflation data.

Asian equity markets traded mostly negative following the late US slump on Wednesday, with the Fed seen to remain firmly on track for a June hike. Nonetheless, ASX 200 (+0.9%) was the regional outperformer and gained across all sectors with miners underpinned amid upside in metals, while NAB was among the laggards after a decline in H1 cash profit. Elsewhere, Shanghai Comp. (-0.2%) and Hang Seng (-1.7%) declined after a daily net liquidity drain by the PBoC and amid trade concerns ahead of talks between US and China, with tech and telecoms related stocks pressured after reports the US is considering equipment sales restrictions on Chinese telecom firms over national security concerns. As a reminder, Japan is shut for the remainder of the week.

Of note, the Hang Seng China gauge dropped as much as 2.2% ahead of trade talks between U.S. and China which begin later on Thursday, and dragged the MSCI Asia Pacific lower by 0.2%.

“When you think about the things that have been weighing on the market — the potential for trade war with China, Nafta breaking up, rising rates and of course the potential rolling over in growth — I think the one that is really weighing the most heavily is trade and that’s why the market tends to swing the most violently on every new piece of news,” RiverFront Investment Group Chairman Michael Jones told Bloomberg TV.

Meanwhile, as TSY yields slumped overnight, the USD predictably weakened across the board, undoing some of yesterday’s post-FOMC spike: the Bloomberg dollar index fell for first time in four sessions.

Elsewhere, in FX, the pound erased an earlier advance after U.K. services data undershot forecasts, before fading the move to claw back a 0.2% gain; while the euro pared gains after the euro-area CPI estimate for April came in below the median forecast, it was still higher for the first time in four days; The TRY spiked to a new record low against the USD after both core and headline CPI surprised to the upside with the backdrop of Erdogan’s increasing pressure against higher rates. NOK stronger as Norges Bank does not hint at any dovish changes to rate path. The AUD was the best performing G-10 currency after a larger-than-expected trade surplus.

Treasuries edged higher while emerging-market currencies rebounded from a four-month low; European government bonds all rose following poor Eurozone inflation data, while Australia’s 10-year yield steady at 2.80%.

In commodities, oil prices recovered from yesterday’s post-DoE sell off with prices continuing to factor in the risks surrounding Iranian-US relations with the latest source reports suggesting that US President Trump is reportedly all but decided to end the nuclear agreement with Iran. In other energy newsflow, China’s Sinopec is planning to cut Saudi crude oil loadings by 40% in June for a 2nd month on high prices; according to a UNIPEC official. In the metals scope, spot gold is sitting in modest positive territory following yesterday’s FOMC release and a slightly softer USD. Elsewhere, aluminium prices have risen for the second consecutive session, as attention turns to developments on  US-China trade talks being conducted today. Copper was flat overnight with trade contained amid opposing forces of rising metal prices in China during early trade and a broad risk averse tone.

In geopolitical news, Reuters reported that Trump has all but decided to end nuclear agreement with Iran, according to sources which added it is unclear how he will withdraw from the agreement. Meanwhile, the WSJ added that the US is said to be considering equipment sales restrictions on Chinese telecom firms over national security concerns. In related news, a Chinese trade official commented that China will not accept pre-conditions in trade discussions and that China is more prepared than the US to cope with a trade war.

In central bank news, Norges Bank Interest Rate Decision 0.50% vs. Exp. 0.50% (Prev. 0.50%). Comments stated that outlook and balance of risks have not changed substantially, inflation is below target, as such policy rate will be raised after summer 2018. Krone is weaker than expected as measured by the import weighted exchange rate. There was little new information about growth in the Norwegian economy.

Riksbank’s Jansson said that there is a limit for how expansionary policy can be, but haven’t reached there yet, hopes next step will be tightening of policy; Riksbank’s Skingsley not at the point where rate hikes can begin; Riksbank Governor Ingves says the rate path is a forecast, not a promise.

Today’s busy calendar includes data on jobless claims, trade balance and factory orders. DowDuPont, Bombardier, Cigna and Ferrari are among companies reporting earnings

Bulletin Headline Summary from RanSquawk:

• Norges Bank maintains post-summer hike guidance, Riksbank sticks to end of year
• UK Services PMI and Eurozone CPI miss expectations
• Looking ahead, highlights include US trade, weekly jobs, ISM non-mfg, factory orders, a slew of speakers and earnings

Market Wrap

• S&P 500 futures up 0.2% to 2,633.50
• STOXX Europe 600 down 0.2% to 386.55
• MSCI Asia Pacific down 0.2% to 172.83
• MSCI Asia Pacific ex Japan down 0.5% to 563.89
• Nikkei down 0.2% to 22,472.78
• Topix down 0.2% to 1,771.52
• Hang Seng Index down 1.3% to 30,313.37
• Shanghai Composite up 0.6% to 3,100.86
• Sensex down 0.05% to 35,159.39
• Australia S&P/ASX 200 up 0.8% to 6,098.28
• Kospi down 0.7% to 2,487.25
• German 10Y yield rose 0.2 bps to 0.583%
• Euro up 0.4% to $1.2002
• Italian 10Y yield rose 0.5 bps to 1.535%
• Spanish 10Y yield fell 0.9 bps to 1.302%
• Brent futures up 0.2% to $73.52/bbl
• Gold spot up 0.6% to $1,313.06
• U.S. Dollar Index down 0.1% to 92.40

Top Overnight News from Bloomberg

• The dollar fell after the Federal Reserve seemed less hawkish than some had positioned for; the Bloomberg Dollar Spot Index slipped for the first time in four days; 10-year Treasuries rose for the first time in three days
• The greenback weakened against all its G-10 peers; Norway’s krone saw the biggest advance Thursday after the Norges Bank reiterated that it could lift interest rates after the summer
• The pound erased an earlier advance after U.K. services data undershot forecasts, before fading the move to claw back a 0.2% gain; while the euro pared gains after the euro-area CPI estimate for April came in below the median forecast, it was still higher for the first time in four days
• Stocks in Europe followed Asian peers lower as investors began to switch their attention away from the Fed and back to earnings and the outlook for global trade ahead of talks between Chinese and U.S. officials
• China won’t succumb to “threats” from the U.S., a senior government official said, hours before talks are to begin Thursday with a delegation of the Trump administration’s top trade policy officials
• Federal Reserve officials made doubly sure to convey a relaxed attitude toward inflation rising above 2%, mentioning the “symmetric” nature of their target twice in a statement Wednesday that signaled no intention to accelerate a gradual tightening of monetary policy
• The U.S. Treasury announced it will lift long-term debt sales by $73b this quarter
• If billionaire bond investor Bill Gross is right, most of this year’s excitement in the Treasury market is done and yields won’t see a substantial move from here
• Theresa May is facing a crisis after pro-Brexit ministers paired up with Conservative hardliners to demand a clean break from the European Union’s customs system
• Eurozone Apr. CPI Estimate y/y: 1.2% vs 1.3% est; Core CPI 0.7% vs 0.9% est; Services CPI 1.0% vs 1.5% prev.
• U.K. Apr. Services PMI: 52.8 vs 53.5 est; Markit note the underlying performance of the economy has continued to deteriorate
• Norges Bank holds rates at 0.50% as expected; says upturn in the economy appears to be continuing broadly in line with the March policy report
• Turkey Apr. CPI y/y: 10.9% vs 10.5% est; Core CPI 12.2% vs11.5% est

European equities opened on the backfoot (Eurostoxx 50 -0.2%) as US-Sino trade talks start in Beijing. Major  bourses are lower on the day whilst Switzerland’s SMI 20 outperforms its peers. Most sectors are in the red with the exception of energy and IT. Logitech (+7.0%) shares soared following earnings, buoying the IT sector along with it. Glencore (+1.1%) is at the top of the FTSE following pleasing production numbers. Other individual movers post-earnings include: Veolia (+2.5%), Gerberit (+3.1%), Infineon (+0.9%), Vonovia (-1.4%) and Smith & Nephew (-6.0%).

Top European News

• U.K. Services Disappoint as Economy Stays Stuck in Slow Lane
• Norway Sticks to Tightening Plan as Rate Held at Record Low
• Danske Bank Is Slammed by Regulator in Money Laundering Probe
• Starwood Capital Sells $1.1 Billion Portfolio of U.K. Hotels

Asian equity markets traded mostly negative following the weakness on Wall St post-FOMC, with the Fed seen to remain firmly on track for a June hike. Nonetheless, ASX 200 (+0.9%) was the regional outperformer and gained  across all sectors with miners underpinned amid upside in metals, while NAB was among the laggards after a decline in H1 cash profit. Elsewhere, Shanghai Comp. (-0.2%) and Hang Seng (-1.7%) declined after a daily net liquidity drain by the PBoC and amid trade concerns ahead of talks between US and China, with tech and telecoms related stocks pressured after reports the US is considering equipment sales restrictions on Chinese telecom firms over national security concerns. As a reminder, Japan is shut for the remainder of the week. US is said to be considering equipment sales restrictions on Chinese telecom firms over national security concerns. In related news, a Chinese trade official commented that China will not accept pre-conditions in trade discussions and that China is more
prepared than the US to cope with a trade war.

Top Asian News

• Mahathir Probed Under Malaysia Fake News Law for Sabotage Claim
• Fed Adds to List of Reasons Why Asia Stock Investors Are Jittery
• Little Known China Biotech Firm Lures Top Global Stock Fund
• Turkish Investors Get Reality Check After Inflation Accelerates

In FX, it has been very choppy trade for the DXY in the FOMC aftermath, but ultimately the index has pulled back from fresh 2018 highs around 92.830 made in the run-up to circa 92.500. To recap, the Fed’s latest assessment acknowledged inflation rising to within a whisker of its target rate, but was less upbeat on the pace of economic activity and unexpectedly added a degree of flexibility around the 2% price mandate, which has been perceived dovishly.  CAD: Another beneficiary of the broad Greenback downturn amidst rebounding oil prices and looking ahead to Canadian trade data that is expected to reveal a narrower deficit. Usd/Cad is back down in the low 1.2800 area and eyeing residual bids from 1.2820-00 that were not quite filled recently. EUR/GBP: Both movers on independent factors, as Eur/Usd revisited sub-1.1950 lows on the back of weaker than consensus Eurozone CPI and Cable retreated from 1.3600+ again in wake of the UK services PMI miss that has dragged BoE hike expectations for next week down to single digits from almost odd-on this time last month. Tech supports eyed in Eur/Usd still the major 1.1936 Fib and for Cable 1.3550. NOK/SEK: Contrasting fortunes for the 2 Scandi Crowns as the Nok is underpinned by the Norges Bank reaffirming intentions to hike ‘after Summer’ this year, but the Riksbank reiterates no tightening until the end of 2018. However, Eur/Nok and Eur/Sek are both softer on a weaker single currency

In commodities, oil prices have recovered from yesterday’s post-DoE sell off with prices continuing to factor in the risks surrounding Iranian-US relations with the latest source reports suggesting that US President Trump is reportedly all but decided to end the nuclear agreement with Iran. In other energy newsflow, China’s Sinopec is planning to cut Saudi crude oil loadings by 40% in June for a 2nd month on high prices; according to a UNIPEC official. In the metals scope, spot gold is sitting in modest positive territory following yesterday’s FOMC release and a slightly softer USD. Elsewhere, aluminium prices have risen for the second consecutive session, as attention turns to developments on  US-China trade talks being conducted today. Copper was flat overnight with trade contained amid opposing forces of rising metal prices in China during early trade and a broad risk averse tone.

Looking at the day ahead, the April CPI report and March PPI for the Euro area will be out while the latest European Commission forecast updates will be released. For core CPI, consensus expects a +0.9% yoy print after holding at +1.0% yoy for the last 3 months (headline CPI 1.3% yoy expected). The final April services and composite PMIs in the UK will also be out in the morning. In the US preliminary Q1 nonfarm productivity and unit labour costs data are due, along with the March trade balance print, April ISM non-manufacturing, weekly initial jobless claims, March factory orders and the final March durable and capital goods orders data. Away from the data, the ECB’s Villeroy, Praet, Constancio and Coeure are due to speak.

US Event Calendar

• 7:30am: Challenger Job Cuts YoY, prior 39.4%
• 8:30am: Nonfarm Productivity, est. 0.9%, prior 0.0%; Unit Labor Costs, est. 3.0%, prior 2.5%
• 8:30am: Initial Jobless Claims, est. 225,000, prior 209,000; Continuing Claims, est. 1.84m, prior 1.84m
• 8:30am: Trade Balance, est. $50.0b deficit, prior $57.6b deficit
• 9:45am: Bloomberg Consumer Comfort, prior 57.5
• 9:45am: Markit US Services PMI, est. 54.5, prior 54.4; Markit US Composite PMI, prior 54.8
• 10am: ISM Non-Manf. Composite, est. 58, prior 58.8
• 10am: Durable Goods Orders, prior 2.6%; Durables Ex Transportation, prior 0.0%
• 10am: Cap Goods Orders Nondef Ex Air, prior -0.1%; Cap Goods Ship Nondef Ex Air, prior -0.7%
• 10am: Factory Orders, est. 1.4%, prior 1.2%; Factory Orders Ex Trans, prior 0.1%

DB’s Jim Reid concludes the overnight wrap

After the football last night Jim is too emotionally drained to contribute today as Liverpool did their best to avoid making the final of the Champions League. However they just about got there and I think he’ll be busy dusting off his rolodex for clients in Kiev later today.

Unlike the football, it wasn’t quite so easy to get excited about last night’s Fed meeting but there were still one or two interesting statement changes to highlight. Our US economists believe that the statement moved incrementally in a more hawkish direction and also towards brevity. In their view, it recognized that inflation has moved close to and is expected to continue to run near the Committee’s 2% objective. As expected, it also emphasized that the 2% objective is a “symmetric” one, allowing for some overshoot as well as undershoot of inflation – a modestly dovish modification in their view. They also note that having just about reached the inflation objective, they dropped the need to continue monitoring inflation developments closely – a hawkish innovation.

Meanwhile, with inflation about on target and with risks to the Fed’s labour market objective running to the upside with the unemployment rate seen as low and the labour market expected to “remain strong”, one interesting point that our economists made in their note (link) yesterday was that they believe a change in the balance of risks language is coming, possibly as soon as June when the Chair will have an opportunity to explain things. In a nutshell our colleagues expect to learn from the minutes to this meeting, as well as upcoming Fedspeak, that should point to a more hawkish stance of policy at the June meeting, absent any unexpected events before then.

For markets, while moves were fairly modest, they did seem to interpret the statement as overall leaning very slightly more dovish. Perhaps that reflected the removal of the sentence “the economic outlook has strengthened in recent months” however we tend to agree with our economists in that this line was just removed simply as an acknowledgment of soft Q1 growth, which was widely anticipated. In any case, Treasury yields closed off their intraday highs with 2y yields finishing at 2.489% after trading as high as 2.517% while 10y yields ended broadly unchanged at 2.967% after being at 2.994%. The 2s10s curve finished at 48bps and nearly 2bps steeper on the day. It’s worth noting that June is 97% priced in for a hike now – which is little changed compared to the day prior.

The big mover in markets yesterday was the Greenback however. The Dollar index was initially strong leading into the Fed, however proceeded to fall -0.47% after the statement was released, but then rallied +0.66% off the lows into the close. EM currencies appeared to be on the receiving end of that with the Colombian Peso, Brazilian Real, Russian Ruble, Turkish Lira and Argentine Peso down between 1% and 3%. Some headlines about the US potentially increasing sanctions on Russia didn’t seem to help the Ruble weakness in particular. In any case the rally for the US Dollar did appear to weight on US equity markets with the S&P 500 and Dow both closing -0.72% despite Apple doing its best to lead markets higher post results.

This morning in Asia, market are broadly lower with the Hang Seng in particular down -1.66%, weighted down by tech and financials stocks, while the Nikkei (-0.16%), Kospi (-0.38%) and Shanghai Comp (-0.16%) have also trended lower. Ahead of today’s China/US trade talks today, Bloomberg cited unnamed Chinese government officials indicating that Beijing will not agree to preconditions that include abandoning its advanced manufacturing program and cut the trade gap by a fixed amount.

Moving on. While monetary policy came under review, there was also some focus on the fiscal side of things yesterday too with the US Treasury quarterly refunding announcement, however there were no great surprises with a $1bn increase to all maturities which was roughly in line with expectations, representing an additional $27bn of new issuance for the upcoming quarter.

Away from the Fed, earlier in the day the focus was on some of the data in Europe. Particularly in the spotlight was a first look at the Q1 GDP print for the Euro area however there were no real surprises with the +0.4% qoq/+2.5% yoy print coming in bang in line with expectations. The Q4 2017 reading was also revised up a tenth to +0.7% qoq. While Q1 was the slowest QoQ rate of growth in the Euro area since Q3 2016, it’s interesting to note that this is the first time ever that Europe has outpaced the UK for 5 consecutive quarters. Keep in mind that the UK outpaced Europe, with the exception of one flat quarter, for 15 quarters in a row between Q2 2011 and Q4 2014.

Meanwhile, just before that we had the final April manufacturing PMIs in Europe. The final Euro area reading was revised up 0.2pts from the flash estimate to 56.2. While that represents the fourth consecutive monthly decline, the rate of decline in April at just 0.4pts is a lot more moderate than the 1-2pt declines in the first 3 months of this year. The upward revision for April appeared to be due to a combination of a slightly stronger picture in France (+0.4pts to 53.8) and the noncore countries performing marginally better than implied. One exception was Italy which fell 1.6pts and more than expected to 53.5 (vs. 54.5 expected), marking a 15-month low. We should note that the new orders series for the Euro area fell 1pt albeit to a still solid 54.5 – but the lowest since November 2016. Italy’s new order series fell a more significant 3.2pts to 52.2 and is now down 9.1pts from the January high. So the fragility still appears to lie with Italy. European equity markets returned from Monday’s holiday in a positive mood with the Stoxx  600 finishing +0.63% and DAX closing at a fresh three-month high (+1.51%), albeit helped by a weaker Euro.

In other news, as far as the daily Brexit update is concerned, much of the focus was on the headlines from the night prior concerning the ‘rebellion’ being staged by Brexiteers in the cabinet over the customs union. Some reports suggested that Davis and Fox were willing to resign over May’s option preference for the union. Staying with the UK, it’s worth noting that there was rare good news to come from the construction PMI data which rose 5.5pts to 52.5 in April, with a big rise in housing activity the main driver. Sterling pared early gains by the close (-0.28%) as a result of broad Dollar strength however 10y Gilt yields were 5.2bps higher at 1.455%.

In terms of the remaining data, ahead of payrolls on Friday in the US the ADP moderated mom, but was above expectations at 204k (vs. 198k expected) and so remains solid at a three-month annualised rate of 224k. The  Eurozone’s March unemployment rate was steady and in-line at 8.5% while Italy was slightly higher than expected at 11.0% (vs. 10.9% expected).

Looking at the day ahead, the April CPI report and March PPI for the Euro area will be out while the latest European Commission forecast updates will be released. For core CPI, consensus expects a +0.9% yoy print after holding at +1.0% yoy for the last 3 months (headline CPI 1.3% yoy expected). The final April services and composite PMIs in the UK will also be out in the morning. In the US preliminary Q1 nonfarm productivity and unit labour costs data are due, along with the March trade balance print, April ISM non-manufacturing, weekly initial jobless claims, March factory orders and the final March durable and capital goods orders data. Away from the data, the ECB’s Villeroy, Praet, Constancio and Coeure are due to speak.

via RSS https://ift.tt/2I9GShb Tyler Durden

We were not the only ones who were left speechless by Thursday’s Tesla Tanturm: Elon Musk’s bizarre, childish, perhaps intoxicated meltdown during yesterday’s Tesla conference call, in which he interrupted analysts from Bernstein and RBC, cutting them off in the middle of the question for being “boneheaded, boring and dry” (when all they wanted was information on the company’s capex plans and Model 3 demand). This morning, the entire sellside appears to have joined in, to wit:

• TESLA INVESTORS SAY ODD EARNINGS CALL ’SHOOK CONFIDENCE’: RBC
• TESLA LIKELY TO FALL TODAY AFTER ‘TRULY BIZARRE’ CALL: JPMORGAN
• TESLA REITERATED SELL AT GOLDMAN ON LIKELY MISSED TARGETS

But the best reaction of all came from Morgan Stanley’s traditional Tesla fanboy, Adam Jonas: not even he could ignore the fast-motion carwreck (with or without an autopilot) that Musk unveiled 37 minutes into the call.

His rather shocked note on “The Importance of “Boring Questions” out this morning at 1:29am GMT…

… is below. Enjoy:

Tesla’s 1Q18 analyst conference call was arguably the most unusual call I have experienced in 20 years on the sell- side.  Many investors we spoke with post the call agree.

The first half of the Q&A was dominated by analyst questions about manufacturing, automation, cost, efficiency, and capital… a few other questions covered recent management departures and reservation momentum. We asked about the scope of collaboration between Tesla and SpaceX on data, to which Mr. Musk said “there are many areas for us to collaborate… haven’t really thought about it.” A surprising answer from someone who launched a Tesla Roadster into outer space on a SpaceX rocket.

The call made an odd turn ~37 minutes in when Elon criticized an analyst for asking a ‘boring’ question about capital requirements and then interrupted the following question (about Model 3 order configuration), saying “We’re going to go to YouTube. Sorry. These questions are so dry. They’re killing me.” He proceeded to take a 23 minute series of questions from a blogger. While the consequences are unquantifiable, we believe Tesla’s CEO made a mistake in refusing to answer some of the analyst questions about the Model 3 ramp. Additionally, we found the posture out of character with the normally inviting, enlightening tone of prior conference calls over many years. While they may be ‘dry’ in nature, we argue such questions are extremely important for a highly levered and cash hungry company with 2025 bonds trading at 89. As we have highlighted in our previous research, even the short-term cadence of Model 3 production can significantly impact cash levels, liquidity, and financial credit worthiness. This is due to the interplay of fixed cost absorption and negative working capital. In our view, more than any other factor, the path of the Model 3 can determine whether the stock could test our $561 bull case or fall below our $175 bear case.

To be clear. Tonight’s conference call didn’t go very well. Feedback we have received from investors during and following the call support this view. Irrespective of the Tesla CEO’s annoyance with the genre of questions he was receiving from the analyst community, we note that an important part of Tesla’s success has been its relationship with the capital markets in funding its ambitious plans. The analysts on the call represent the providers of capital that Tesla has throughout its history depended upon.

Well, when Tesla’s access to capital markets is finally cut off in a few quarters, there is always the Teslacoin ICO…

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Submitted by Bill Blain of Mint Partners

Apple becomes Dull, Boring and Predictable – and its a good thing. Picking Tech winners and losers is a game of common sense!

“It’s a bitch girl but it’s gone too far ‘cause you know it don’t matter anyway..“

After keeping rates on hold, a Fed hike in June is nailed on. Inflation is on/near target – but the unspoken consensus was no pressure to go early. Dollar stays high. Stocks down a bit. 10-year bonds at 2.97. Yawn.

In Europe mildly disappointing data leaves the ECB without any pressing need to act. The UK government looks riven, undecided and looking for straws to clutch over Customs and Brexit – no change there then. In short… same as, same as… None of it really matters nor will be remembered in a few years/months/weeks/days.

Meanwhile… back in the real world, where stuff is interesting..

“I’m sorry I criticised you, Apple. You win”, was the headline on an interesting Bloomberg opinion piece yesterday. The author went on to say: “Tim Cook’s company is a rock of common sense in an industry that’s gone rogue.” He called it the “perfect tech company, an example to the rest of Silicon valley”. Critically the article concluded “Apple exemplifies what economists describe as the maturity of the information technology revolution. It shows that a stage of useful progress is over…”

I wonder what Steve Jobs would think of the company he so personified becoming a stand-up mature company – but we’ll never know… A very good friend of mine, who just happens to be a senior Apple exec here in the UK, took me to task y’day for my comments about the lack of innovation: “they’s been saying that about Apple for a decade and our stock as quadrupled. I remember the analysts crying out “if Apple doesn’t produce a Netbook, it’s dead in the water.”” I can’t even remember what an Netbook was..

I never thought I’d give Apple a gold star for being Dull, Boring and Predictable, but that’s what it’s become.

There are lessons to be learnt from that realization.

With the assistance of Martin Malone, my Macro Economist, we took a look at Apple and the other tech giants over the past 10-yrs. Apple is clearly a mature company – those of us old enough will remember the classic breakthrough Advert from 1984! One of the great cameo moments in Forrest Gump (1994) is Tom Hanks receiving his stock statement from Apple and telling Jenny he’d invested in a fruit company…! Apple was worth $140 bln in 2008 – today its worth $870 bln.

It’s much the same thing for the rest of the FAAAT names (I’m patenting that!) in terms of market capitalisation:

                                    2008                            2018                Annualised Growth

Facebook                     $20 bln (est)                $500 bln          38%

Amazon                       $25 bln                        $770 bln          41%

Apple                          $140 bln                      $870 bln          20%

Alibaba                        $20 bln (est)                $460 bln          37%

Tencent                       $20 bln                        $470 bln          37%

 

During the same 10-years, the rest of the S&P produced 7% annual returns. Even the other top 10 names, like JPM, Berkshire and J&J were in single digits. New Tech has been the clear winner.

Past performance in no guide to the future, but so much expected growth is tied to digitisation technologies – whether that’s the destruction and reinvention of the high street, new travel modes, medical, educational, computing – you name it and there will be something new. (I tried that and said: “Coal”. Nope.. new Clean Coal tech makes it much more interesting!)

Not a single sector is exempt from new tech solutions and ways of doing it better/cheaper/cleaner. Even the oldest profession is under threat from robotics – or so I’m reliably informed!

Of course, not every Tech marvel is going to succeed.

Leading us neatly to Tesla. While the papers all express incredulity at Elon Musk’s refusal to answer boring questions – like: how does the order book translate to paid-for cars? – it’s credibility that’s on the line. Give Musk as gold star for elevating Electric Vehicles to the forefront of the consumer want list and creating a new market. Don’t even worry about how close to production targets Tesla might get. But be very, very concerned about how fast its burning through its cash pile – $1.1 bln in the last quarter!

According to the WSJ, Telsa’s remaining cash position of $2.7 bln will barely cover debt payments and long-term capital leases through the year. It could avoid a new capital raise, but only if it delivers way more cars than expected. (Instead, Must skipped that question – and falling short of target is always the case at Tesla.) A normal prudent firm would raise capital now, when it still can – but Musk says he won’t because he doesn’t need to. (Blain’s Mantra No 7 is raise capital when you can, not when you have to!)

And then there is We Work – the darling office-share company. Valued around $20bln, its just sold a $702 mm bond – which has crashed nearly 5 points in the few days since launch. Even by the standards of the speculative Hi-yield market, that’s a stunning slap in the face with a wet haddock. We Work’s business sounds great – give the rising tide of self-employed and start-ups access to great social offices and foster the millennial vibe. But any banker will tell you that holding long-term leases and renting them out by the month is the equivalent of borrowing long and lending short – a pretty sure fire route to collapse! Sometime in the near future, We Work is planning an IPO. You have been warned…

Some tech/disruption ideas are brilliant, innovative and work. Other great ideas just don’t work as well, if at all. Anyone for a perpetual motion machine startup I met y’day…?

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A Russian Su-30SM fighter jet crashed off the Syria coast, killing two pilots on board, the Russian Defense Ministry confirmed. 

The plane crashed over the Mediterranean Sea on Thursday morning, shortly after it took off from the Hmeymim airbase in Syria, the ministry added.  Pilots “fought to take the aircraft under control till the last minute,” the Russian Defense ministry said. Both pilots died as the result of the incident.

“A Russian Su-30SM fighter plane crashed over the Mediterranean Sea at around 9:45 a.m. Moscow time [06:45 GMT] when gaining height after taking off from the Hmeymim airfield. Both pilots, which were fighting to save the plane until the last moment, died,” the statement read.

fall of a #Russian plane in the sea off the port city of #Jabla in #Syria pic.twitter.com/M9b2loCTMA

— MOHAMMED GHORAB (@MGhorab3) May 3, 2018

The crash may have been caused by a bird hitting the engine, the ministry said, citing preliminary data. The aircraft was not shot down.

Another picture circulated on social media of the site of the crash, off the beach of Jableh #Syria pic.twitter.com/7RaexSLxd6

— Michael A. Horowitz (@michaelh992) May 3, 2018

The last similar incident occurred in March, when a Russian An-26 military transport aircraft crashed during landing at Hmeymim airfield, killing the 33 passengers and six crew members on board.

As a reminder, Russian military aircraft have been stationed in Syria as part of a deal between Moscow and Damascus. In 2017, Russian and Syrian authorities agreed to prolong their presence in the country after President Vladimir Putin ordered the withdrawal of a significant number of troops from Syria. Khmeimim Airbase near Latakia and the naval site in the port city of Tartus have been handed over to Russia for 49 years with an option of automatic extension.

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Authored by Tom Luongo,

One man’s toxic waste is another man’s golden goose.  A new round of economic sanctions imposed on Russia last month by the U.S. is creating havoc in investment circles.  A recent article by Ben Aris at Russia Insider describes Russian debt assets as ‘toxic waste again.’

That doesn’t mean these Russian debt assets actually are bad investments, just that those who currently hold them have to get rid of them because the rules have changed.

And they are no longer legally allowed to own them.

Because of that what were one minute the darling of the investment world instantly turned into garbage, selling if anyone can find a buyer at discounts even Crazy Eddie would blanche at.

All the previous sanctions imposed on Russian companies had only affected new securities – listings of new shares or bonds. Existing securities were unaffected.

Not now. The Specially Designated Nationals And Blocked Persons List (SDN List) released on April 6 not only sanctions those listed, it bans any investor with US exposure (European banks with US branches count) from doing any business with the sanctioned names. Investors were supposed sell all their stocks, bonds and debt within 30 days – i.e. before May 7.

This has sent the market for Russian securities into the floor.

Criminal Idiocracy

Politicians are a stupid and cowardly lot. Batman had it right, because they are, in fact, criminals.

For their own purposes they pass laws which force losses onto those who did nothing wrong, in this case those who purchased Russian corporate and sovereign debt in European markets over the past few years.

It’s theft, pure and simple.  Those having to sell these securities to get into compliance will face horrific losses, 70 to 80 cents on the dollar, in some cases.

Overnight, a healthy and prosperous market became a desert of the real all because John McCain’s nose was out of joint over being outmaneuvered in Crimea a few years ago?

And Donald Trump is too cowardly to say no to this insanity?

If I was a truly cynical man I would venture that ex-Goldmanite Steve Mnuchin engineered this so his buddies could play Johnny Bench at their bond desks in Hong Kong picking these things up for pennies. That would be crude wouldn’t it?

Crude but certainly plausible.

Russia is harmed by this.  Coupon payments have to be made in the currency of the debt.  The push here thanks to these sanctions is to limit Russian companies’ access to euros, in the same way that crashing the ruble and oil markets in 2014 was designed to starve Russia of dollars, forcing the bonds to be settled as they mature versus being rolled over because the companies had lost access to U.S. dollar funding.

Since that time the Russians have switched to euros, Chinese yuan and rubles.  But, with the bank of Russia keeping interest rates too high, there is little appetite for issuing ruble-denominated debt, when the euro markets offer far better rates.

This is the same thinking that trapped Russian corporates in 2014.  Blame can be laid at the feet of both parties, the companies looking for the lowest cost of capital and the central bank slow-playing the recovery of the Russian economy through overly-high interest rates.

It is a situation like this that fuels the notions that the Bank of Russia still works for the West rather than Russia herself.  Personally, I’ve been screaming at BoR President Elvira Nabullina to lower borrowing rates faster for more than a year now.

While both consumer and business lending are growing finally, the BoR is still encouraging Russian companies to seek out loans denominated in anything other than Rubles at a time when the avowed policy of the Russian government is to de-dollarize as much as possible.

In other words, the high interest rate policy is encouraging the very behavior the BoR says it is trying to fight, by inviting foreign capital into Russia only to see it fly out in the event of a new attack by the U.S. on its banking system.

Foreign ownership of Russian bonds is now 30% versus just 5% at the start of the year, thanks to high interest rate arbitrage.

Such that now there is more than $176 billion dollars in euro-denominated debt which has to be serviced.

These bonds have to be sold to new investors, harming them, which Mnuchin, Trump and the rest of the bozos in Washington could care less about.

Next Stop: City of London

Then the next step will be to cut Russian companies out of the European banking system.  The Gypsum Lady, U.K. Prime Minister Theresa May, has all but made that threat in the wake of Skripal-Gate, but it has not been revisited.

It’s likely because she knows she can’t do that until the markets for Russian securities are clear and London bond traders have figured things out.  Even Mnuchin, as Mr. Aris, pointed out, had to back off to allow the market time to get in compliance.

In March, the ECB seized Latvian Bank ABLV to remove an avenue in which Russian businesses can bank within the EU.  Again, so much of this is about getting Russia and Gazprom to stop building the Nordstream 2 pipeline as well as repudiate its relationship with Iran.

But, it simply won’t work.

Russian President Vladimir Putin and his chief economic advisor Sergei Glazyev have been pounding their shoes on the table to get the ‘oligarchs’ to repatriate their funds and bring their core business practices back to Russia.

The West cannot be trusted.  Glazyev, in particular, has been adamant about this to stop the capital flight out of Russia through the banking system.

So, in effect, the U.S. is doing exactly what Putin wants done, bring the capital home.  He’ll give them tax breaks, similar to what Trump did for U.S. corporates in his tax bill.

Between making ownership of the bonds illegal it also puts upward pressure on the ruble in forex markets as companies now have to scramble to raise euros to service the debt.

It’s a mess. But, it’s a mess that can be handled because Russia isn’t alone in the world anymore.  Today, unlike late 2014, it has a much better and deeper relationship with China to get the right currency into the right hands at the right time.

It was the opening up of ruble/yuan swap lines in December 2014 that stabilized the Russian equity markets and ensured that the worst of the ruble crisis was over.  Today, with a similar market dislocation attempt by the U.S. the ruble has pushed up a few points, but nothing potentially catastrophic.

The Rush to Nowhere

The urgency with which all of these false flags, hybrid and physical war actions, etc. that the U.S., the U.K., Israel and Saudi Arabia are occurring tells me that time is running out to stick this landing and get the desired result – regime change in Iran and Russian submission to U.S. hegemony.

The problem with tactics like this is simply that if they don’t work, if the target doesn’t collapse then you’ve got nothing left to him them with. And, like Ali versus George Foreman, the counter-attack will be a knockout.

The bottom line is that because Russia is in such a good financial position — low Debt to GDP, growing albeit slowly economy, buoyant oil and natural gas prices, more than ample foreign exchange reserves — investors are lined up deep to get access to their markets and their assets.

In markets, it’s a verity that a big actor can manipulate price in the short term, think stock buybacks for example, but they cannot overwhelm the primary trend.  A decade of QE can’t raise the price of worthless mortgage-backed securities.

If you believe that’s possible then you don’t believe in the power of markets, the power of people acting in the aggregate over the actions of the very few acting in concert.

The demand for Russian assets was there in 2017.  Despite the best laid plans of Washington and Downing St. that demand is still there and it will ensure that Russia will not be locked out of capital markets in the future.

Dollar and euro markets are gone.  They will figure something out with China.  People are clever.  Russians especially so.  They will always find a way to get around the diktats of a would-be Emperor.

N.B. – Thanks to Trauma2000 at the Russia Insider forums for spurring me to answer Mr.Aris’ article.

*  *  *

To support work like this as well as find out ways to crisis-proof your portfolio in times of geopolitical unrest, join my Patreon and subscribe to the Gold Goats ‘n Guns Investment Newsletter for just $12/month.  

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The end of the Cold War didn’t usher in world peace and countries keep spending on militaries and arms.

As Staista’s Dyfed Loesche reports, the newest data released by the Stockholm International Peace Research Institute (SIPRI) shows governments around the world spent an estimated $1.7 trillion in 2017, which is the highest level since the end of the Cold War.

You will find more infographics at Statista

After 13 years of increases from 1999 to 2011 and relatively unchanged spending from 2012 to 2016, total worldwide expenditure only rose marginally in 2017, by 1.1 percent in real terms.

SIPRI pulls together data from 172 countries and military spending is not to be confused with arms purchases. The figures include government spending on military forces and activities, which are made up of salaries and benefits, operational expenses, arms and equipment purchases, military construction, research and development, and central administration, command and support.

The SIPRI fact sheet can be downloaded here.

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Via Southfront.org,

On March 1, 2018, Vladimir Vladimirovich Putin made his most important speech probably since the time of the 2007 Muenchen Conference. If 11 years ago he declared that Russia would not allow disrupting the strategic balance and losing great power status, in 2018 it was proven this has not happened and would not happen in the foreseeable future.

During his speech, Russia’s president introduced 6 high-tech weapons systems which were developed in order to preserve strategic parity that was being undermined by the US and NATO.

The core of the matter lies in the fact that, when Russia was weak, in 2002 the US unilaterally abrogated the ABM Treaty and then, pursuing the aim of neutralizing Russia’s nuclear deterrent, she began two large-scale programs.

The first was the global ABM system surrounding Russia and China. Land ABM bases were deployed in California, Alaska, Romania, and Poland, with over 100 GBI and Standard SM-3 missiles. Additional such facilities are planned for Japan, South Korea, and Qatar.

UN currently has the ability to intercept Russia’s ICBM warheads only during their terminal trajectories. However, the more modern SM3 Block II A and IB theoretically can accomplish boost-phase intercepts, before warhead separation. The US is also deploying a naval ABM component which at the moment includes 30 destroyers and 5 cruisers deployed in direct proximity to Russia.

in the Mediterranean and Black Seas, in the Sea of Japan, in the Pacific and Atlantic. These ships also carry SM3 missiles, no fewer than 150 of them. These launchers are dual-use, as they man launch not only SM3 but also Tomahawk SLCMs which are nuclear-capable.

The US also started pursuing the Prompt Global Strike (PGS) program, which seeks the ability to launch precision non-nuclear strike against any target on the planet within 1 hour.

PGS entailed the development of several hypersonic delivery vehicle types, including cruise missiles and gliding warheads.

Since these measures undermined the foundations of deterrence, namely Mutually Assured Destruction, Russia was forced to respond. It launched several weapons programs in order to nullify US and NATO superiority in that area.

Sarmat

On March 1, 2018. V. Putin presented the 5-th generation silo-based RS-28 Sarmat ICBM, a multi-stage liquid-fuel missile that will soon replace the Soviet-era R-36M2 Voyevoda (SS-18). While most of the missile’s characteristics are classified, it is known the 200-ton missile has a short active flight stage to make ABM intercept more difficult. The missile can reach the altitude of 100km and achieve speed of  Mach 7-10. While Voyevoda’s range stood at 11,000 km, Sarmat extends it to over 16-18 thousand, making possible strikes from different directions, including from over the Atlantic, Pacific, and also North and South Poles. It would force the target country to deploy a perimeter ABM defense around its borders that would be both very expensive and physically difficult. Experts believe two versions of the missile will be deployed, with different fuel loads to strike targets in the US and Western Europe.

The launch weight of the missile targeted at the US would be between 150 and 200 tons, its range—16-18 thousand km, with throw-weight of 5 tons. Sarmat targeted against Europe would have a range of 9-10 thousand km, launch weight of 100-120km, and  throw-weight of 10 tons.

When it comes to the warhead bus, as it enters the atmosphere it will carry out anti-ABM evasive maneuvers, and may carry 10-15 warheads of varying yields. If the payload consists of 10 warheads, their yield will be 750kt apiece, but if the Avangard  hypersonic maneuvering warheads are employed, the Sarmat will carry 3-5 of them at the weight of 1 ton each.

Much of the missile’s weight consists of traditional anti-ABM measures, such as decoys, or inflatable warhead imitators; spiral, corner, and dipole reflectors; and also rockets which imitate the trajectory and heat signature of warheads. Avangard warheads can also be used with conventional payloads, allowing the ICBM to strike naval squadrons from extreme distances. It’s unlikely the Sarmat would be used like that since any ICBM launch would be considered as a nuclear strike and could provoke a retaliatory strike.

Sarmat and Voyevoda have identical dimensions in order to allow to use the launch silos of the Voyevodas that will reach their service limits in 2021-2023. Sarmat is in its final launch tests. It is expected to enter service in 2018-2020, and will begin combat alert in 2020-2021. Therefore the production of new missiles will take place concurrently with the reduction in the numbers of old ones, allowing the SRF to modernize its force without reducing its strength. According to MOD representatives, all the practical, technological, and industrial problems have been resolved, so that factory capacity necessary to fulfill future orders already exists.

Even though dry launch tests were successfully completed in 2017, they will be continued in the near future to increase the system’s reliability.  There are plans to use Sarmat missiles that have exhausted their service lives to launch satellites in order to increase the cost-effectiveness of this system.

Burevestnik [Storm Petrel]—a cruise missile with a nuclear powerplant

Another weapon introduced by Russia’s president was a nuclear-powered cruise missile which, following a poll on MOD website, received the name Burevestnik. According to information presented, Russian scientists were able to create a compact nuclear power source and squeeze it into the confines of a cruise missile like the Kh-101. It cannot go supersonic, but has range an order of magnitude greater than any other weapons, which is practically unlimited. The missile can furthermore operate at ultra-low altitudes, is stealthy and highly maneuverable. It makes it quite invulnerable to existing and future anti-air and anti-missile systems. The missile underwent tests in 2017, passed them, and its power source reached the required power which ensures the necessary thrust.

According to V. Putin, it permits the development of an entirely new class of offensive weapons capable of striking targets anywhere on the planet while remaining invulnerable to defensive systems. These missiles may be carried by strategic bombers and submarines, and may be equipped with conventional or nuclear warheads.

It is believed the missile is powered by a nuclear ramjet motor, which were being developed since the 1960s, in part to propel future aircraft, but the development was curtailed due to low reliability and high risk of contamination. It’s apparent that if Russian engineers managed to overcome the pollution problem, in the future they may be used on long-range strike drones which Russian Aerospace Forces currently lack.

Poseidon (Status-6) unmanned underwater vehicle (UUV)

Russia’s president stated the country developed UUVs with a unique combination of speed, maneuverability, and range. He likely was referring to a UUV known as Status-6 but which, after a poll on MOD site, was dubbed Poseidon. That Russia has been working on such weapons has been known for a long time, including thanks to a specially prepared “leak” to the media in 2015. According to the CIA, it was a way of publicly warning the US about a likely response to ABM deployment.

The basic characteristics of this system are as follows: diameter 1.6m, length 24m, weight about 40 tons, range 10,000km, maximum speed 100-186km/h, depth of operation up to 1km. The UUV follows in the footsteps of the T-15 torpedo developed in the 1940s-1950s to deliver thermonuclear warheads to US shores in the absence of reliable missile carriers. Unlike the T-15, Poseidon is a multirole submersible system, capable of engaging a wide range of targets such as carrier battle groups, naval bases, and coast infrastructure. One of its main missions would be the delivery of a nuclear munition to enemy shores to strike important commercial targets and to inflict unacceptable costs to the enemy by creating large radioactive fallout zones, tsunamis, and other nuclear explosion effects. The UUV can also carry torpedoes, missiles, and mines to attack various surface, land, and underwater targets.  It could launch missiles using a so-called Multiple All Up Round Canister, MAC.

According to its designers, the UUV ought to unload a capsule with a cluster of cruise missiles and quickly depart to avoid falling victim to return fire. The capsule can be set up on the sea bottom and remain there for a long time, until activation. There are reports this technology was used as part of the Skif project on submarine Sarov. The UUVs would be controlled from special “command vessels”  using the standard means of  communicating with underwater vehicles, the ZEUS transmitter. The UUV would likely have a sonar for orientation purposes, a modern navigation system, and other high-tech equipment depending on the mission. utin stated that the multi-year test cycle for the nuclear power unit was finished in December 2017.

This unit has very small dimensions and an extremely high power density. It is a hundred times smaller than a submarine reactor, has greater power, and it is able to reach full power 200 times faster. Experts believe the UUV may be equipped with a nuclear reactor using the AMB-8 liquid metal heat carrier, with a power of 8-10 MW to ensure its unique speed and range. Though its top speed would likely be used only rarely. To ensure acoustic camouflage and make it appear to be a cargo vessel, its cruising speed would be 35-50  km/h with a detection range of 2-3km, and its top speed of over 180 km/h would be used only to evade attack or to deliver a nuclear munition. In any event, the UUV is invulnerable to contemporary underwater weapons. The fastest (and likely best) USN torpedo, the Mark 54 with a speed of 74km/h still can’t catch up to Poseidon or to reach its operating depth. One could use underwater nuclear mines to destroy UUVs of this sort. Such weapons (for example, UUM-125A) were developed in the US, including in the 1980s, but were closed due to their extreme cost and pollution.

Future carriers of Poseidon will be Belgorod and Khabarovsk nuclear subs, each of which could carry up to six such UUVs. Poseidon could conduct both combat and reconnaissance operations without coming into direct contact with the enemy, making them the first 5th generation submarines. Experts believe that the average cost of such a UUV would be between $30-40 million.

Kinzhal hypersonic air-launched missile system

The public also heard of the Kh-47M2 Kinzhal missile. This weapon, according to experts, is based on the Iskander ballistic missile, and represents the first successful adaptation of a ballistic missile for airborne carry.

It is known that Kinzhal’s top speed is in the neighborhood of Mach 10, or over 12,000 km/h, its combat range is about 2000 km, while flight trajectory carries it to altitudes of 50-80km above the Earth’s surface.

At the moment Kinzhal’s carrier is the MiG-31 all-weather interceptor fighter, in the future that role could also be undertaken by the Su-57 fifth-generation fighter.

The high speed fighter’s flight characteristics allow the missile to be delivered to its launch point within minutes. According to experts, Kinzhal launch procedure is as follows: ascend to the stratosphere, then launch the missile into near-orbital heights where it can reach hypersonic speed before descending onto its target while continuing to gain speed. Aerodynamic control surfaces allow the missile to maneuver throughout its trajectory and thus evade air- and missile-defense zones. It is the ability to maneuver at hypersonic speeds that gives the missile its invulnerability which increases its likelihood of striking the target. In order to intercept the Kinzhal, the Patriot PAC-3 anti-missile would have to reach the speed of Mach 15, and at the moment there is no such missile in US arsenal. The best the PAC-3 can do is Mach 4.5. Kinzhal can strike not only stationary but also mobile targets, such as warships.

The missile is also difficult to detect. It approaches its target at an angle of 90 degrees, above the cone covered by the AN/SPY-1 radar of the naval Aegis air defense system. Thus the missile could operate in a US radar blind zone.

Most information about this missile is currently classified, though it is known it could carry conventional or nuclear payloads. Even though its range is only 2,000km, experts believe it will be equipped with a nuclear propulsion system that would make it a nuclear weapon. It is not known to what extent designers were able to resolve the skin heating problem. Ensuring heat insulation was usually accomplished using ceramic plating (US and Russian space shuttles, X-51A Waverider). But the Kinzhal appears smooth. Specialists therefore believe that Kinzhal was made possible thanks to development of new materials for the missile’s skin, structure, and thermal isolation.

The first Kinzhals entered limited-scale service in December 2017, and they are already available to combat units in the Southern Military District, where the doctrine for their use is being developed.

Avangard gliding vehicle

The development of a future ICBM with a brand-new payload type in the form of a gliding vehicle was the real technological breakthrough. The testing of Avangard has been successfully concluded. According to available information, Avangard can reach the top speed of Mach 20 and is one of the possible payload options for Sarmat.

The warhead can fly in dense layers of the atmosphere over intercontinental distances, while performing evasive dog-legs both horizontally (up to several thousand kilometers) and vertically. Specialists assess that the Avangard has not only an aerodynamic control system but also a propulsion system to be able to perform such maneuvers.

In spite of flying in a plasma cloud, the warhead can receive signals from its command center. It used to be an impossible task, since plasma blocks radio waves. Another challenge that was successfully overcome was the problem of heat insulation. It cannot be ruled out that the Avangard uses new generation high-temperature ceramic composites that use silicon carbide, capable of withstanding temperatures of up to 2,000 C. By mid-March it was announced that the first Avangard carriers would become the UR-100N UTTKh (SS-19 Stiletto) ICBMs that will most likely become part of the RS-24 Yars strategic missile system. About 30 of these missiles were delivered from Ukraine in the early ‘00s to cover natural gas debts. After the Soviet break-up, they were stored un-fueled. Once Sarmat is adopted, it too will carry Avangard warheads. The Russian MOD already signed a contract for serial delivery of Avangards, and they will enter line service in the near future.

Peresvet combat laser system

Among the weapon systems “utilizing novel physics principles” was a combat laser system. According to Vladimir Putin, it also began to enter service starting in 2017 and, after a vote on the MOD website, was named Peresvet. Even though it is already entering service, relatively little is known about it. It is most likely an air defense system against drones, helicopters, and low-flying aircraft. It is possible that it’s intended to defeat the new US ABM systems and US hypersonic weapons under development. Specialists believe the laser system could be used against land targets, and that it is “charged” by miniature nuclear power cells. What is not known is its effective range, and whether it could be used to disable the adversary’s satellites.

One should note that no US or NATO official expressed doubts concerning the existence of these Russian inventions, only “disappointment” over how the information as presented. Indeed, these weapons were already known in varying degrees to the expert community, but having them presented by the Supreme Commander naturally made a greater splash. Within several hours after the presentation, leading world media reacted with restraint, though it was evident this was an utter surprise to them. In the end, it was announced that Pentagon has long known about Russian weapons developments, the US has a proper answer to such “superweapons”, and Putin’s speech was intended for the domestic audience on the eve of elections. This amounted to an indirect admission that the attempt to gain a unilateral strategic advantage by deploying ABM systems around Russia failed, and hundreds of billions of US taxpayer dollars were spent for naught. Nevertheless, Pentagon immediately demanded huge additional expenditures in order to “catch up to the Russians”, which can’t help but excite the US Military-Industrial Complex which supports Trump and whose political influence will only increase.

In any event, despite Russia’s development hypersonic nuclear weapons, the global strategic balance remains stable. Both sides retain a guaranteed ability to destroy each other. They will rethink and refine their nuclear strategies, in part because the reaction time has shrunk, due to hypersonic delivery vehicles, from 20-30 minutes to a far shorter interval. Which increases the likelihood of launching retaliatory strikes before the nuclear attack warnings are confirmed.

The new delivery vehicles are not covered by START-3 which regulates the number of warheads, ballistic missiles, and strategic bombers possessed by US and Russia. Hypersonic missiles and autonomous nuclear torpedoes are outside the treaty, so unless START-3 is not updated in the near future, it will become irrelevant. Which means that we will soon see both sides behind the negotiating table, which means the strategic balance will be preserved and the world will be made safer.

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Last week, the OECD released the latest edition of its “Taxing Wages” report which focuses on the net personal average tax rate in different nations.

As Statista’s Niall McCarthy points out, it takes into account income tax and social security contributions paid by employees without family benefits as a share of gross wages.

Last year, the average share of gross wages paid in tax across the OECD was 25.5 percent. There is a considerable difference in tax rates between countries and they are heavily dependent on earnings and family status…

You will find more infographics at Statista

A single worker in Germany will face a high combination of income tax and social security payments that will account for just under 40 percent of his or her gross earnings. Despite that, Germans do get something back such as health insurance, pensions, old-age care and unemployment benefits.

In Italy, the break down is 21.7 percent for income tax and 9.5 percent for social security, adding up to 31.2 percent in total.

The U.S. trails with 18.4 percent for income tax and 7.7 percent for social security making for 26.1 percent of gross earnings in total.

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Authored by Pepe Escobar via The Asia Times,

Iran’s top trading partner is China, while Tehran and Moscow have been improving ties as the three countries move closer to cementing a solid alliance…

Two summits – the cross-border handshake that shook the world between Kim and Moon in Panmunjom and Xi and Modi’s cordial walk by the lake in Wuhan – may have provided the impression Eurasia integration is entering a smoother path.

Not really. It’s all back to confrontation: predictably the actual, working Iran nuclear deal, known by the ungainly acronym JCPOA, is at the heart of it.

And faithful to the slowly evolving Eurasia integration roadmap, Russia and China are at the forefront of supporting Iran.

China is Iran’s top trading partner – especially because of its energy imports. Iran for its part is a major food importer. Russia aims to cover this front.

Chinese companies are developing massive oil fields in Yadavaran and North Azadegan. China National Petroleum Corporation (CNPC) took a significant 30% stake in a project to develop South Pars – the largest natural gas field in the world. A $3 billion deal is upgrading Iran’s oil refineries, including a contract between Sinopec and the National Iranian Oil Company (NIOC) to expand the decades-old Abadan oil refinery.

In a notorious trip to Iran right after the signing of the JCPOA in 2015, President Xi Jinping backed up an ambitious plan to increase bilateral trade by over tenfold to US$600 billion in the next decade.

For Beijing, Iran is an absolutely key hub of the New Silk Roads, or the Belt and Road Initiative (BRI). A key BRI project is the $2.5 billion, 926 kilometer high-speed railway from Tehran to Mashhad; for that China came up with a $1.6 billion loan – the first foreign-backed project in Iran after the signing of the JCPOA.

There’s wild chatter in Brussels concerning the impossibility of European banks financing deals in Iran – due to the ferocious, wildly oscillating Washington sanctions obsession. That opened the way for China’s CITIC to come up with up to $15 billion in credit lines.

The Export-Import Bank of China so far has financed 26 projects in Iran – everything from highway building and mining to steel producing – totaling roughly $8.5 billion in loans. China Export and Credit Insurance Corp – Sinosure – signed a memorandum of understanding to help Chinese companies invest in Iranian projects.

China’s National Machinery Industry Corp signed an $845 million contract to build a 410km railway in western Iran connecting Tehran, Hamedan and Sanandaj. And insistent rumors persist that China in the long run may even replace cash-strapped India in developing the strategic port of Chabahar on the Arabian Sea – the proposed starting point of India’s mini-Silk Road to Afghanistan, bypassing Pakistan.

So amid the business blitz, Beijing is not exactly thrilled with the US Department of Justice setting its sights on Huawei, essentially because of hefty sales of value-for-money smart phones in the Iranian market.

Have Sukhoi will travel

Russia mirrors, and more than matches, the Chinese business offensive in Iran.

With snail pace progress when it comes to buying American or European passenger jets, Aseman Airlines decided to buy 20 Sukhoi SuperJet 100s while Iran Air Tours – a subsidiary of Iran Air –  has also ordered another 20. The deals, worth more than $2 billion, were clinched at the 2018 Eurasia Airshow at Antalya International Airport in Turkey last week, supervised by Russia’s deputy minister of industry and trade Oleg Bocharov.

Both Iran and Russia are fighting US sanctions. Despite historical frictions, Iran and Russia are getting closer and closer. Tehran provides crucial strategic depth to Moscow’s Southwest Asia presence. And Moscow unequivocally supports the JCPOA. Moscow-Tehran is heading the same way of the strategic partnership in all but name between Moscow and Beijing.

According to Russian energy minister Alexander Novak, the 2014  Moscow-Tehran oil-for-goods deal, bypassing the US dollar, is finally in effect, with Russia initially buying 100,000 barrels of Iranian crude a day.

Russia and Iran are closely coordinating their energy policy. They have signed six agreements to collaborate on strategic energy deals worth up to $30 billion. According to President Putin’s aide Yuri Ushakov, Russian investment in developing Iran’s oil and gas fields could reach more than $50 billion.

Iran will become a formal member of the Russia-led Eurasia Economic Union (EAEU) before the end of the year. And with solid Russian backing, Iran will be accepted as a full member of the Shanghai Cooperation Organization (SCO) by 2019.

Iran is guilty because we say so

Now compare it with the Trump administration’s Iran policy.

Barely certified as the new US Secretary of State, Mike Pompeo’s first foreign trip – to Saudi Arabia and Israel – amounts in practice to briefing both allies on the imminent Trump withdrawal of the JCPOA on May 12. Subsequently, this will imply a heavy new batch of US sanctions.

Riyadh – via Beltway darling Crown Prince Mohammad bin Salman, (MBS) – will be all in on the anti-Iran front. In parallel, the Trump administration may demand it, but MBS won’t relinquish the failed blockade of Qatar or the humanitarian disaster that is the war on Yemen.

What’s certain is there won’t be a concerted Gulf Cooperation Council (GCC) front against Iran. Qatar, Oman and Kuwait see it as counterproductive. That leaves only Saudi Arabia and the Emirates plus irrelevant, barely disguised Saudi vassal Bahrain.

On the European front, French president Emmanuel Macron has stepped up as a sort of unofficial King of Europe, leveraging himself to Trump as the likely enforcer of restrictions on Iran’s ballistic missile program, as well as dictating Iran to stay out of Syria, Iraq and Yemen.

Macron has made a direct – and patently absurd – connection between Tehran abandoning its nuclear enrichment program, including the destruction of uranium stockpiles enriched to less that 20%, and being the guilty party helping Baghdad and Damascus to defeat Daesh and other Salafi-jihadi outfits.

No wonder Tehran – as well as Moscow and Beijing – is connecting recent, massive US weapons deals with Riyadh as well as MBS’s hefty investments in the West to the Washington-Paris attempt to renegotiate the JCPOA.

Putin’s spokesman Dmitry Peskov has been adamant; the JCPOA  was the product of a strenuous seven-country negotiation over many years: “The question is, will it be possible to repeat such successful work in the current situation?”

Certainly not

Thus the suspicion widely floated in Moscow, Beijing and even Brussels that the JCPOA irks Trump because it’s essentially a multilateral, no “America First” deal directly involving the Obama administration.

The Obama administration’s pivot to Asia – which depended on settling the Iranian nuclear dossier – ended up setting off a formidable, unintended chain of geopolitical events.

Neocon factions in Washington would never admit to normalized Iranian relations with the West; and yet Iran not only is doing business with Europe but got closer to its Eurasian partners.

Artificially inflating the North Korea crisis to try to trap Beijing has led to the Kim-Moon summit defusing the “bomb the DPRK” crowd.

Not to mention that the DPRK, ahead of the Kim-Trump summit, is carefully monitoring what happens to the JCPOA.

The bottom line is that the Russia-China partnership won’t allow for a JCPOA renegotiation, for a number of serious reasons.

On the ballistic missile front, Moscow’s priority will be to sell S-300 and S-400 missile systems to Tehran, sanctions-free.

Russia-China might eventually agree with the JCPOA 10-year sunset provisions to be extended, although they won’t force Tehran to accept it.

On the Syrian front, Damascus is regarded as an indispensable ally of both Moscow and Beijing. China will invest in the reconstruction of Syria and its revamping as a key Southwest Asia node of the BRI. “Assad must go” is a non-starter; Russia-China see Damascus as essential in the fight against Salafi-jihadis of all stripes who may be tempted to return and wreak havoc in Chechnya and Xinjiang.

A week ago, at an SCO ministerial meeting, Russia-China issued a joint communiqué supporting the JCPOA. The Trump administration is picking yet another fight against the very pillars of Eurasia integration.

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Dramatic footage has surfaced showing Russian counter-terrorism forces slaying jihadist “sleeper cells” and “underground units” ahead of the 2018 FIFA World Cup in Russia. In the past few months, Russian troops have launched numerous counter-terrorism operations in the volatile Islamic region of Dagestan.

According to the Daily Mail, local police in Derbent, a city in the Republic of Dagestan, Russia, located on the Caspian Sea, alerted government officials about dangerous jihadist “sleeper cells” that were planning to attack the civilian population on May 01, known as a traditional holiday in Russia.

The violent video shows Russian counter-terrorism forces using heavily armored personnel carriers with tremendous firepower, pounding the building with copper and lead bullets, in the town of Derbent, where the jihadist “sleeper cells” were active.

Once the terrorist compound caught fire, all of the armored personnel carriers retreated to a safe distance, as a small armed robot was seen approaching the compound to finish off the job.

The video shows a Russian soldier remotely guiding the killer robot through the compound. Video and audio recordings relayed wirelessly back to the command notebook of the robot reveals the terrorist shouting ‘Allahu Akbar,’ followed by an explosion.

The Daily Mail reported that the heavily armed robot, mounted with a machine gun, was responsible for killing all eleven jihadis.

“Guns, bullets, knives, and grenades were discovered at the scene,” according to a statement from the Russian Investigative Committee which investigates terrorism cases. Homemade bombs and other deadly weapons were discovered in the compound before it went up in flames.

Government officials later released graphic images showing the bullet-ridden bodies of the terrorist killed in the raid –which is too gruesome to show.

Derbent, where the counter-terrorism operation was carried out, is just 590 miles southeast of Volgograd, where England will play their opening 2018 World Cup qualifying group game this summer.

Security specialists have warned about “lone jihadi” terror attacks during the upcoming 2018 World Cup starting in June. “Sunni Islamist militants, particularly Russian jihadists returning from conflict zones, are the primary source of concern for Moscow,” according to a report released Tuesday by Jane’s Defence Weekly, the defense and security wing of IHS Markit.

Jane’s Defence Weekly explains how the jihadists buildup in the disputed Northern Caucasus region, has driven Russia to unleash counter-terrorism operations leading up to the World Cup.

ISIS poster was produced by the group’s propaganda wing, the Wafa Media Foundation, which also produced posters threatening the 2018 World Cup to be held in Russia.
That poster states, “Putin: You disbeliever. You will pay the price for killing Muslims.
Just Terror.” pic.twitter.com/XOp6iVptOt

— Dr. Thomas Hoke (@hoke_thomas) April 20, 2018

According to the Washington-based security consultancy the Soufan Group, Russia is the largest exporter of foreign jihadis by country, ahead of Saudi Arabia, Jordan, and Tunisia. The data shows an estimated 3,417 Russian nationals had trained and fought with ISIS and 400 had returned home by 2017.

“Returning Russian jihadists pose a likely terrorism threat to security measures at the 2018 FIFA World Cup, motivated by their opposition to the military involvement of Russia and other World Cup participants in the Middle East, and towards Iran and Saudi Arabia,” said Chris Hawkins, a senior analyst at Jane’s Terrorism and Insurgency Centre (JTIC).

While the Kremlin is expected “to intensify its counter-terrorism operations in the majority Muslim semi-autonomous Caucasus regions of Chechnya and Dagestan,” said CNBC, there is a reason to believe Putin will have his hands full ahead and during the World Cup. Russia’s tourism ministry projects more than one million foreign visitors could flood into Russia for the World Cup, which will be held across eleven cities this summer. What could go wrong?

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