If Vol-Neutrals Are Finally Liquidating, Could They Crash The Market? Here Is The Math

It was just over two months ago – well before VIX hit its record stretch of nearly 20 days below 11 – when we first discussed why one of the major threats to the complacent market was the danger of a forced liquidation by trend-following and vol-neutral, CTA, risk-arb and other systematic funds – many of whom have been the fundamental catalyst for the unprecedented VIX compression seen in May –  resulting in an explosive unwind of vol positions.

Of course, nobody knew just what catalyst could led to such an outcome, which is perhaps why last night’s quasi-black swan sequence of events involving Trump, which has prompted at least some  analysts to suggest could end in impeachment, has had such a dramatic impact on stocks. It is also why vol kept grind lower and lower, as the mechanics of vol-supression in the fund level, as observed most recently in the Catalyst fund collapse, created a feedback loop whereby lower vol led to even more vol selling, and so on, until eventually VIX dropped to an all time low below 9 just a few days ago.

Now, it may be payback time.

First, here’s what we know.

According to Bank of America, a combination of upward trending global equity markets with very low volatility have “conspired to push trend following CTA (Commodity Trading Advisor) equity positioning to near record levels. As the chart below show, CTAs have outsized, near-record positions in global equities.”

Those curious what assets are currently held by the CTA community, BofA explains that “a significant portion of assets in CTAs appear to be in cross-asset, risk controlled, trend following strategies. More specifically, we find that CTA allocations across multiple asset classes are primarily a function of two factors: (1) the asset’s current price trend and (2) the asset’s prevailing volatility. This understanding forms an intuition for why CTAs’ current global equity positioning is so stretched.”

While the above is not news, what is more notable, especially during selloffs like today, is that as a result of current extreme positioning, “the beta of CTA strategies to global equities is also at extreme levels and specifically during equity market sell-offs.

Tying back to our warning from March, BofA then writes that “for CTAs who are risk controlled, which we think most are, in the current environment it could take a relatively smaller equity market decline to trigger rules-based selling pressure. However, as different CTAs have varying sets of rules and risk control mechanisms, the selling pressure may not necessarily occur simultaneously or even within the same day.”

While bulls would be delighted if CTA liquidation is asynchronous, BofA’s Benjamin Bowler writes that on average it would seem that CTAs do react relatively quickly and in sync to sharp price reversals as the realized volatility of a CTA benchmark (the SG CTA Index which is priced daily) has remained historically stable despite wide-ranging volatility for the cross-asset universe in which they allocate.

* * *

Next, we take a look at what we don’t know, which in this case is far more important: how big a vol move would be needed to catalyze a forced CTA liquidation, and what market impact could it have?

For the answer, we again turned to BofA which writes that if the combination of higher stocks on ultra-low vol is indeed putting CTAs’ equity positions at elevated risks of sudden deleveraging, then it is important to estimate the contribution of potential selling pressure versus liquidity of the markets in which they trade, particularly in a risk-off event. However, estimating CTA equity selling pressure is relatively more difficult than rationalizing their outsized positioning as, for example, key questions surround (1) what percentage of total CTA assets are in explicit rules-based, trend following strategies and importantly (2) how diverse the models are for rules-based, trend following CTAs.

According to BarclayHedge, AUM within the CTA industry through the end of 2016 stood at approximately $250bn. In our recent QIS Panorama we showed that the performance of the Altegris 40 Index (an asset-weighted benchmark CTA index priced monthly) could be well-explained by cross-asset, risk controlled trend following strategies. This benchmark currently accounts for $106bn in assets (~40% of the total CTA AUM) and therefore we conservatively estimate the potential range of assets in rules-based trend following strategies as between ~$100bn and ~$250bn.

 

The current allocation to global equities from our bottom-up CTA model is about 70% of total assets. This equates to somewhere between $70bn and $175bn of global equity exposure for trend following CTAs. Global equity allocations in our model are represented by investments in the three most liquid futures contracts in each of the major regions (US: SPX, NDX, RTY; Europe: SX5E, DAX, UKX, & Asia: NKY, HSI, KOSPI).

As noted above, with CTAs’ current global equity positioning historically high, it would take a smaller equity market decline to trigger rules-based selling pressure. BofA’s model of global equity allocations and required 1-day market moves to force an entire unwind are shown in Table 1. While some of the 1-day declines seem feasible (e.g. SPX ~1.5%), others appear less attainable (e.g. RTY ~10%). Even though some moves that would drive a large model-driven unwind seem possible, given the extreme lows in equity volatility currently, many are high relative to current volatility (e.g. ~1.5% SPX 1-day decline would be near a 3.6-sigma move currently).

A one day’s crash may not be enough however, and “successive shocks likely needed for full equity unwind but liquidity also higher.” BofA continues:

Based on history, there is a low probability that markets could move enough in one day to trigger a full unwind of current record CTA equity positions. However, successive ‘high-sigma’ declines in today’s environment could happen with greater likelihood. By successive high-sigma declines, we mean multiple days of down moves that are high relative to prevailing volatility. In Table 2 are three 5-day periods since 2006 in which global equity markets saw successive high-sigma declines that could in the current environment trigger a complete unwind of near record CTA equity positions.

Looking back at history, Bowler observes that should equity markets decline in similar fashion to the one week periods from late Feb- 07, the Aug-11 US credit downgrade, or the Aug-15 sell-off then  according to our model CTAs would unwind mostly all of their global equity positions to limit losses.

Which leads to critical question: how much selling pressure could CTAs unleash?

 Based on our estimates, that would be between $70bn and $175bn in global equity futures selling pressure which as a percentage of 3-month median daily global equity futures notional volume is between 20% and 55%. This amount of impact in one day may seem large but does not take into account two important factors. First, in stress events similar to Feb-07, Aug-11, or Aug-15 it’s reasonable to expect a substantial increase in equity index futures volume versus prevailing median levels. Second, in order for the entire unwind to happen within one day, we would need (1) global equity markets to see a never-before seen shock in sigma terms and (2) the entirety of CTA assets to be in pure trend following programs with an extremely similar set of rules to limit drawdowns which we do not think is the case.

In other words, CTAs, on their own, are unlikely to catalyze another Black Monday-type event in one day. What about over several days?

It is more reasonable to consider a situation in which CTAs collectively unwind their global equity positions over multiple days of consecutive high-sigma declines. Through each of the stress events in Table 2 we measured the increase in the respective equity future indices’ notional volume through the 5-day decline versus the median 5-day notional volume over the three months prior. On average, most major global equity index futures saw a doubling in prevailing volume in stress events (Chart 7). Therefore, given current 3-month median weekly notional futures volume on the nine global equity indices of about $1.6 trillion, if we see an event large enough to trigger a model driven unwind of CTA equity positions then we estimate global equity index futures volume rising to $3.2 trillion (Chart 8). In this extreme, if the entirety of our highest estimate for CTA’s total equity allocations (~$175bn) is unwound within a week of successive high-sigma equity market declines, then it would equate to only ~6% of the expected volume.

The estimated equity selling flows from CTAs in high-sigma events could have an impact on markets but it is quite difficult to suggest they would be the dominant driver in a severe shock. While not being the primary seller, conceptually CTAs can have the scope to add convexity to a fundamentally-driven sell-off as they could become a nondiscretionary seller in times when the market is already declining. In this case, the potential flows may become more meaningful depending on how uniform CTA models are, how quickly they react to changing price trends, and as well what portion of CTA assets are represented by rules-based trend-following strategies.

The good news: momentum-chasers will unlikely kill the market on their own. What, however could have a greater impact, is the feedback loop of CTA selling coupled with other traders frontrunning such a move, exacerbating the impact, in other words, when fears of CTAs driving the market lower become a self-fulfilling prophecy. BofA explains:

While our expectations of potential CTA equity deleveraging flows may not dominate volumes in isolation, a remaining unknown is the additional selling pressure from investors fearful of these model driven flows. But even if we were to see volumes increase up to 3x daily levels (vs. 1.5x from CTAs alone), the biggest one-day sigma decline since 2000 would imply only a 2% decline in global equities in a single day. For an even broader perspective, since 1928 the largest one-day S&P 500 sigma decline observed was 11x which off today’s MSCI vol levels equates to only a 3.5% down day.

 

It’s important to also keep in mind that CTAs will only react to downward price action and that they will not instigate it. But if a sell-off comes in response to no immediate or obviously  accountable macro catalyst, then some may look to the role of CTAs in trying to explain the market decline. The fear of CTA’s rules-based, nondiscretionary selling flows in stress periods may cause other more fundamental and discretionary managers to also unwind which could then potentially create a negative feedback loop of successive declines in equity markets.

 

Further, as we’ve noted in the past, equity futures market liquidity is not only measured by total volume but also market depth which in recent risk-off events has declined in times of vol shocks. The greater the selling pressure that is concentrated in a shorter time period against falling market depth (when liquidity is needed most) could also further exacerbate market shocks.

 

However, the idea that CTAs can cause another ’87-style crash in our opinion is likely too extreme. First, on 19-Oct-87, the S&P 500 declined nearly 21% in one day which given today’s vol levels would be a 56-sigma event and nearly 5x higher any daily sigma event the S&P 500 has seen since 1928. To observe a historically significant one-day decline, volatility would likely need to be much higher. However, if volatility were indeed higher, then equity positioning in CTAs should be lower and therefore also the amounts they can deleverage. Lastly, circuit breakers that halt trading after sufficient declines which were introduced in response to events like 1987 should also help reduce the likelihood of similar shocks occurring again.

To summarize: CTAs controlling their risk could be forced to sell should there be a sudden fall in equities and spike in volatility. Given their higher beta to equities currently, it should take smaller equity market declines for CTAs to start unwinding longs in order to control their volatility. CTAs are estimated to be currently long somewhere between $70bn and $175bn in global equities. Should we see a sequence of ‘high sigma’ shocks over multiple days similar to those observed in Aug-15 or the Aug-11 US credit downgrade, then according to our models, CTAs could unwind mostly all of their equity allocations.

However, due to various size-related limitations, the real risk is fear itself, but low vol limits shock size.  As BofA adds, “the largest risk from CTA selling is the flows generated from non-CTA funds fearful that they could cause the next crash. However, understanding CTA mechanics and the limits of their impact can help investors more confidently take advantage of any potential overreaction.

Importantly, even under a doubling of demands on futures liquidity to 3 times a normal day, that’s still within the bounds of recorded volume shocks since 2000. Even then, markets have not exceeded a 7-sigma event which equates to only a 2% worst-case daily decline at today’s low volatility. Selling from other quant funds, including vol controlled risk parity could add to selling pressure in certain instances but if prolonged over a week are not likely to dominate flows.”

While some have suggested model-driven indiscriminate selling from CTAs could be the modern version of portfolio insurance often cited as fuelling the 1987 crash, there are some important differences to keep in mind:

 

1) Equity exposure in CTAs is finite, and once exhausted it will no longer be a threat; at most it would likely last for a few days or up to a week,

2) any slow build-up in volatility or drift lower in equities would cause CTAs to de-risk from their record equity positioning, reducing potential selling pressure,

3) even if CTAs shifted from long to short during falling markets, the high market volatility would limit the size of their short positons, hence limiting their impact, and

4) historically the type of shock required to cause a full de-risking of CTA positions is nearly unprecedented, as most large shocks build over time

This means that while CTAs would be a critical component of any market selloff feedback loop, on their own they would likely not be responsible for a market crash a la 1987 or 2015. That would require the additional selling pressure from other vol-neutral funds such as risk parity, as well as potential marketwide margin calls.

Still, with the risk of such a pernicious feedback loop emerging in the current low-vol environment in which virtually nobody is hedged for a multiple-sigma move lower, this may be an opportune time for one or more central banks to step in and either directly or verbally jawbone the market higher, as the PBOC did yesterday.

Perhaps the biggest question, in retrospect, would be if the Fed, or other central banks, do  not do step in as they have on every other similar occasion in the past 8 years.

Would that imply that traders – be they CTAs, risk-parity, or simply carbon-based – are finally on their own?

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Is China Intentionally Making It Harder To Manipulate Gold?

Interested in precious metals investing or storage? Contact us HERE 

 



Is China Intentionally Making It Harder To Manipulate Gold?

Posted with permission and written by Rory Hall and Dave Kranzler CLICK HERE FOR ORIGINAL)

 

 

 

A new gold futures contract is being introduced by the Hong Kong Futures Exchange (two contracts actually). The two contracts will be physically settled $US and CNH (offshore renminbi) gold futures contracts. The key to this contract is that it requires physical settlement of the underlying gold, which is a 1 kilo gold bar.

 

The difference between this contract and the Comex gold futures contract is that Comex contract allows cash (dollar aka fiat currency) settlement. The Comex does not require physical settlement. In fact, there are provisions in the Comex contract that enable the short-side of the trade to settle in cash or GLD shares even if the long-side demands physical gold as settlement.

 

With the new HKEX contract, any entity that is long or short a contract on the day before the last trading day has to unwind their position if they have not demonstrated physical settlement capability.

 

The new contract also carries position limits. For the spot month, any one entity can not hold more than a 10,000 contract long/short position. In all other months, the limit is 20,000 contracts. A limit like this on the Comex would pre-empt the ability of the bullion banks to manipulate the price of gold using the fraudulent paper gold contracts printed by the Comex. It would also force a closer alignment between the open interest in Comex gold/silver contracts and the amount of gold/silver reported as available for delivery on the Comex.

 

To be sure, the contract specifications of the new HKEX contracts leave the door open to a limited degree of manipulation. But at the end of the day the physical settlement requirement and position limits greatly reduce the ability to conduct price control via naked contract shorting such as that permitted on the Comex and tacitly endorsed by the Commodity Futures Trading Commission.

 

You can read about the new HKEX contract here – HKEX Physically Settled Contract – and there’s a link at the bottom of that article with the preliminary term sheet.

 

Will this new contract help moderate the blatant price manipulation in the gold market by the western banking cartel? Maybe not on a stand-alone. But several developments are occurring in the eastern hemisphere – as discussed in today’s episode of the Shadow of Truth – and among the emerging bloc of eastern super-powers, the window of the ability of the west’s efforts to prevent the price of gold from transmitting the truth about the decline of the U.S. dollar’s reserve status and the rise of geopolitical instability is closing:

 

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

 

Is China Intentionally Making It Harder To Manipulate Gold?

Posted with permission and written by Rory Hall and Dave Kranzler CLICK HERE FOR ORIGINAL)

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Wall Street Chimps Out After Memogate: The Trump Train Has Stopped

Here is an anecdotal discussion that is likely taking place inside of every asset management firm of repute now, in light of recent Trump controversy. There’s nothing worse than the unknown — the dark, cavernous, winding hallways that lead to catacombs festooned with traps.

Larry Kudlow and Mark Zandi joined a desk filled with CNBC anchors to discuss the recent events, which have Kudlow scratching his hairless head.

“Why didn’t Comey instruct the Attorney General that he heard an obstruction of justice?”, pondered Kudlow.

Zandi made the point that all of these distractions and ‘murkiness’ only serves to derail tax reform. Kudlow conceded that tax cuts might be dead — but wasn’t giving up hope for healthcare reform.

Mark Zandi rejected a ‘thesis’ by a CNBC anchor who stated his sources inside the GOP saying they were going to pursue their own agenda and not Trump’s. Zandi said, ‘at the end of the day, you need leadership from the executive branch to get anything done’ — citing issues with the debt ceiling and tax reform that are being left abandoned due to all of the ginned up scandal.
 
‘I don’t just believe he’s going to court for impeachment in the house of representatives. […] I can’t just throw in the towel. That would be absolutely incorrect,’ concluded Kudlow.
 

Markets are in free-fall mode, now lower by 330. The Nasdaq is off by more than 130, as investors flee risk assets for bonds, gold, REITs and utilities. The USD/JPY cross has been shattered, which typically occurs during market routs — now off by 1.76%. The dollar is lower vs the euro by 0.6%. And, the 10 yr treasury yield is down 11bps to 2.21%.

Volatility is the big winners today — the Black Swan bet, higher by 35% to $14.39.

Content originally published at iBankCoin.com

 

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Beware The Hyperbole: Trader Warns “Look At Prices Before You Read The News”

Reflecting on today's market action, Richard Breslow, a former FX trader and fund manager who writes for Bloomberg, notes the consequences just don't fit the crime. We need to be careful not to use up all of our hyperboles to describe how much global markets have reacted to the mess in Washington. We should save the best ones for when we really need them. Have prices moved on the news? Absolutely. It is the biggest story out there after all. But crashed, ripped, panicked? No. In fact, the muted reaction is as big a story as the moves themselves, such as they’ve been.

The other pitfall to avoid is the mistake of ascribing every move, in every global market, to this one story. The world is a complicated place and there’s a lot going on. German bunds didn’t rally hard and then fade because, in the middle of the Washington night, events went from feverish risk-off to considerably more sanguine.

 

Part of the market’s less than spectacular response can be ascribed to the low asset-price volatility that has caused so much consternation for months. We’re at potential inflection points for all sorts of economic policies and forecasts for regional and global growth.

 

 

 

Investors just don’t know where they want to put new exposure. It’s well and good to talk about mountains of cash ready to be put to work. But you have to come back with a convincing answer to the question “where?”

 

The other problem for traders as we’ve seen in the recent past, including after the November election, is what any of this really means for the markets. Much has been made of the dollar, defined broadly or narrowly, falling back to levels not seen since the immediate aftermath of the vote. Now, ask yourself, how many of you thought we’d have seen those trades to begin with?

 

 

The euro is unquestionably bid, with a nice technical support to justify trying to buy dips. No doubt there’s some safe haven impetus giving bulls comfort. But don’t ignore the fact that the European Commission, among many others, has been raising its growth targets, political risk is on the back burner and the ECB meets in three weeks when many think they’ll begin softening up the market for that never going-to-happen change in monetary policy.

 

 

 

Another reason for dollar weakness has been the absolutely remarkable performance of emerging markets. That’s a good thing. They rally in a world of rising interest rates when global growth and trade are viewed optimistically. Believe me, their story has more to do with Silk Road than potholes on Pennsylvania Avenue.

 

And lest you forget, that heavy overnight selloff in S&P 500 futures leaves them this morning well shy of even 1% off all-time highs. The threat to the proposed legislative agenda doesn’t by definition mean everything goes pear-shaped. Just ask the Mexicans. Stocks like deregulation, repatriations and buy-backs. Health care isn’t anywhere close on their priority list.

 

Don’t for a second think I’m not appalled by the shenanigans. The lack of dignity alone is enough to repulse. But to date, there remains a good reason that politics is in one section of the newspaper and markets in another.

As we noted yesterday, however, something has to give – there's only so much "crisis" that a 9 handle VIX can handle… As the chart below illustrates, the last 2 months have seen a surge in "crisis" stories lead to soaring stocks and collapsing risk perceptions.

The negative correlation between "crisis" stories and the market's perceptions of risk is unprecedented.

Does this make any sense?

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X-Asset Strategy Head: “Traders Have Become Desensitized To What Constitutes An Actual Threat”

Earlier today, RBC’s Charlie McElligott explained why today’s action is indicative of one or more energy/risk-neutral/value funds blowing up. Now he looks at the underlying cause, and attributes it to the inability of investors to discriminate between real and imaginary threats in what has now become a “deafening cacophony of noise.”

THE DOLLAR MELTDOWN

We are currently in the midst of a sixth-consecutive day of declines for the USD.  The past week’s acceleration of legacy ‘long Dollar’ liquidations (as new EUR longs are built as well) sees absolute trade-weighted indices (BBDXY, DXY) AND net USD spec positioning back at pre-election levels.  This move in Dollar is primarily occurring on two fronts:

  1. The tightening of US / EU rates differentials, as US data has softened simultaneously into the ECB accelerating their ‘less dovish’ / tapering rhetoric.  As such, we see EUR making highs since pre-election.
  2. The ever-mounting storm clouds over the Trump administration, with the increasingly ‘unhinged’ President now under-fire via the Comey ‘memo’ communicating pressure from DJT with regards to the FBI’s Mike Flynn investigation, telling the then-Director “I hope you can let this go” (we are now hearing calls for “impeachment” growing louder, although legally by those comments alone, it is highly debatable as to whether this is ‘tampering’ / ‘obstruction’).

US / EU rates differentials dictating Dollar direction, and mirrors the decline in net spec longs
 

VOL AND ‘WHITE NOISE’:

The largest implications of the Dollar-move from an FX perspective are with Euro shorts (a greater than 2SD % move higher over the past four sessions) and Yen shorts ($/Y -150pips from yesterday’s highs), although the broad FX market volatility remains in the same ‘zombie-state’ as other asset classes, with CVIX just +3.9% WTD. 

This brings up another point: ‘short vol’ has been a ‘loaded’ and profitable factor across all major asset classes for years now…not just equities.  And from a 30k foot view–outside of the performance derived from ‘short vol,’ central bank rate suppression / intervention and the growth of ‘negative convexity’ strategies—it increasingly feels like this broad and painfully constant “uncertainty” meme is a large part of the ‘low volatility problem’ in-and-of-itself.  The “rolling crisis” world we’ve operated in since ’07 has only gotten worse with armchair quarterbacking from the 24/7 news media now being escalated exponentially via social media. 

The punchline: the cacophony of noise is deafening, so much so that investors have become utterly desensitized to what constitutes an actual threat to their portfolios versus what is just ‘static.’  The path-of-least-resistance implication?  Tune it out and stay ‘long-and-strong’ under the guise of ‘slow but realizing economic recovery’ and central bank ‘puts.’  The rest is simply “paying-away performance” via hedging that saps alpha, which in light of a world of negligible yield, is not a viable option. 

So you either profit from it (sell vol and collect premium) or you go unhedged.  Caveat emptor.

* * *

Here is another way of visualizing this: the correlation between “crisis” stories and VIX has recently gone negative.

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Comey To Testify Next Wednesday At 9:30am

Set your alarms: the public appearance by fired FBI Director James Comey (who “evidently has a new phone #”) that could make or break the presidency, has just been scheduled, and according to Jason Chaffetz, the hearing will take place next Wednesday at 9:30am.

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“Where Are The Dip-Buyers?” Dow Down 300, VIX Hits 14 As USDJPY Snaps

Things are getting worserer

USDJPY just snapped below its 100-day moving average and broke below 111.00, this seemed to accelerate losses with The Dow down over 300 points, and VIX at 14.00

 

Banks are leading the way down…

 

As one trader questioned “where are the dip-buyers?”

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WSJ Urges Trump To Keep His Mouth Shut

Authored Op-Ed via The Wall Street Journal,

The state of the Trump Presidency has been perpetual turbulence, which seems to be how the principal likes it. The latest vortex is over Mr. Trump’s disclosure of sensitive intel to the Russians—and whatever the particulars of the incident, the danger is that Presidencies can withstand only so much turbulence before they come apart.

The Washington Post reported Monday night that in an Oval Office meeting last week Mr. Trump relayed high-level “code word” classified material obtained from an ally to Russian Foreign Minister Sergei Lavrov and Ambassador Sergey Kislyak. Cue another Washington meltdown. The President took to Twitter on Tuesday morning to defend himself, claiming an “absolute right” to disclose “facts pertaining to terrorism and airline flight safety.”

National Security Adviser H.R. McMaster put a finer point on it at a Tuesday press conference, though without denying key details. He said Mr. Trump’s disclosure was “wholly appropriate” and didn’t expose intelligence sources and methods.

Presidents sometimes share secrets with overseas leaders—even to adversaries such as the Soviets during the Cold War—if they conclude the benefits of showing what the U.S. knows will aid diplomacy or strategic interests. From media accounts and his tweets, Mr. Trump said something about Islamic State’s laptop bomb threat to airlines. He may well have been trying to convince the envoys of the menace ISIS poses to Russian lives and foreign-policy goals, like the Russian airliner that exploded over Sinai in 2015.

Then again, the Post story has Mr. Trump boasting about how great U.S. intelligence is and divulging the info on impulse to prove it. National security officials also asked the reporters to withhold specifics about the item in question, presumably because further disclosure could undermine efforts to counter the threat or endanger the lives of human assets.

Reports emerged on Tuesday that the ally that gathered the material is Israel, and the revelation could endanger this and other intelligence-sharing relationships. The Israelis may hold back if they think their dossiers will be laundered through the U.S. to the Russians and then get passed to their Iranian and Syrian clients, and other foreign services may lose confidence in the U.S.

Lt. Gen. McMaster said he disputed “the premise” of the Post story, which was that Mr. Trump had done something wrong or unbecoming. He confirmed that Mr. Trump made the decision ad hoc “in the context of the conversation,” not before the meeting. The problem is that even if the President’s conduct was “wholly appropriate,” the story’s premise is wholly plausible.

The portrait of an inexperienced, impulsive chief who might spill secrets to an overseas foe is one to which Mr. Trump has too often contributed. It was political mismanagement even to hold the Russian meeting, especially the day after he fired FBI Director James Comey amid the investigation of the Trump campaign’s alleged Russian connection.

This eruption shows why a President’s credibility is so important. If people don’t believe Mr. Trump’s words or trust his judgment, they won’t give him the benefit of the doubt or be responsive if he asks for support. Last week the White House spent two days attributing Mr. Comey’s firing to a Justice Department recommendation, only for Mr. Trump to insist in a TV interview that the pink slip came “regardless of recommendation.”

News broke late Tuesday of Mr. Comey’s contemporaneous notes that Mr. Trump asked him in February to “let this go,” referring to the FBI probe of axed National Security Adviser Michael Flynn. The White House denied that account of the conversation, but that would be more credible if its previous statements were more reliable.

Mr. Trump’s strife and insults with the intelligence community were also bound to invite blowback. The Post report is sourced to “current and former U.S. officials,” which raises the question of how former officials are privy to “code word” information, defined as anything that could be expected to cause “exceptionally grave damage” to national security if disclosed. In that case the public leaks about Mr. Trump’s actions, if true, will do more damage than whatever he said in private.

Mr. Trump is considering a White House shakeup, including cleaning out many of his top aides, but the White House always reflects the President’s governing style. If Mr. Trump can’t discipline himself, then no Jim Baker ex machina will make much difference.

Mr. Trump needs to appreciate how close he is to losing the Republicans he needs to pass the agenda that will determine if he is successful. Weeks of pointless melodrama and undisciplined comments have depleted public and Capitol Hill attention from health care and tax reform, and exhaustion is setting in. America holds elections every two years, and Mr. Trump’s policy allies in Congress will drift away if he looks like a liability.

Millions of Americans recognized Mr. Trump’s flaws but decided he was a risk worth taking. They assumed, or at least hoped, that he’d rise to the occasion and the demands of the job. If he cannot, he’ll betray their hopes as his Presidency sinks before his eyes.

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Spot The Odd One Out

"Transitory…"

 

As the US dollar gives up hope, the US treasury curve collapses into dystopian growth expectations, and US macro data confirms what everyone already knew (apart from the ones hopefully responding to surveys), it appears just the stock market "knows the truth"…

 

Oh and Janet's about to hik rates again… so that should help!?

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