Category: zerohedge

For the third day in a row, US equity futures were broadly flat, with the emini trading virtually unchanged from where it was this time on Monday and Tuesday as traders hunkered down ahead of today’s main event: the FOMC announcement at 2pm where Fed Chair Jerome Powell is expected to reaffirm that easy monetary policy will remain in place for a prolonged period and dismiss any suggestions of tapering bond purchases.

S&P 500 e-mini stock futures rose 0.09%. or 5 points, while Dow Jones futures were down 31 points ot 0.09% and the Nasdaq was down 7.75 or -0.06% as investors digested a mixed bag of earnings from Tesla, 3M, Microsoft and Google overnight, with tech heavyweights Apple, Facebook and Amazon due to report in the next 48 hours.

“We expect the Fed’s tone on the economy to be more positive than at the March FOMC meeting, reflecting the ongoing pickup in the data, but we don’t expect any substantive new signal yet on tapering,” TD Securities analysts wrote. “While we do not expect much price action due to the Fed decision, Biden’s remarks could continue to suggest more incoming supply, bear steepening the (Treasury yield) curve.”

Joe Biden will also address a joint session of Congress, where he will make additional comments about infrastructure and stimulus spending. These developments would normally be a positive for stocks, but analysts say so much economic optimism is already priced into the equity market that it is difficult to buy stocks further from current levels.

Indeed, the reflation trade reappeared as longer-dated Treasury yields extended their advance and the dollar strengthened as investors awaited clues on the timing of stimulus tapering by the Federal Reserve. U.S. stock-index futures were mixed as Americans braced for President Joe Biden’s tax plans. Breakeven rates on 10-year Treasury Inflation-Protected Securities , a measure of expected annual inflation for the coming decade, rose to 2.41%, the highest since 2013. Yields on benchmark 10-year Treasuries stood at 1.6217%, close to a one-week high.

European shares gave up opening gains on Wednesday, as caution crept in ahead of the U.S. Federal Reserve’s policy decision, but strong results from Deutsche Bank and Lloyds Banking Group boosted earnings optimism. The pan-European STOXX 600 index was up 0.06% at 440.11, with travel and leisure stocks easing from all-time highs, and miners retreating after a recent rally. The region’s banking sector was up 0.3% and insurers rose 0.6%. Deutsche Bank jumped 6.5% to the top of STOXX 600, as strength at its investment bank helped the German bank post a better-than-expected first-quarter net profit. Topping London’s FTSE 100, Lloyds Banking Group rose 3.3% after reporting a better-than-expected profit. Sweden’s SEB and Spain’s Santander inched lower after their quarterly results. The world’s biggest advertising company WPP rose 2.9% on returning to underlying growth in the first quarter, as clients launched new products and brands. German food delivery company Delivery Hero jumped 5.9%, as it expects revenues to more than double in 2021. Here are some of the biggest movers today:

• Deutsche Bank shares rise as much as 9.3% and record their biggest intraday gain since the reflation trade emerged last November, as analysts highlight the lender’s best quarter in years with broad-based strength and an upbeat outlook.
• Wickes Group gains as much as 15% from an opening price of 250p as the home-improvement business that was spun off from Travis Perkins starts trading on the London Stock Exchange. Travis Perkins rises as much as 8.7% to touch its highest level since Feb. 2020.
• Delivery Hero jumps as much as 9.3%, the biggest intraday gain since Dec. 28, after the food-delivery firm reported first- quarter results and said that it sees no impairment from the acquisition of South Korean peer Woowa. Rival Deliveroo climbs as much as 3.3%.
• Equiniti rises as much 8.7%, hitting the highest since April 2020, after the U.K. share-registration firm said it would be “minded to recommend” a bid on the new terms proposed by Siris.
• WPP gains as much as 4% to their highest in more than a year after first-quarter results. Goldman Sachs says organic growth was “well ahead” of expectations, noting that the ad firm reiterated its full-year outlook.

“At a market level, Europe has performed strongly year-to-date and it’s clear that there has been an anticipation that the recovery will be quite sharp and strong,” said Tom Dorner, investment director for European equities at Aberdeen Standard Investments. “You’re still seeing a rotation in the market in favour of the more cyclical names like banks and autos.”

Earnings at European companies in the first quarter of 2021 are expected to surge 71.3% from a year earlier, according to Refinitiv IBES data, up from last week’s forecast of a 61.2% jump. Investors, however, stayed away from making big bets ahead of the U.S. central bank’s policy announcement due at 2pm ET. Policymakers are widely expected to reaffirm their stance to keep monetary policy loose until enough economic progress has been  made. 

Earlier in the session, MSCI’s broadest index of Asia-Pacific shares outside Japan declined 0.23%. Australian stocks rose 0.55%, but shares in China slipped 0.44% while Tokyo markets edged 0.16% higher. Asian stocks moved in a narrow range before a policy decision by the Federal Reserve, while a rebound in U.S. yields hurt technology shares. The MSCI Asia Pacific Index fell as much as 0.3% before erasing losses and closing almost unchanged. Taiwan Semiconductor Manufacturing, Xiaomi and Samsung Electronics were among the heaviest drags on the index’s technology gauge. South Korean benchmarks led declines in Asia with chip makers contributing most to the drop. SK Hynix slid 3.7% to its lowest in more than two weeks on the view that its solid first-quarter earnings were already priced in. “Today’s mixed price action reflects pre-FOMC caution and a reshuffling of positions and risk exposure ahead of it,” Jeffrey Halley, a senior market analyst with Oanda, wrote in a note. “I expect that tone to dominate the session and early European trading where the data calendar is light today.” Elsewhere, the virus situation remained a dominant factor in markets including the Philippines and India, whose benchmarks were among the day’s lead gainers, supporting the broader market. Philippine stocks rose amid optimism the government will ease mobility curbs in Manila and four neighboring provinces, which are under the second-strictest quarantine level until end April. India stocks advanced for a third consecutive day as global support continued to pour in to boost efforts to curb the spread of new coronavirus cases and speed up vaccination. China’s CSI 300 Index also closed higher for a second day, boosted by gains in vaccine makers as infections in India continued to surge.

In FX the greenback advanced broadly and was steady to higher against almost all of its Group-of-10 peers although trading was subdued until Powell speaks after the Fed meeting. The euro fell but remained within a recent range. Sweden’s krona pared an earlier loss after retail sales came in much stronger than forecast; Norway’s krone and New Zealand’s dollar edged higher. The Australian dollar slipped and the nation’s bonds rebound after weaker-than- expected inflation data reinforced the view that monetary policy normalization will lag behind the Fed. The yen dropped to its lowest level in two weeks. Japan’s government bonds held losses after the Bank of Japan said it plans to maintain the size of its bond purchases in May.

In the cryptocurrency market, Ether rose to an all-time high above $2,700 after Bloomberg reported that the European Investment Bank plans to sell a two-year digital bond worth 100 million euros ($120.80 million) on the ethereum blockchain network. Rival cryptocurrency Bitcoin edged up to $55,618.

In commodities, Brent crude futures fell 0.09% to $66.36 a barrel while U.S. West Texas Intermediate crude lost 0.05% to $62.91 per barrel due to worries about energy demand. Benchmark copper continued its assent toward a record above $10,000 a tonne. The metal is used so widely in manufacturing and heavy industry across the globe that it is considered a barometer of economic health. However, gold , which is often seen as a hedge against inflation, fell 0.49% to $1,768.00 in cautious trade ahead of the Fed meeting.

To the day ahead now, and the main highlight will be the aforementioned Federal Reserve decision and Chair Powell’s press conference as well as Biden’s first address to Congress. Otherwise, we’ll also hear from ECB President Lagarde, as well as the ECB’s Schnabel, Centeno and Rehn. In addition, President Biden’s address to Congress will be a major highlight, along with earnings releases including Apple, Facebook, Qualcomm, Boeing, GlaxoSmithKline and Ford. Finally, data releases include Germany’s GfK consumer confidence reading for May, France’s consumer confidence reading for April, and the preliminary March reading for US wholesale inventories.

Market Snapshot

• S&P 500 futures little changed at 4,180.50
• STOXX Europe 600 little changed at 439.50
• MXAP little changed at 208.42
• MXAPJ little changed at 703.11
• Nikkei up 0.2% to 29,053.97
• Topix up 0.3% to 1,909.06
• Hang Seng Index up 0.4% to 29,071.34
• Shanghai Composite up 0.4% to 3,457.07
• Sensex up 1.6% to 49,744.87
• Australia S&P/ASX 200 up 0.4% to 7,064.67
• Kospi down 1.1% to 3,181.47
• German 10Y yield rose 3.3 bps to -0.216%
• Euro down 0.1% to $1.2076
• Brent Futures down 0.09% to $66.48/bbl
• Gold spot down 0.4% to $1,769.61
• U.S. Dollar Index up 0.1% to 91.002

Top Overnight News from Bloomberg

• EU lawmakers gave their approval to the post-Brexit trade accord with the U.K., marking the final step in the ratification process and the end of four years of political brinkmanship
• The EU is looking to strengthen its hand against the growing economic threat posed by China, with new powers targeted at foreign state-owned companies
• The last barrier to a stronger Taiwan dollar may have just given way, paving the way for the currency to rise to a level last seen over two decades ago
• One large option bet built up over the past week is aiming for a surprise at the Federal Reserve Bank of Kansas City’s annual symposium in Jackson Hole. Ahead of this year’s meeting, a large wager has been placed on a faster-than-expected pace of rate hikes before Sept. 2024, though with an expiry of this coming September
• The market’s reflationistas are getting a second wind, as a string of solid economic numbers and the prospect of more stimulus raise the chances of a revival in trades linked to rebounding growth and prices
• An American warship fired warning shots when vessels of Iran’s paramilitary Revolutionary Guard came too close to a patrol in the Persian Gulf, the U.S. Navy said Wednesday

Quick look at global markets courtesy of Newsquawk

Asian equity markets traded tentatively following the flat performance of US peers as caution lingered ahead of the FOMC and amid a deluge of earnings. ASX 200 (+0.4%) and Nikkei 225 (+0.2%) were kept afloat owing to their softer currencies although the upside was contained by weakness in Australia’s miners following a pullback in commodity prices and with the tech sector hindered after weakness in US peers, as well as the mixed fortunes of industry heavyweights post-earnings in which Microsoft declined and Google shares surged after-hours despite both beating on top and bottom lines. Meanwhile, stronger than expected Japanese retail sales and earnings releases have supported the risk appetite in Tokyo with Fuji Electric and Osaka Gas among the biggest gainers after both reported a jump in FY net. Hang Seng (+0.5%) and Shanghai Comp. (+0.4%) were choppy as focus also centred on corporate results with Chinese participants bracing for an influx of releases that involve over a thousand earnings updates set for today. Finally, 10yr JGBs were lower on spillover selling from USTs which were pressured after a mixed 7-year auction and due to corporate supply in US, while firmer results at the 2yr JGB auction also failed to spur prices and Australian 10yr yields were choppy with early gains wiped out following soft inflation data.

Top Asian News

• Hitachi Agrees to Sell Metal Unit to Bain Group for $3.5 Billion
• Samsung Heirs to Pay $11 Billion, Donate Art to Settle Tax Bill
• Huawei Quarterly Sales Slump as Sanctions Hit Phone Business
• Ant-Backed Startup Zomato Files for $1.1 Billion Mumbai IPO

European cash bourses trade mixed (Euro Stoxx 50 +0.4%) as most of the region gave up the modest gains seen at the cash open, albeit the breadth of price action remains narrow. Fresh fundamental catalysts have been light once again in the run-up to the FOMC policy announcement later today and President Biden’s speech to Congress, until then earnings are poised to hold the spotlight barring any major headlines. US equity futures are also lacklustre with the NQ initially the laggard as the US 10yr yield briefly eclipsed 1.65%, although, at the time of writing, the downside in the ES is slightly less pronounced vs the YM, NQ and RTY. Back to Europe, some of the cash majors manage to hold narrow gains with the FTSE 100 (+0.2%), DAX 30 (+0.2%), and CAC 40 (+0.2%) experiencing some earnings-related impetus, with the Lloyds (+3.3%), Delivery Hero (+9.4%), Deutsche Bank (+9.0%) and Sanofi (+1.8%) all leading in their respective indices. Sectors are mixed but it’s difficult to discern a particular risk tone or theme amid earnings. The banking sector remains a top performer in light of Deutsche Bank and Lloyds earnings and against the backdrop of a higher yield environment, in turn lifting some regional peers with BNP (+1.7%), SocGen (+1.6%), and Barclays (+1.6%) among the main beneficiaries. Other earnings-related movers include Sainsbury (-2.3%), Puma (-2.5%), Danske Bank (-2.4%), Assa Abloy (-4.0%), Sanofi (+1.9%), Covestro (-0.3%), and Saipem (-9.0%). State-side, Microsoft (-2.0% pre-mkt) and Google (+5.0% pre-mkt) trade mixed pre-market post-earnings, whilst Apple (-0.3% pre-mkt) saw a sources piece overnight via Nikkei suggesting the Co. is trimming planned AirPod production by 25-30% amid intensifying competition and lower demand.

Top European News

• Santander Sees Highest Profit in a Decade as Provisions Drop
• Lloyds Beats Forecasts and Begins to Unwind Covid Provisions
• Danske May Need to Start Wider Probe of Dirty Money Flows
• Delivery Hero Sees Full-Year Revenue of Up to $8 Billion

In FX, the Dollar remains on a firm footing against the backdrop of more pronounced bear-steepening along the US Treasury curve ahead of the Fed and another keynote speech from President Biden on his American Families Plan amidst reports that he may ask Congress to foot the entire Usd 1.8 tn bill and issue an executive order to increase the minimum wage for federal contract workers to Usd 15/hour from Usd 10.95 at present. The fiscal, inflationary and funding/issuance implications are all overshadowing what was a decent 7 year note auction and dovish-leaning expectations for the upcoming FOMC. Hence, the DXY has reset after another dip below 91.000 to eclipse yesterday’s best within a 90.897-91.127 range in the run up to weekly mortgage applications, advance trade and wholesale inventories that are due for release before the Fed policy announcements, accompanying statement and post-meeting press conference from Chair Powell.

• CHF/JPY – Diverging yield differentials continue to weigh on the Franc and Yen to the extent that an improvement in Swiss investor sentiment and firmer than forecast Japanese retail sales have not prevented Usd/Chf or Usd/Jpy from rebounding further from recent lows to 0.9180+ and 109.00+ respectively. However, the former has pared back towards 0.9150 and the latter pulled up just shy of a prior April high around 109.08 vs 109.10 on the 14th.
• AUD/NZD – Mixed Aussie data overnight in the form of trade in comparison to preliminary jobs, earnings and retail sales, but softer than expected Q1 CPI alongside a retreat copper prices after a resolution to the Chilean port workers pension dispute has dragged Aud/Usd under 0.7750 to the relative benefit of the Kiwi via the Aud/Nzd cross back below 1.0750 and keeping Nzd/Usd anchored to 0.7200 awaiting NZ trade data.
• GBP/EUR – Sterling is still straddling round numbers vs the Buck and Euro at 1.3900 and 0.8700 in the absence of anything Pound specific to trade off, bar less deflationary BRC UK shop prices, while the single currency remains rangebound against the Greenback between broad 1.2100-1.2050 parameters with key declining trendline resistance above the big figure coming in circa 1.2109 today and almost aligning 100 DMA/21 WMA supports providing a cushion during bouts of selling (currently at 1.2055 and 1.2053). Moreover, Eur/Usd is barricaded in big option expiries into the NY cut, stretching from 1.2000 (2.5 bn) to 1.2140-50 (1.5 bn) and totalling 8.8 bn – see 7.32BST post on the Headline Feed for details and a breakdown of size at various strikes.
• CAD – The Loonie has Canadian retail sales to look forward to and potentially offer some independent inspiration before the FOMC, as Usd/Cad rotates either side of 1.2400 eying crude prices, overall risk sentiment and yields

In commodities, WTI and Brent front-month futures trade choppy within a relatively narrow band, with the former on either side of USD 63/bbl (62.67-63.30 range) whilst the latter meanders just under USD 66/bbl (65.54-66.22 range) at the time of writing. Fundamental newsflow has been light thus far although the geopolitical landscape remains heated amid reports overnight that the US Navy fired warning shots at Iranian boats in the northern Persian Gulf, in the vicinity of the Strait of Hormuz chokepoint. Further, Russia has returned to its punchy rhetoric as per Foreign Minister Lavrov’s comments which stated that the West is delusional for thinking that Russia has retreated following the end of military exercises, and added that a war in the Donbass region is possible, but must be avoided. As a reminder, the OPEC+ meeting which was originally scheduled for today has been cancelled – the producers will stick to its quotas for now which sees some 600k BPD of oil back in the market from next month (350k BPD from OPEC+ and 250k BPD from Saudi’s unilateral cuts). On the data front, yesterday’s Private Inventory data so a larger-than-expected build (+4.3mln bbls vs exp. +0.7mln bbls), although Cushing and the products were more bullish. Participants will be eyeing the weekly DoEs as the next scheduled catalyst – with headline crude seen building 659k bbls. Elsewhere, spot gold and silver are pressured by the firmer Buck with the former sub-1,775/oz and the latter below USD 26/oz, albeit still within recent ranges. Turning to base metals, copper prices have been waning off highs following their recent run and after LME prices reached levels close to USD 10,000/t yesterday. The rise in prices has been attributed to a surge in demand from the EV front as more carmakers unveil plans to enter the market, whilst supply-side woes emanated from Chile whereby port and miners threatened strikes if the government blocked pensions bill. However, Chilean President Pinera said he will sign into law the opposition-led bill allowing the third drawdown from pensions – enabling people to make early withdrawals from their pension fund. Finally, Dalian iron ore prices retreated from peaks after rising to an all-time high with traders citing follow-through from US infrastructure plans coupled with robust China demand.

US Event Calendar

• 8:30am: March Retail Inventories MoM, est. -0.2%, prior 0%; March Wholesale Inventories MoM, est. 0.5%, prior 0.6%
• 8:30am: March Advance Goods Trade Balance, est. -$88b, prior -$86.7b, revised -$87.1b
• 2pm: April FOMC Decision

DB’s Jim Reid concludes the overnight wrap

After yesterday paddling pool story it seems apt that we have the first forecast for rain here in the South of England today for what seems like a couple of months. To be fair we had a freak and brief snow storm 2 plus weeks ago but outside that nothing. This should at least mean that this new pool will last for at least another day before it gets punctured like all the other ones!

The main market cloud yesterday was the US 7 year Treasury auction which reignited the bearish bond trade even as global equities hovered around their record highs, with investors there in a holding pattern as they awaited the outcome of today’s Fed meeting and an array of corporate earnings releases. The S&P 500 (-0.02%) and the MSCI World index (-0.14%) saw the slimmest of declines from their all-time highs on Monday, while Europe’s STOXX 600 was also down -0.08%. However the general market posture was still fairly risk-on with risk assets performing strongly elsewhere, with the industrial bellwether of copper up +1.06% to its highest level in over a decade, WTI oil prices advancing (+1.66%), and bitcoin up another +3.62% after its double-digit gain at the start of the week. It was the reverse story for safe havens however, with sovereign bonds slipping back for a second day on both sides of the Atlantic as gold (-0.27%) also lost ground.

10yr US Treasuries climbed +5.5bps to 1.622%. They edged slowly higher in the US morning session, before accelerating just ahead of the $62 billion auction of 7yr notes and then continuing even higher after. 7yr auctions have attracted weaker demand in recent months, especially this past February where yields saw an intra-day range of 22.6bps around weak demand. Perhaps the recent surge in commodities played a part as US inflation expectations were up +4.6bps to 2.41%, the highest closing level since mid-April 2013. Yields similarly moved higher in Europe, with those on 10yr bunds (+0.4bps), OATs (+0.8bps) and BTPs (+2.1ps) all up as they remained on track for a 5th successive weekly rise.

After the close last night we saw more of the megacap tech earnings releases as both Alphabet and Microsoft announced their results. Google’s parent company, Alphabet, reported Q1 earnings of $26.29/share (est. $15.64/share) on the back of better margins and sales than expected. The company also announced a $50bn share buyback, and the stock rose +4.35% in after-market trading after falling -0.67% during the session. Microsoft beat estimates by a much smaller margin, with EPS coming in at $2.03 (est. $1.78) and better cloud computing sales than expected, though they continue to cite strong competition from Google and Amazon. Microsoft shares still traded -2.74% lower in after-market trading, as investors may have been looking for more. Prior to the US open, large industrial conglomerate 3M (-2.63%) had cited higher costs for materials and transportation, which is sure to have caught the attention of inflation-seekers.

Tech stocks actually underperformed the broader market yesterday, with the NASDAQ (-0.34%) moving lower as Tesla (-4.53%) struggled following its own earnings release the previous day. We’ll hear more on the earnings front later on today, with the main highlights today including reports from both Apple and Facebook.

Aside from the earnings announcements, the main highlight for markets today will be the Federal Reserve’s latest policy decision, along with Chair Powell’s subsequent press conference. According to US economists’ (preview link here), today should largely serve as a status check of the economic recovery relative to the substantial forecast upgrades that the FOMC unveiled at their March meeting. And in the press conference, they expect Powell will likely continue his subtle shift in tone in a more optimistic direction. However, they also think that given the remaining gaps in the labour market and the Fed’s focus on seeing actual rather than forecasted progress, April is too soon for the return of taper talk, and those discussions will heat up during the summer instead. So as with last week’s ECB meeting, today is likely to act as more of a placeholder rather than see any major headlines.

Today’s other big highlight is also in the US, with President Biden making his first address before a joint session of Congress tonight. The main pillar of that is expected to be the American Families Plan, which will include fresh investments in education and childcare, and the White House have already previewed that one of the ways they want to pay for this is by raising capital gains taxes on the richest 0.3% of Americans. However, Biden is also expected to use the speech to outline other priorities for the coming months as well, including police reform and expanding affordable healthcare. All this is on top of a pretty expansive agenda that Biden has laid out in his first 100 days, having proposed an infrastructure-based American Jobs Plan of more than $2tn over the coming decade, which would be financed via higher corporate taxes, and having already passed the $1.9tn American Rescue Plan last month.

Asian markets are trading mixed overnight with the Nikkei (+0.32%) and Hang Seng (+0.13%) up while the Kospi (-0.93%) and Shanghai Comp (-0.04%) are down. Futures on the S&P 500 are up +0.13% and European ones are also pointing to a positive open with Stoxx 50 futures up +0.20%. Yields on 10y USTs are flattish while, the US dollar index is up +0.11%. In terms of data releases, Japan’s March retail sales came in at +1.2% mom (vs. +0.6% mom expected). In other news, the Washington Post has reported that a US warship fired warning shots when vessels of Iran’s paramilitary Revolutionary Guard came too close to a patrol in the Persian Gulf.

There wasn’t a great deal of news on the pandemic yesterday, though we did get remarks from President Biden on the topic. The President said the White House intends to send vaccines, therapeutic drugs and vaccine manufacturing equipment to India, where they saw over 300,000 new cases for a sixth straight day. Biden also highlighted the new CDC guidelines that say those who are vaccinated no longer need to wear masks when gathering with friends either outdoors or indoors. Face coverings are still recommended if gathering in public places indoors and large gatherings outdoors such as concerts and sporting events.

Looking at yesterday’s data, and the US Conference Board’s consumer confidence reading rose to a post-pandemic high in April of 121.7 (vs. 113.0 expected). That means the rise over the last 2 months has been the strongest since 1974, back when the reading only came out every other month. In terms of other releases, the Richmond Fed’s manufacturing index remained at 17 in April (vs. 22 expected), and the FHFA house price index rose by +0.9% in February (vs. +1.0% expected). Separately, the S&P Case Shiller index showed US housing prices in the 20 US cities used in the benchmark rose 11.9% over the last year (vs 11.8% estimated), which was the largest jump in 15 years on the back of low mortgage rates and lesser inventory.

To the day ahead now, and the main highlight will be the aforementioned Federal Reserve decision and Chair Powell’s press conference. Otherwise, we’ll also hear from ECB President Lagarde, as well as the ECB’s Schnabel, Centeno and Rehn. In addition, President Biden’s address to Congress will be a major highlight, along with earnings releases including Apple, Facebook, Qualcomm, Boeing, GlaxoSmithKline and Ford. Finally, data releases include Germany’s GfK consumer confidence reading for May, France’s consumer confidence reading for April, and the preliminary March reading for US wholesale inventories.

President Biden will head to Capitol Hill Wednesday night for the first time since Inauguration Day (a casual visit by the president would risk spoiling the narrative that the Capitol remains a battle-scarred wreck since the Jan. 6 “uprising”) to unveil the second part of his “Build Back Better” plan, a $1.8 trillion proposal to expand the American “safety net” that will be financed by hefty tax increases on individuals and businesses, including a nearly 40% tax on short-term capital gains that spooked the market when it was first reported last week.

The scale of the plan, which has been named “the American Families Plan” and is intended to compliment Biden’s “American Jobs Plan” unveiled four weeks ago, has increased in scope since the first details of a preliminary version were leaked to the press earlier this month.

With spending spanning a decade, the plan’s main features include: $225 billion for child care spending, another $225 billion to create a national family and medical leave program. $200 billion in funding for universal access to pre-K schooling for young children. And $109 billion for two free years of community college, as well as additional subsidies for Americans to purchase health insurance. On the tax credit side, the plan extends a tax credit for up to $3,600 per child until 2025. Biden is scheduled to speak at 2100ET, according to his public calendar.

The AFP marks the trillion-dollar-plus installment in Biden’s sweeping economic programs, enabled by the onslaught of the COVID-19 pandemic. First there was the $1.9 trillion, then the nearly $3 trillion American Jobs Plan, and now this. Their ambitious scale means they face an uncertain path through Congress, with Republicans expected to oppose the plan (though it’s possible Biden might win over a few moderates). Planned tax hikes would offset much of the cost of the plan.

According to the FT, senior administration officials have confirmed that the plan would include an increase in the top income tax rate from 37% to 39.6% for Americans earning more than $400,000, eliminate the preferential tax treatment of capital gains and dividends for those earning more than $1 million (so those making a living day trading on Robinhood can relax) and scrap provisions allowing people to pass unrealized capital gains to their heirs tax-free. /p>

The end result is that much of President Trump’s tax cuts for individuals and businesses will be revered.

“The president’s tax agenda will not only reverse the biggest 2017 tax law giveaways, but reform the tax code so that the wealthy have to play by the same rules as everyone else,” the White House said in a fact sheet accompanying its proposal.

And as we reported yesterday, Biden also intends to hand $80 billion more to the IRS to finance campaigns to track down wealthy tax cheats who move money to tax havens overseas.

Biden has repeatedly insisted that he would try and work with Republicans, and that he might be open to complaints about specific taxes. But if the GOP tries to stymie the plan, Biden has said he would have no problem going it alone.

Since the text of the plan has yet to be released, those interested in a more comprehensive breakdown of its contents should check out the following summary courtesy of Bloomberg:

Income Taxes

Biden is calling to raise the top personal income tax rate to 39.6% for those among the highest 1% of earners. “No one making $400,000 per year or less will see their taxes go up,” the White House said in a fact sheet on the plan. Still, the document didn’t specify whether that threshold applies to both single earners as well as married couples.

Capital Gains

Biden would increase the capital gains rate to 39.6% from 20% for those earning $1 million or more — 0.3% of taxpayers or roughly half a million households — equalizing that rate with the top marginal income tax rate. A 3.8% Obamacare tax on investment would then be added on top, meaning the richest would pay a 43.4% federal rate on realized investment returns. State taxes could put the combined tax bill north of 50%.

The plan would also end a long-standing capital gains tax break on inheritances known as “step-up in basis,” which allows heirs to use the market value of assets at the time of inheritance rather than the actual purchase price as the cost basis for capital gains when the holdings are sold.

The proposal exempts the first $1 million of gains from the end of stepped-up basis, while there’s no tax if the gains are used for charitable donations. There will also be “protections so that family-owned businesses and farms will not have to pay taxes when given to heirs who continue to run the business.”

Carried Interest, Real Estate

The carried interest tax break used by private equity and hedge fund managers to lower their tax bills would be eliminated under Biden’s plan. In what critics call a loophole, that allowed for a share of income being classed as a capital gain, with an associated lower tax rate.

The administration also would eliminate a real estate tax break for when property investors sell one holding for a more expensive one.

IRS Audits

The plan calls for increased audits on high-earners that could collect an additional $700 billion in tax revenue, with funding increases for the Internal Revenue Service. Biden is also proposing to require banks to report information on account flows, so that earnings from investments and business profits are reported to the IRS like wages are.

Child Tax Credit

Biden is proposing to extend through 2025 an enhanced version of the child tax credit. The credit, increased for 2021 in the March pandemic-relief package, provides a $3,600 credit for children under six and $3,000 for those six and older. The IRS is slated to send the payments regularly, which amounts to $250 or $300 per child per month, depending on their age. Congressional Democrats are pushing Biden to make this change permanent.

Child Care

The plan includes $225 billion to help low-income families pay for child care, provide funding to child care providers and boost wages for child care workers to $15 an hour. Biden is also proposing to make permanent a tax credit for child care costs that would reimburse families for care of children 12 and under with a credit worth up to $4,000 for one child or $8,000 for multiple children.

Paid Leave

Biden would create a $225 billion national paid family and medical leave program. It would provide partial wage replacement for workers who take time off to care for a newborn or an ill family member, recover from a health issue, deal with a family member’s military deployment, address domestic violence issues or deal with the death of a loved one. The plan guarantees 12 weeks of paid parental, family, and personal leave by year 10 of the program. It provides workers with two-thirds of average wage replacement per month, up to $4,000. Lowest-wage workers will get pay replaced at 80%.

Health Tax Credits

The plan would pump $200 billion into an expansion of tax credits for households that buy health insurance on their own, saving families an average of $50 per person per month. Biden’s outline said nine million people would save hundreds of dollars per year on their premiums, and four million uninsured people will gain coverage.

Low-income Tax Credits

An expansion of the earned-income tax credit for childless workers who earn wages below the poverty line would be made permanent under Biden’s proposal. The expansion roughly triples the value of the benefit for those individuals, the fact sheet said.

Pre-School

The plan includes $200 billion for free universal pre-school for all three- and four-year-olds. Pre-kindergarten teachers will earn at least $15 per hour, and those with academic qualifications will receive pay comparable to that of kindergarten teachers.

College Tuition

The plan would provide $109 billion to cover two years of tuition-free community college for students and an $85 billion investment in Pell Grants, to aid students pursuing up to a four-year degree. The plan also includes $62 billion to improve college retention rates for disadvantaged students and pump $46 billion into historically black universities, tribal colleges and other institutions that serve minorities.

Nutrition Assistance

There is $45 billion to improve the health of school meal programs and provide food for K-12 students during summer breaks in Biden’s proposal.

Unemployment Systems

The proposal earmarks $2 billion to modernize the unemployment insurance system, which has been subjected to fraud and technical challenges during the spike in unemployment caused by the pandemic. Biden didn’t call for an automatic extension of jobless benefits as some Democrats had requested, but he pledged to work with Congress automatically extend benefits based on economic conditions.

Notably Omitted

The plan did not include any references to expanding the $10,000 state and local tax, or SALT, deduction. More than 20 House Democrats have said that tax break must be boosted to support Biden’s economic agenda. The proposal also didn’t include an expansion of the estate tax — a long-standing Democratic priority that Biden campaigned on. Nor was there an enlargement of Medicare or the drug-price reduction measures that many congressional Democrats have pushed for — though Biden’s outline said both issues were priorities for him.

Authored by Eric Hickman, president of Kessler Investment Advisors, Inc.,

Because stock market performance is an important factor in U.S. Treasury behavior, I study it closely. I wrote a paper in 2012 that, among other things, examined the consistency (or actually inconsistency) of long-term S&P 500 performance. Between our founder Robert Kessler’s indelible memory of slogging his way through the futile stock market of the 1960s and 1970s and my study of the long-term history of the S&P 500, you will see below that the powerful up-trend of the last 12 years is not a comprehensive representation of the stock market.

There is a bad side too; one whose magnitude and duration may surprise you. The alternating pattern of extended good and bad stock market periods, an all-time high valuation, and questionable-quality asset appreciation say we are near to the end of this good stock market period. There will be a large drawdown and an extended low/negative return period to balance out the above average return of the last 12 years.

About the data and study

The chart and table that follow show the cumulative real total return (dividends reinvested) and various statistics from the S&P 500 back to 1910 split into eight periods: four good (2, 4, 6, and 8) and four bad (1, 3, 5, and 7). The S&P 500 index formally began in 1957 but has been back-analyzed (not by Kessler) to provide comparable information to the early 1900s. The chart is shown on a logarithmic vertical axis to normalize it for exponential growth, i.e., each axis label is double that below it. I chose period demarcations subjectively, but at points to best isolate good periods from bad. I use the real (return after taking out inflation) rather than the nominal return because it better captures the difficulty of the stock market in the 1960s and 1970s. For instance, because annual inflation averaged 7% in period 5 in the first chart below, stocks made a significant positive return on a nominal basis (+5.2% annualized), but was negative (-1.7% annualized) after inflation. The net of inflation figure (real) is more relevant to the experience than the nominal return. Analysis follows the chart and table.

There are several things to point out.

Alternating good to bad

Looking at the line chart as a whole, the S&P 500 has gone through long periods of good returns (green boxes) alternating with just as long periods of bad returns (red boxes). For the 111+ years, the time spent in good periods is nearly the same length as time spent in bad periods; 55+ years. It isn’t hard to imagine that at 8.5 years minimum historically, the good and bad periods lasted long enough to condition investors to expect the same indefinitely.

Returns in the good periods look almost like diagonal lines with little volatility. Returns in the bad periods look jagged with multiple major drawdowns (losses). They make little, if any return. At the end of good periods, it seems nearly everyone is invested in stocks. At the end of the bad periods, investors say they will never buy a stock again. They are two different experiences – in the midst of one, you wouldn’t know the other type existed before experiencing it.

The bad periods

The long timeframe of this chart belies just how hard the bad periods were. Period 3, the Great Depression and WWII, lasted 19.8 years with no real return (-0.5% annualized) and a paltry nominal return of 1.2% annualized. In those 20 years, there were three serious drawdowns; -79%, -50%, and -49%. Period 5, the 1960s and 1970s, lasted 16.3 years and lost 1.7% annualized real return. There were four major drawdowns; -18%, -36%, -52%, and -27%. Period 7, the dot-com and housing bubbles, was shorter at 8.5 years but lost 8.8% annualized real and had two major drawdowns: -47% and –52%. Despite these drawdowns eventually being recovered, they were severe enough to tempt selling at the wrong time and not experiencing the recovery.

The good periods

The good periods are just as good as the bad periods are bad. They rise up consistently with few reminders of risk. The more consistent the movement, the more it attracts new investment and leverage that propels the price even higher – a positive feedback loop. This is the environment we are in now.

The red “Consistency of Real Returns” data in the table above shows that the three measures of consistency I’ve chosen are quite different in good periods than bad. The good periods have had between 80%-90% positive rolling 12-month periods, where in bad periods, it is 40%-60%. The good periods’ “Worst YoY%” is between -8% and -20%, where it ranges from -38% to -64% in bad periods. The worst drawdown in good periods ranges from -15% to -30%, where in bad periods it is -50% to -80%.

The last 12 years (period 8) have been the most consistent period in two of the three metrics and just a tad worse than the roaring 1920s in maximum drawdown. The unprecedented consistency of this bull market has created the appearance of a sure thing – exemplified by the Reddit mantra of “stonks always go up.” Risk has never been so forgotten.

Valuation

Low P/Eratios (less than 15) indicate attractive pricing where high P/E ratios (say more than 25) indicate expensive pricing.

If you look under the black heading of “Valuation (P/E Ratio)” in the table above, you will see that the price earnings ratio falls from high to low in the bad periods and rises from low to high in the good periods. Multiples (P/E ratios) expand (prices rising faster than earnings) in good periods as investors invest for momentum and not for fundamentals. Multiples compress in bad periods (prices fall more than earnings) as the past good period is attenuated and fundamentals (low P/E ratios or high dividends) are needed to attract equity investment.

In the most recent period 8, the P/E ratio has risen to an all-time high level; over 32x in recent days. Stocks have never been more expensive.

Mean reversion

At a broad level, the good periods appreciate faster than the long-term average and the bad periods balance that, returning less than the long-term average. In other words, the stock market overshoots on the upside in good periods and then in bad ones, overshoots several times on the downside; the combination make the long-term average.

There is no official long-term average to revert to; it is a moving target. But a fair way to estimate it is to find a growth trend where the index spends just as much time below the average as above it. For this period, that number is 5.75% annualized (shown as a dotted line in the first chart). In order for the S&P 500 to return to that level, it needs to fall by 45%. Markets overshoot and so it is logical to think an initial drawdown will exceed that.

GDP limitation

It is thought that aggregate stock market returns (the S&P 500 is a proxy for the aggregate) over a long period shouldn’t exceed the growth of its country – its GDP. This is because the stock market is the economy and there is no clear reason why its composite returns should sustainably exceed GDP growth without an equivalent-sized group under-performing.

And yet, stock returns have outpaced GDP over the long term – by a lot. Real U.S. GDP growth, since the inception of official records (Q1 1947, 74 years ago), has grown at a 3.1% annualized pace. Over the same period, the S&P 500 has a real return of 7.7% annualized (nominal of 11.4%) and has thus outperformed real GDP by 2.5x; a precarious outperformance that shouldn’t be expected to continue.

Dividend limitation

Another factor stacked against stock investors are the lack of meaningful dividends. Stock issuers pay dividends as a way of compensating shareholders with a portion of their earnings. Over the 111+ year history studied, dividends are responsible for about two-thirds of the real return. Dividends were 4.3% annualized of the 6.5% annualized real return. But dividends are much lower now. The dividend yield of the S&P 500 is just 1.4% per year (4/19/2021). In other words 2.9% (4.3% – 1.4% = 2.9%) of annual past performance is no longer there for the future.

Similarity to the Spanish flu and the Roaring Twenties

Stock market bulls are using the narrative that the 2020s will be like the Roaring 1920s because of the COVID-19 pandemic’s similarity to the 1918-1919 Spanish flu; it is 100 years later and a great decade of stock market performance followed. The S&P 500 had an amazing 27.2% annualized real return in the 1920’s (period 2).

There are immediate reasons why the stock market of the 2020s will not be like the 1920s.The 1910s (period 1) was a terrible decade for the stock market (-4.9% annualized real return), and so the 1920s had a low base to build from. In contrast, the 2010s (period 8) was a high-performing decade, returning 15.3% annualized real. This can also be seen with P/E ratios. The P/E ratio at the start of the 1920s was 9.6x where the P/E ratio of the S&P 500 now is over 32x; more than 3 times more expensive. In other words, the bull market already happened. Finally, the 1920s followed World War I. Economic booms follow major wars. It goes without saying, but there was no equivalent war in the 2010s.

Signposts of the end

In addition to 12 years of a consistent, strong bull market and the price/earnings ratio at an all-time high, there are other familiar signposts of the end. Towards the end of a stock bull market, questionable assets appreciate with abandon. There are many examples now:

1. Tech stocks: Tesla trades at 949x earnings (4/19/2021) and has a market cap (company value) nearly as great (87% on 4/19/2021) as the seven other big car companies combined; Toyota, Volkswagen, Daimler, GM, BMW, Honda, and Ford.

2. Meme stocks: investors came together on popular anonymous social media platform Reddit to drive the price of GameStop, a shrinking brick and mortar retailer of video games, up more than 8x in January. It now trades at less than half of that (4/19/2021).

3. Crypto-currencies: Bitcoin is up 1,026% (or 11.3x) since the low in March last year (3/16/2020 – 4/19/2021).

4. Non-fungible tokens (NFTs), which facilitate an immutable transfer of ownership for a digital file, have traded at “double-take” levels. For instance, digital artist Beeple sold a collage of his art that anyone else can see (albeit without official ownership or full resolution) in a Christie’s auction for $69.3 million on 3/11/2021. This was the third most expensive piece of art ever sold by a living artist and it isn’t tangible.

5. Special purpose acquisition companies (SPACs) are an investment vehicle that serves as a loophole to take a company public before it meets the standards it would need to go public by itself. It has created a frenzy in companies raising funds from eager investors without meeting the standards of an individual stock listing.

6. Sporadic blowups: The $10bn family office Archegos lost all of its money and more when large leveraged holdings Viacom (VIAC) and Discovery (DISCA) quickly lost half of their value in March. Some think this is just a harbinger of future similar incidents.

But this time is different?

Stock market bulls suggest the stock market will continue rising because the pandemic will soon be over (I’m not so sure) and developed economy governments have put enough money into their economies to keep their stock markets elevated (not sure about that either). Investors have been lulled into complacency because the stock market has rallied through every risk thrown its way for more than a decade. It is a mistake to think this is normal or sustainable.

Some feature of COVID-19 will likely be the stock market’s undoing, but it doesn’t have to be. Possible candidates include an emerging market sovereign fiscal crisis, a large hedge-fund/bank blow-up, fraud, social unrest, or a geopolitical crisis. There is also the possibility that an inflection point won’t have an identifiable catalyst, but could happen just from a collective realization that asset prices reflect optimism extrapolated further into the future than is realistic. I don’t know when or how, but sentiment will change; the boom and bust process is as old as civilization.

When it happens, nobody is big enough to stop it coming down. Fiscal and monetary stimulus is this cycle’s “false idol.” Every cycle has one – a reason why it can’t come down. Right before the stock market crash of 1929, Yale economist Irving Fisher said stock prices were in “what looks like a permanently high plateau.” Portfolio insurance was the culprit in 1987. In 2000, it was said that the internet was a “new paradigm” obviating historical comparisons. Before the 2007-2008 stock market crash, Alan Greenspan, chairman of the Federal Reserve, said the housing market was too varied geographically to come down at once. Ben Bernanke, the subsequent chairman of the Federal Reserve, infamously said that he thought losses to subprime mortgage loans were “contained.” All of them were wrong.

As Jeremy Grantham, co-founder of Boston investment firm GMO, said in his important 01/04/2021 article “Waiting for the Last Dance,”

Nothing in investing perfectly repeats. Certainly not investment bubbles. Each form of irrational exuberance is different; we are just looking for what you might call spiritual similarities. Even now, I know that this market can soar upwards for a few more weeks or even months – it feels like we could be anywhere between July 1999 and February 2000. Which is to say it is entitled to break any day, having checked all the boxes, but could keep roaring upwards for a few months longer. My best guess as to the longest this bubble might survive is the late spring or early summer, coinciding with the broad rollout of the COVID vaccine. At that moment, the most pressing issue facing the world economy will have been solved. Market participants will breathe a sigh of relief, look around, and immediately realize that the economy is still in poor shape, stimulus will shortly be cut back with the end of the COVID crisis, and valuations are absurd. ‘Buy the rumor, sell the news.’ But remember that timing the bursting of bubbles has a long history of disappointment.

Many will wait to see the stock market come down before they believe it, but keep in mind the adage that “a bull market will do everything to keep you out, a bear market will do everything to keep you in.” As it comes down, cheaper prices will entice bulls who then end up losing more than they otherwise would as it falls more. They mistakenly use the prior period’s consistency to trade the new bear market which, pun intended, is a completely different animal.

My firm expresses this opinion by owning the long-end of the Treasury yield curve – 10-year and 30-year bonds. In Treasury bonds, you get paid to wait. If you were short stocks instead, you have to pay the dividend to wait. When “risk-on” product becomes risky again, there are only a few reliable appreciating assets; the U.S. Treasury market being the best. 10-year U.S. Treasury yields fell 367 and 324 basis points respectively surrounding the last two major stock market drawdowns in 2000 and 2008. The 10-year U.S. Treasury has a yield of 1.58% now (4/19/2021). It falling the average 346 basis points would take it to -1.87%. I am not suggesting it gets that deeply negative, but there is certainly plenty of room for Treasury bonds to appreciate (prices rise as yields fall).

With the CIA branding itself as a woke Western intelligence agency, it was only a matter of time before the UK’s MI6 tried to one-up their US counterpart; potentially spying on the world’s biggest polluters. In something that sounds like it should belong on The Onion or Babylon Bee, the head of the UK’s Secret Intelligence Service (SIS) – commonly known as MI6 – suggested that they should engage in so-called  “Green Spying” on nations which make climate change pledges in order to make sure they’re keeping them.

In comments to Times Radio, MI6 head Richard Moore – known as “C” – claimed that man-made climate change is “foremost international foreign policy item for this country and for the planet,” adding: “Our job is to shine a light in places where people might not want it shone and so clearly we are going to support what is the foremost international foreign policy agenda item for this country and for the planet, which is around the climate emergency, and of course we have a role in that space.”

“Where people sign up to commitments on climate change, it is perhaps our job to make sure that what they are really doing reflects what they have signed up to,” he continued, which – depending on one’s read of his wording – could imply this is already happening.

“As somebody used to say – ‘trust, but verify’,” said Moore, adding “On climate change, where you need everyone to come on board and to play fair, then occasionally just check to make sure they are.”
 

No doubt actual terrorists and enemy operatives will feel relieved that countless valuable resources will be poured into this supposed top agenda of ensuring industrialized countries will “keep climate change promises”. We can imagine they’re having a good laugh in the halls of Beijing’s intelligence bureaus…

To some degree the Brits appear to be following the lead of the United States. The Biden administration was the first to elevate climate change to the level of a “national security” matter after he made John Kerry his ‘Climate Envoy’ – with a seat on the National Security Council. Last week, Biden announced at a climate summit that the United States would cut emissions in half by 2030 after having rejoined the Paris Climate agreement shortly after taking office.

Perhaps it’s only a matter of time before the CIA or NSA launches their own “green spying” operations – if they haven’t already. 

Authored by Paul Joseph Watson via Summit News,

Government councils in the UK are hiring COVID Marshals to patrol streets from July until the end of 2023, despite the fact that all lockdown restrictions are supposed to end in June.

“A new army of Covid Marshals is being recruited for roles that could last until 2023 despite Government plans to lift all remaining restrictions on June 21,” reports the Telegraph.

“Councils around the country are advertising jobs that do not begin until July – several days after the supposed freedom day.”

One example is Hertfordshire County Council, which is “offering a contract of up to £3 million to firms that can supply 60 marshals from July 1 until January 31 next year.”

“The contract comes with a possible one-year extension, meaning marshals would still be patrolling until 2023,” states the report.

The Marshals will be tasked with ensuring “compliance” and helping the public understand “regulations and guidance,” despite the fact that all regulations are supposed to be terminated in 8 weeks time.

“We know that the virus is still circulating and will be for some time. We know from last year that numbers of infections can change rapidly, and Government are very clear that we should plan in case a third wave arises. It would be a dereliction of duty not to prepare for a third wave,” said Jim McManus, director of public health for Hertfordshire County Council.

Critics have accused the government of wasting taxpayer money by allowing councils to use government grants to fund the program.

“To start hiring people based on the situation we faced last year, before we had rolled out the vaccines, does seem to be a waste of public money,” said Mark Harper MP, Tory chairman of the Covid Recovery Group.

The fact that COVID Marshals will be patrolling the streets beyond June once again illustrates how the timetable to lift restrictions is completely phony.

Just like the UK government promised for months that it wouldn’t introduce vaccine passports while secretly funding their creation, the state has been caught lying yet again.

In all likelihood, fearmongering over a “third wave” of the virus, despite the UK vaccinating virtually all of its vulnerable population, will be used to reintroduce lockdown at the beginning of Autumn.

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At a time of still heightened tensions following this month’s Russian military build-up near Ukraine and subsequent draw down last week, the Kremlin says it is tracking a US Coast Guard ship’s movements after it entered the Black Sea on Tuesday.

The US Navy’s Sixth Fleet confirmed the entrance, saying “The Legend-class national security cutter USCGC Hamilton (WMSL 753) transited into the Black Sea in support of NATO Allies and partners.”

HAPPENING NOW: USCGC Hamilton (WMSL 753) transited into the Black Sea in support of @NATO Allies and partners.

Hamilton is the first @USCG Cutter to visit the #BlackSea since 2008.

Full story: https://t.co/tQa4z6hiYQ pic.twitter.com/chPAmeJpCq

— U.S. Naval Forces Europe-Africa/U.S. Sixth Fleet (@USNavyEurope) April 27, 2021

While American warships routinely transit the Black Sea, the Navy statement underscored that the Coast Guard’s entrance into the Black Sea is a rarity. Certainly the US Coast Guard is operating a very long way from America’s coastal waters.

“Hamilton is the first U.S. Coast Guard Cutter to visit the Black Sea since 2008,” the statement said. The Hamilton was sent from its most recent area of operation near Sixth Fleet headquarters in Naples, Italy.

In no doubt a planned signal that the US should stay away from Crimea, Russia’s Black Sea fleet launched new “live-fire” drills on the same day as the Hamilton’s entering the region:

Russia’s Black Sea fleet said on Tuesday its Moskva cruiser would hold live-fire drills with other ships and military helicopters, the Interfax news agency reported.

The fleet’s announcement came hours after US Naval Forces in Europe said cutter Hamilton, a US Coast Guard vessel, was moving into the Black Sea to work with NATO allies and partners in the region.

Earlier in the month the Biden administration canceled plans to send a pair of large naval warships into the Black Sea, in an apparent bid to de-escalate soaring tensions, after which he proposed a face-to-face summit with Vladimir Putin.

Russia on Monday signaled it will likely take place in mid-June in a European country, while the White House is reportedly hammering out details in a positive sign it’s very likely to happen.

Hawks accused Biden of capitulating to Moscow, so perhaps sending a tiny Coast Guard ship is a meager effort at showing that he’s “doing something” to “confront” Russia over Ukraine.

Authored by Alex Kimani via OilPrice.com,

When it comes to the final frontier for big oil discoveries, it’s not the Guyana-Suriname basin where supergiants like ExxonMobil (NYSE:XOM), Hess Corp. (NYSE:HES), and CNOOC (NYSE:CNOOC) have already staked their claims. And it’s not the American shale patch, where production has hit reverse gear with no end in sight. It’s Africa, where even small-cap companies are staking outsized claims of the kind that generously reward investors with a bigger risk appetite.

Unfortunately, the second-largest continent is suddenly finding itself between a rock and a hard place, thanks to Covid-19 and OPEC’s production cuts. Five of OPEC’s 13 member states are from Africa, with the huge cuts taking a massive hit on their oil-dependent economies.

Yet, things could get far worse for Africa’s oil and gas giants.

A new report by risk consultancy firm Verisk Maplecroft via CNBC has revealed that Algeria, Chad, Iraq, and Nigeria are at the highest risk to experience political instability as the world turns its back on oil and gas in favor of renewable energy.

Flatlining oil sectors

About two decades ago, The Economist [infamously] dubbed Africa as the “Hopeless Continent”, claiming that the new millennium had brought more disaster than hope to Africa with threats of famine in Ethiopia (again), floods in Mozambique, mass murder in Uganda, and the implosion of Sierra Leone. 

A decade later, the magazine did a 180-degree and changed its tune to “Africa Rising” thanks to major improvements in labor productivity, dropping inflation, and booming economies. 

But alas, the upbeat narrative was not to last for long, with the 2014 oil price crash devastating some of the continent’s most promising economies.

And now, it’s happening all over again, with some of the continent’s leading oil producers in dire straits after the 2020 oil price crash.

To wit, Angola has gone from being Africa’s top crude producer just five years ago to barely pumping more than war-torn Libya. Nigeria–another key OPEC member–is in grave danger of suffering Angola’s fate as OPEC tries to balance the markets by restricting oil production.

Angola’s oil production has plummeted to a 15-year low of below 1.2 million barrels a day since November, effectively meaning that Libya, where a decade-long civil war has massively disrupted the country’s oil industry, is now pumping more crude than Angola.

But Angola’s problems have been long in the making, with the seeds of this sharp decline sown during the 2014 oil price crash, as the oil majors curtailed capex spending after oil prices crashed from $100 a barrel to less than $30 in the space of a few years.

Although the deep production cuts by OPEC eventually spurred a rebound in prices, offshore drilling activity by Angola and West Africa have recovered far more slowly. The coronavirus pandemic has triggered yet another round of deep spending cuts, with Baker Hughes reporting that just a single drillship was operating in the waters off Angola and Nigeria by the middle of 2020.

Some subsequent offshore projects by Total SE (NYSE:TOT) and Eni SpA have helped keep offshore oil flowing in Angola; however, the global pandemic and subsequent market downturn have ensured that just a trickle is flowing from Angola’s deepwater projects.

Angola has recorded a sharp 40% decline in production over the past decade, reflecting years of underinvestment in new projects despite the IMF estimating that it needs oil price of just $55/barrel for fiscal breakeven. Angola’s oil industry is largely dependent on deepwater fields where production typically declines faster than in onshore oilfields. The situation has been aggravated by a prolonged lack of constant investments to improve oil-recovery rates or tap additional reservoirs.

The situation is not much better in Africa’s top oil exporter and largest economy, Nigeria.

Nigeria only recently emerged from a major recession in 2017 and was contending with low growth of about 2% before the oil crisis struck. Oil sales contribute 90% of the country’s foreign exchange earnings, 60% of the revenue, and 9% of GDP. With a high fiscal breakeven of $144 per barrel, Nigeria is feeling the heat more than many of its OPEC peers. The country had applied for $7 billion in emergency funds to the African Development Bank, World Bank, and the IMF but saw its credit rating downgraded by Fitch and S&P due to the oil slump.

Nigeria cut production sharply last year as part of the OPEC+ deal, with crude shipments falling to 1.5 million barrels a day, the lowest level in four years. That’s less than half of the nation’s long-standing target for 2023, which might remain out of reach without quickly ramping up deepwater drilling.

Big Oil companies, including Total SE, Royal Dutch Shell Plc. (NYSE:RDS.A), and Exxon Mobil have expressed concern that Nigeria’s long-delayed Petroleum Industry Bill (PIB) could deter investment. Nigeria’s National Assembly is set to debate the proposed PIB in the first quarter of 2021—which could lead to major changes in the roadmap of the oil and gas industry after nearly two decades of attempted reform. 

Oil prices have mostly recovered from the historic slump, with Brent crude rising above $65 a barrel in London. Nigeria, though, remains in a better position to recover from the investment slump than Angola, considering that about two-thirds of the country’s production comes from shallow-water and onshore fields.

The final nail

Whereas Africa’s oil and gas producers continue to hope that the ongoing rollout of Covid-19 vaccines will return global oil demand to some form of normalcy sooner than later, the long-term outlook remains dire, thanks to a more formidable foe: The renewable energy megatrend.

Maplecroft has warned that countries that fail to diversify their economies away from fossil fuel exports face a “slow-motion wave of political instability.’’

The consultancy says the move away from fossil fuels is set to hit high gear over the next 3-20 years, and that oil-dependent countries that fail to adapt risk facing sharp changes in credit risk, policy, and regulation.

The firm has suggested that the worst-hit countries ‘‘could enter doom loops of shrinking hydrocarbon revenues, political turmoil, and failed attempts to revive flatlining non-oil sectors.”

The report suggests that Africa’s oil and gas powerhouses ought to borrow a leaf from their Middle East peers, with Saudi Arabia choosing to forego the natural gas bridge and instead directly pivoting towards green hydrogen.

Shortly following Joe Biden’s controversial Armenian Genocide statement on Saturday where he became the first US president to shift policy in terms of Washington official recognition of the WWI-era massacre of over one million Armenians in Asia Minor, the US Embassy in Ankara announced the closure of all American diplomatic facilities for Monday and Tuesday as a security precaution. 

As expected, anti-American protests have indeed popped up at various locations where US personnel are stationed, most notably including outside Incirlik Air Base in Turkey. US troops and intelligence operatives have long been housed at the base in southern Turkey, and it was a major hub out of which anti-Assad military missions in were launched over the past many years. A group of protesters were seen and heard at the gates of Incirlik base loudly denouncing the “lie” of Armenian genocide while telling the Americans to “go home!” and “get out of Turkey!”

İncirlik Üssü önündeyiz!

Ey bizim kanımızı içmeye çalışan tek dişi kalmış canavar. Sana bu topraklarda gün yüzü göstermeyeceğiz! pic.twitter.com/XcOwYKZE71

— TGB (@genclikbirligi) April 27, 2021

Such a spectacle outside the major NATO base in Turkey is a rare one.

According to a description of the demonstration by Military.com:

A few dozen protestors held banners and chanted slogans. “Genocide is a lie, it’s an American plan,” they said. Demonstrators also demanded an end to the American military’s use of Incirlik Air Base in southern Turkey, shouting: “American soldiers, get out of Turkey!”

Turks Protest Biden’s Armenian Genocide Decision, Call for US Military to Leave #Incirlik Air Base | https://t.co/v4werdK5X0 https://t.co/6Nn3Cm54p9

— Manu Gómez (@GDarkconrad) April 26, 2021

Other international reports noted that some of the demonstrators carried signs that urged Turkey to “exit NATO”…

The protest was organized by a  local wing of the Youth Union of Turkey (TGB), who call Joe Biden’s recognition of the genocide “illegal and legally void”.

The demonstrators are carrying Turkish flags and banners saying “exit NATO – the enemy of Ataturk”, “Close Incirlik for the US in response to lies about genocide”, and “No to NATO. This is our land!”

Ironically much of the American public would only be too happy to see Turkey depart NATO.

Scene’s from Monday’s protest at Incirlik Air Base:

Currently an advisory posted to the US Embassy in Turkey’s website tells Americans to avoid these ongoing protests or any areas around US government facilities in the country.

“U.S. citizens are advised to avoid the areas around U.S. government buildings, and exercise heightened caution in locations where Americans or foreigners may gather,” it says.

Authored by Douglas Macgregor via AmericanConservative.com,

The trouble with leading a great power is that, from time to time, the president is obliged to act like the leader of a great power. If ever there was a time for sound presidential leadership, it’s now. With no appreciation for the endlessly renewable force of national self-preservation that animates Moscow’s maneuvers in Ukraine, President Biden’s insulting remarks and hostile sanctions have plunged the United States into a deeper, more dangerous confrontation with Russia in Ukraine, a region of limited strategic interest to the United States.

Putin’s directive to return most of his troops to garrison while leaving their weapon systems and equipment in place along the Ukrainian border should be viewed in Washington as an opportunity to create a measure of stability in U.S.-Russian relations that’s been missing for years. It’s not enough to hurl insults and simply restate what the Biden administration is against. It’s time to explore what kind of alternative to the fragile and dangerous status quo in Ukraine that Washington and Moscow can both support.

Washington did a deplorable job of formulating strategic aims in the Middle East and Afghanistan that justified the sacrifice of American blood and treasure. The president cannot seize the strategic initiative now if Washington continues to react impetuously and emotionally to real or imaginary threats to U.S. and allied interests.

Winston Churchill insisted that most strategic problems can be solved “if they are related to some central design.” Central design implies the guiding influence of strategy. Strategy is not an ideological wish list. Strategy involves an understanding of strategic interests; in this case, grasping the divergence of American and Russian interests. Consider five points.

First, an analogy may be instructive for Americans: Who rules in Kiev and governs Ukraine is as important to Moscow as events in Mexico are to Washington. It is not enough to admit that expanding NATO eastward to include Ukrainian membership was an unforced error. President Biden must acknowledge that since the end of the Cold War, the geo-strategic environment has changed profoundly. The growth in economic and military strength in Beijing and Moscow gives these nations weight, heretofore unrecognized by Washington, D.C., in the post-Cold War unipolar system.

Second, Putin is well aware that the southeastern portion (including Odessa) of Ukraine is heavily Russian in language, culture, and political orientation. If this reality is ignored yet again in favor of more wishful thinking about the true character of Ukraine, in a future crisis, the southeastern areas are likely to be rapidly seized and occupied by Russian military power with little difficulty. The probability of U.S. and allied forces throwing Russian forces out is low. Moscow knows from its experience with Crimea that possession is indeed nine-tenths of the law.

However, Putin is equally aware that for Moscow military action is an option, but hardly the first or even second option. Russian action in Ukraine would exact a serious cost from Moscow in trade sanctions and international standing. Beijing intervened to support the Russian economy once (in 2015), but it is not clear that Beijing would do so again if Russia’s economy faltered under these conditions. These points mean the opportunity for a negotiated settlement with Moscow should not be ignored.

Third, the Biden administration must work with Moscow and Beijing to identify new rules of engagement that adapt American foreign policy to periodic competition between Great Powers. Russia (and China) advocates for the “principle of noninterference” in the affairs of other states. It’s time for Washington to explore the utility of this approach as a strategic hedge against future potential crises. It’s painfully obvious that Washington’s “Tomahawk Diplomacy”—the act of killing citizens with cruise missiles in weaker, largely defenseless countries when their governments refuse to accommodate American demands—is not viable against Russia or China, let alone against any number of states with rapidly growing military power.

Fourth, the president must acknowledge that in the new, multi-polar international environment Washington bears an unequal and unsustainable financial burden for the defense of Europe. Acutely sensitive to the American electorate’s demands for peace and prosperity, Eisenhower foresaw the danger that Washington could be ensnared in conflicts on behalf of smaller states for which Americans did not want to fight. Eisenhower’s determination to avoid war and reduce the costs of global military commitments was the rationale for Austrian neutrality in 1955. It is also why Eisenhower urged neutrality for other, smaller European states.

Finally, President Biden must devise a new national strategy that ensures its political goals are congruent with U.S. military capabilities and fiscal realities. Too many hotheads in the Senate and House are ready to commit American military power without first soberly assessing the concrete interests and the costs of such action. President John F. Kennedy thrilled his supporters with his assertion that Americans should “meet any hardship, support any friend, oppose any foe to assure the survival and the success of liberty.” It was great rhetoric, but it put the nation on the road to disaster in Vietnam. The United States does not have the resources or the need to export its political ideas at gunpoint.

Arnold J. Toynbee argued that great empires die by suicide, not murder. If the United States is to avoid this outcome, Washington must put an end to the strategic follies of the last 20 years, and put American foreign policy back on a credible foundation. Ukraine is a good place to start.

Authored by John W. Whitehead & Nisha Whitehead via The Rutherford Institute,

“A psychotic world we live in. The madmen are in power.”

– Philip K. Dick, The Man in the High Castle

For good or bad, COVID-19 has changed the way we navigate the world.

It is also redrawing the boundaries of our world (and our freedoms) and altering the playing field faster than we can keep up.

Owing in large part to the U.S. government’s deep-seated and, in many cases, top-secret alliances with foreign nations and global corporations, it has become increasingly obvious that we have entered into a new world order—a global world order—made up of international government agencies and corporations.

This powerful international cabal, let’s call it the Global Deep State, is just as real as the corporatized, militarized, industrialized American Deep State, and it poses just as great a threat to our rights as individuals under the U.S. Constitution, if not greater.

We’ve been inching closer to this global world order for the past several decades, but COVID-19, which has seen governmental and corporate interests become even more closely intertwined, has shifted this transformation into high gear.

Fascism has become a global menace.

It remains unclear whether the American Deep State (“a national-security apparatus that holds sway even over the elected leaders notionally in charge of it”) answers to the Global Deep State, or whether the Global Deep State merely empowers the American Deep State. However, there is no denying the extent to which they are intricately and symbiotically enmeshed and interlocked.

Consider the extent to which our lives and liberties are impacted by this international convergence of governmental and profit-driven corporate interests in the surveillance state, the military industrial complex, the private prison industry, the intelligence sector, the security sector, the technology sector, the telecommunications sector, the transportation sector, the pharmaceutical industry and, most recently, by the pharmaceutical-health sector.

All of these sectors are dominated by mega-corporations operating on a global scale and working through government channels to increase their profit margins. The profit-driven policies of these global corporate giants influence everything from legislative policies to economics to environmental issues to medical care

Global Disease

The COVID-19 pandemic has propelled us into a whole new global frontier. Those hoping to navigate this interconnected and highly technological world of contact tracing, vaccine passports and digital passes will find themselves grappling with issues that touch on deep-seated moral, political, religious and personal questions for which there may be no clear-cut answers.

We are about to find our ability to access, engage and move about in the world dependent on which camp we fall into: those who have been vaccinated against COVID-19 and those who have not.

“It is the latest status symbol. Flash it at the people, and you can get access to concerts, sports arenas or long-forbidden restaurant tables. Some day, it may even help you cross a border without having to quarantine,” writes Heather Murphy for the New York Times.

“The new platinum card of the Covid age is the vaccine certificate.”

This is what M.I.T. professor Ramesh Raskar refers to as the new “currency for health,” an apt moniker given the potentially lucrative role that Big Business (Big Pharma and Big Tech, especially) will play in establishing this pay-to-play marketplace. The airline industry has been working on a Travel Pass. IBM is developing a Digital Health Pass. And the U.S. government has been all-too-happy to allow the corporate sector to take the lead.

Global Surveillance

Spearheaded by the National Security Agency (NSA), which has shown itself to care little for constitutional limits or privacy, the surveillance state has come to dominate our government and our lives.

Yet the government does not operate alone. It cannot. It requires an accomplice.

Thus, the increasingly complex security needs of our massive federal government, especially in the areas of defense, surveillance and data management, have been met within the corporate sector, which has shown itself to be a powerful ally that both depends on and feeds the growth of governmental bureaucracy.

Take AT&T, for instance. Through its vast telecommunications network that crisscrosses the globe, AT&T provides the U.S. government with the complex infrastructure it needs for its mass surveillance programs. According to The Intercept:

“The NSA considers AT&T to be one of its most trusted partners and has lauded the company’s ‘extreme willingness to help.’ It is a collaboration that dates back decades. Little known, however, is that its scope is not restricted to AT&T’s customers. According to the NSA’s documents, it values AT&T not only because it ‘has access to information that transits the nation,’ but also because it maintains unique relationships with other phone and internet providers. The NSA exploits these relationships for surveillance purposes, commandeering AT&T’s massive infrastructure and using it as a platform to covertly tap into communications processed by other companies.”

Now magnify what the U.S. government is doing through AT&T on a global scale, and you have the “14 Eyes Program,” also referred to as the “SIGINT Seniors.” This global spy agency is made up of members from around the world (United States, United Kingdom, Australia, Canada, New Zealand, Denmark, France, Netherlands, Norway, Germany, Belgium, Italy, Sweden, Spain, Israel, Singapore, South Korea, Japan, India and all British Overseas Territories).

Surveillance is just the tip of the iceberg when it comes to these global alliances, however.

Global War Profiteering

War has become a huge money-making venture, and America, with its vast military empire and its incestuous relationship with a host of international defense contractors, is one of its biggest buyers and sellers.

The American military-industrial complex has erected an empire unsurpassed in history in its breadth and scope, one dedicated to conducting perpetual warfare throughout the earth. For example, while erecting a security surveillance state in the U.S., the military-industrial complex has perpetuated a worldwide military empire with American troops stationed in 177 countries (over 70% of the countries worldwide).

Although the federal government obscures so much about its defense spending that accurate figures are difficult to procure, we do know that since 2001, the U.S. government has spent more than $1.8 trillion in the wars in Afghanistan and Iraq (that’s $8.3 million per hour). That doesn’t include wars and military exercises waged around the globe, which are expected to push the total bill upwards of $12 trillion by 2053.

The illicit merger of the global armaments industry and the Pentagon that President Dwight D. Eisenhower warned us against more than 50 years ago has come to represent perhaps the greatest threat to the nation’s fragile infrastructure today. America’s expanding military empire is bleeding the country dry at a rate of more than $15 billion a month (or $20 million an hour)—and that’s just what the government spends on foreign wars. That does not include the cost of maintaining and staffing the 1000-plus U.S. military bases spread around the globe.

Incredibly, although the U.S. constitutes only 5% of the world’s population, America boasts almost 50% of the world’s total military expenditure,  spending more on the military than the next 19 biggest spending nations combined. In fact, the Pentagon spends more on war than all 50 states combined spend on health, education, welfare, and safety. There’s a good reason why “bloated,” “corrupt” and “inefficient” are among the words most commonly applied to the government, especially the Department of Defense and its contractors. Price gouging has become an accepted form of corruption within the American military empire.

It’s not just the American economy that is being gouged, unfortunately.

Driven by a greedy defense sector, the American homeland has been transformed into a battlefield with militarized police and weapons better suited to a war zone. President Biden, marching in lockstep with his predecessors, has continued to expand America’s military empire abroad and domestically in a clear bid to pander to the powerful money interests (military, corporate and security) that run the Deep State and hold the government in its clutches.

Global Policing

Glance at pictures of international police forces and you will have a hard time distinguishing between American police and those belonging to other nations. There’s a reason they all look alike, garbed in the militarized, weaponized uniform of a standing army.

There’s a reason why they act alike, too, and speak a common language of force: they belong to a global police force.

For example, Israel—one of America’s closest international allies and one of the primary yearly recipients of more than $3 billion in U.S. foreign military aid—has been at the forefront of a little-publicized exchange program aimed at training American police to act as occupying forces in their communities. As The Intercept sums it up, American police are “essentially taking lessons from agencies that enforce military rule rather than civil law.”

This idea of global policing is reinforced by the Strong Cities Network program, which trains local police agencies across America in how to identify, fight and prevent extremism, as well as address intolerance within their communities, using all of the resources at their disposal. The cities included in the global network include New York City, Atlanta, Denver, Minneapolis, Paris, London, Montreal, Beirut and Oslo.

The objective is to prevent violent extremism by targeting its source: racism, bigotry, hatred, intolerance, etc. In other words, police—acting as extensions of the United Nations—will identify, monitor and deter individuals who exhibit, express or engage in anything that could be construed as extremist.

Of course, the concern with the government’s anti-extremism program is that it will, in many cases, be utilized to render otherwise lawful, nonviolent activities as potentially extremist.

Keep in mind that the government agencies involved in ferreting out American “extremists” will carry out their objectives—to identify and deter potential extremists—in concert with fusion centers (of which there are 78 nationwide, with partners in the private sector and globally), data collection agencies, behavioral scientists, corporations, social media, and community organizers and by relying on cutting-edge technology for surveillance, facial recognition, predictive policing, biometrics, and behavioral epigenetics (in which life experiences alter one’s genetic makeup).

This is pre-crime on an ideological scale and it’s been a long time coming.

Are you starting to get the picture now?

On almost every front, whether it’s the war on drugs, or the sale of weapons, or regulating immigration, or establishing prisons, or advancing technology, or fighting a pandemic, if there is a profit to be made and power to be amassed, you can bet that the government and its global partners have already struck a deal that puts the American people on the losing end of the bargain.

We’ve been losing our freedoms so incrementally for so long—sold to us in the name of national security and global peace, maintained by way of martial law disguised as law and order, and enforced by a standing army of militarized police and a political elite determined to maintain their powers at all costs—that it’s hard to pinpoint exactly when it all started going downhill, but we’re certainly on that downward trajectory now, and things are moving fast.

The “government of the people, by the people, for the people” has perished.

In its place is a shadow government—a corporatized, militarized, entrenched global bureaucracy—that is fully operational and running the country.

Given the trajectory and dramatic expansion, globalization and merger of governmental and corporate powers, we’re not going to recognize this country 20 years from now.

It’s taken less than a generation for our freedoms to be eroded and the Global Deep State’s structure to be erected, expanded and entrenched.

Mark my words: the U.S. government will not save us from the chains of the Global Deep State.

Now there are those who will tell you that any mention of a New World Order government—a power elite conspiring to rule the world—is the stuff of conspiracy theories.

I am not one of those skeptics.

I wholeheartedly believe that one should always mistrust those in power, take alarm at the first encroachment on one’s liberties, and establish powerful constitutional checks against government mischief and abuse.

I can also attest to the fact that power corrupts, and absolute power corrupts absolutely.

I have studied enough of this country’s history—and world history—to know that governments (the U.S. government being no exception) are at times indistinguishable from the evil they claim to be fighting, whether that evil takes the form of terrorism, torture, drug trafficking, sex trafficking, murder, violence, theft, pornography, scientific experimentations or some other diabolical means of inflicting pain, suffering and servitude on humanity.

And I have lived long enough to see many so-called conspiracy theories turn into cold, hard fact.

Remember, people used to scoff at the notion of a Deep State (a.k.a. Shadow Government). They used to doubt that fascism could ever take hold in America, and sneer at any suggestion that the United States was starting to resemble Nazi Germany in the years leading up to Hitler’s rise to power.

As I detail in my book Battlefield America: The War on the American People, we’re beginning to know better, aren’t we?