Category: zerohedge

Submitted by Thomas Thornton of Hedge Fund Telemetry

As the markets grind higher into the year-end the look of what is happening is becoming clear. The Fed is inflating a bubble. Valuation on the S&P is approaching 19x which is up from ~14-15x a year ago. Valuation isn’t a great tool for timing however when multiple expansion is accepted by the market it should be respected. Sentiment a year ago was 4% on the Daily Sentiment Charts and 3% on the CNN Fear and Greed Index and today both are extreme. They have been elevated to an extreme for the last few months and as I’ve said: “sentiment is a condition and one must have a trigger to turn after an extreme reading.” A year ago in December, I counted 240 downside DeMark buy Countdown 13’s within the S&P and there are only upside sell Countdowns triggering daily. I couldn’t be more cautious at this point just as I couldn’t have been more bullish exactly a year ago.

I’ve recently written about how sellers are unmotivated (as they always sell lower), and how the US-China trade watered-down deal is a sell the news event, and then how this market reminds me of a musical chairs market. I recently spoke at a wealth management conference and the overwhelming thing I heard was how they wanted to get into 2020 to sell. We might start to sell a little selling starting with $41bn of 5-yr notes being issued on 12/24 and $32bn 7yr notes on 12/26. This will take away some of the Fed’s liquidity that has caused this bubble. At the end of the month, there will also be pension rebalancing with a rotation out of stocks into bonds. Considering the lack of liquidity it could spook some people headed into the new year. On the thought of the end of the new year, it will close a “great year” thanks entirely to last year’s starting point after a crushing Q4 2018. The S&P is up about 8% from the peak in September 2018 so all of those people who are long term holders who didn’t sell ahead of the down Q4 are up moderately. Still, I’m not dismissing the year since the third year of a Presidential cycle is the strongest. I even said at the beginning of the year I expected gains of 15% across the board for US, European, and Asian stocks.

Today’s report has a lot more stuff than usual as I’m going to post a shorter note tomorrow and will be taking time off to spend with my family over the holiday and will be back on Friday. On the Trade Ideas Sheet (on the site) I covered AMD and SMH at losses. The fundamentals still don’t make sense and I still have some semi and tech short exposure (including a February XLK put spread). I’m holding some index shorts into the new year at losses begrudgingly and have fresh SPY and QQQ put spreads that are closer to reality that would make up the index losses quickly when they work. I’m adding JNJ, JPM, GS, and CMG as new shorts. Charts with annotations are on the Trade Ideas page when you click the symbol. Finally, Tesla has continued its miracle move higher and truly is the poster child for today’s bubble. It had the Sequential Countdown and I said the other day the Combo is close. I will hold the recent options trade that has 30x potential into February.

I want to say thank you for all your continued support and Merry Christmas and happy holidays to you and your families. Here’s to 2020.

US MARKET SENTIMENT IS EXTREME

Extreme above 80%

I love the CNN Fear and Greed as it shows what people are doing rather than what they are saying. It’s 91% today vs 3% a year ago. I couldn’t be more bearish with this reading as I couldn’t have been more bullish a year ago.

US MARKETS

Drifting higher. Levels I’m watching 3195 (I’m told a CTA sell level) and the 3184 10 day moving average

RSI readings on daily are not only very overbought on the S&P and Nasdaq at 76% and 77% but there are DeMark Countdown 13’s signifying a peak in the RSI reading

I’ve been studying the Hurst technical indicators. A client sent me this sell signal on the Nasdaq

Russell 2000 also overbought

FACTORS – ABOUT TO CHANGE IN THE COMING DAYS

The Factors look GREAT but this is due to this being the anniversary of the Q4 low. It will be reset in 2020 and CNBC can’t talk about how something is up X% for the year. FOMO is coming to an end

LARGE INFLOWS INTO SPY A CONTRARY INDICATOR

Eric B from Bloomberg posted this chart of a large inflow in the SPY on Friday. Maybe it was the rebalance or just people felt the need to get in now.

DEMARK OBSERVATIONS

Still only sell Countdown 13’s within the S&P Index. JNJ, by the way, has daily Sequential and Combo and weekly Sequential Countdown 13’s. CMG was added with the Combo 13 too

EUROPEAN INDEXES

Europe is stretched in 5th and final upside wave

DAX going sideways since October

French CAC 40 index with new Countdown’s. A year ago I turned bullish on Europe with all the Countdown 13’s on the downside and with the trend line break to the upside

ASIAN INDEXES

Anyone notice what happened with the Shanghai Composite yesterday?

India’s Nifty 50 with upside Sequential Countdown 13 in play

CURRENCIES

I’m still bullish with Bitcoin after the recent downside buy Countdown 13’s

USD and Euro below continues to chop around and I have found a lot of people will get offsides quickly with this action

Sterling reversed down after the Combo 13. I recently moved on from the option trade I suggested on Bloomberg TV. Worked out well selling the 130/134 Jan 3 strangle for 1.50 buying back at .95 and .65

COMMODITIES

I still believe gold can lift from here

GDX which I don’t have a position on currently could move too

WTI Crude – still neutral although I like Energy sector stocks A LOT

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

The bickering over impeachment did not stop the president and Congress from coming together last week to avert a government shutdown by passing a 1.4 trillion dollar spending package.

The bipartisan agreement has something for everyone — a 22 billion dollars increase to bring total spending on militarism to 738 billion dollars, and a 27 billion dollars increase to bring total spending on domestic programs to 632 billion dollars. It also imposes a national ban on selling tobacco products, including e-cigarettes, to anyone under 21.

The agreement was split into two bills. Both bills were unveiled last Monday afternoon. The bills passed the House on Tuesday, so only the House leadership and the members of the Appropriations Committee (and their staffs) who helped write the over 2,000-page deal had any idea what was in the bills. But most members voted for the spending bills because they were fearful of backlash over another Christmastime government shutdown. House leadership simply “waived” the rule requiring that all legislation be available at least three days before being voted upon.

The modern practice of funding the government via gigantic omnibus bills that are rushed into law puts the growth of government on autopilot. This practice also gives the president more influence over the budget, violating the spirit, if not the letter, of the Constitution’s grant of authority to Congress to appropriate funds, which was intended as a check on executive power.

Meanwhile, the Federal Reserve continues pumping billions into the repurchasing market. When the Fed began injecting money into the market in September, it said intervention was a temporary measure to address a short-term liquidity shortage. Three months later, the Fed is not only continuing to bail out the repurchasing market, it is preparing for other bailouts. This is further evidence that we are on the verge of another Fed-created economic crisis.

When the crisis hits, the best thing the Fed could do is not to lower interest rates below the levels set by the market. This would allow consumers, businesses, and government to liquidate their debt and restore a sound foundation for future growth. If the Fed did not interfere with the painful but necessary correction, it would only be a short time before a real economic boom commenced.

The Federal Reserve is unlikely to follow this path because of the short-term pain it would cause debt-ridden consumers and, more importantly, the pain it would cause politicians who would be forced to cut spending and/or raise taxes. But continuing to artificially lower interest rates will inevitably result in an economic crisis brought about by a rejection of the dollar’s world reserve currency status.

The Federal Reserve’s manipulation of interest rates depreciates the dollar’s value, enabling the growth of the welfare-warfare state while enriching the insiders who receive the new money before prices rise. The brunt of dollar depreciation is felt by middle- and working-class Americans whose paychecks do not keep up with the rising cost of living.

Inflation is nothing more than a hidden and regressive tax. Auditing and ending the Fed should thus be a top priority of those concerned about rising income inequality and poverty, as well as those dreaming of a Christmas free of 2,000-page omnibus spending bills.

When laying out the performance of the market in 2019, Morgan Stanley delineated three distinct phases, with the third and most important one starting in mid-September, which has seen the S&P rise almost in a straight line since…

… and which just happened to coincide with the period in which the Fed announced that in response to the broken repo market (which as a reminder only “broke” because JPMorgan decided it should “break“), it will inject tens of billions if liquidity into the market via both repos and directly Bill purchases.

And speaking of liquidity injections, since mid-September, the Fed has actively injected $237 billion via “temporary” repos and $147 billion via not so temporary Bill purchases, and which Zoltan Pozsar believes will soon convert into all out coupon purchases (i.e., QE4) to prevent an even more catastrophic lockup in the repo market.

Now, we also know that in order to delay the repo market doomsday so vividly described by Credit Suisse strategist Zoltan Pozsar, the Fed has vowed to backstop about $500 billion in liquidity between mid-December and mid-january, which means that one month from now, the Fed’s balance sheet will likely have breached its previous record and reach new all time highs.

Of course, it’s not just the Fed: as Bank of America noted recently, central banks are currently “cutting like it’s a crisis.” Of course, there is no crisis… unless one defines a crisis where the S&P doesn’t rise by 20 points every single day.

Meanwhile, recall that the Fed’s “NOT QE” will continue “at least into the second quarter of next year” as the New York Fed explained back in October.

And, one final observations: since the launch of the Feds’ “NOT QE” on Oct 11, every week that the Fed’s balance sheet has risen, so has the S&P500… and vice versa, on the one occasion the two contracted together.

Extrapolating this unprecedented correlation, means that as long as the Fed’s balance sheet is rising, so will the S&P500.

Putting this all together reveals the following picture:

1. The Fed will continue to inject anywhere between $60-100 billion each month through Bill purchases and repos, with a burst of liquidity injections taking place now through mid-January.
2. Every week that the Fed’s balance sheet increases, so does the market, and vice versa.
3. The Fed’s Balance Sheet will continue to increase for at least another 4-5 months.

What does this mean for stock prices? Well, unless something drastic changes in the next few weeks, it likely means that the “supernova market” forecast by BofA’s Michael Hartnett, which sees the S&P hitting 3,333 by 3/3 (March 3), may prove conservative. Recall that last week we noted that “BOfA expects returns to be front-loaded in 2020, with the S&P500 hitting 3,333 by March 3rd, and the 10Y Treasury rising to 2.2% by 2/2 (Feb 2).”

Of course, as Hartnett cautions, such front-loaded returns – which are entirely on the back of the Fed’s latest QE – will reverse as soon the Fed tapers the current massive liquidity injection, and will go into sharp reverse once the Fed is forced to shrink its balance sheet.

Morgan Stanley echoes this worry, and in the year’s final report by the bank’s cross-asset expert Andrew Sheets, he writes that the bank’s interest rate strategists “expect the Fed to expand its balance sheet through April/May.” That also roughly coincides with BofA’s 3,333 target which will mark the market top for the current cycle.

What happens then? Here’s Morgan Stanley again:

After that, markets may once again have to confront a world with limited trade progress and no further Fed support.

Where we disagree with Morgan Stanley is the concept of a world with “no further Fed support” because if there is anything 2018 taught us is that a modest, 20% bear market is more than enough to crush any hawkish sentiment among all Fed members and force a complete policy reversal, not just in the US but across the globe. This will be even more so in an election year where Trump slams any drop in the market as the Fed’s fault.

As such while we agree that the market meltup may continue until April or May, we are not so sure the Fed will no longer support it beyond that date; after all, the economy is now the market, and while a garden variety bear market would ensure a recession, a crash such as the one needed to wipe out the central bank excesses of the past decade, would result in the biggest global depression ever. Which is why the status quo will never allow it to happen, and such a “market event” would only be possible in a time of great social and political upheaval.

UPDATE: George Papadopolous responded to the reports that Italian prosecutors in Agrigento, Sicily believe the Maltese Professor Joseph Mifsud is dead.

“Lil Joey Mifsud is not sleeping with the fishes,” Tweeted Papadopolous. “More to come.”

Lil Joey Mifsud is not sleeping with the fishes. More to come.

— George Papadopoulos (@GeorgePapa19) December 20, 2019

*  *  *

Via SaraACarter.com,

What happened to Joseph Mifsud? It is the biggest mystery surrounding the man that allegedly began the FBI’s probe into President Donald Trump’s campaign and the now debunked theory that campaign officials conspired with Russia in the 2016 election.

A new story out of Italy suggests that an infamous audio file allegedly sent by Mifsud to two Italian papers is believed to be fake, according to reporters who had it analyzed by one of Italy’s top forensic experts. The audio file is not the same deposition audio file that is in the possession of the Department of Justice and the Senate Judiciary Committee, in which Mifsud allegedly describes the work he was doing and why he targeted George Papadopoulos. The last anyone has heard from Mifsud was the Spring of 2018.

Department of Justice officials declined to comment to SaraACarter.com on the ongoing investigation or Mifsud.

However, a detailed story by the reputable and well known Italian news outlet Il Giornale, Italian journalists Roberto Vivaldelli and Mauro Indelicato, suggest that sources within the Agrigento Public Prosecution office, who brought charges on Mifsud in another criminal matter associated with his work at a public university in Italy, believe he is dead. Their story is published in English at Il Giornale’s blog site Inside Over.

Sources interviewed from the Italian prosecutors office, told the journalists that they believe there is an “80 percent” chance that Mifsud is no longer alive.

I spoke to Roberto Vivaldelli Friday, and he affirmed that the newest details regarding Mifsud came as a result of their investigation into Mifsud’s time as president of a university in the southern Italian city of Agrigento, Sicily. Currently, prosecutor’s in Agriengento, Sicily are investigating Mifsud’s alleged misuse of university finances and unexplained expenses.

“Mifsud is under investigation for his management of the university and for some crazy expenses,” Vivaldelli told me.

“From the information we have gathered, the Italian prosecutors are convinced that the professor is most likely not alive.”

Vivaldelli said a person sent an audio file to the offices of two Italian newspapers last November 11, “but according to an expert we consulted this audio is fake. I personally think it’s incredible that no one knows where Mifsud is, alive or dead.”

According to Vivaldelli the sources at the Agrigento prosecutors office did not divulge details as to why they believe he’s dead.

What we do know is that Attorney General William Barr and Connecticut prosecutor John Durham have opened a criminal investigation into the matter. Mifsud, the Maltese professor, who befriended former Trump campaign advisor George Papadopolous and informed him that the Russians had obtained Hillary Clinton’s missing emails is at the center of the controversy.

If anyone has answers into what really happened with the FBI’s investigation it would be him. It was allegedly Mifsud’s tipoff about the Russians having Clinton’s emails that was the beginning of the investigation. The former FBI officials stated that it was when Papadopolous discussed what he had been told by Mifsud with Australian Ambassador Alexander Downer that the counterintelligence investigation began. They bureau agents claimed it was the pretext to opening the Crossfire Hurricane investigation into the campaign on July, 2016.

But now we know different and there is enough information surfacing to suspect that Mifsud did not have ties to Russia but was a western intelligence asset, as suggested by his attorney Stephan Roh, in an article written by John Solomon.

Whether, Mifsud is in hiding for his own safety is not known. Why the Italian prosecutors believe he is dead has not been explained, but the work done by these two Italian journalists is very thorough. It’s another piece of the puzzle in understanding the mysterious Mifsud – what role he played and what may of actually happened to him.

This article is english translation of “Mifsud ora è un giallo. Il sospetto in procura: quasi certamente morto”, first published by IL-GIORNALE in Italy.

In the city of temples it seems that everybody has now dumped him. In Agrigento, where the Maltese professor was president of the local university consortium, a full-blown race is on to take the most distance from him. The reference is to Joseph Mifsud, a key figure in Russiagate, who has been missing since October 2017.

Nobody knew anything

Mifsud arrived in Agrigento in April 2010 and was presented at the seat of the provincial government as the new president of the University Consortium. At the time the province was the largest shareholder in the body so a substantial number of the political decisions depended on what today the Region of Sicily knows as the “free consortium of municipalities”. The promotor of his appointment to the Agrigento university consortium was Eugenio D’Orsi, President of the Province from 2008 until 2013, the last before the body was wound up by Rosario Crocetta. “Mifsud – D’Orsi explained in the last few days – had given hope to Agrigento. He was a brilliant person, with unlimited knowledge and we wanted to bring Sicily to the world. The lecturer put me in touch with Malta, and we were about to build the airport thanks to that. That was the best side of him”.

Then, according to the former president of the province, something changed: “In the second part of the experience with him he was, and I will say this bluntly, a charlatan”, D’Orsi said in the interview mentioned above. The same former President then confirmed that the decision to select Mifsud was at the time backed by all the shareholders of the consortium, in other words also by the city council of Agrigento, the Chamber of Commerce and the University di Palermo. But today, as mentioned above, there is a race to dump the Maltese professor first. The city council of Agrigento has, through the current mayor, Lillo Firetto, in the last few days announced that the body has entered a civil claim in the proceeding brought by the Public Prosecution Office of Agrigento in relation to the “crazy expenses” incurred by Mifsud during his presidency.

The proceeding was brought after complaints had been submitted by Giovanni Di Maida, the current commissioner of the university consortium but at the time already a member of the board of directors. He also said he did not notice anything and that he heard Mifsud explaining that he made his trips abroad in order to enter into agreements with other foreign universities. These agreements were never concluded, Di Maida is at pains to point out. As, however, pointed out by Felice Cavallaro in Corriere Della Sera, “perhaps Di Maida, who was on the board of directors with professors Maria Immordino and Gianfranco Tuzzolino, could also have had some concerns a few years ago”. Like the other people involved, however, it was only recently that he noticed the “crazy expenses”: “Everything went through two functionaries of the Consortium who said nothing, a lady who is now retired and an office worker whom they had transferred from nearby Licata”, Di Maida explained.

In a nutshell, in Agrigento nobody had noticed anything or at least that is the explanation of the people involved. Gaps in the financial statements, strange telephone calls, suspicious trips and lengthy absences from Agrigento are the items of evidence that have only now emerged, just when Mifsud’s name is no longer confined to the local news. And it is only now, from a political point of view, that everybody in the city has begun to take a distance from the Maltese professor.

The suspicion harboured by the Public Prosecution Office
There is, however, another aspect that is destined to cast a larger shadow on the matter. It was the public prosecutors of Agrigento that brought proceedings against Mifsud, guilty of putting the university consortium into the red. Perhaps somebody helped the Maltese professor to cause the financial disaster. The public prosecution office would also like to find out about this in its investigation. The problem, however, and this is the thing that stands out most at the moment, is that Mifsud cannot be traced. As mentioned at the beginning of the article, there has been no trace of him since 2017, in other words for more than two years: “The Agrigento Public Prosecution Office has activated the procedures for the service of process but they are very complex because, amongst other things, the suspects are people who may no longer be alive”, according to a report by the Italian news agency AGI a few days ago.

But even more well-founded suspicions have been leaked from the Public Prosecution Office in the last few hours. There are growing rumours that the Agrigento Public Prosecution Service are now almost certain that the person they are investigating will in future have no chance to defend himself either in a court of law or at a political level: “It is highly likely that Mifsud is dead”, a source at the Agrigento Palace of Justice has confirmed. “We are talking an 80% possibility”.

The suspicion about the fate of Mifsud
There is further evidence that leads us to speculate that Joseph Mifsud may – and the use of the conditional is of course obligatory – no longer be alive, just to return to the rumours just mentioned. Even if it is obvious that we hope that this will not prove the case. We are talking about the mysterious audio file sent to the editors of Adnkronos and Il Corriere della Sera: “I hope you will make my words known, please listen to the attached files”, says the voice of a person who describes himself as Joseph Mifsud and who, on 11 November 2019, made those statements.

However, an expert – one of the best qualified in Italy – whom we had listen to the audio files is in no doubt: the voice is not that of the professor. “I am convinced that the audio file is fake and the person is not Professor Joseph Mifsud“. That is the view of the expert in forensic sciences, one of the most important in Italy working in the field, whom Inside Over contacted through Cristina Sartori, a court registered handwriting expert at the Court of Trento. The expert compared the audio file sent by the supposed Mifsud to the press agency Adnkronos and to Corriere della Sera, with two videos on Youtube in which the lecturer is heard speaking.

The analysis by the expert that we contacted is extremely interesting: “It was recorded with a microphone attached to the collar in a very large space, connected directly to the computer, there is a lot of echo”, she explained to InsideOver. “In the audio file sent to the Italian newspapers – she comments – you can also hear the voice of a woman towards the end who says 22”. The person in the audio message, she continues, “does not have the same intonation as the true Mifsud in the videos, who dragged his vowels because of his breathing. This thing is never in the audio file and I am quite convinced it is fake”. His lawyer, Stephan Roh, had also denied, in comments made to Adnkronos, that the person who made the audio message was the Maltese lecturer: “It is absolutely fake, 100 per cent”. Roh said: “The voice is too high, it is not his accent, not his tone, he seems like a true Italian”.

At this point, assuming that the handwriting expert is actually right (as we believe), the question must be asked: why would someone have made a fake audio message? There are two possibilities: either the Maltese lecturer is still in hiding – who knows where – or, in the worst case scenario, we are talking about a person who is possibly no longer alive. The last person who saw him in Rome told Panorama that “Joe has a nice apartment in Parioli, I last saw him there. It was March 2018”, the source explained. “That [Joseph Mifsud] disappeared in 2017 I read in the newspapers. I saw him again for the last time in Parioli, close to Piazza Euclide, where Joe had a nice apartment”. And then?

Senate Judiciary Committee Chairman Lindsey Graham (R-SC) said on Monday that the “Constitutional outrage” by House Speaker Nancy Pelosi (D-CA) “needs to end,” and that if it continues into 2020, “the Senate needs to strike back.”

Stop playing games with the Constitution.

In our system, you can’t be the Speaker of the House and the Senate Majority Leader at the same time.

The Senate will decide how we dispose of this sham created by the House.

— Lindsey Graham (@LindseyGrahamSC) December 23, 2019

“The Senate will decide how we dispose of this sham created by the house,” Graham tweeted, referring to the impasse created by Pelosi – who is refusing to transmit two articles of impeachment against President Trump until the Senate agrees to her terms.

If this continues into 2020, the Senate needs to strike back, standing up for our rights and ending this debacle.

— Lindsey Graham (@LindseyGrahamSC) December 23, 2019

President Trump also had words for Pelosi on Monday after the Speaker called for “fairness” in a Senate trial.

“Pelosi gives us the most unfair trial in the history of the U.S. Congress, and now she is crying for fairness in the Senate, and breaking all rules while doing so,” Trump tweeted, adding “She lost Congress once, she will do it again!”

Pelosi gives us the most unfair trial in the history of the U.S. Congress, and now she is crying for fairness in the Senate, and breaking all rules while doing so. She lost Congress once, she will do it again!

— Donald J. Trump (@realDonaldTrump) December 23, 2019

Pelosi says she will only transmit the impeachment articles to the Senate after Senate Majority Leader Mitch McConnell (R-KY) announces the process they will use for Trump’s trial.

McConnell has advocated for a similar process to Bill Clinton’s 1999 impeachment, which included an initial agreement to first hear the case, followed by a vote on whether to call witnesses.

Speaking with “Fox and Friends” on Monday, McConnell said “we’re at an impasse” and “we can’t do anything until the speaker sends the papers over, so everybody enjoy the holidays.”

McConnell blasted Pelosi for trying to “tell us how to run the trial.”

“Look, what we need to do is to listen to the arguments, have a written questioning period, and then decide whether we need witnesses or not,” McConnell said, adding that some Republican senators “have said, ‘I am thinking of myself as a juror,'” while others believe “the case against President Trump is very thin.” –NBC News

Senate Minority Leader Chuck Schumer (D-NY) has pushed for a single resolution that would outline the parameters for presenting the case, as well as allow for the calling of witnesses such as John Bolton, acting White House chief of staff Mick Mulvaney, and two other advisers.

Republicans, meanwhile, want former Vice President Joe Biden and his son Hunter to testify over alleged corruption, after President Trump asked Ukrainian President Volodomyr Zelensky to investigate several claims.

 

Authored by James Howard Kunstler via Kunstler.com,

Last year, a local guy started renovating a restaurant on Main Street that has been shuttered for at least fifteen years. He’d retired from the army and started a company that made a fortune clearing landmines in faraway lands where US nation-building plans went awry. Wasn’t that a ripe business opportunity! He’s from here and loves the village and married his high school sweetheart — and would like the place to come back to life.

He’s partnered up with another guy who intends to open a bistro with a bar, a fireplace, and supposedly a boutique distillery operation in the back. That would give some people in town a reason to leave the house at 5 o’clock in the afternoon, when the day’s work is done — people like me who work alone all day. It could also give the citizens of this community a comfortable place to talk to each other about their lives and the place where we all live, and what we might do about things here. That’s called local politics.

I’ll refrain from tossing off judgments about the exterior treatment for now. Draw your own conclusions. I haven’t seen the inside and there’s butcher paper taped up on the windows while they finish in there. It looks like they’ll open early in the new year. There hasn’t been a comfortable public gathering place on Main Street in a long time. There’s a “tasting room” at a local small brewery down the block, but it’s hardly bigger than a couple of broom-closets and the New York Liquor Authority has an asinine regulation that literally forbids comfortable seating in such a designated establishment. Stools only. And only a few of those. What kind of culture does that to itself?

Ours apparently. When you get down to it, the sickness at the heart of our nation these days is the result of countless bad choices, large and small, that we’ve made collectively over decades, including the ones made by our elected officialdom. The good news is that we could potentially move in the opposite direction and start making better choices. However deficient and unappetizing you think Mr. Trump is, and how crudely unorthodox his behavior, that equation is what got enough people to vote for him.

The strenuous efforts to antagonize him, disable him, and get rid of him by any means necessary — including police-state tactics, bad faith inquisitions, and outright sedition — have prevented the nation as a whole from entertaining a realistic new consensus for making better choices. In fact, it has achieved just the opposite: a near civil war, edition 2.0.

All the people of America, including the flyovers, are responsible for the sad situation we’re in: this failure to reestablish a common culture of values most people can subscribe to and use it to rebuild our towns into places worth caring about. Main Street, as it has come to be, is the physical manifestation of that failure. The businesses that used to occupy the storefronts are gone, except for second-hand stores. Nobody in 1952 would have believed this could happen. And yet, there it is: the desolation is stark and heartbreaking. Even George Bailey’s “nightmare” scene in It’s a Wonderful Life depicts the supposedly evil Pottersville as a very lively place, only programmed for old-fashioned wickedness: gin mills and streetwalkers. Watch the movie and see for yourself. Pottersville is way more appealing than 99 percent of America’s small towns today, dead as they are.

The dynamics that led to this are not hard to understand. The concentration of retail commerce in a very few gigantic corporations was a swindle that the public fell for. Enthralled like little children by the dazzle and gigantism of the big boxes, and the free parking, we allowed ourselves to be played. The excuse was “bargain shopping,” which actually meant we have sent the factories to distant lands and eliminated your jobs, and all the meaning and purpose in your lives — and cheap stuff from Asia is your consolation prize. Enjoy…

The “bones” of the village are still standing but the programming for the organism of a community is all gone: gainful employment, social roles in the life of the place, confidence in the future. For a century starting in 1850, there were at least five factories in town. They made textiles and later on, paper products and, in the end, toilet paper, ironically enough. Yes, really. They also made a lot of the sod-busting steel ploughs that opened up the Midwest, and cotton shirts, and other stuff. The people worked hard for their money, but it was pretty good money by world standards for most of those years. It allowed them to eat well, sleep in a warm house, and raise children, which is a good start for any society. The village was rich with economic and social niches, and yes, it was hierarchical, but people tended to find the niche appropriate to their abilities and aspirations — and, believe it or not, it is better to have a place in society than to have no place at all, which is the sad situation for so many today. Homelessness in America runs way deeper than just the winos and drug addicts living on the big city sidewalks.

I’ve written a ton about the bad choice of suburbanizing the USA and all its subsidiary ill-effects, and yet it’s a subject so rich that you can hardly exhaust it. It has produced an entropic wasting disease on our country so complex in symptoms that all the certified PhD economists and sociologists of the Ivy League and the land-grant diploma mills can barely diagnose the illness, or calculate the pain it has caused. Not a small part of this is the utter and abject absence of artistry expressed in the places we’ve built since 1945.

Our Main Street flaunts that boldly. The 1960-vintage post office looks like a soviet lunch-counter — or, more specifically, the box that it came in. What were they thinking? The video store looks like a muffler shop. The graceful four-story hotel that stood at the absolute center of town, and burned down in 1957, was replaced by a one-story drive-in bank. The façade re-doos of the 1970s and 80s display a mindboggling array of bad choices in claddings, colors, proportioning, and embellishment. It’s as if the entire world of aesthetics had died in the canebrakes of the Solomon Islands in 1944, and afterward nobody realized that something in America had gone missing. It’s particularly dismaying when you see the efforts that earlier generations made to instill some beauty in the things they built, with a few examples still standing for all to wonder at and dote on.

The damage done can be undone. It’s really a question of what it might take and that’s a big question because it will almost surely take a shock to the system. That shock could come as soon as the next two weeks — as not a few observers have predicted — in the form of a gross financial dislocation. The ongoing mysterious action in the “re-po” markets suggests that some kind of black hole has gaped open in the banking cosmos and is sucking literally hundreds of billions of dollars into an alternative universe. Guess we’ll have to stand by on that. The shale oil orgy is probably peaking, and the after-effects of that will be pretty harsh, but it might take a couple more years to play out. The weak leg of the stool these days seems to be our politics, the dangerous deformities of which I set forth in this blog regularly. (Some readers object to hearing about it, of course, for reasons I must regard as  peevish and specious.) Most likely, the shocks will come in combinations from banking, from the rest of the actual economy, and from these deadly “gotcha” politics.

You can see the humble beginnings of change around here, or at least an end to some of the practices and behaviors I’ve described above. The K-Mart shut down last March. It left the town without a general merchandise store — besides the Dollar Store, which sells stuff that fell off a truck somewhere in China. But the chain stores will have to go down if we’re ever going to rebuild networks of local and regional commerce and bring Main Street back to life. And you must be aware that chain stores are going down by the thousands all around the country, the so-called retail apocalypse. These things have to die for a new economic ecosystem to emerge, and it looks like the process is underway. I hope the fast food joints are next. At least we’re getting a new independent bistro in town.

The landscape around here is composed of tender hills and little hollows that precede the Green Mountains of Vermont, ten miles down the pike. Apart from its stunning beauty, it’s not bad farmland, either, and the rugged topography lends itself to small scale farming which is a good thing because that’s the coming trend. I maintain that farming will eventually become the center of the next economy here as life in the USA is compelled to downsize and re-localize. We could make a few things again, too, because a river runs through town with many hydro sites — waterfalls where small factories once stood — and that river leads to the mighty Hudson four miles downstream. The Hudson can take you around the world or deep into the interior of North America via the Erie and Champlain canals that run off the Hudson.

For the moment though, the country faces that set of convulsions I call the long emergency, with politics at center stage just now. The locals, myself included, have strung up the colored lights and set out the effigies of Santa and his reindeer. I love Christmas, the trappings, the music, and the sense that we’re obliged to bring some enchantment into our lives when the days are shortest and darkest. I doubt we can Make America Great Again in the Trump sense, but we can reanimate our nation’s life, and re-enchant our daily doings in it, and learn to care about a few things again.

As we predicted the Libyan war 2.0 has spilled into the Mediterranean and now standings on the brink of becoming a major renewed international proxy conflict bringing in regional powers, especially Turkey, Egypt, and potentially Russia. 

The pro-Haftar Libyan National Army (LNA), based in the war-torn country’s east, announced late Saturday it seized a Turkish vessel and briefly detained several Turkish crew members while the freighter was searched for weapons. “A vessel under the flag of Grenada, with a team of Turkish citizens on board, was detained,” the LNA press service said. It was seized “because it entered Libya’s territorial waters without prior permission,” the LNA spokesman added.

As of early Monday, the ship and its crew were released, according to the AP, amid soaring tensions over a controversial maritime border deal involving Tripoli and Ankara, which both gives Turkey oil and gas exploration rights in waters claimed by Haftar’s Benghazi-based administration, and expands military cooperation between Erdogan and the Tripoli GNA government. 

It’s not the first time the rebel LNA has seized Turkish vessels and their crew and it likely won’t be the last, given Haftar has attempted to enforce a No Fly Zone and has long vowed to seize any Turkish vessels off the coast, given Turkey is militarily backing the UN-recognized government in Tripoli. 

Turkey’s leaders suggest Ankara is currently upping its support to the GNA, sending military planes with troops and armor amid Haftar’s offensive against the capital. Undoubtedly, Turkey has been the most aggressive backer of Tripoli, offering military equipment and even air power, while the UAE has provided most weaponry for Haftar’s army, also with assistance Egypt, Saudia Arabia and even Russia (namely, via mercenaries allegedly with the Wagner group). 

On Saturday Turkish parliament formally ratified the security and military cooperation deal with Tripoli.

According to Al Jazeera, this has raised eyebrows in Moscow, which is among a growing chorus of countries condemning Turkey’s deeper intervention in the conflict: 

Turkish President Recep Tayyip Erdogan has said Turkey could deploy troops to Libya in support of the GNA but no request has yet been made. He said on Friday that Turkey could not remain silent over Russian-backed mercenaries backing Haftar’s forces. 

Russia, meanwhile, said it was very concerned about the possibility of Turkey deploying troops in Libya and that the security deal raised many questions for Moscow. 

Erdogan will discuss Ankara’s potential troop deployment to Libya with Russian President Vladimir Putin during talks in Turkey next month, the Kremlin said on Tuesday. 

Meanwhile, while Washington officially recognizes the GNA, the Trump administration has for months verbalized support for Haftar, long seen as the ‘CIA’s man in Libya’. “Haftar is nothing but a pirate,” Erdogan said earlier this year after six Turkish sailors were briefly detained by pro-Haftar forces.

And this latest weekend Turkish freighter incident will likely only increase the Turkish military presence, also as Turkey could be set to explore Libyan waters as part of the recent oil and gas deal with the GNA.

Last week reports in regional media said Turkey is set to establish a military base in Libya, which includes a special “quick reaction force” which can deploy rapidly if requested by the Libyan government.

Addressing the controversial deal in statements made last week President Erdogan told a pro-government news channel, “We will be defending the rights of Libya and Turkey in the Eastern Mediterranean.” This after unconfirmed reports in Arabic media that Turkish special forces have already landed in Tripoli. 

And crucially for the prospect of a broader war, neighboring Egypt has condemned the Turkey-Tripoli GNA deal as “illegitimate” and has even signaled its own military intervention could come.

Last Tuesday Egyptian President Abdel Fattah el-Sisi warned in the wake of the Turkey-Libya agreement, “We will not allow anyone to control Libya… it is a matter of Egyptian national security.”

So there it is: a multi-party conflict is emerging as Benghazi and Tripoli continue their years-long battle for the spoils of post-Gaddafi Libya supposedly “liberated” by NATO in 2011. This pits Egypt against Turkey, and Turkey against Russia — not to mention Greece against Turkey and Haftar, as Athens is already seeking to block Turkish oil and gas vessels from encroaching in southern Mediterranean waters. 

Authored by Sven Henrich via NorthmanTrader.com,

Oh the irony.

It was exactly a year ago today, December 23, 2018, when I made the case for a technical bullish reconnect of markets that had overshot to the downside.

Back then in Imbalance I said, among other things, this:

“As of now we have massive imbalances to the downside and these disconnects will cause an effort at a reconnect…Bears are now screaming for ever lower targets in December. Ignore the screaming. Focus on the technicals. Everybody chill. Imbalances don’t last.”

And now with this Q4 being the polar opposite to last year and its current party like it’s 1999 atmosphere I find myself in the same spot: Making a case for technical reversion first before the next bull/bear debate. And yes, I’ve been making the Sell Case earlier with recognition that the Fed induced liquidity program may well extend into Q1 2020 and this still applies. After all the Fed’s current liquidity interventions are unprecedented:

“The Fed is also prepared to inject up to $490 billion around Dec. 31.”

Absolute madness with zero accountability as to collateral consequences. https://t.co/qHxFICi4nm

— Sven Henrich (@NorthmanTrader) December 22, 2019

That said the technicals are screaming imbalance as they did exactly a year ago.

So I’ll share a few charts for your consideration.

First off, let me point out that the Q4 move here is not dissimilar to what we saw leading up to the January blow-off topping move:

As then this move here being driven by liquidity, tax cuts then, the Fed now.

A basic imbalance then, as in December last year and now: $SPX far disconnected from its 200 day moving average:

The January 2018 extreme being more extreme than now, the December 2018 extreme being sightly less than now. Given continued Fed liquidity a full reconnect may not be in the cards immediately, but a reversion to come despite.

But it’s more than MA disconnects.

As the year and quarter is coming to end worth watching some of the larger timeframes.

Here’s $SPX yearly:

There is not a single year where $SPX does not at some point reconnect with its upper Bollinger band. It will be higher in 2020, but that reconnect is coming. The 5 EMA, likely, but not a must.

Same on $NDX:

Same on $DJIA:

A big picture observation:

Despite all the rallying in 2019 the broken 2009 trend remains, well, broken. Go figure.

Money flow? Massive negative divergences on everything.

Open gaps below galore, take $DIA as an example:

These are mere examples, but they highlight a larger message: These markets are historically extended, especially considering thee moves are coming on multiple expansion pure in the hopes of re-inflation next year. This market is priced to perfection and beyond. It can ill afford any accidents.

Bulls can take comfort that there is no technical damage apparent as negative divergences, non confirming signals, fundamentals, earnings, nothing have mattered in Q4 as the Fed’s liquidity has overwhelmed everything once again. But the technical imbalances building are demanding a rebalance. The more extreme the imbalances the more violent the eventual rebalancing process.

In January 2018 11 weeks of rallying was taken away within 2 weeks into February. I submit this market is risking something similar to come. Now it may well be that the Fed’s liquidity program, scheduled to run into mid 2020, will make any such a move or similar an initial buy. After all the year 2000 script saw an initial 7% correction that was bought for new highs to come. Something which may well happen in Q1 2020 as well, especially if the Fed’s liquidity continuous to retain control. But be clear: A technical reversion of size will come. How deep, steep and fast this reversion will prove to be we will have to assess as it unfolds. But remember the market will seek balance technically. It did after last year’s imbalance to the downside, I expect the same coming from this year’s imbalance to the upside.

And so I finish this year’s imbalance view the same way I did last year’s, just in reverse:

As of now we have massive imbalances to the upside and these disconnects will cause an effort at a reconnect. Bulls are now screaming for ever higher targets. Ignore the screaming. Focus on the technicals. Everybody chill. Imbalances don’t last.

*  *  *

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The head of investment strategy for one of the largest piles of investor capital in the world believes stocks face a “greater-than-usual” risk of a sizable pullback during 2020. Joseph Davis, the head of investment strategy at Vanguard, one of the largest asset-management companies in the world and the progenitor of passive investing, said he sees a “50% chance” of a correction – that is, a drop of 10% or more from the highs – next year.

While some joked about Davis’s “coin flipper” odds…

Wonder how much this coin flipper makes https://t.co/CtAK9pDgFl

— TeslaCharts (@TESLAcharts) December 23, 2019

…he explained that during more typical years, the odds of such a pullback are only 30%, and that stocks have a greater than usual chance of a double-digit pullback next year. We haven’t seen a correction since, well, late last year, when stocks came a hair’s breadth away from entering a bear market during the closing days of the year, culminating with one of the worst Christmas Eve sessions on record.

Joseph Adinolfi

But fears that the market chaos was only just beginning turned out to be unwarranted, as markets mostly powered higher during 2019. Investors’ big mistake, according to Davis, was that they were too pessimistic. During the coming year, Davis believes investors are going to make the mistake of being too optimistic.

“Financial markets run the risk of getting ahead of themselves,” Joseph Davis, who also serves as Vanguard’s chief economist, said in an interview Friday. He sees 50% odds on a correction in 2020, against what he terms a more typical figure of about 30%.

According to Davis, at current valuations, risk assets are pricing in 3% economic growth during the coming year, something he sees as unlikely.

Though most of Vanguard’s $5.6 trillion AUM is tied up in passive funds, the investment chief insisted that investors shouldn’t write him off, even if other more visible investing luminaries, like Stanley Druckenmiller, are warming up to risk once again.

But as Davis sees it, the market is already richly valued, making it difficult to justify further upside.

“Across the board, expected returns for most strategies are below trailing three-year returns,” said Davis. The investment chief for the $5.6 trillion asset manager – known more for its passive, index-tracking offerings – estimates that risk assets are pricing in close to 3% U.S. economic growth, an outcome he sees as unlikely.

Even on Davis’s own private models, he says US stocks have broken out onto the expensive side of fairly valued. Estimated P/E, meanwhile, is on the higher end of its historical range.

Remember when WSJ outed Bridgewater Associates for reportedly opening a $1 billion derivatives position that would pay off massively if stocks tank during the first quarter?

Dalio swiftly denied the report, suggesting that if Bridgewater did have a $1 billion notional options position open, it was likely part of the firm’s hedging strategy.

This and other measures like the skew suggest that investors are trying to accomplish two objectives as move into 2020: They want to hold on to their positions so they don’t miss out on any gains, while buying enough protection to ensure that when the next big pullback finally comes, they’re ready.

According to most measures he uses, stocks are already overly valued,

Unlike last month’s stellar 2Y auction which we assumed was an attempt by investors to frontrun the expansion of the Fed’s “NOT QE” T-bill monetization into purchases of coupon paper such as 2Y notes, today’s 2Y treasury auction was quite ugly.

Stopping at a high yield of 1.653%, the sale of $40BN in paper priced “on the screws” with the 1.653% When Issued, and just above last month’s 1.601%, so hardly catastrophic.

And yet, much was left to be desired after the Bid to Cover in today’s auction tumbled from 2.626 to just 2.305, not only far below the 2.61 six auction average, but this was the lowest Bid to Cover in 11 years, or since December 2008, indicating that suddenly the buyside had very little interest in short-dated US paper.

The internals were lousy as well, with Indirects sliding from 47.8% to 46.3%, below the recent average of 49.8%, and the lowest since July 2019. And with Directs also taking down less, or 21.5% vs 29.11% last month, Dealers we left with 32.3%, or the most since August.

Overall, a poor auction where not only the overall plunge in Bids to Cover indicated far less buyside demand – perhaps as a result of the holiday-shortened week – but the drop in Indirects suggests that the Fed will have to get far more active on the short-end to make sure there are no demand concerns heading into 2020.