“Psychology is probably the most important factor in the markets, and one that is least understood.”
– David Dreman
A motive of the financial industry is to blur the lines between investor and trader. I’m convinced it’s to make investors feel guilty for taking control of their portfolios. After all, Wall Street firms ares the experts with YOUR money.
How dare you question them?
Sell to take profits, sell to minimize losses, purchase an investment that fits into your risk parameters and asset allocations; it’s all enough to brand one as ‘trader’ in the buy & forget circles that are paid to push the narrative that markets are on a permanent trek higher and bears are mere speed bumps. Wall Street has forgotten the financial crisis. You can’t afford such a luxury.
And, if you’re a reader of RIA, you’re astute enough to know better.
“You’re a trader now?”
Broker at a big box financial shop.
A planning client called his financial partner to complete two trades. Mind you, the only trades he’s made this year. His request was to sell an investment that hit his loss rule and purchase a stock (after homework completed on riapro.net). His broker was dismayed and asked the question outlined above.
Investors are advised – Be like Warren Buffett and his crew: You know, he’s buy and hold, he never sells! Oh, please.
From The Motley Fool:
Here’s what Berkshire sold in the third quarter:
During the third quarter, Berkshire sold some or all of five stock positions in its portfolio:
750,650 shares of Apple.
31,434,755 shares of Wells Fargo.
1,640,000 shares of Sirius XM.
370,078 shares of Phillips 66.
5,171,890 shares of Red Hat.
What Do Paul Tudor Jones, Ray Dalio, Ben Graham, and even Warren Buffett have in common?
A strict investment discipline.
Despite mainstream media to the contrary, all great investors have a process to “buy” and “sell” investments.
Investment rules keep “emotions” from ruling investment decisions:
Rule #1: Cut Losers Short & Let Winners Run.
While this seems logical, it is one of the toughest tenets to follow.
“I’ll wait until it comes back, then I’ll sell.”
“If you liked it at price X, you have to love it at Y.”
It takes tremendous humility to successfully navigate markets. There can be no such thing as hubris when investments go the way you want them; there’s absolutely no room in your brain or portfolio for denial when they don’t. Investors who are plagued with big egos cannot admit mistakes; or they believe they’re the greatest stock pickers who ever lived. To survive markets, one must avoid overconfidence.
Many investors tend to sell their winners too soon and let losers hemorrhage. Selling is a dilemma. First, because as humans we despise losses twice as much as we relish gains. Second, years of financial dogma have taken a toll on consumer psyche where those who sell are made to feel guilty for doing so.
It’s acceptable to limit losses. Just because you sell an investment that isn’t working doesn’t mean you can’t purchase it again. That’s the danger and beauty of markets. In other words, a stock sold today may be a jewel years from now. I find that once an investor sells an investment, it’s rarely considered again. Remember, it’s not an item sold on eBay. The beauty of market cycles is the multiple chances investors receive to examine prior holdings with fresh perspective.
Rule #2: Investing Without Specific End Goals Is A Big Mistake.
I understand the Wall Street mantra is “never sell,” and as an individual investor you’re a pariah if you do. However, investments are supposed to be harvested to fund specific goals. Perhaps it’s a college goal, or retirement. To purchase a stock because a friend shares a tip on a ‘sure winner,’ (right), or on a belief that an investment is going to make you wealthy in a short period of time, will only set you up for disappointment.
Also, before investing, you should already know the answer to the following two questions:
At what price will I sell or take profits if I’m correct?
–Where will I sell it if I am wrong?
Hope and greed are not investment processes.
Rule #3: Emotional & Cognitive Biases Are Not Part Of The Process.
If your investment (and financial) decisions start with:
–I feel that…
–I was told…
–I heard…
–My buddy says…
You are setting yourself up for a bad experience.
In his latest tome, Narrative Economics, Yale Professor Robert J. Shiller makes a formidable case for how specific points of view which go viral have the power to affect or create economic conditions as well as generate tailwinds or headwinds to the values of risk assets like stocks and speculative ventures such as Bitcoin. Simply put: We are suckers for narratives. They possess the power to fuel fear, greed and our overall emotional state. Unfortunately, stories or the seductive elements of them that spread throughout society can lead to disastrous conclusions.
Rule #4: Follow The Trend.
80% of portfolio performance is determined by the underlying trend.
Astute investors peruse the 52-week high list for ideas. Novices tend to consider stocks that make 52-week highs the ones that need to be avoided or sold. Per a white paper by Justin Birru at The Ohio State University titled “Psychological Barriers, Expectational Errors and Underreaction to News,” he posits how investors are overly pessimistic for stocks near 52-week highs although stocks which hit 52-week highs tend to go higher.
Thomas J. George and Chuan-Yang Hwang penned “The 52-Week High and Momentum Investing,” for The Journal of Finance. The authors discovered purchasing stocks near 52-week highs coupled with a short position in stocks far from a 52-week high, generated abnormal future returns. Now, I don’t expect anyone to invest solely based on studies such as these. However, investors should understand how important an underlying trend is to the generation of returns.
Rule #5: Don’t Turn A Profit Into A Loss.
I don’t want to pay taxes is the worst excuse ever to not fully liquidate or trim an investment.
If you don’t sell at a gain – you don’t make any money. Simpler said than done. Investors usually suffer from an ailment hardcore traders usually don’t – “Can’t-sell-taxes-due” itis.
An investor which allows a gain to deteriorate to loss has now begun a long-term financial rinse cycle. In other words, the emotional whipsaw that comes from watching a profit turn to loss and then hoping for profit again, isn’t for the weak of mind. I’ve witnessed investors who suffer with this affliction for years, sometimes decades.
Rule #6: Odds Of Success Improve Greatly When Fundamental Analysis is Supported By Technical Analysis.
Fundamentals can be ignored by the market for a long-time.
After all, the markets can remain irrational longer than you can remain solvent.
The RIA Investment Team monitors investments for future portfolio inclusion. The ones that meet our fundamental criteria – cash flows, growth of organic earnings (excluding buybacks), and other metrics, are sometimes not ready to be free of “incubation,” which I call it; where from a technical perspective, these prospective holdings are not in a favorable trend for purchase.
It’s a challenge for investors to wait. It’s a discipline that comes with experience and a commitment to be patient or allocate capital over time.
Rule #7: Try To Avoid Adding To Losing Positions.
Paul Tudor Jones once said “only losers add to losers.”
The dilemma with ‘averaging down’ is that it reduces the return on invested capital trying to recover a loss than redeploying capital to more profitable investments.
Cutting losers short, like pruning a tree, allows for greater growth and production over time.
Years ago, close to 30, when I was starting out at a brokerage firm, we were instructed to use ‘averaging down’ as a sales tactic. First it was an emotional salve for investors who felt regret over a loss. It inspired false confidence backed up by additional dollars as it manipulated or lowered the cost basis; adding to a loser made the financial injury appear healthier than it actually was. Second, it was an easy way for novice investors to generate more commissions for the broker and feel better at the same time.
My rule was to have clients average in to investments that were going up, reaching new highs. Needless to say, I wasn’t very popular with the bosses. It’s a trait, good or bad, I carry today. Not being popular with the cool admin kids by doing what’s right for clients has always been my path.
Rule #8: In Bull Markets You Should be “Long.” In Bear Markets – “Neutral” or “Short.”
Whew. A lot there to ponder.
To invest against the major “trend” of the market is generally a fruitless and frustrating effort.
I know ‘going the grain’ sounds like a great contrarian move. However, retail investors do not have unlimited capital to invest in counter-trends. For example, there are institutional short investors who will continue to commit jaw-dropping capital to fund their beliefs and not blink an eye. We unfortunately, cannot afford such a luxury.
So, during secular bull markets – remain invested in risk assets like stocks, or initiate an ongoing process of trimming winners.
During strong-trending bears – investors can look to reduce risk asset holdings overall back to their target asset allocations and build cash. An attempt to buy dips believing you’ve discovered the bottom or “stocks can’t go any lower,” is overconfidence bias and potentially dangerous to long-term financial goals.
I’ve learned that when it comes to markets, fighting the overall tide is a fruitless endeavor. It smacks of overconfidence. And overconfidence and finances are a lethal mix.
We can agree on extended valuations; or how future returns on risk assets may be lower because of them. However, valuation metrics alone are not catalysts for turning points in markets. With global central banks including the Federal Reserve hesitant to increase rates and clear about their intentions not to do so anytime in the near future, expect further ‘head scratching’ and astonishment by how long the current bullish trend may continue.
Rule #9: Invest First with Risk in Mind, Not Returns.
Investors who focus on risk first are less likely to fall prey to greed. We tend to focus on the potential return of an investment and treat the risk taken to achieve it as an afterthought.
Years ago, an investor friend was excited to share with me how he made over 100% return on his portfolio and asked me to examine his investments. I indeed validated his assessment. When I went on to explain how he should be disappointed, my friend was clearly puzzled.
I went on to explain how based on the risk, his returns should have been closer to 200%! In other words, my friend was so taken with the achievement of big returns that he went on to take dangerous speculation with his money and frankly, just got lucky. It was a good lesson about the danger of hubris. He now has an established rule which specifies how much speculation he’s willing to accept within the context of his overall portfolio.
The objective of responsible portfolio management is to grow money over the long-term to reach specific financial milestones and to consider the risk taken to achieve those goals. Managing to prevent major draw downs in portfolios means giving up SOME upside to prevent capture of MOST of the downside. As many readers of RIA know from their own experiences, while portfolios may return to even after a catastrophic loss, the precious TIME lost while “getting back to even” can never be regained.
To understand how much risk to consider to achieve returns, it’s best to begin your investor journey with a holistic financial plan. A plan should help formulate a specific risk-adjusted rate of return or hurdle rate required to reach the needs, wants and wishes that are important to you. and your family.
Rule #10: The Goal Of Portfolio Management Is A 70% Success Rate.
Think about it – Major League batters go to the “Hall Of Fame” with a 40% success rate at the plate.
Portfolio management is not about ALWAYS being right. It is about consistently getting “on base” that wins the long game. There isn’t a strategy, discipline or style that will work 100% of the time.
As an example, the value style of investing has been out of favor for a decade. Value investors have found themselves frustrated. That doesn’t mean they should have decided to alter their philosophy, methods of analysis or throw in the towel about what they believe. It does showcase however, that even the most thorough of research isn’t always going to be successful.
Those investors who strayed from the momentum stocks such as Facebook, Amazon, Netflix and Google have paid the price. Although there’s been a resurgence in value investing since October, it’s too early to determine whether the trend is sustainable. Early signs are encouraging.
Chart: BofA Merrill Lynch US Equity & Quant Strategy, FactSet.
A trusted financial professional doesn’t push a “one-size-fits-all,” product, but offers a process and philosophy. An ongoing method to manage risk, monitor trends and discover opportunities.
Even then, even with the best of intentions, a financial expert isn’t going to get it right every time as I outlined previously. The key is the consistency to meet or exceed your personalized rate of return.
And that return is only discovered through holistic financial planning.
ADP Employment Data Disappoints, Second Lowest Print In A Decade
The last few months have seen ADP employment gains trending lower, alongside the plunge in ISM/PMI survey data (driven by job losses in the goods manufacturing sector), and November’s data confirms that slowdown (just as we warned here).
ADP National Employment Report prints +67k (drastically below expectations of +135k and October’s +121k)
Source: Bloomberg
The Goods-producing sector lost 18k jobs (as services added 85k)…
Source: Bloomberg
“In November, the labor market showed signs of slowing,” said Ahu Yildirmaz, vice president and co-head
of the ADP Research Institute.
“The goods producers still struggled; whereas, the service providers remained in positive territory driven by healthcare and professional services. Job creation slowed across all company sizes; however, the pattern remained largely the same, as small companies continued to face more pressure than their larger competitors.”
Full Breakdown highlights the job losses in Mining, Manufacturing, and Construction…
Mark Zandi, chief economist of Moody’s Analytics, said:
“The job market is losing its shine. Manufacturers, commodity producers, and retailers are shedding jobs. Job openings are declining and if job growth slows any further unemployment will increase.”
Pedophile Mueller Witness Charged With Steering Illegal Campaign Contributions To Hillary Clinton
A convicted pedophile who became a key witness in Robert Mueller’s Russia investigation has been indicted on charges of illegally funneling campaign funds to Hillary Clinton’s 2016 campaign using straw donors, according to Politico.
Lobbyist George Nader, who was arrested this June at JFK airport for sex-trafficking a 14-year-old boy, has lobbied on both sides of the aisle for Middle Eastern associates – acting as an informal conduit to the Trump campaign, while embarking on a scheme to gain influence in Clinton’s inner circle when everyone thought she was a sure-winner in the last election.
While the DOJ did not reveal which 2016 candidate Nadler funneled funds to, Politico reports that “campaign finance records make clear that the candidate was Clinton.“
Nader was named along with Ahmad “Andy” Khawaja – a Lebanese-American businessman who has donated to Clinton,Adam Schiff, Joe Biden, Chris Coons, Dianne Feinstein and a host of other Democrats who received up to $3 million in campaign funds. He also gave $1 million to Priorities USA, the primary super PAC supporting Clinton, and $1 million to Trump’s inaugural fund.
Nader embarked on the scheme in a bid to gain influence in Clinton’s circle while reporting to a foreign official, according to the Justice Department.
Among his alleged co-conspirators is Ahmad “Andy” Khawaja, the CEO of a payments processing company, according to the Justice Department news release announcing the unsealing of the indictment, which was made by a grand jury in the District of Columbia.
Nader conspired with Khawaja to secretly fund $3.5 million in donations that were made in the name of Khawaja, his wife and his firm, Allied Wallet Inc., according to the indictment.
In 2016, Khawaja co-hosted an August fundraiser for Clinton which included a laundry list of high-profile guests, including Univision owner Haim Saban, movie mogul Jeffrey Katzenberg and basketball legend Magic Johnson, according to the report. According to the indictment, Khawaja conspired with six other individuals to conceal his excessive contributions. Others who were indicted were also linked to donations to Clinton and other Democrats.
According to a written statement by Assistant Attorney General Brian A. Benczkowski of the Justice Department’s criminal division and FBI Washington Field Office chief Timothy R. Slater, Nader, 60 and Khawaja, 48, were charged along with Roy Boulos, Rudy Dekermenjian, Mohammad “Moe” Diab, Rani El-Saadi, Stevan Hill and Thayne Whipple. The latter six were charged with conspiring with Khawaja and each other to make conduit campaign contributions and conceal excessive contributions and related offenses, U.S. authorities said.
Khawaja’s donations earned him access to Clinton during the 2016 campaign and a post-election Oval Office visit with Trump, the Associated Press reported in a 2018 investigation. At that time, Khawaja, the payment processing company he founded, Allied Wallet, and top executives had contributed at least $6 million to Democratic and Republican candidates and groups. –Washington Post
Nader, also a Lebanese businessman, has a shadowy record that includes a 1991 conviction on child pornography charges in the US – for which he served only six months in a halfway house thanks to his role in helping to free American hostages in Beirut. He was also charged and convicted in the Czech Republic in 2002 on 10 counts of sexually abusing minors, and eventually received a one-year prison sentence.
Global Markets Rocket Higher After Blue Horseshoe Loves China Trade Deal
The worst start to a December since 2008 for the S&P500 was apparently too much for certain people who asked Bloomberg not to be identified.
With hopes of a trade deal in shambles, optimism that a “Phase 1” getting signed in 2019 cracking after Trump said yesterday it may be better to delay the deal until after the Nov 2020 election, and China threatening retaliation after the latest House bill almost unanimously voted to sanction Chinese officials over Uighur abuse, even the Global Times’ notorious twitter troll, Hu Xijing, tweeted this morning that there is “a high probability that President Trump or a senior US official will openly say in a few hours that China-US trade talks have made a big progress in order to pump up the US stock markets. They’ve been doing this a lot.”
He was almost 100% accurate, because at almost the exact same time, just after 4am as US futures were sharply rolling over, and a perfectly normal time for such articles market-moving articles, Bloomberg reported that according to “people familiar who asked not to be identified”, the U.S. and China were actually “moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang” and that Trump’s comment “downplaying the urgency of a deal shouldn’t be understood to mean the talks were stalling, as he was speaking off the cuff.”
In other words, Larry KudlowBlue Horseshoe loves China trade deal.
There were naturally question about the Bloomberg piece: like why does an “unknown” source who “thinks” the deal is imminent take presedence, when very known people, , i.e., the US president and Wilbur Ross, both said a deal may not happen for almost a year and that if there is no substantial progress, another round of duties on Chinese imports would take effect on Dec. 15; or why was this “respected” Larry Kudlow source so terrified to give his name on the record if everything checks out?
None of that mattered however, and the market response, as Hu predicted, was instantaneous, sending not only S&P futures sharply higher and importantly, above the critical for dealer gamma level of 3,100, instantly reversing the gloom of the past few days…
… but sent global stocks into a sea of green.
The short squeeze that was triggered after investors layered on shorts into the worst first two days of a December since the financial crisis, went global and miners and chemical producers led the rise on the Stoxx Europe 600 gauge, which rocketed over 1% higher in early trading, even though IHS Markit’s composite PMI index for the euro zone reading at 50.6 pointed to growth of only 0.1% in the fourth quarter. That would be the weakest since the 19-nation region emerged from recession in 2013.
Earlier in the session, markets closed lower across much of Asia as the Bloomberg deus ex ma-China came out too late to help them, with Australia and Hong Kong bearing the brunt of the declines. Declines were led by energy producers, as investors were still focused on the story du jour – at least until the Bloomberg unnnamed sources became “it” – in which trade tensions mounted between Beijing and Washington with a new tariff hike on Chinese goods looming large. Almost all markets in the region were down, with South Korea and Hong Kong leading declines. The Topix retreated, driven by electronic companies and drug makers, as Japan’s government called for decisive fiscal action combined with powerful central bank easing. The Shanghai Composite Index slid, with large insurers and banks among the biggest drags. China is likely to cut the reserve ratio for lenders in the first quarter of next year, the China Securities Journal said in a front-page commentary Wednesday. India’s Sensex edged lower a day before an expected rate cut aimed at reviving growth, as Reliance Industries and HDFC Bank weighed on the gauge.
Treasuries initially caught a bid to session highs on reports that passage of the latest bill could jeopardize a U.S.-China phase one deal. However, the haven bid for Treasuries during Asia session was unwound in European morning trade on the Bloomberg report, overriding negative comments earlier from China’s Ministry of Foreign Affairs. The TSY curve steepened, unwinding a portion of Tuesday’s aggressive bull-flattening move. Yields were higher by 1.2bp to 2.4bp across the curve led by long-end, steepening 2s10s, 5s30s by 1.2bp and 0.5bp; 10-year yields at 1.738%, cheaper by 2.2bp vs. Tuesday’s close. Treasuries were supported during Asia session after China’s Ministry of Foreign Affairs said U.S. will “pay price” for legislation imposing sanctions on Chinese officials over human-rights abuses.
In FX, the dollar briefly recovered against major peers, then headed sharply lower. The euro edged down after a manufacturing report showed that the single-currency economy is barely expanding. The British pound climbed to an almost seven-month high against the dollar and its strongest level since May 2017 against the euro as polls showed the Conservatives have increased their lead before the election. Tracking the positive newsflow, the Chinese yuan spiked, in a virtual mirror image of the move in US futures.
As expected, crude markets were bolstered on the news that the US and China are moving closer to a deal despite recent “heated” rhetoric. Elsewhere, the latest batch of comments from the Iraqi oil minister continues to support prices; an additional 400k bpd cut for OPEC+ is apparently in circulation but not final, while the Saudi’s also reportedly prefer deeper cuts, although this contradicts sources reports seen last month. “If all members were compliant with the [current] deal this may be the case, however, with a number of members falling well short in cutting output, including Iraq, other members may be reluctant to cut further” says ING, who goes on to conclude that “reassurance of stronger compliance will likely be needed before other members agree to deeper cuts.”
Looking at the day ahead, this morning the focus will be on the final November PMI revisions (services and composite) in Europe while we’ll also get that data for the US, along with the November ISM non-manufacturing and November ADP employment report. Away from that, we’re due to hear from the ECB’s Villeroy, Visco, Makhlouf and Hernandez de Cos while the Fed’s Quarles is due to speak on supervision and regulation. Campbell Soup and Synopsys are among companies reporting earnings.
Market Snapshot
S&P 500 futures up 0.4% to 3,102.00
STOXX Europe 600 up 1% to 402.43
MXAP down 0.7% to 163.21
MXAPJ down 0.8% to 518.12
Nikkei down 1.1% to 23,135.23
Topix down 0.2% to 1,703.27
Hang Seng Index down 1.3% to 26,062.56
Shanghai Composite down 0.2% to 2,878.12
Sensex up 0.4% to 40,822.98
Australia S&P/ASX 200 down 1.6% to 6,606.51
Kospi down 0.7% to 2,068.89
German 10Y yield rose 0.7 bps to -0.341%
Euro down 0.1% to $1.1070
Italian 10Y yield fell 6.4 bps to 0.938%
Spanish 10Y yield rose 0.2 bps to 0.413%
Brent futures up 1.9% to $61.96/bbl
Gold spot down 0.2% to $1,474.90
U.S. Dollar Index little changed at 97.76
Top Overnight News from Bloomberg
The U.S. House of Representatives overwhelmingly approved legislation that would impose sanctions on Chinese officials over human rights abuses against Muslim minorities, prompting Beijing to threaten possible retaliation just as the world’s two largest economies seek to close a trade deal
“I don’t have a deadline,” President Trump tells reporters in London after being asked if he sees phase one of a trade deal with China concluding this year. “I like the idea of waiting until after the election for the China deal. But they want to make a deal now and we’ll see whether not the deal is going to be right”
Australia’s economy slowed last quarter as interest-rate cuts and government tax rebates failed to spur household spending, reinforcing expectations the central bank will need to resume easing next year
Oil defied trade-deal bearishness to rise for a third day after an industry report pointed to shrinking U.S. crude stockpiles and before OPEC+ decides on its output-cut policy later this week. OPEC+ sends mixed signals about deeper output cuts before talks
House Democrats laid out their most comprehensive case yet for impeaching Donald Trump, declaring the president “a clear and present danger” over his rush to get foreign governments to investigate a political rival and making his intimidation of witnesses tantamount to a crime
U.S. President Donald Trump revived both his “Rocket Man” nickname for Kim Jong Un and the threat of military force against North Korea, in the latest sign of rising tensions ahead of Pyongyang’s year-end deadline
While IHS Markit’s composite Purchasing Managers’ Index for the euro zone stabilized at 50.6 in November, above the flash reading of 50.3, it points to growth of only 0.1% in the fourth quarter. That would be the weakest since the 19-nation region emerged from recession in 2013
Foreign direct investment into China jumped last year to $139 billion even as trade tensions escalated, bucking a trend that saw global flows sink 13% from 2017 levels
OPEC and its allies sent mixed signals about whether they were considering deeper production cuts, fanning oil-market speculation before crucial talks in Vienna this week
Germany’s Social Democrats backed away from a threat to ditch their alliance with Chancellor Angela Merkel and eased demands for the government to abandon its balanced-budget policy
Asian equity markets extended on declines as global risk appetite remained sapped by the turbulent trade climate following yesterday’s comments by US President Trump. ASX 200 (-1.6%) and Nikkei 225 (-1.0%) were lower with pressure in the trade-related sectors resulting in Australia’s continued underperformance which was also not helped by a miss in quarterly GDP growth, while the Japanese benchmark tracked the recent slide in USD/JPY and with reports noting the GPIF’s move to end stock lending could rattle markets. Hang Seng (-1.3%) and Shanghai Comp. (-0.2%) were dampened by the increased trade pessimism after President Trump’s comments and with Global Times suggesting the US appears to be back-pedalling in trade talks. The US House’s overwhelming support for the Uighur human rights bill demanding sanctions on Chinese officials, which it passed through 407-1 vote, also contributed to the bilateral tensions and spurred resolute opposition from China which will respond depending on how the situation develops. Nonetheless, losses in the mainland have been stemmed after strong Chinese Caixin Services and Composite PMI numbers added to the country’s recent flurry of strong activity data and as Chinese press op-ed suggested the PBoC are expected to cut RRR in Q1. Finally, 10yr JGBs were higher after the recent gains in T-notes due to safe-haven bids, but with prices off their best levels after failing to hold above the 153.00 level and with the lack of BoJ presence in the market contributing to the mild overnight retracement.
Top Asian News
India Is Said to Mull Easing Lending Rules for Shadow Banks
Hong Kong Announces Further Stimulus Worth $500 Million
China’s First IPO Flop Since 2012 Shows Confidence Breaking
Major European bourses (Euro Stoxx 50 +1.3%) are firmer following reports that the US and China are moving closer to a deal despite recent “heated” rhetoric gave a boost to risk appetite. The FTSE 100 (+0.3%) is a laggard due to a firmer sterling. In terms of further fundamental catalysts on the horizon; Day 2 of the NATO summit begins and traders will be on the look-out for further clues as to the state of play on the US/EU and US/China front, quite possibly in the form of off-the-cuff comments from the US President, with the former two in the midst of clashes over the WTO’s ruling on EU Airbus subsidies and most recently France’s proposed Digital Services Tax, while tensions between the latter two have most recently been worsened following the US House’s passing of the Uighur Human Rights Bill. Sectors are mostly in the green, with Telecoms (unch.) the laggard as the sector is weighed by underperformance in heavyweight Orange (-3.8%), with traders reportedly disappointed by the Co.’s most recent dividend outlook. Elsewhere, Italian banks, including Intesa Sanpaolo (+1.8%) and UniCredit (+1.6%), are on the front foot after Moody’s upgraded the outlook for Italian banking to stable from negative. Solid earnings from US Microchip last night is acting as supportive for European chipmakers, including Infineon Technologies (+2.2%). In terms of other notable individual movers; Elior (+7.8%) opened higher after the Co. posted strong earnings, in which FY net profit posted solid Y/Y gains. Further gains were seen for easyJet (+2.1%), with the Co. set to join the FTSE 100, and Hiscox (-1.0%) and Fresnillo (-3.8%) to be dropped. In terms of the losers; Aviva (+0.2%) lags the FTSE 100, having been downgraded at Barclays. Elsewhere, Securitas (unch.) underperforms following a downgrade at Deutsche Bank.
Top European News
U.K. Economy on Course for Contraction as Services Falter
Euro- Area Economy Is Just About Growing as Factory Slump Spreads
GAM Faces Regulator Penalty for Misstating Quant Fund Deal
ECB Places Goldman Unit Under Direct Supervision Amid Brexit
In FX, the sterling rose to the top of the G10 ranks in early EU hours following a relatively sideways APAC session in which GBP/USD meandered on either side of 1.3000. The pair gained momentum after tripping stops at 1.3013 and advanced to a current intraday high of 1.3063 (ahead of its 200 WMA around 1.3100) before waning off highs and back below its 100 WMA at 1.3048. News-flow has been light for Sterling, with the currency little influenced by a revision higher to its November services and composite PMI metrics. That said, IHS noted that the PMI figures point to a GBP contraction of ~0.1% in the Q4, but the December numbers are yet to be released. Meanwhile, the Eur has been moving at the whim of the Buck and largely shrugged off upward revisions to the pan-European services and composite numbers – with the GDP tracker suggesting growth of 0.1% in Q4 for the EZ. IHS did warn that the services sectors are poised for its weakest QQ expansion for fives years, “hinting strongly that the slowdown continues to spread”. EUR/USD moved into negative territory and back below its 100 DMA (1.1069) after hitting an intraday peak 1.1088, with little EU-specific data/speakers left on the docket.
DXY, JPY – The broad Dollar and Index has recouped earlier losses with upside coinciding with constructive trade headlines from sources, prompting the DXY to rebound off its 200 DMA at 97.63 back to yesterday’s closing levels around 97.75. Meanwhile, USD/JPY ekes mild losses amid the aforementioned headlines with the pair back above the 108.50 mark (coincides with its 50 DMA), to a high of 108.80 ahead of the rough figure. Traders will be eyeing any trade/geopolitical headlines with NATO summit day 2 underway and US President Trump’s presser scheduled for 15:30GMT.
AUD, NZD – Both lower on the day, but more-so the Aussie on the back of disappointing GDP figures with the QQ metric showing growth of only 0.4%, down from the prior of 0.5%. Analysts mention that the most concerning aspect of the release is the representation of a fifth consecutive quarter which private demand contracted or was flat. Westpac notes that the RBA will be disappointed with the figure and believes that the Central Bank and the Government will have to revisit their growth forecasts. AUD/USD climbed off lows in wake of optimistic US-China trade headlines, but gains remain capped due to the overnight data. The pair remains in the red around the middle of its 0.6813-0.6846 band having briefly dipped below its 100 DMA at 0.6816. The Kiwi piggybacks on the Aussie’s losses and hovers just above the 0.65 mark, off highs of 0.6530.
In commodities, Iraq Oil Minister stated that an additional 400k bpd cut for OPEC+ is in circulation but not final and that all members should share the burden, while he added that slower demand is a bigger impact next year than non-OPEC supply. Furthermore, the Oil Minister added that it is his understanding that Saudi prefers a deeper cut and that deeper cuts are preferred by members. Crude markets are bolstered (in line with other risk assets) on the news that the US and China are moving closer to a deal despite recent “heated” rhetoric. Elsewhere, the latest batch of comments from the Iraqi oil minister continues to support prices; an additional 400k bpd cut for OPEC+ is apparently in circulation but not final, while the Saudi’s also reportedly prefer deeper cuts, although this contradicts sources reports seen last month. “If all members were compliant with the [current] deal this may be the case, however, with a number of members falling well short in cutting output, including Iraq, other members may be reluctant to cut further” says ING, who goes on to conclude that “reassurance of stronger compliance will likely be needed before other members agree to deeper cuts.” Moreover, yesterday saw the OPEC+ Joint Technical Committee meet in Vienna ahead of the full ministerial meetings on Thursday and Friday and they reportedly did not discuss deeper cuts. Reports did suggest that the Joint Technical Committee is considering Russia’s request to exclude condensate from its oil production cuts, which has been rising as of late in line with the country’s rising gas output and has been cited as the reason for the country’s poor OPEC+ compliance. Elsewhere, also underpinning the crude complex is last night’s larger than expected draw in headline API Inventories; traders will now focus on EIA Inventory data this afternoon for further confirmation. WTI futures meanders around USD 57/bbl while its Brent counterpart eyes USD 62/bbl to the upside having earlier eclipsed the level. Moving onto metals, risk on has hit gold prices, which have fallen to just above USD 1470/oz from earlier highs of USD 1490/oz. Meanwhile, copper has been buoyed, popping to USD 2.6450/lbs highs from its earlier USD 2.62-2.63/lbs range. Elsewhere, iron ore prices found further impetus after data showed that shipments from Brazil had dropped since the last week; prices have been underpinned in recent days by the news that Vale, the world’s largest miner of Iron Ore, cut its production outlook and production at its Brutucu mine has been halted due to safety issues regarding a nearby dam.
DB’s Jim Reid concludes the overnight wrap
7am: MBA Mortgage Applications, prior 1.5%
8:15am: ADP Employment Change, est. 135,000, prior 125,000
9:45am: Markit US Services PMI, est. 51.6, prior 51.6; 9:45am: Markit US Composite PMI, prior 51.9
10am: ISM Non-Manufacturing Index, est. 54.5, prior 54.7
DB’s Jim Reid concludes the overnight wrap
A quiz question to start this morning. Complete the following sequence… 19.6%, 25.7%, 20.5%, 27.3%, 15.5%, 10.8%, 13%, 16%, 13.3%, 18.7%, xxx%…….??? ….. answer at the end of today’s EMR.
If you’ve had enough of 2020 outlooks as we progress through December then don’t fear as later today my team and I will publish our latest Konzept magazine where we will “Imagine 2030” and look at a number of eclectic articles suggesting what the world might look like at the end of the next decade. So if you want to know about the end of credit cards, whether we’ll still be using cash, the future of crypto currencies, how you will consume food, the rise of the drones, the outlook for India and China, what Europe needs to do to compete and catch-up, and what we think will be the main populism battleground in 2030 then watch out for this later. There are 24 articles in total and some are more serious than others. One of my favourites is one from Luke on the future of pro sports stats. Every potential move will be AI analysed by 2030 and players trained accordingly. Hopefully, I’ll also have a robot swinging a golf club for me by then.
If 2030 is too far out for you, a reminder that you can find our 2020 macro credit view here , and our IG and HY specific views here and here .
Back from the future now and what a difference a couple of days can make. Mr Trump has completely taken the momentum out of financial markets this week and the December 15th date will increasingly become a focal point over the next couple of weeks. Last week the mood music suggested that even if a “phase one” deal hadn’t been reached by then, then there was a good chance tariffs planned to be implemented on that date would be postponed. After the stepping up of negative global tariff rhetoric over the last 48 hours, yesterday’s headlines suggesting that the US is going forward with the December 15 tariffs grabbed the limelight, although markets had already been trading weaker prior to that. Fox’s Edward Lawrence said that “trade sources tell me that the Dec 15th tariffs on basically the rest of what China imports into the US are still going forward as of today.” He went on to clarify that the next tranche could still be called off, if a phase one deal gets finalised or “something else positive happens.” For his part, President Trump said that a trade deal is “dependent on whether I want to make it” and “in some ways it is better to wait until after the election…and we’ll see whether the deal is going to be right”.
This might be a late negotiating ploy ahead of a deal but its impossible to tell at the moment and from something that looked like a case of “when not if” a couple of weeks ago now is a case of “if not when.” If that wasn’t enough, Trump also said later on in the day that “those countries that don’t deal with NATO obligations will be dealt with, maybe through trade”. Meanwhile, Wilbur Ross hardly painted a rosier picture, saying that the US has “more ammunition left against China” and also that the US “has a legitimate complaint with Europe over trade.”
The end result for markets were drops of -0.66%, -0.55% and -1.01% for the S&P 500, NASDAQ and DOW but with markets nearly three-quarters of a percent off their early session lows. The trade sensitive semiconductor index was also hit -1.54%, taking it now down -4.04% over the last three sessions, the worst such stretch since August. In Europe, the STOXX 600 closed down -0.93%, taking the two-day loss to -2.20%. Credit also suffered with US HY spreads +11bps while in bond markets we saw yields rally, including a fairly brutal -10.7bps move for 10y Treasuries, which was the most since August 14. The curve also flattened -3.9bps and there are now 20bps of cuts implied between now and next July. In Europe, yields were broadly lower with Bunds -6.8bps and back within a basis point of where they were before the weekend SPD news (more later). In commodities gold (+1.03%) and silver (+1.54%) benefited from the risk off while in currencies it was the Swiss franc (+0.41%) and yen (+0.33%), which also caught a bid at the expense of EM currencies like the South African rand (-0.67%) and the offshore renminbi (-0.35%).
Overnight, the US House of Representatives passed a bill that would impose sanctions on Chinese officials over alleged human rights abuses. However, the House passed an amended version of the Senate bill by adding provisions that require the president to sanction Chinese government officials responsible for the repression of Uighurs and places restrictions on the export of devices that could be used to spy on or restrict the communications or movement of members of the group and other Chinese citizens. Also, among other provisions, the bill requires the president to submit to Congress within 120 days a list of senior Chinese government officials guilty of human rights abuses against Uighurs in Xianjiang or elsewhere in China. Bloomberg further reported that lawmakers are working to resolve differences between the House and Senate bills to agree on one version that can pass swiftly through Congress before the end of the year. In response, China’s foreign ministry urged the US to stop the bill and vowed to further respond if it progresses, without providing any details. The Global Times editor has just tweeted that “US politicians with stakes in China should be careful”.
Overnight, Asian markets are trading lower following Wall Street’s lead with the Nikkei (-1.06%), Hang Seng (-1.08%), Shanghai Comp (-0.31%) and Kospi (-0.69%) all down. The USDCNY fix earlier was the biggest miss to the daily model since August 2nd just after Trump had tweeted about additional tariffs on China. So one to watch as the stakes are raised.
Staying with FX, the Australian dollar is down -0.351% this morning as the Q3 GDP miss raised the probability of a rate cut by the RBA. Elsewhere, futures on the S&P 500 are up +0.07%. As for overnight data releases, China’s November Caixin services PMI came in at 53.5 (vs. 51.2 expected) thereby bringing the composite PMI to 53.2 (vs. 52.0 last month). So an impressive read but one that will be difficult to get too positive about given the trade news this week. Meanwhile, Japan’s final November services and composite PMI both came in one tenth lower than the initial read at 50.3 and 49.8, respectively.
In other better news on trade, Bloomberg reported that Mexico is considering a US proposal to remove protections for biologic drugs from a renegotiated Nafta trade deal. The proposed change would drop language in the U.S.-Mexico-Canada Agreement offering 10 years of market protection for drug makers from cheaper generic spinoffs. It has proved one of the sticking points in getting the deal passed in the US as House Democrats have raised concern that locking in a time frame for pharmaceutical rules could hinder their ability to reduce protections for biologics sooner, as part of an effort to bring down soaring drug prices. Meanwhile, Ways and Means Chairman Richard Neal, the Democrat who’s in charge of the negotiations in the House, said it’s “possible” that Democrats would agree to a deal this week and added that he would like the House to vote on the implementing legislation by the end of the year.
Later today, we’ll get the final services and composite PMIs in Europe and the US as well. Expectations are for the euro area services PMI to remain at 51.5 from the flash reading, though there is likely some upside to the composite number (50.3 flash) after the upward revision to the manufacturing index on Monday. On a country level, the readings in France and Germany are expected to stay steady from the flash estimates, while the prints for Spain and Italy are both expected to fall, by -0.8pts and -1.0pts, respectively, from the October results. Later in the day, the US services PMI is expected to stay at 51.6 from the flash reading, while the non-manufacturing ISM is expected to decline -0.2pts from October to 54.5. Our economists will be watching the employment subindex, which is a strong leading indicator for private payrolls growth.
As an update to the SPD developments, ahead of their 3-day conference on Friday a draft text suggested that the party will call for additional public investment and that it should not be prevented by ‘dogmatic positions’ such as ‘black zero’. So the stage is set for them to demand more as a cost of staying in the GroKo. We will see after that who is going to call the other’s bluff within the coalition, though it does bode well that the draft does not explicitly call for an end to the coalition. New SPD chief Walter-Borjans even said “one thing is clear, we do not want to get out of the grand coalition head over heels.” Whatever that means.
Staying with politics, in terms of the latest UK polls 8 days before the election, the two yesterday showed a 12pt and a 9pt lead for the Conservatives – up 1pt and flat relative to the last time these pollsters last published a few days before. The Labour Party has definitely had a little more momentum over the last couple of weeks but poll of polls are only back to where they were at the start of the campaign (around 10pt lead) and have perhaps only narrowed a couple of points from the peak lead. So there will have to be a very late swing or a bad widespread polling sampling error across the industry for the Tory’s not to win a majority. Labour’s last hope is probably a last minute collapse of the LibDem vote. Throughout the campaign the support for the Tories has been impressively stable at between 40-45% so it doesn’t feel like this is going to fall away now. Labour will need to get closer to this from elsewhere and likely hope for a hung parliament. At this point even if they are well behind the Tories they are likely to be the only party able to form a coalition.
Finally, there wasn’t much to report from the data yesterday. In the US, November vehicle sales came in quite strong at 17.09mn (vs. 16.90mn expected). Meanwhile in Europe PPI printed at +0.1% mom for October (vs. 0.0% expected) while the November construction PMI for the UK was a little better than expected (45.3 vs. 44.5 expected) – albeit still at very low levels.
Looking at the day ahead, this morning the focus will be on the final November PMI revisions (services and composite) in Europe while this afternoon we’ll also get that data for the US, along with the November ISM non-manufacturing and November ADP employment report. Away from that, we’re due to hear from the ECB’s Villeroy, Visco, Makhlouf and Hernandez de Cos while the Fed’s Quarles is due to speak on supervision and regulation.
*** The answer to the final number in the sequence is 3.5%. Yes, after a decade of expecting large double digit returns in the S&P 500 in his year ahead outlooks, our US equity strategist Binky Chadha is ‘only’ expecting 3.5% return from the S&P 500 out to the end of 2020 from current levels. It’s actually 0% for 2020 as a whole as his YE 2019 and 2020 forecasts are the same. So this is a major relative change in view, considering we’ve all marvelled at the bullishness (proved correct) of his previous numbers. For an explanation of why please see the link here ***
Trudeau, Macron And BoJo Caught On Hot Mic Laughing At Trump
In an edited clip released by the Canadian Broadcasting Corporation, Justin Trudeau, Emmanuel Macron and Boris Johnson were all caught on a hot mic appearing to ridicule President Trump after a day of rambling press conferences that took world leaders off guard.
At the beginning of the clip, Johnson can be heard inquiring about why Macron was late to a meeting earlier that day, when Trudeau butts in, exclaiming that Macron had to factor in a 40-minute diversion apparently caused by Trump.
If you ever wondered what world leaders chat about in private, well here at NATO they’re gossiping about #Trump.
Leaked Video shows Canada’s Trudeau (with a 🍺), France’s Macron, UK’s Johnson making fun of Trump’s long pressers and his staff reactions: pic.twitter.com/5E0KISv1jo
The world leaders were joined by Princess Anne, the Queen’s daughter, who naturally was invited to the Buckingham Palace reception where the footage was taken.Dutch Prime Minister Mark Rutte also appears to be in the scrum. At one point, Rutte can be heard laughing while saying “fake news media”.
Though Trump’s name isn’t heard spoken, the subject of their gossipy little pow-wow is pretty clear. At one point, Trudeau can be heard telling his pals about how a certain leader’s team members’ jaws dropped when he launched into a rambling tangent during a press conference.
A loosened up Canadian PM Justin Trudeau, seen sipping from a glass of beer, could barely contain himself, gesturing wildly and shouting “You just watched his team’s jaws drop to the floor!”
It’s likely that Trudeau is referring to his joint press conference with President Trump, where the president veered wildly off-topic and answered questions about the burgeoning impeachment inquiry while lashing out at his democratic rivals.
However, Trump participated in several press conferences yesterday, not only with Nato General Secretary Jens Stoltenberg, but also with Boris Johnson, Trudeau, and a memorably tense news conference with Macron.
Meanwhile, on Wednesday, leaders wrapped up the two-day summit with a draft communique that made on thing clear: The rest of Nato wants to keep Trump happy, and is much more concerned about what Trump wants than what the president of France wants right now,BBG reports.
The draft showed that leaders made “burden sharing” – Trump’s top priority re: Nato – the centerpiece of the communique.
“The Election Is Boris Johnson’s To Lose” – Pound Hits 7-Month High As Traders Bet On Tory Victory
Prime Minister Boris Johnson is riding high on Wednesday following a meeting with President Trump, one of his closest political allies.
Enjoyed my meeting with Prime Minister @BorisJohnson of the United Kingdom at @10DowningStreet last night. Talked about numerous subjects including @NATO and Trade.
With UK election polls showing the Tories with a sizable lead over Labour, an analyst at UBS quipped that the UK snap election is now “Boris Johnson’s to lose,” according to the FT.
Though many of Johnson’s political opponents have spent the last couple of weeks complaining about the corrupting influence of ‘YouGov’, which many claim is biased in favor of the Tories, it appears that the Conservatives’ lead is being reflected across polling companies.
A YouGov poll released last night showed both the Tories and Labour down one point at 42% and 33%, though it wasn’t the only poll to show a sizable conservative lead.
Not just me old fruit…
Current Tory Lead by Pollster:
These numbers drove cable to its highest level since May, with Neil Jones, the head of FX sales at Mizuho Bank, attributing the move to traders’ cutting back their sterling short positions and hedges as a Tory victory looks increasingly likely.
In a continuation of its gains from Tuesday’s session, the pound broke above $1.30 Wednesday morning.
According to Bloomberg and the FT, investors see a decisive conservative majority as the best possible outcome for the snap vote on Dec. 12 because it would enable Johnson to push his Brexit deal through Parliament before the January deadline, allowing the UK to finally begin is split from the EU. To be sure, after the deadline, the negotiations over the substance of a future UK-EU trading relationship will begin, which is where some see problems. Many analysts suspect that Johnson’s pledge not to extend the Brexit transition period beyond the end of next year has already set up the UK for another round of gridlock and last-minute extensions.
Futures Surge After Bloomberg Quotes “Unnamed Sources” Saying US, China Closer To Trade Deal
We’ve seen these headlines before…
Equity futures in Europe and the US jump on “trade optimism” headlines around 4 am est. The headlines were published by Bloomberg, citing unnamed sources, who said the US and China are moving closer to the number of tariffs that would be rolled back to complete a phase-one trade deal.
The unnamed sources said President Trump’s comments on Tuesday “shouldn’t be understood to mean talks were stalling, as he was speaking off the cuff.”
Sources added a phase-one deal with China is expected to be completed before the next round of tariffs begins on Dec. 15.
E Mini S&P500 jumps 60bps on unnamed sources saying both sides are closer to a deal. We’ve heard these headlines before…
Considering unnamed sources and timing of the pump, this was more fake trade news to save equity futures from a further correction.
Protect E Mini S&P500 3100 at all costs, even if that means pumping a “trade optimism” article that had zero substance to it.
And there it’s, Global Times calling out President Trump and Bloomberg for pumping fake trade news…
I predict there is a high probability that President Trump or a senior US official will openly say in a few hours that China-US trade talks have made a big progress in order to pump up the US stock markets. They’ve been doing this a lot.😀
Today, we have published our Outrageous Predictions for 2020. The overall theme is: Engines of Disruption. Frankly speaking, I think the ones we have written this year are among the best.
That being said, I am thinking it is certainly the right moment to share with you my macro calls for next year. I haven’t covered everything, but it think the below list is a good sum up of what we should expect in 2020:
The death of free markets
Please, remember QE is not QE. In order to fix the broken monetary transmission mechanism, the Federal Reserve has already injected $324 billion in the repo market. Central banks don’t want you to know it, but this is the death of free markets. In some market segments, central banks are becoming market makers. This is especially the case for the European sovereign bond market. Based on our calculations, central banks own around 80% of German’s debt. Central bank interventions have led to mispricing, misallocation, complacency and muted volatility. This is clearly the case on the forex market, notably the EUR/USD cross. Nothing is able to move the cross and implied volatility is at an historically low point. However, we cannot live without central bank interventions as it would mean higher rates and lower liquidity which would have disastrous economic and financial consequences in a world of high indebtedness.
The Warren trade is trendy
My belief is that no matter what will happen in the coming months, the next US president will be a populist. In this context, one of the most popular trades in 2020 could be a put option on the S&P 500 index for March expiry. It would be the right way to hedge against Warren risk (in case she wins in Iowa, New Hampshire and on Super Tuesday) but also against new US tariffs against China if negotiations derail.
Old monetary policy debates are coming back
The ECB’s strategic review is likely to address the issue of inflation and the way it is calculated. This is a very old debate and there are a lot of conflicting viewpoints on the topic. The ECB, under Draghi’s leadership, seemed in favor of including housing prices in HICP but, in 2018, the EC advised against it due to the lack of timeliness of the new OOH Index (Ower-Occupied Housing Index). More basically, the ECB might need to bring some clarity about what the objective of inflation really means. It could get rid of the “below, but close to” 2% inflation target and it could adopt a more flexible approach, i.e. a range of 1-3% for instance.
And new ones are emerging
Reviewing the framework will be the best opportunity to include climate change. In that sense, Lagarde’s letter to EP was bright clear: “The intended review of the ECB’s monetary policy strategy…will constitute an opportunity to reflect on how to address sustainability considerations within our monetary policy framework”. In the United States, the economist Stephanie Kelton is justifying MMT with climate change. We should get ready to a huge monetary and fiscal climate package but more likely in 2021 than in 2020.
Economists are good to forecast rolling recession
If recession does not happen in 2019, it will happen in 2020…or in 2021. As a matter of fact, it has become more and more complicated to understand how economic cycles work, partially due to the financialization of the economy. However, as long manufacturing weakness contagion to the service sector is limited, our base case scenario is that we are at the start of a mini-cycle recovery, fueled by central banks, in the context of a late-cycle expansion.
The car market is still a disaster, especially in China
In 2018, the car market was hit hard by the expiration of key tax breaks. In 2019, sales were down due to new emissions standards and the withdrawal of consumer subsidies for electric vehicles. In 2020, the car market will remain sluggish as risks on consumption and global trade will stay elevated.
Former Sex Slave Confronts ISIS Rapist On TV After He Was Found Living Free In Germany
In 2018 we detailed the shocking story of an Iraqi Yazidi woman who was kidnapped by ISIS as a teenager in her native Iraq in 2014 and held for three months as a sex slave by the terror group, eventually managing to escape and later resettled as a refugee in Germany after the harrowing ordeal. But astoundingly, two years after her escape, she unexpectedly encountered her ISIS kidnapper while walking the streets of Stuttgart, Germany. The man she identified as Abu Hamam was living in Germany as a free man, and the police did nothing.
“She told police and asylum officials about the encounter and although they identified the man from CCTV they said there was nothing they could do because the man was also registered as a refugee,” The Times reported in 2018. But now the Kurdish Yazidi woman Ashraq Haji Hamid (previously identified as Ashwaq Ta’lo) has bravely confronted her prior captor — the very man who bought her and violently raped her “several times a day” — on Iraqi TV in a rare, intense moment.
“Abu Humam, look up. Why did you do this to me? Why? Because I’m Yazidi?” she said to the prisoner now back in Iraqi custody, Abu Hamam. “I was 14 years old when you raped me. Look up. Do you have feelings? Do you have honor?” she asked him.
“I was 14 years old, as old as your daughter, your son, or your sister,” she continues. “You destroyed my life. You robbed me of all my dreams. I was once held by Isis, by you, but now you will feel the meaning of torment, torture, and loneliness.”
“You’ve destroyed my life. You took everything from me. Everything I dreamed of,” she angrily told her prior ISIS abuser.
Now 20-years old, the young woman actually faints near the end of the intense encounter. The unusual interview recorded by the Iraqi National Intelligence Service and broadcast on Al-Iraqiya news channel in late November.
The idea behind the arrangement was to give a sense of closure to Hamid’s ordeal, and for a sense of national acknowledgement and healing in terms of what happened to thousands of Iraqi women after they were kidnapped by the Islamic state.
Former Yazidi Slave Girl Confronts Captured ISIS Terrorist Who Had Held Her Captive, Violently Raped Her When She Was 14: You Destroyed My Life pic.twitter.com/mCazC4o7j1
“Now you will feel the meaning of torment, torture, and loneliness,” she tells the Iraqi prisoner while sobbing. He’ll likely spend the rest of his life in Iraqi prison following his arrest by Iraqi authorities when he left Germany; or he possibly faces execution like many former Islamic State fighters detained by Iraq.
According to The Independent, after previously accidentally coming face-to-face in Germany with the man who had in Iraq been her ISIS captor, she had fled the country back to her native Iraq, fearing European authorities would do nothing. She feared for her life despite having made it from a war zone to the supposed ‘safety’ of Europe.
In 2018 she told the full story of bumping into her ISIS captor of the streets of Stuttgart where he was enjoying life as a free man.
This is Ashwaq, a Yazidi girl who was kidnapped by ISIS in 2014 when the terrorist group attacked Kurdistan-Iraq. After her escape and her migration to Germany, she met the man who had bought her as a slave, walking around freely in Germany. This is unacceptable! pic.twitter.com/rIYYhP9nmQ
However, Abu Hamam was later “handed over to Iraqi security services when he returned to the country as well.” It’s unclear precisely how or by what arrangement he had returned to Iraq.
What’s shocking about the case, and what drove outrage when the story first came to light, is that Germany had previously given the ISIS terrorist “refugee” status. And who knows how many other escaped ISIS terrorists are now living freely in Europe under the protection of ‘refugee’ status?
The crisis in Europe will come from Germany. Germany has entered a period of political crisis that, as yet, has not exploded.
But the pyre is built, the torches lit and all that remains is dragging Chancellor Angela Merkel up and setting the whole thing on fire.
For those that want to understand the fundamental impulses which have led the European Union to where it is today and Germany’s central role one really needs to read Bernard Connolly’s “The Rotten Heart of Europe.”
It’s a book that damns pretty much everyone in their monomaniacal drive for the European Project but, Germany, in particular, to me, comes across the worst.
Because the design of the euro, as a currency, was guided by German industrialists looking for the advantage a single currency would bring them.
This is a point I’ve made many times that the single exchange rate underprices the value of Northern European industrial entities while overpricing Southern Europe’s productive capacity.
Moreover, it raised the effective quality of the debt of those countries far above the market rate. This allowed them to borrow at far lower rates than they would ever have been able to.
This has led to exactly where we are today with massive internal imbalances which have hollowed out these economies, further eroded their productive capacity and competitiveness and left them with a mountain of unpayable debt which is then used as a further means to extract the last of the country’s real wealth when the inevitable crisis hits and the debt has to be restructured.
And to think that this point wasn’t understood by the people who designed the euro is to be terminally naive. This is a point not only made by Connolly but also by Gyorgy Matolcsy, the President of the Hungarian Central Bank.
Thanks to a very generous regular reader I’m reading his book, “The American Empire Vs. the European Dream” right now. And Matolcsy opens the book with a scathing attack on the euro and how it never should have been introduced in the first place.
Because the effects of the single currency have been wholly predictable. But he makes an even larger point than Connolly did in his book. Germany, through wealth extraction andcollecting rent thanks to the exchange rate arbitrage.
It may anger my German readers to hear this but, again, if you didn’t think this was the plan by some all along, to colonize countries like Greece that couldn’t be conquered militarily in WWII, then you can’t also see why the rest of Europe is becoming angry.
But Matolcsy goes one step further in his criticism of Germany, saying that if that wealth extraction had been distributed throughout the EU over the twenty-plus years of the euro via investment then things would be far better today.
But Germany never gave up its mercantilist mindset, preferring instead to sell Spanish and Greeks BMWs and Porsches while lending them the money at suppressed interest rates to do so.
And then when the bills come due demand austerity to pay them back and call them deadbeats in the process.
That’s why Germany, today, is the rotten center of a crumbling European would-be empire. And why everyone, including Germans, will now be impoverished as the mountain range of unpayable debt collapses.
Empires always rot from within.
The American empire is facing the exact same problem, but because it is the world’s reserve currency and has the biggest synthetic short against it will simply get hit later.
This is why the Dow Jones Industrials and the S&P500 are trading at all-time highs despite President Trump’s latest trade war salvos at China and the German DAX is struggling to best its 2018 high.
The big news is that Angela Merkel’s coalition partner, the Social Democrats (SPD), just elected new leadership that is hostile to the governing coalition as they blame Merkel for their collapse as a political force nationally. That puts Merkel’s political future in jeopardy or, at a minimum, ensures she has even less control over a mostly gridlocked German government.
For the past couple of months we’ve seen the markets in general breath a sigh of relief after the Fed and ECB stepped in to provide liquidity. But that doesn’t fix the underlying problems, it only delays them for a few more months by reflating the yield curve, in this case the U.S.’s and Germany’s.
Sure that could be normal quarter-end shenanigans but why? And will we be asking these same questions when these 42-day repos expire in late January?
The bigger questions is what is causing U.S. banks to need so many dollars to keep the money markets liquid? And why is everyone struggling with this dollar shortage?
Because everyone is feeling the same thing, something is going to change in a big way and when it does they want dollars, not euros, pounds, yen or yuan.
The German economy is slowing. It has been for more than a year.
And when the reflation trade is over, markets that haven’t made new highs will be much more vulnerable to collapse. Germany’s multi-generational mercantilist empire has reached its zenith. It can’t push it any further without conceding political ground to the rest of Europe or abandoning the very thing that created the empire in the first place, the euro.
That’s the central problem which sits at the heart of the European Project. And it can’t be papered over much longer.
