Category: zerohedge

Authored by Stephen Cohen via TheNation.com,

Vital questions about perhaps the worst alleged presidential scandal in US history remain unanswered…

It must again be emphasized: It is hard, if not impossible, to think of a more toxic allegation in American presidential history than the one leveled against candidate, and then president, Donald Trump that he “colluded” with the Kremlin in order to win the 2016 presidential election—and, still more, that Vladimir Putin’s regime, “America’s No. 1 threat,” had compromising material on Trump that made him its “puppet.” Or a more fraudulent accusation.

Even leaving aside the misperception that Russia is the primary threat to America in world affairs, no aspect of this allegation has turned out to be true, as should have been evident from the outset. Major aspects of the now infamous Steele Dossier, on which much of the allegation was based, were themselves not merely “unverified” but plainly implausible.

Was it plausible, for example, that Trump, a longtime owner and operator of international hotels, would commit an indiscreet act in a Moscow hotel that he did not own or control? Or that, as Steele also claimed, high-level Kremlin sources had fed him damning anti-Trump information even though their vigilant boss, Putin, wanted Trump to win the election? Nonetheless, the American mainstream media and other important elements of the US political establishment relied on Steele’s allegations for nearly three years, even heroizing him—and some still do, explicitly or implicitly.

Not surprisingly, former special counsel Robert Mueller found no evidence of “collusion” between the Trump campaign and the Kremlin. No credible evidence has been produced that Russia’s “interference” affected the result of the 2016 presidential election in any significant way. Nor was Russian “meddling” in the election anything akin to a “digital Pearl Harbor,” as widely asserted, and it was certainly far less and less intrusive than President Bill Clinton’s political and financial “interference” undertaken to assure the reelection of Russian President Boris Yeltsin in 1996.

Nonetheless, Russiagate’s core allegation persists, like a legend, in American political life – in media commentary, in financial solicitations by some Democratic candidates for Congress, and, as is clear from my own discussions, in the minds of otherwise well-informed people. The only way to dispel, to excoriate, such a legend is to learn and expose how it began – by whom, when, and why.

Officially, at least in the FBI’s version, its operation “Crossfire Hurricane,” the counterintelligence investigation of the Trump campaign that began in mid-2016 was due to suspicious remarks made to visitors by a young and lowly Trump aide, George Papadopoulos. This too is not believable, as I pointed out previously. Most of those visitors themselves had ties to Western intelligence agencies. That is, the young Trump aide was being enticed, possibly entrapped, as part of a larger intelligence operation against Trump. (Papadopoulos wasn’t the only Trump associate targeted, Carter Page being another.)

But the question remains: Why did Western intelligence agencies, prompted, it seems clear, by US ones, seek to undermine Trump’s presidential campaign? A reflexive answer might be because candidate Trump promised to “cooperate with Russia,” to pursue a pro-détente foreign policy, but this was hardly a startling, still less subversive, advocacy by a would-be Republican president. All of the major pro-détente episodes in the 20th century had been initiated by Republican presidents: Eisenhower, Nixon, and Reagan.

So, again, what was it about Trump that so spooked the spooks so far off their rightful reservation and so intrusively into American presidential politics? Investigations being overseen by Attorney General William Barr may provide answers—or not. Barr has already leveled procedural charges against James Comey, head of the FBI under President Obama and briefly under President Trump, but the repeatedly hapless Comey seems incapable of having initiated such an audacious operation against a presidential candidate, still less a president-elect. As I have long suggested, John Brennan and James Clapper, head of the CIA and Office of National Intelligence under Obama respectively, are the more likely culprits. The FBI is no longer the fearsome organization it once was and thus not hard to investigate, as Barr has already shown. The others, particularly the CIA, are a different matter, and Barr has suggested they are resisting. To investigate them, particularly the CIA, it seems, he has brought in a veteran prosecutor-investigator, John Durham.

Which raises other questions. Are Barr and Durham, whose own careers include associations with US intelligence agencies, determined to uncover the truth about the origins of Russiagate? And can they really do so fully, given the resistance already apparent? Even if so, will Barr make public their findings, however damning of the intelligence agencies they may be, or will he classify them? And if the latter, will President Trump use his authority to declassify the findings as the 2020 presidential election approaches in order to discredit the role of Obama’s presidency and its would-be heirs?

Equally important perhaps, how will mainstream media treat the Barr-Durham investigation and its findings? Having driven the Russiagate narrative for so long and so misleadingly—and with liberals perhaps finding themselves in the incongruous position of defending rogue intelligence agencies—will they credit or seek to discredit the findings?

It is true, of course, that Barr and Durham, as Trump appointees, are not the ideal investigators of Intel misdeeds in the Russiagate saga. Much better would be a truly bipartisan, independent investigation based in the Senate, as was the Church Committee of the mid-1970s, which exposed and reformed (it thought at the time) serious abuses by US intelligence agencies. That would require, however, a sizable core of nonpartisan, honorable, and courageous senators of both parties, who thus far seem to be lacking.

There are also, however, the ongoing and upcoming Democratic presidential debates. First and foremost, Russiagate is about the present and future of the American political system, not about Russia. (Indeed, as I have repeatedly argued, there is very little, if any, Russia in Russiagate.) At every “debate” or comparable forum, all of the Democratic candidates should be asked about this grave threat to American democracy – what they think about what happened and would do about it if elected president. Consider it health care for our democracy.

The collapse in the shale industry is continuing with no signs of stopping or even slowing down.

No sooner did we highlight how shale is doomed no matter what the industry does and how recent price movements have triggered chaos across the industry, than we find out that oil producers and their suppliers are now cutting budgets, staffs and production goals, according to Reuters. 

The U.S. now has 904 working rigs, which is down 14% from a year ago. Harold Hamm, chief executive of shale producer Continental Resources, still thinks this could be too many. 

Additionally, bankruptcy filings by U.S. energy producers through mid-August of this year have matched the total for all of 2018 already. Earl Reynolds, CEO of Chaparral Energy said:

“You’re going to see activity drop across the industry.”

His firm has slashed its workforce by about 25% and cut spending by about 5%. It has also agreed to sell its headquarters and use some of the proceeds to pay off debt. 

Cowen & Co. estimated last month that oil and gas producers deployed 56% of their total budgets through June and the firm expects total spending to fall 11% over last year. 

And one slowdown begets another: as drilling slows, oilfield services companies are also making staff and budget cuts. Some, like Schlumberger and Halliburton Co., are considering restructurings. For example, Schlumberger is planning a writedown this quarter and has said that its North American results have been “under significant pressure”. 

Halliburton, on the other hand, is reducing its North American workforce by 8% due to customer spending cuts. 

Superior Drilling Services CEO Troy Meier said: “The service sector I think is going to be flat.” His firm recently cancelled plans to add new machinery. 

The downturn is coming at the worst possible time: just as shale firms had started to generate more in cash than they spent on drilling and dividends. A group of 29 publicly traded producers generated $26 million last quarter after burning $2.4 billion in the year prior. And, as Reuters notes, a slowdown in the oil industry could hurt the overall economy: 

Despite that progress, many small to mid-sized shale firms are now pulling back on production targets amid the gloomy price projections. A slowing oil industry could weigh on the United States economy. The boom in shale oil output added about 1 percent to U.S. gross domestic product, or 10% of growth, between 2010 to 2015, according to the Federal Reserve Bank of Dallas. In Texas, the center of shale oil production, energy employment dipped 1.8 percent in the first six months of 2019, according to the Dallas Fed. New drilling permits in the state fell 21% in July compared with the same month last year, according to state data.

Even though mid sized firms continue to struggle, large names like BP and Exxon Mobil continue to pour “billions of dollars” into longer term shale drilling plans. Chevron, for instance, is focusing much of its production growth on shale.

These companies believe that their integrated well to refinery networks allow them to control costs well enough to sustain low prices. Exxon believes it can earn a double digit return in the Permian Basin even if oil falls to $35.

Chevron CEO Michael Wirth has said the Permian Basin is the “highest return use of our dollars.”

Exxon CEO Darren Woods said: “The way we look at the business is tied to some very basic fundamentals that haven’t changed for decades, if not hundreds of years.”

Given the outlook for the industry, the major producers may wind up being tested in this regard. 

Scott Sheffield, CEO of Pioneer Natural Resources said: “U.S. oil prices are likely to remain below $55 a barrel for the next three years. Lackluster prices will result in a significant fallback in Permian growth and probably no growth for most. Part of the slowdown comes as the best drilling spots in some areas of the field are being exhausted at a very quick rate.”

Flotek CEO John Chisholm agrees, saying the industry is “pumping the brakes” while struggling with design issues. 

Finally, Matt Sallee, a portfolio manager at energy investors Tortoise Capital, concluded: “It’s hard to see how this gets any better for several quarters.”

Some time in the past 3 years, US capital markets – already rigged and broken beyond comprehension by central banks and HFTs – crossed over into the realm of absurdity, but it wasn’t until this Friday that we got official confirmation. That’s when JPMorgan came up with the “Volfefe Index” (remember Covfefe) to quantify Trump’s impact on rate volatility.

When it comes to Trump’s tweeting habit, there are two approaches. One can ignore them, as Asia is increasingly doing, or one can obsess over them and use them as the springboard for violent daily market reversals.

Commenting on the former, last week we said that is starting to ignore Trump’s tweets, for three reasons: First, China doesn’t have easy access to them, since the social media service is banned there;  second, the President’s tweets often occur outside of Chinese trading hours, causing them to have less of an effect on Chinese markets than U.S. markets; Finally, the novelty simply seems to be wearing off.  

Zhang Haidong, a fund manager at Jinkuang Investment Management in Shanghai said: “It’s pointless following him too closely — he might say something today and it will be a whole different story tomorrow. Trading off his tweets alone would be too volatile.”

Indeed, as the next chart shows, the Chinese stock market is becoming immune to anything the Trump twitter feed unleashes on the world.

In the US however, it’s a different story, and Trump’s tweets carry as potent a punch on market volatility and stock prices as ever, especially since twitter is the venue where the president has announced two of his last trade escalations against China. Or perhaps it’s just reflexivity, as Trump tends to tweet up a storm whenever the market is dropping, in hopes of “tweeting” the market higher.

Whatever the arrow of causality, last week Bank of America found that since 2016, on days with more than 35 tweets (90th percentile) by President Trump, the market has seen seen negative returns (-9bp), whereas on days when Trump keeps it to less than 5 tweets (10th percentile), the market has posted positive returns (+5bp), both of which are statistically significant.

Fast forward to Friday when JPMorgan’s rates strategists decided to actually quantify the impact of Trump’s tweets on volatility in the bond market, and so the Volfefe Index was born.

Not surprisingly, JPM found that the index explains a measurable fraction of the moves in implied rate volatility for 2-year and 5-year Treasurys.

“This makes rough sense as much of the president’s tweets have been focused on the Federal Reserve, and as trade tensions are broadly seen as, first and foremost, impactful on near-term economic performance and, likewise, the Fed’s reaction to such developments,” wrote JPM’s analysts led by Munier Salem.

Besides his pet peeve, the Fed, which Trump believes is out to get him by not cutting rates faster (an assumption that was merely cast away as merely paranoia until Bill Dudley, like a total idiot, decided to insert his foot in his mouth and confirm that the Fed does indeed pick US presidents and monetary policy is used to influence presidential elections) Trump’s market-moving messages have also addressed trade and monetary policy, with key words including “China,” “billion,” “products”, “Democrats”, “great” and “dollars”…

… although as JPM points out, these tweets are increasingly less likely to see “fewer favorable responses (likes and retweets) from the president’s followers compared to other, contemporaneous remarks.”

The good news is that there is more than enough data for any statistical model as over the past three years, since his election in 2016, Trump has averaged more than 10 tweets a day to some 64 million followers — roughly 14,000 total over that period associated with his personal account, of which more than 10,000 since taking office, a pace that has continued to accelerate and in recent months has peaked at over a dozen non-retweets per day.

Yet, as JPMorgan found, out of the roughly 4,000 non-retweets that have taken place during market hours from 2018 to the present, only 146 moved the market,  although Trump’s market moving tweets have seen an increase in “dramatic fashion” of late, coinciding with a spike in volatility, JPM found.

JPM also found that most of Trump’s tweets come in the two-hour block from noon to 2:00 pm, with a 1:00 pm tweet roughly three times as likely to arrive at any other hour of the afternoon or evening. One bizarre observation is that Trump’s 3:00 am tweets were more common than his 3:00 pm tweets, which is a pain for both US rates and equity futures markets, as overnight liquidity is especially dismal. And an interesting finding from Trump’s tweeting pattern: the president is presumably sleeping from 5:00 am to 10:00 as there’s a lull in tweeting activity during that time.

Finally, while there has clearly been a surge in overall twitter activity by the president, “a substantial fraction of this rise in activity comes from an increased propensity to retweet others”, JPM finds. Excluding these non-original tweets, the recent surge in presidential tweeting is far more timid.

JPMorgan’s conclusion: “the president’s remarks on this social medial platform have played a statistically significant in elevating implied volatility.“

Yet while a cottage industry of Trump Twitter experts has emerged in recent months, the reality is that even if Trump has elevated market volatility, it has yet to adversely impact the overall market, which remains 40% higher since Trump’s election, and roughly 30% since his inauguration, even if the S&P has gone almost nowhere in the past 12 months.

Despite Washington’s pleas that UK/Gibraltar authorities refrain from releasing the Iranian-flagged Adrian Darya-1 tanker over concerns that it would deliver its 2.1 million barrels of Iranian crude oil to Syria, the ship was released last month. Shortly after, it “went dark” – turning off its transponder earlier this month to mask the fact that it was delivering a load of crude to Syria – or at least that’s what National Security Advisor John Bolton suspects happened.

And not without good reason. The tanker, which was photographed off Syrian port of Tartus, is one more reason for the US and Europe to treat Iran’s written assurances that it wouldn’t engage in such “illegal” deliveries – assurances that the UK used as the basis for its decision to release the vessel from custody – with wariness and suspicion.

But the Adrian Darya-1 is merely one example of how Iran has managed to keep exporting oil, often in violation of US and EU sanctions, in spite of the international crackdown. As Bloomberg reports, Tehran is engaged in a cat-and-mouse game with tanker-tracking firms around the world that have developed new strategies for monitoring Iran’s “Dark Fleet”.

The quest has led to ever more inventive methods of tracking ships, and divergent views on the amounts of crude secretly slipping into world markets. That’s because the vessels have mostly “gone dark” since sanctions were tightened this year, switching off transponders that would reveal their location.

“Iran is a black box, but it’s also not a black box” as there are ways to uncover secretive activity, said Devin Geoghegan, global director of petroleum intelligence at Genscape Inc. in Denver, Colorado. “Iran is simply doing a better job of putting their oil into other people’s hands – or their own storage tin-cans – than anybody has expected.”

The Trump Administration’s goal of driving Iranian oil exports “to zero” hasn’t been very successful, as Iranian Oil Minister Bijan Zanganeh insists that he is working “day and night” to protect sales, using a number of clandestine options.

The various companies struggling to monitor the flow of oil out of Iran agree that Iranian oil exports are far from zero. But analysts’ estimates on how much vary from a couple hundred thousand barrels a day to more than a million.

One Switzerland-based tracking firm believes Iran is shipping barely one-third of the amount it sold during the last round of heightened sanctions earlier in the decade, when Barack Obama was in office. According to Daniel Gerber, the firm’s CEO, the Trump Administration has been largely successful at curtailing Iran’s exports.

“Iran is as secretive now as any time over the past 40 years,” said Daniel Gerber, chief executive officer of Geneva-based tanker-tracking firm Petro-Logistics SA. “There’s a wide array of diverging estimates of their exports in the industry, with a series of accounting problems causing erroneous higher numbers to come into some of these.”

Iran is now barely shipping a third of the amount it sold during the previous round of sanctions imposed earlier this decade, Gerber said. Some other estimates have been inflated because they include all the oil that’s been loaded onto tankers, or put into domestic storage, rather than just what’s been shipped overseas, he said.

“The Trump administration has been successful at curtailing Iran’s exports on an unprecedented scale,” according to Gerber, who said Petro-Logistics is able to obtain details on the volumes and crude-type of individual cargoes, as well as on the counter-parties buying them.

Paris-based tracking firm Kpler has developed a unique strategy for tracking Iranian crude. It uses commercial satellite images, then cross-references them with data from customs agencies and reports from various ports. Because of this, Kpler believes Iran has maintained “limited” flows of oil into China – Iran’s most important customer – as well as Turkey and Syria.

Kpler analyst Samah Ahmed believes Iran is employing a range of techniques to try to avoid detection, including “several ship-to-ship transfers off-radar” – a technique that is also famously used by North Korea. Like Petro-Logistics, Kpler believes the Trump Administration has been largely successful at choking off Iran’s oil exports. By its account, Kpler believes Iranian oil exports have slumped 90% to just 400,000 barrels a day since the Trump Administration abandoned the Iranian nuclear deal in May 2018.

“The goal of bringing Iran’s exports down to zero was never attained,” said Homayoun Falakshahi, an analyst at the firm. Yet “the Trump administration has been obviously very successful in bringing maximum pressure.”

Yet, the amount of oil that Iran sells for cash is likely even lower, since a large percentage of the oil that it exports is used to pay off its debts to China.

The actual volume that Iran is selling for cash is probably even lower, according to Sara Vakhshouri, head of consultants SVB Energy International in Washington, D.C.

Some cargoes are sold to repay debts to China, and others are moved into so-called bonded storage there without passing customs, meaning they’re still owned by Iran. As a result, total sales in July may have been as little as 100,000 barrels a day, she said.

Finally, Genscape’s Geoghegan believes Iran’s output of crude and condensate has fallen only 15% since the first quarter of 2018. Total production might be as much as 3.9 million barrels per day, with exports as high as 1 million bpd as Iran moves “full speed ahead”, drilling at new fields in the West Karoun region.

Among the various commercial tracking firms, Genscape’s methodology is truly unique. Instead of relying on satellite images of tanker traffic, Genscape uses satellite photos of gas flaring at oil fields to gauge their levels of activity.

But according to Geoghegan, the resilience of Iran’s oil industry might not endure for much longer. As storage fills up, Iran may need to lower its output.

“We have seen every tin-can that they have get filled up, and we’ve seen oil fill up in areas that they haven’t historically used,” Geoghegan said. “They’re going to hit a brick wall at some point, and their production is going to take another leg down.”

Hence why Iran has been seizing ships in the Persian Gulf and Strait of Hormuz suspected of smuggling – ships like the “tugboat” suspected of smuggling nearly 284,000 liters of diesel. As Washington’s campaign of “massive pressure” intensifies, Tehran’s is continuing with its campaign of “counter-pressure” to try and protect its oil-dependent economy. 

Authored by Andrew Sheets, chief cross-asset strategist at Morgan Stanley

This week’s Sunday Start is 20% on why we’d advise investors coming back from the summer to stay cautious, and 80% on a particular challenge facing today’s market: What to do if things get better.

Over the last year, global equities are up just 1% (with 12.5% annualized volatility). The mighty S&P 500 is up 4%. After the challenges of the last 12 months, a reasonable question to ask is whether conditions are better, worse or similar to a year ago, when we sat at similar levels. Broadly speaking, we think they’re worse. Relative to September 2018:

• Global growth has deteriorated, with US, eurozone and China PMIs falling below 50 and showing acute weakness in new orders.
• The global trade backdrop is worse, with volumes falling and US-China tensions escalating despite repeated reports of progress.
• Government bond yields and the yield curve are sending more troubling signals, with the market pricing in more and more policy easing but lower and lower long-term rates and inflation.
• Oil and copper prices are lower, consistent with more challenging global growth.
• Earnings growth globally has decelerated sharply. Global equity earnings were growing at 17%Y in 3Q18. For 3Q19, they’re growing at just 1%Y.

In short, investors are returning to similar levels in equity and credit as a year ago and a backdrop that’s at least as unsettling. Since the last 12 months were no walk in the park, we think caution is warranted, and remain underweight global equities and credit.

But what if we’re wrong? The development most likely to change our view would be a significant improvement in global growth/trade (rather than, say, new central bank action, or a sudden asset allocation shift from bonds to stocks). If we’re right that better data hold the key to removing recessionary fears and boosting market confidence, there’s an important caveat: the bull case involves a material sting in the tail, and this week gave us a preview.

Let’s assume our below-consensus view for global growth is wrong, and improvement comes through a combination of thawing trade tensions, additional China stimulus and global PMIs bottoming. In this scenario, yields and inflation expectations would rise meaningfully, as markets assume less easing is needed and better days lie ahead. The yield curve would steepen (ed: recall “Curve Inversion Is Bad, But It’s The Steepening After That Kills“), as central banks keep policy easy in the near term. Higher yields and a steeper curve would spark a rally in financial stocks. Smaller and more cyclical stocks would benefit from hopes of economic re-acceleration. Higher-quality businesses would no longer warrant special premiums.

This is nothing more than a standard early-cycle playbook, but it’s worth considering. While some investors are positioned for mid-cycle, others late-cycle and still others recession, very few appear to have such a scenario in mind. Consider:

• Bond markets are priced for yields to stay low and the curve to remain unusually flat.
• Expected inflation in the eurozone, Japan and the US is in the 7th, 10th and 9th percentile versus the last 15 years.
• The valuation of Value stocks versus the market is in the 11th percentile versus the last 20 years.
• Quality stocks versus the market are in the 99th percentile.
• US small versus large-cap stocks are in the 6th percentile.

What does this mean? We focus on two implications.

First, we continue to believe, strongly, that equity prices and bond yields are likely to keep moving in the same direction (stocks higher/yields higher), consistent with the equity bull case being tied to better growth rather than policy action. We remain cautious in part because our economists are more negative than consensus on the global growth outlook (yet also forecast fewer rate cuts from the Fed and ECB over the next year than markets imply).

Second, the extent to which investors are paying up for various forms of ‘defense’ suggests there are better cross-asset alternatives, which can still diversify if growth weakens further with less risk if things improve. Long JPY, long Asia equity vol and short US high yield credit are all hedges that we think have good risk/reward and relatively ‘normal’ valuations. We dislike Quality and Growth relative to the market in both the US and Europe. We think they are expensive, over-owned and more cyclical than appreciated.

This week’s rally shined a light on the market’s bull case, and the importance of a better economy to that story. Given our cautious views on growth, trade progress and central bank action relative to consensus, we maintain our cautious stance. But this week was a shot across the bow: if we’re wrong and growth is set to reaccelerate, the market isn’t positioned for it. The moves could be large.

It’s official: Iran says its Adrian Darya tanker has finally offloaded its 2.1 million barrels of Iranian oil Sunday after it was days ago spotted off the Syrian port of Tartus, bringing a lengthy standoff with the US and UK which sought to capture the vessel’s valuable cargo to an end. 

“The Adrian Darya oil tanker finally docked on the Mediterranean coast… and unloaded its cargo,” Foreign Ministry spokesman Abbas Mousavi said according to state-run IRNA. He didn’t name the country which purchased the oil, but satellite images reveal the IRGC-controlled vessel hasn’t left Syria’s coast. 

Part of the US case for pressing UK/Gibraltar authorities to not release the vessel from detention last month was that it would ultimately attempt an ‘illegal’ delivery of its Iranian crude worth about $130 million to Syria.

Gibraltar’s Aug. 15th release of the vessel came only after Iran issued a written assurance it would not deliver the Iranian oil to Syria, in violation of EU sanctions.

At the start of this weekend after the Iranian tanker was observed within a few nautical miles of Syria’s coast, John Bolton issued an ‘I told ya so’ type tweet, saying, “Anyone who said the Adrian Darya-1 wasn’t headed to Syria is in denial.”

But it doesn’t appear Washington is going to do anything about it. 

Washington has done everything short of military action to thwart and detain the vessel, including issuing a seizure warrant and bribing the ship’s captain with millions of dollars to steer it into a US-allied port. 

Thankfully Syrians will receive much needed fuel supplies. Sanctions hurt the weakest and poorest. They are a form of collective punishment that the US should abjure. This is a misguided policy that will not dislodge Assad, but will add to the suffering of powerless Syrians. https://t.co/TxbMQ8GYuW

— Joshua Landis (@joshua_landis) September 8, 2019

Despite Iran’s now confirming the delivery of the oil, evidently to Syria, a US Treasury official on Sunday disputed whether the actual offloading had taken place at the time of Iran’s announcement. 

“Right now it’s parked right outside of Syria,” Sigal P Mandelker, a US Treasury official, was quoted in Al Jazeera as saying. “So it’s yet another game of deception that we see them engaged in that we think the world needs to open its eyes to.”

Authored by Caitlin Johnstone via Medium.com,

Americans are discussing the possibility of a universal basic income (UBI) more seriously than ever before, largely due to the surprisingly popular campaign of Democratic presidential candidate Andrew Yang.

Yang has made UBI the central issue of his platform, promising a “Freedom Dividend” paid for by a Value Added Tax on businesses which would give every American over the age of 18 an unconditional $1,000 a month to help offset the looming crisis of automation replacing US jobs.

“In the next 12 years, 1 out of 3 American workers are at risk of losing their jobs to new technologies — and unlike with previous waves of automation, this time new jobs will not appear quickly enough in large enough numbers to make up for it,” Yang’s campaign site argues.

“To avoid an unprecedented crisis, we’re going to have to find a new solution, unlike anything we’ve done before. It all begins with the Freedom Dividend, a universal basic income for all American adults, no strings attached – a foundation on which a stable, prosperous, and just society can be built.”

Yang is absolutely correct that automation is going to be replacing the jobs of many people in the very near future, and he is absolutely correct that new solutions unlike anything ever tried before are going to be necessary to help address this problem. But his plan, and indeed all the most publicized plans which involve the implementation of a universal basic income, will necessarily lead to an oppressive oligarchic dystopia unlike anything we’ve ever seen before.

Jeff Bezos is in favor of a universal basic income. https://t.co/ohsW00PNKS

— Matt Stoller (@matthewstoller) September 24, 2017

Do you know who supports the implementation of a UBI besides Andrew Yang? Billionaires. Lots of billionaires, especially the new money tech billionaires who are positioning themselves to inherit the earth in the transition to a new paradigm dominated by automation and artificial intelligence. Billionaires like Jeff Bezos, Pierre Omidyar, Mark Zuckerberg, Jack Dorsey, Elon Musk, Richard Branson, Bill Gross, Tim Draper, and more moderately Bill Gates have all been seen advocating for a policy that is now being popularized as one which would level the economic playing field and take power away from the billionaire class.

Now why would that be? Why would a group of people who’ve clawed their way up to positions of immense wealth control, enabling them to live as modern-day kings, be so eager to suddenly give away that power? Why would they break with the trend we’ve consistently observed in rulers since the dawn of recorded history and voluntarily relinquish the power they fought to claim without a fight? Are billionaires just naturally good people inherently predisposed to compassionate action and wealth redistribution? Have we been wrong about Jeff Bezos being a real-life supervillain this entire time?

Of course not. This increasingly powerful class of new money tech plutocrats are not pushing to give power away, they’re pushing to secure more. As Jimmy Stewart’s character says in It’s A Wonderful Life, Potter isn’t selling, Potter’s buying.

I am not arguing against the general principle of universal basic income here. If humanity is to learn to collaborate in a healthy way with the ecosystem in which we evolved, a lot more of us are going to have to start doing a lot less. We’re going to have to stop using up energy driving to jobs the world doesn’t need to produce crap you have to propagandize people into believing they want so they’ll spend money on it and then throw it in the landfill. That’s obviously an insane way for an increasingly technologically advanced species to continue to function, and one way or another we are going to have to start doing a lot more nothing quite soon.

But imagine what will happen with a system of the kind Yang and the tech billionaires are proposing. Imagine what will happen in a society where people are no longer necessary and have nothing the powerful need. Imagine what will happen when people become dependent on a subsistence UBI set up by the already plutocrat-controlled government to sustain them when plutocrat-owned technologies render their labor completely moot. Imagine a world where a few increasingly consolidated automation firms produce more and more of the goods and services once provided by human labor and re-collect all taxes they have to pay into the UBI from a public forced by their subsistence wages to buy automation-made products and services.

That would be total oligarchic control. Not what we’re seeing now; what we’re seeing now is not total oligarchic control. Our current predicament pales in comparison to how bad it could get.

Think about what would happen in that situation if people decided they weren’t being treated fairly by the existing system. What recourse would they have? They can’t organize labor strikes if they have no labor. They can’t boycott if everything is made by the same corrupt system. Mass demonstrations and civil disobedience would go unnoticed by a power structure that needs nothing from its populace. Violent revolution would be an unwinnable game as security systems protecting the infrastructure of the powerful would also become automated. People would cease to be active participants in their society, and would instead be merely along for the ride at the whims of the oligarchs, for as long as the oligarchs deemed them not too inconvenient to keep around.

Because our last bargaining chips would have been taken away from us.

Think about how such a paradigm would dance with the current populist movements we’re seeing in the world today as people grow upset with their already oppressive living conditions. The left will be neutered far more definitively than it has been by anything that government agencies have ever been able to engineer; the workers can’t unite if there are no workers. Yellow Vests-type demonstrations would have no effect on a power structure that doesn’t require law and order outside its automation complexes. Attempts to vote the problem away will be laughed off by a political system that is even more oligarch-controlled than it already is.

Now imagine how that would dance if you add in the sort of narrative domination that advanced artificial intelligence programs would allow, as Julian Assange warned shortly before his silencing. We are already seeing such programs being developed by shady government agencies, along with increasingly Orwellian high tech surveillance systems.

That’s what the billionaires are going for. That’s what Potter’s buying.

The rich and powerful have always feared two things: death and the public. Because both of those things can take away everything they’ve stolen. Our current rulers, the billionaire class, are currently working on unlocking the secret of immortality in a number of creepy ways, and they’re working on addressing the problem of the public in the way I just described. Someday Jeff Bezos and his ilk hope to become the first rulers in history who get to rule without the threat of losing it all to death or to revolution.

The solution, obviously, is to stop this before it happens, because if it’s allowed to happen it will be far too late to do anything about it. People are going to have to wake up out of the propaganda matrix and take power away from the billionaire class, and that must necessarily include taking control of automation technologies. Artificial intelligence and automation are far too consequential for their future to be determined by a few billionaires who are only billionaires because they can think like a machine better than other people can. Humanity’s future must be guided by the collective wisdom of all human beings in the service of humankind, not by binary-minded tech wizards in the service of corporate profit margins.

A universal basic income could work under a very different system, but the one thing all the most popular UBI/automation models being promoted by the billionaire class and by Andrew Yang have in common is that none of them seek to fundamentally change the system which enables plutocrats to shore up more and more power and control for themselves. They all seek to maintain the status quo and plunge it further into oligarch-dominated dystopia. This should be rejected.

This article originally said Yang’s plan is to give $1,000 to every American between 18 and 64, but that’s an older plan of his. Yang’s “Freedom Dividend” would be for every American over 18.

*  *  *

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Thanks to advances in biometric payment technologies and ultra-slick payment systems, Silicon Valley has made it incredibly convenient to shop, pay for, and consume just about anything; and it’s about to get easier, according to MarketWatch‘s Quentin Fottrell. 

In the last decade, we’ve gone from physical credit cards to biometric mobile wallets – allowing people to store payment data in smartphones, watches, smart glasses and other devices. Now, these ‘last physical barriers’ are about to be supplanted by facial recognition. 

“The deeper the tie between the human body and the financial networks, the fewer intimate spaces will be left unconnected to those networks,” said Aram Sinnreich, associate professor of communication studies at American University and author of “The Essential Guide to Intellectual Property.

“Every technological necessity exists in the real world and is used commercially,” he says, adding “It just hasn’t all been integrated into one biometric-payment method yet because it would creep people out.”

“It’s the neoliberal takeover of the human body.” 

After a slow start, the global mobile-payment market is expected to record a compound annual growth rate of 33%, reaching $457 billion in 2026, according to market-research firm IT Intelligence Markets. As payments move from cash to credit cards to smartphones, financial-technology companies, known as fintechs, have been honing their biometric services.

Biometric technology, meanwhile, is infiltrating every other aspect of our digital lives. Juniper Research forecasts that mobile biometrics will authenticate $2 trillion in in-store and remote mobile-payments transactions in 2023, 17 times more than the estimated $124 billion in such transactions last year. –MarketWatch

“Using biometrics as a method of payment is going to be pretty popular in the future,” said attorney Hannah Zimmerman, who says the technology will propelled by “the globalization of commerce.” 

Frictionless payments translate to more spending

A University of Illinois study found that people’s purchases increased by almost 25% when mobile payment systems were used. Researchers found that the use of a mobile wallet boosted spending by 2.4% over those who don’t use them. Meanwhile, Chicago-based Consumer Intelligence Research found in a survey of 2,000 American customers that Amazon Echo smart speaker users spent 66% more on average with the online retailer than other consumers. 

As Fottrell notes, however “people who have the money to buy smart speakers may also have more to spend.” 

Still, it provides a window into the world of frictionless spending: Echo owners spend $1,700 annually at Amazon versus $1,300 among Amazon Prime members — who must pay a $99 a year subscription — and $1,000 for all Amazon customers in the U.S. Some people may have both Echo devices and Prime accounts. (Amazon did not respond to a request for comment.) –MarketWatch

Read the rest of the report here. 

Authored by John Mauldin via MauldinEconomics.com,

The last few weeks marked a turning point in the global economy.

It’s more than the trade war. A sense of vulnerability is replacing the previous confidence – and with good reason.

We are vulnerable, and we’ll be lucky to get through the 2020s without major damage.

Let’s talk about the risks facing us in the next year or so and the economic environment in which we will face those risks.

Supply Shocks Ahead

In a recent Project Syndicate piece, NYU professor and economist Nouriel Roubini outlined three potential shocks, any one of which could trigger a recession:

• The US-China trade and currency war

• A slower-brewing US-China technology cold war (which could have much larger long-term implications)

• Tension with Iran that could threaten Middle East oil exports

The first of those seems to be getting worse. The second is getting no better. I consider the third one unlikely.

In any case, unlike 2008, which was primarily a demand shock, these threaten the supply of various goods. They would reduce output and thus raise prices for raw materials, intermediate goods, and/or finished consumer products.

Roubini thinks the effect would be stagflationary, similar to the 1970s.

Because these are supply and not demand shocks, if Nouriel is right, the kind of fiscal and monetary policies employed in 2008 will be less effective this time, and possibly harmful.

Interest rate cuts could aggravate price inflation instead of stimulating growth. That, in turn, would probably reduce consumer spending, which for now is the only thing standing between us and recession.

Subnormal Growth

Most of our problems come down to debt.

Debt isn’t bad and may even be good if it is used productively. Much of it isn’t.

In theory, an economy overloaded with unproductive debt should see rising interest rates due to the excess risk it is taking. Yet we are in a low and falling-rate world. Why?

Lacy Hunt of Hoisington Management proved that government debt accelerations depress business conditions. This reduces economic growth, so rates fall. The data shows the amount of GDP each dollar of new debt generates has been steadily declining.

This is a problem because, among other reasons, central banks still think lower rates are the solution to our problems. So does President Trump.

They are all sadly mistaken, but remain intent on pushing rates closer to zero and then below. This is not going to have the desired effect.

If Lacy is right, as I believe he is, the Federal Reserve is on track to do exactly the wrong thing by dropping rates further as the economy weakens.

The Fed also did the wrong thing by hiking rates in 2018. They should have been slowly raising rates in 2013 and after. They waited too long. This long string of mistakes leaves policymakers with no good choices now.

The best thing they can do is nothing, but that’s apparently not on the menu.

Paralyzed Business

All this bears down on us as other things are changing, too.

Many relate to shrinking world trade. Trump’s trade war hasn’t helped, but globalization was already reversing before he took office.

Industrial automation and other technologies are killing the “wage arbitrage” that moved Western manufacturing to low-wage countries like China. Higher wages in those places are also reducing the advantage. This will continue.

Ideally, this process would have happened gradually and given everyone time to adapt. Trump and his Svengali-like trade advisor, Peter Navarro, want it now. I think the president’s recent demand that US companies leave China wasn’t a bluff. He wants that outcome, and he has the tools to attempt to force it. The only question is whether he will.

I agree that we have to deal with China but the fact that we must do something doesn’t make everything feasible or advisable.

Tariffs are a counterproductive bad idea. Severing supply chains built over decades in less than a few years is, if possible, an even worse idea. It will kill millions of US jobs as factories shut down for lack of components.

Some say this is just more Trump negotiating bluster. Maybe so, but the mere threat paralyzes business activity.

CEOs and boards don’t make major capital commitments without some kind of certainty on their costs and returns. The president is making that impossible for many.

Europe in Shambles

Europe is rapidly turning into a major problem, too. Negative interest rates there are symptoms of an underlying disease. Italy is already in recession. Germany suffered its first negative quarter and may enter “official” recession soon.

Germany is highly export-dependent. The entire euro currency project was arguably a plot to boost German exports, and it worked pretty well.

But it boosted them too much, bankrupting countries like Greece which bought those exports. China, another big customer, is buying less as well.

A German recession will have a global effect. Automobile sales are down and Brexit could mean further declines. That would most assuredly deliver a German and thus a Europe-wide recession. And it will affect US exports and jobs.

Then there’s Brexit. At this point we still don’t know if the UK and EU will reach terms, but there is some risk of a hard end to this drama. News focuses on the damage within the UK, but it will also affect the EU countries, mainly Germany, who trade with the UK.

These supply chains are no less intricate and established than the US-China ones. Tearing them down and rebuilding them will take time and money. The transition costs will be significant.

Bumpy Ride

Remember when experts said to keep politics out of your investment strategy?

We no longer have that choice. Political decisions and election results around the globe now have direct, immediate market consequences. Brexit is just one example.

A far bigger one is the looming 2020 US campaign. None of the possible outcomes are particularly good. I think the best we can hope for is continued gridlock.

But between now and November 2020, none of us will know the outcome. Instead, a never-ending stream of poll results will show one side or the other has the upper hand.

That will generate high market volatility, inspiring politicians and central bankers to “do something” that will probably be the wrong thing.

As noted above, if Roubini is right then rate cuts aren’t going to help. Nor will QE. Both are simply ways of encouraging more debt which Lacy Hunt’s work shows is no longer effective at stimulating growth.

They are, however, effective at blowing up bubbles.

I expect 2020 to be one of the most volatile market years of my lifetime.

I predict an unprecedented crisis that will lead to the biggest wipeout of wealth in history. And most investors are completely unaware of the pressure building right now. Learn more here.

The U.S. Army is getting much closer to deploying the next generation weapon that could soon replace the M4 carbine and M249 light machine gun sometime in the early 2020s.

On Aug. 29, the Army announced it selected three defense companies to deliver prototype weapons for the Next Generation Squad Weapons (NGSW) program.

The new weapons must be lighter and able to penetrate the world’s most advanced body armor from at least 600 meters away, defense insiders say.

“This is a weapon that could defeat any body armor, any planned body armor that we know of in the future,” former Army Chief of Staff Gen. Mark Milley has said.

“This is a weapon that can go out at ranges that are unknown today. There is a target acquisition system built into this thing that is unlike anything that exists today. This is a very sophisticated weapon.”

The announcement was originally posted on the Federal Business Opportunities website on Aug. 29. The notice said the Army selected AAI Corporation Textron Systems, General Dynamics Ordnance, and Sig Sauer as the three finalists for the NGSW program, reported Defense Blog.

For those that missed the reveal months ago, here’s AAI’s (@Textron subsidiary) prototypes for the #USArmy‘s NGSW program. The first pic is the offer for the NGSW-R segment (M4 rifle replacement), the 2nd pic shows the two NGSW-AR prototypes (M249 SAW replacement), both in 6.8mm. pic.twitter.com/SsUIhCgeku

— Parthu Potluri (@Parthu_Potluri) June 18, 2019

The request asks AAI/Textron, G.D., and Sig Sauer each to supply 53 rifles, 43 automatic rifles and 850,000 rounds of ammunition for the 27-month test. The Army is expected to wrap up the test in 1H22 when it’s expected to announce the winning design. By 2H22, the Army could start fielding the new weapons to combat units.

NGSW weapons won’t initially replace all M4 carbine and M249 light machine guns but will be given to infantry and special operation forces first.

The 27-month test will include “soldier touchpoint” tests that evaluate “mobility and maneuverability on Army relevant obstacles, and user acceptance scenario testing,” the Army says.

The Army is expected to test each weapon’s round for ballistic effectiveness under simulated combat conditions. There’s a chance in the latter parts of the test, the weapons could be tested in a war zone.

“These evaluations may be conducted with multiple squads,” the Army added.

The NGSW program has been centered around a weapon that can support a new 6.8mm bullet.

AAI/Textron is seen as the leader in the NGSW since it has spent more than a decade developing its 6.8mm cased-telescoped round.

“We have assembled a team that understands and can deliver on the rigorous requirements for this U.S. Army program with mature and capable technology, reliable program execution and dedicated user support,” says Wayne Prender, Textron Systems’ Senior Vice President, Applied Technologies and Advanced Programs.

“Together, we are honored to support America’s soldiers with the next-generation capabilities they need in their most dangerous missions.”

The Pentagon’s current shift from urban warfare in Iraq and Syria to the mountains and open terrain of Afghanistan have been the driving force behind modernizing standard issue weapons for infantry units. While standard rifles are well-suited for close combat in cities like Mosul and Raqqa, it lacks the range to kill adversaries in open stretches.

AAI/Textron will likely secure the contract for NGSW by 1H22. The contract could be as large as 250,000 weapons and 150 million rounds for the first order.