Category: zerohedge

Authored by Thorstein Polleit via The Mises Institute,

John Maynard Keynes (1883–1946) explains very well how to predict the winner of a beauty contest successfully. You must, he noted, think along the following lines:

“(…) each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors (…). It is not a case of choosing those which, to the best of use of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have to reach the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be.“

This is a perspective that those may wish to take into consideration who think the US dollar is about to collapse, would be the ugliest of all currencies. Latest data from the Bank of International Settlement (BIS) speaks a rather different language. In its 2019 Triennial Survey, the BIS informs us that daily trading in foreign exchange markets had reached 6.6 trillion US dollar per day in April 2019 – compared to 5.1 trillion US dollar three years earlier – and that the US dollar remained the single-most important currency in the FX markets, being on one side of 88% of all the trades. For comparison: the euro was on one side of 32% of all trades, the Japanese yen of 17%, and the Chinese renminbi of just 4.3%.

And if anything, the importance of the US dollar in foreign exchange markets has gone up in recent years, not down. So why is the US dollar so increasingly popular? Well, the Greenback is the currency of the world’s largest economy and unsurpassed military superpower – the United States of America. US financial markets are by far the largest, most transparent, and most liquid in the world. Like it or not: the US dollar is the preferred currency for conducting international trade and financial transactions. Among its paper money peers, there is not one candidate in sight who might challenge the US dollar’s status.

By no means less important is the fact that the US dollar serves as the ‘underlying’ of many other paper currencies: the US dollar typically represents the biggest chunk of ‘assets’ which central banks around the world keep for backing their own currencies – in most cases, foreign central banks hold US dollar-denominated US government bonds, short-term debt papers, and bank deposits. In other words: Monetary authorities around the world keep standing with the US dollar. Their currencies’ fate is tightly and inextricably linked to the Greenback.

Should something terrible happen to the US currency, it is quite likely that many other currencies would get hit even harder. This is because financial markets, especially the international banking business, have become “dollarized”: banks around the world have a structural demand for US dollar as a funding source; they depend on the availability of US dollar, they need access to US dollar loan markets. As the financial and economic crisis in 2008/2009 has made all too clear, tensions in the US dollar credit markets had hit foreign banks at least as hard, or even harder, than US banks.

For if and when investors start losing their faith in the US dollar, their trust in other currencies, which depend on the Greenback, will dwindle even stronger. In a similar vein, any financial market ‘stress’ makes investors taking refuge in the US dollar, as the US dollar is widely considered as the truly ‘safe haven’ currency: in times of crisis, the US dollar is basically always in high demand relative to other currencies. Against this backdrop, it is fair to say that from the viewpoint of the majority of market agents, the US dollar can be considered as the world’s number one currency.

What a privilege for the US! America issues a currency which is accepted and is in high demand around the world. In this way the Americans can borrow easily from the savings of the rest of the world: They can consume and invest well beyond their own resources. Or, to take a different perspective: people around the world are more than happy to send their savings to the US rather than invest them in their home countries. This is undoubtedly one of the reasons why the US ‘enjoys’ a negative trade balance – meaning that the US imports more goods and services than it exports; in other words: capital imports into the US exceed capital exports out of the US.

This situation is unlikely to change anytime soon. The monetary system of the world is, no doubt about that, in pretty bad shape. After many decades of relentless credit expansion under the central bank regime, most economies suffer from over-indebtedness. As a result, central banks have started to bring down market interest rates, trying to fend off a crisis that could bring down the credit pyramid. To do so, they engage in debasing the currencies – for the policy of propping up the unbacked paper money goes hand in hand with expanding the quantity of money. And as the money stock rises, the prices of goods and services increase, and the purchasing power of money declines.

Should the US embark upon a policy of heavily debasing the US dollar – as a reaction to, say, an economic or credit crisis –, it is likely that other currency areas would be inflated even stronger. It is realistic to assume that the world’s economy and international monetary system have become more than ever dependent on the US dollar – as suggested by, for instance, the BIS’ latest data. An increasingly inflationary US dollar monetary policy would most likely be imitated by other central banks – as they are provided with a superb chance to debase their currencies to reduce the real value of outstanding debt in their countries while blaming the US for the unpleasant surge in price inflation.

To be sure: people around the globe are demanding US dollar not because they consider it the best currency they could think of. For them, it is the best currency they are allowed to choose from. New ideas such as, for instance, Facebook’s Libra, even if it should gain traction among a great many people around the globe, do not suggest that the US dollar’s super-status will be replaced: for the Libra is supposed to effectively represent nothing more than a basket of unbacked paper currencies, among them the US dollar. Of course, one could think of an emerging cryptocurrency posing a challenge to the current dominance of unbacked paper currencies including the Greenback.

However, any such change would take time, and, perhaps even more important, it would require a profound change in people’s minds. In fact, to dethrone the US dollar, people would have to determinedly call for a truly free market in money, that is calling for an end of governments’ money production monopolies altogether. In the absence of such a movement, the odds are that the world’s dependence on the Greenback will not decline but presumably grow even further in the years to come. No doubt, the US dollar has become a huge and terrifying beast – a beast, however, that for its holder may eventually turn out to be of lesser evil when compared to the other unbacked paper currency beasts around the world.

This appears to be a reasonably good judgment if we follow Keynes’ recommended technique for anticipating the winner of a beauty contest. To be sure: the US dollar won’t be a reliable currency either, its purchasing power will undoubtedly be debased by the Fed’s monetary policy.

If you are looking for reliable money, there is pretty much only one candidate – and that is gold. Ludwig von Mises put this insight succinctly:

“The gold standard is certainly not a perfect or ideal standard. There is no such thing as perfection in human things. But nobody is in a position to tell us how something more satisfactory could be put in place of the gold standard.”

The truth of this timeless wisdom deserves to be repeated again and again.

North Korea and the U.S. will resume working-level talks on Oct. 5, North Korea’s state news agency KCNA reported Tuesday, reviving the possibility that denuclearization talks have restarted after a failed February summit between both countries in Vietnam, reported The Wall Street Journal.

KCNA said both countries would have a preliminary meeting on Friday, followed by working-level talks on Saturday, citing a statement from Vice Foreign Minister Choe Son Hui.

“The delegates of the DPRK side are ready to enter into the DPRK-U.S. working-level negotiations,” Choe said in the statement.

“It is my expectation that the working-level negotiations would accelerate the positive development of the DPRK-U.S. relations.”

Choe’s statement made no mention of an exact location or time for the planned weekend talks.

Denuclearization discussions between President Trump and Kim Jong-un, Supreme Leader of North Korea, failed to materialize any progress at a summit in Vietnam in February. Trump met with Kim in June at the demilitarized zone between the two Koreas; the meet and greet didn’t immediately revive talks between both countries until now.

For the last several months, North Korea conducted a series of short-range ballistic missile tests, while furiously commenting about U.S. and South Korean war drills.

North Korean Ambassador Kim Song told the U.N. General Assembly on Monday that it was up to the Trump administration whether negotiations “will become a window of opportunity or an occasion that will hasten the crisis.”

“The situation on the Korean Peninsula has not come out of the vicious cycle of increased tension, which is entirely attributable to the political and military provocations perpetrated by the U.S.,” the North Korean ambassador said.

Kim Song, Chair of North Korea’s delegation at UN: “The key to consolidating peace and stability and achieving development on the Korean peninsula is in the full implementation of the DPRK-U.S. Joint Statement agreed and adopted at the historic DPRK-U.S. summit meeting.” pic.twitter.com/3Ig3oybBCN

— The Hill (@thehill) October 1, 2019

Former U.S. National Security Adviser John Bolton warned Monday that North Korea had no plans of denuclearizing.

“We welcome the agreement between North Korea and the United States to proceed with working-level negotiations on Oct. 5.” South Korea’s presidential Blue House said in a statement.

“Through this working-level negotiation, we hope that substantial progress will be made at an early date to achieve complete denuclearization and permanent peace on the Korean Peninsula.”

With talks set between North Korea and the U.S. on Saturday, Washington should show more flexibility towards North Korea, offering a step-by-step process, in which economic sanctions are lifted in return for incremental steps toward denuclearization.

Authored by Patrick Buchanan via Buchanan.org,

“This is a very sad time for our country. There is no joy in this,” said Nancy Pelosi Saturday.

“We must be somber. We must be prayerful. … I’m heartbroken about it.”

Thus did the speaker profess her anguish — just four days after announcing that her Democratic House would conduct an impeachment inquiry of President Donald Trump.

But is this how it really went down? Is this how Pelosi came to authorize an impeachment inquiry before she read the transcript of the conversation between Trump and Ukrainian President Volodymyr Zelensky?

Another explanation, based on the actual events, suggests itself.

By late September, Pelosi was under constant fire from the House “resistance” that wanted Trump impeached and whose numbers were slowly growing. What was the speaker to do?

The judiciary committee is the body historically authorized by a vote of the full House to conduct impeachment inquiries. But to Pelosi this was looking like a loser, a dead end, a formula for failure followed by a backlash against House Democrats and her own removal as speaker in January 2021, if not before.

How so? Her judiciary committee chairman, Jerrold Nadler, in his investigation of Trump, had presided over a debacle of a hearing where Trump ally Corey Lewandowski mocked the members. House Budget Committee Chair John Yarmuth called the hearing a “fiasco.”

Thus, when news broke of a July 25 conversation between Trump and the president of Ukraine, during which Trump allegedly urged Zelensky “eight times” to investigate Joe Biden and son Hunter Biden’s connections to corrupt oligarchs, Pelosi seized upon it to solve all her problems.

To satisfy the red-hots in her Democratic caucus, she announced an impeachment inquiry on her own. To spare her moderates the pain of having to vote for or against an inquiry, she skipped the floor vote.

To ensure the investigation was done swiftly, she took the franchise from Nadler and his judiciary committee and handed it to Adam Schiff and the intelligence committee. Now she is urging a narrowing of the articles of impeachment to just one — Trump’s request of Ukraine’s president to look into the Bidens.

Pelosi’s hope: Have one House vote on a single article of impeachment by year end; then send it on to the Senate for trial and be done with it.

This is Nancy Pelosi’s fast track to impeachment of Trump and ruination of his presidency. But, to be sure, she is “heartbroken” about all this.

For three years, the media-deep state axis has sought to overturn the election of 2016 and bring down Trump, starting with Russia-gate. Now it appears to have tailored and weaponized the impeachment process.

That is what this is all about. It always is. Then-editor Ben Bradlee of The Washington Post, when it looked like the Iran-Contra matter might break Ronald Reagan’s presidency, after his 49-state landslide, chortled, “We haven’t had this much fun since Watergate.”

This is what the deep state does to outsiders Middle America sends to Washington to challenge or dispossess it.

How should the Republican Party and Trump’s base respond?

Recognize reality. Whether or not Trump was ill-advised to suggest to the president of Ukraine that passing on the fruits of the investigation of Joe and Hunter Biden, the end game is bringing down Trump, democracy’s equivalent of regicide.

While the “whistleblower,” whose memo is the basis of these impeachment hearings, is well on his way to Beltway beatification, no campaign to depose the president can be allowed to cloak itself in anonymity indefinitely, for one man’s whistleblower is another man’s seditionist.

Whom did the whistleblower collaborate with to produce his memo? What is his background? What are his biases? The people have a right to know. And democracy dies in darkness, does it not?

Not until 30 years after Watergate did we learn the “whistleblower” known as “Deep Throat” was a corrupt FBI veteran agent who leaked grand jury secrets to The Washington Post to discredit acting Director Pat Gray and thereby become FBI director himself.

His identity was sheltered for three decades. For whose benefit?

Republicans should not allow Democrats to fast-track this process but should give their troops time to recognize the stakes involved, organize a defense and repel this latest establishment attempt to overthrow a president elected to come to the capital to corral that establishment.

Force all the Democratic candidates for president to take a stand on removing Trump for high crimes — over a nebulous phone call to Kiev.

And the U.S. Senate should refuse to take up and should return to the House any bill of impeachment done in a short-circuited and savagely partisan manner, as this one is being done. There should be no rush to judgment.

If the election of 2020 is going to be about President Trump, tell the nation that the people will decide his political fate in November 2020, and that of Joe Biden if Democrats believe he is as pure as the driven snow and choose to nominate him.

According to BofA’s derivatives strategists, if 90 years of history of US elections is to be believed, there is scant evidence that 2020 should be more volatile than 2019, as the S&P tends to be similarly volatile in election years as in the year prior. In fact, excluding 2008 when the spike in volatility had little to do with the election cycle, volatility tends to be slightly lower during election years.  And yet, in light of last week’s political developments, 2020 could well be an exception to the rule.

As shown in the right-hand chart above, the recent increase in President Trump’s impeachment odds coincided with the simultaneous rise and fall of Senator Warren and former Vice President Biden in the market-implied probabilities for the 2020 Democratic Presidential nomination. With Biden widely regarded as a more moderate liberal/market-friendly candidate than Warren, his potential exclusion from the Presidential race could make 2020 one of the most polarized election years in modern history should Warren and Trump emerge as the two front-runners, according to BofA.

As such, the bank warns that “investors can’t ignore election risk any longer.”

While the investment implications of such a polarized scenario are manifold, the most straightforward of which is higher volatility, the uniqueness of this scenario also implies there is not a readily available trading playbook investors can rely upon. Below, BofA explore some of its preferred investment ideas to trade 2020 election risk.

But first things first: How much election-related risk is priced in?

Before jumping to the bank’s election trading playbook, it is key to first understand how much election risk is already priced into markets. Anecdotally, the bank’s strategists note that they are starting to see interest from clients in hedging both the election and its run-up, with a particular focus on the early rounds of the Democratic Party’s primaries.

Iowa and New Hampshire will be the first states to vote, on February 3rd and 11th, followed by Nevada (22-Feb), South Carolina (29-Feb), and finally Super Tuesday (3-Mar, when 14 states will cast their ballots). Historically strong predictors of the eventual outcome, these early caucuses and primaries may cause the strongest market reaction if there remains significant uncertainty about who will win the Democratic nomination. Hence, any evidence of equity protection buying will be most clearly observed in Feb-Mar (S&P) option expiries. Purely from a political perspective, the risks to potentially higher vol could include the resurgence of a more moderate candidate like Biden or dominant polling numbers by Trump against the leading Democratic candidates.

The logical first place to check for election-related risks is the VIX futures market. To match the timing of Warren’s recent move higher in the polls (chart below, left), BofA compared the level and shape of the VIX futures curve on 12-Sep and 30-Sep. While the entire curve shifted higher in these last 2.5 weeks, there is so far no evidence of additional premium in Jan or Feb futures (which capture S&P implied vol in Feb & Mar, peak primaries season – chart below, left). The chart below, right confirms this numerically: the cost of a “futures condor” which sells the Dec-19 and Mar-20 futures and buys Jan-20 and Feb-20 has not increased with Warren’s odds. Selling the Jan-20 and Mar-20 futures to buy 2x Feb-20 futures has not gotten more expensive either.

Yet if equity markets are not yet concerned about the Democratic primaries, is this also true of the actual election? As BofA responds, unlike VIX futures (which are only listed through Jun-20 today), “S&P-based measures of equity vol allow us to look beyond the primaries to the election on November 3rd. We find that an election risk premium has emerged in the last 3 months, evident by the kink in the Dec-20 point on the S&P variance swap term structure (chart below, left).” The chart on the right plots the hypothetical cost of selling Sep-20 and Mar-21 vs. buying 2x Dec-20 S&P variance to help extract an election premium. While the size of the dislocation varies over time, we appear to have entered a new regime in which owning Dec-20 S&P vol requires a larger premium compared to owning Sep-20 and Mar-21.

Hedging Liz

Getting to the big point, should S&P 500 options markets grow more concerned about the implications of a strong Elizabeth Warren showing in the Feb/Mar-20 caucuses and primaries, strategies that sell SPX straddles expiring before the “catalyst” to fund same-strike straddles expiring afterwards stand to profit. This was the case heading into Brexit, the 2016 US presidential election, and the 2017 French elections, when such long-short straddle pairs benefited from an expansion in “event risk premium”. For example, the first chart below shows the hypothetical P&L of a short SPX 4-Nov-16 2100 straddle vs. a long SPX 11-Nov-16 2100 straddle (the US election was on 8-Nov), which achieved a gross payout ratio of ~4.5-to-1. BofA would look to deploy similar strategies once S&P weekly options spanning the caucuses/primaries become listed. Owning the VIX futures fly/condor shown in the next chart below is an alternative way to benefit from a potential rise in primaries event risk premium with limited risk, though likely with less asymmetry as the VIX futures curve tends to dislocate less than the term structure of S&P weekly options in our experience.

Focus on the casualties

According to BofA, financials and health care companies will likely be the biggest “president Warren” casualties. While Warren is broadly regarded as being a less market friendly candidate than President Trump has been, Financials and Health Care are perceived to be the two sectors that stand to lose the most if Warren were to be elected, at least based on her track record and rhetoric. In particular, Financials are likely to weaken on the risk of an increase in regulation (“The real cause of the crash was not some inevitable cycle; this crash was the direct consequence of years of deliberate deregulation…”, Apr 2014 – Elizabeth Warren). Arguably, Financials would also be hurt by falling yields if markets were spooked and a textbook flight-to-safety type of sell-off played out.

The Health Care sector is also at risk given Warren’s push for Medicare-for-All (“I spent a big chunk of my life studying why families go broke. One of the number-one reasons is the cost of health care, medical bills. [..] Medicare for all solves that problem”, Jun 2019 – Elizabeth Warren).

In terms of what is priced-in for the Democratic primaries, it is clear at the sector level that Health Care and Financials are alert to the risks, with for instance Mar-20 expiry vol showing little-to-no change since August month-end vs. a general decrease in all other expiries’ vols (see below charts). Indeed, the Mar-20 minus Jan-20 ATMf implied vol spread has been on a firm uptrend over the past month for both Financials (XLF) and Health Care (XLV).

That said, since the volatility of both sectors is historically elevated, rather than recommending buying outright puts, BofA prefers financing downside protection by selling SPY puts. Here, relative value opportunities are particularly attractive between XLF and SPY, given the implied vol spread is depressed both historically and vs. trailing realized vol (the 3m realized vol ratio of XLF vs. SPY is 1.22 vs. the 6m ATM implied vol ratio of 1.13).

As an example, buying $0.85 notional of the XLF Mar-20 put (ref. 28.02, 47d) and selling $1 notional of the SPY Mar-20 put (ref. 296.98, 45d) is roughly zero cost upfront. The theoretical expiry P&L shows a highly asymmetric and favorable historical risk reward profile. For instance, the P&L was positive one-quarter of the time since Jun 09, and negative only 3% of the time. In addition, positive returns were on average 4.1%, 3.6x as large as negative returns. Importantly, the max gain of 11.9% was 4x as large as the max loss (-2.9%). Finally, while the P&L suffered some losses at the start of the 2011 and 2015 sell-offs, the trade ultimately delivered positive returns that outstripped the initial losses.

Authored Omid Malekan via Medium.com,

A lot has changed since I first started writing that stablecions would become a big deal and disrupt the booming payments and FinTech industries. On the crypto side, blockbuster projects like JPM Coin, the Utility Settlement Coin and Libra were announced. Dai proved resilient despite an ugly collateral winter and public coins like Tether grew even larger. Regulators and central bankers went from not knowing to what they are to obsessing over them.

 

And yet, on the FinTech side, nothing has changed. Judging by the capital markets, investors now believe in siloed payment providers who own proprietary pipes more than ever. Visa has overtaken J.P. Morgan to become the world’s biggest financial company. PayPal’s stock is 20% higher from when I first wrote about its inevitable demise. Stripe’s valuation has jumped by 50% in less than a year.

Ironically, the ascent of the (soon to be) old guard happened despite all three companies giving stablecoins the ultimate stamp of approval by joining the Libra Association. Here is David Marcus going on about how Libra will change the world by drastically expanding access and lowering fees, and there are three of the world’s biggest payment companies — with business models based on limited access and higher fees — nodding along.

Say what?

I like history, and analogies, and find an appropriate one in the transportation industry of the early 19th century. Moving money is a lot like moving goods. If either money or a physical item needs to get from point A to point B, and you happen to control the only route, then you get to charge a toll. If an unrelated secular trend leads to a lot more goods or payments needing to traverse that route, then you make a lot of money.

Today, the good is electronic payments, and the routes are cards rails and e-money schemes. As commerce grows increasingly digital, global and platform based, the few available pipes to send payments grow increasingly profitable. In the 1800s the good was industrial and agricultural supply, and the routes were rivers and lakes. As the world grew increasingly industrial and trade-oriented, the few available routes out of North America grew increasingly important. Contemporary companies like Stripe and PayPal are changing the payment landscape by building important bridges between legacy payment pathways. Back then, the same thing was accomplished by building canals.

If you aren’t familiar with the canal boom of the first industrial revolution you are missing out. So much of the map, economic layout, population distribution and culture of America can be attributed to a single piece of infrastructure: the Erie Canal. It connected two major shipping corridors in the form of the Great Lakes and the Atlantic Ocean via the Hudson River and literally redrew the map of North America. The Midwestern farm belt, Northeastern Industrial Belt and New York City all ascended because of it. And of course, it was highly profitable. So much so that its tolls paid for the massive cost of construction within 3 years, a repayment time unheard of in the modern era.

Canals are slow, expensive to build and difficult to maintain. But because they were the only game in town in the early industrial era, they were economically important. There was a time when the fastest way to ship goods across Pennsylvania was up to the Great Lakes and down through New York City. The success of the Erie as an economic gateway inspired many other canals to be built at great expense. They all did great, and made a ton of money, until the railroads did them in.

I like this analogy because it shows how in the absence of a proper network that connects two points directly, even the most cumbersome, indirect and expensive transportation options could do extremely well. That’s the FinTech payment boom of 2019 for you. What makes companies like Stripe so successful is that they can abstract away all of the inefficiencies and messy underbelly of the siloed payment industry and give merchants and users a payment experience that looks seamless. This is a valuable contribution today, but not nearly as good as a grid that allows instant point to point transfers of money. That’s the stablecoin vision of tomorrow.

We can stretch this analogy as far as we like. Just as the biggest payment providers of today have joined Libra because they believe it only accentuates their business model, canal operators initially embraced railroads as a means of bringing more goods to their shores. Both stablecoins and railroads are in some ways limited in capacity compared to the infrastructure they hope to replace, but the efficiencies of shipping (or paying) point to point are worth the trade-off.

Some canals survived deep into the railroad boom and were even expanded as a result, which means some of today’s payment gateways, particularly the wholesale ones that move huge sums of money, will be with us well into the stablecoin boom, and possibly benefit from it.

We are already seeing this with Libra. In order for the overall mission to be successfully, the project is going to need a lot of help from the legacy financial system, including certain payment gateways.

I expect the endgame for most of today’s payment players to be the same as those of 18th century canals, now more than ever. A network, be it a physical one for moving goods or a digital one for moving value, wants to be built. The efficiencies and growth economics are too tempting to ignore. The more money the Visas, PayPals and Stripes of the world make operating their canals, the more everyone else will be willing to invest in a network that replaces them — despite challenges like this.

Libra is just the beginning. Whether it succeeds, or even launches, is a moot point. The idea of a decentralized payment network that only charges minimal fees to provide security (as opposed to seeking rent to reward shareholders) has now been validated, and there’s no turning back. If the statement “your profit margins are my opportunity” is to be believed, then there is no greater opportunity in all financial services than a secure global blockchain-based payment network.

Last week we explained how the global IPO market was unraveling. Then this morning, we outlined how the devastating impact of WeWork’s catastrophic failed IPO had damaged capital market sentiment. It’s likely that 2019 will go down in history as the worst year for IPOs, not just in the US, but also globally. 

As the global IPO bubble implodes, there’s a new report from Reuters that warns how global mergers and acquisitions (M&A) are also plunging, a sign that economic uncertainty surrounding the trade war has frightened capital markets.  

As corporate sentiment deteriorates around the world, many believe a global trade recession could arrive as early as 2020, which has sparked a massive push into money markets, precious metals, and government bonds in the last six to eight months. 

With the expectation of economic doom ahead, management teams of multinationals are quicky pulling M&A deals. This was evident in 3Q19 figures, where global M&A plunged 16% YoY, one of the lowest quarterly volume prints since 2016. 

“M&A volumes have dissipated because there are concerns that risks may be rising in several spots, in markets and elsewhere,” said Michael Carr, global co-head of M&A at Goldman Sachs Group Inc.

A lot of the uncertainty was seen in the US, M&A volume collapsed by 40% YoY in 3Q19, to $246 billion, the lowest quarterly level since 2014.

M&A volume in Asia was weakening as well, down 20% YoY to $160 billion, the lowest level since 2017.

Robin Rankin, global co-head of M&A at Credit Suisse Group AG, told Reuters that valuation concerns of companies have slowed down M&A transactions.  

“Companies looking at deals have become more risk-averse, and this is likely to bring M&A volumes down for the year. But we expect M&A activity to be strong going into next year,” said Rankin. 

Deal making in Europe was an exception. M&A volume across the Eurozone jumped 45% YoY in 3Q19.

“In Europe we have seen a real mix of different kind of deals which were spread across various sectors and geographies,” said Eamon Brabazon, co-head of EMEA M&A at Bank of America Corp .

“This is a sign of a healthy market because we’re not relying only on a particular strand. There’s no obvious reason to believe the M&A market will turn south in the foreseeable future,” he added.

One of the largest M&A deals that went bust in the quarter was Marlboro maker Philip Morris International Inc’s bid to merge with Altria Group Inc, would have created a market value of $200 billion. The deal was scrapped when government officials opened investigations into Altria’s Juul e-cigarette, for the possibility of triggering a dozen or so vaping-related deaths. 

Waning capital market sentiment because of trade wars and recession threats could lead to more management teams pulling deals. It certainly seems that the windows for IPOs and M&As are closing, as economic turmoil could flare up in 2020. 

A slowdown in M&A deals is an ominous sign that Wall Street banks will see declining revenues in the quarters ahead

Authored by Eric Posner via Project Syndicate,

America’s Democrats have made a serious mistake by launching impeachment proceedings against President Donald Trump. They are replaying the Republican impeachment of Bill Clinton in 1998, a futile exercise that damaged Republicans, enhanced Clinton’s power, and caused institutional damage as well.

The common factor of the two impeachments is that it was clear from the start that the US Senate would never convict, which requires a two-thirds majority. The 45 Senate Democrats were not happy that Clinton perjured himself before a grand jury, obstructed justice, and conducted an extramarital sexual affair with a White House intern, Monica Lewinsky. But they did not believe that this behavior was grounds for removal from office. The behavior was not sufficiently egregious to overcome their political loyalty to a president who remained popular with voters.

Republicans leading the impeachment knew that few if any Senate Democrats would vote to convict (in fact, none did). But Republicans hoped to embarrass the Democrats and damage Clinton, believing that they would pick up some seats in the November 1998 election by launching impeachment proceedings before then. They were wrong. Clinton’s popularity rose after the impeachment proceedings ended. Most Americans believed that impeachment was a mistake.

Many people worried that the Clinton impeachment would damage the presidency, but its main impact on presidential power was the opposite. Republicans eventually agreed with Democrats that responsibility for the debacle lay with Kenneth Starr, the independent counsel whose investigations of Clinton’s real-estate dealings years earlier eventually led him to Lewinsky. The two parties allowed the independent counsel statute to lapse, freeing the presidency from a powerful form of oversight, much to Trump’s benefit a generation later.

Today, Senate Republicans may well be privately concerned about Trump’s behavior. But there is no indication that even one would vote in favor of removal. While Trump is nowhere near as popular as Clinton was, he retains the loyalty of his base, who dominate the Republican primaries, and, unlike Clinton, he enjoys majority support in the Senate. Indeed, the extraordinary enthusiasm of Trump’s supporters – their indifference to his many other scandals – almost guarantees that any additional information that might materialize during the impeachment hearings will not influence Republican senators.

Some supporters of impeachment argue that the gravity of the accusations against Trump – that he enlisted a foreign country to harass a political opponent – will ensure his conviction. But we have been through this before. Democrats who abhor sexual harassment and perjury supported Clinton because they saw the alternative as worse. Republicans will make the same calculation. Perhaps the story would be different if Trump had persuaded the Ukrainians to arrest Joe Biden while sightseeing in Kyiv. The president’s behavior, as odious as it is, is a far cry from Richard Nixon’s involvement in espionage against the Democratic Party – the single historical example of impeachment proceedings leading to the removal (in Nixon’s case, resignation) of the president.

Others argue that even if Trump is not removed, impeachment in the House – which the Democratic majority virtually guarantees – will send a strong signal that the president’s behavior violates American values. But impeachment has its own narrative logic: once the Democrats initiate it, they either win or lose. If they lose, they will be seen as losers who wasted public resources for a futile goal.

Still others believe that impeachment hearings will reveal that Trump has committed crimes or betrayed the country in as yet undisclosed ways, or that the hearings will enable Democrats to convey the seriousness of all the president’s wrongdoing in a way that will galvanize the public. But the leaky Trump administration has kept few secrets so far, and much of his behavior has been normalized, at least for his Republican supporters. Impeachment proceedings, unlike judicial proceedings, are a cumbersome mechanism for developing evidence. Nothing new was learned about Clinton after the Starr Report was issued, and nothing new will be learned about Trump.

Indeed, Trump’s character flaws and misbehavior are already so well known that the impeachment proceedings will most likely blow back and cause more harm to Democratic politicians than Republicans. Again, the Clinton impeachment offers lessons. Everyone knew, or suspected, that Clinton was a womanizer (or what today might be called a sexual predator) and a serial liar. People were not quite as aware that Republican Speaker Newt Gingrich had also conducted an extramarital affair, as did his successor, Bob Livingston. Both resigned; Clinton remained in office. Trump’s greatest skill is in turning his prosecutors into the accused. Expect this to happen again, with Trump using his Twitter account to shine a spotlight on whichever Democrats have the greatest political vulnerabilities.

None of this is rocket science.

So, why would a canny politician like Speaker of the House Nancy Pelosi yield to other members’ pressure for impeachment (though she is clearly temporizing – for example, by refusing to hold a vote in the House to authorize the impeachment proceedings)? The answer stems from the basic logic of Congress in a polarized era.

Congress is a collective body. Its members are beholden to voters in specific districts or states rather than the country as a whole. House Democrats from more liberal districts fear that they will be defeated in primaries by more forcefully anti-Trump challengers. The only way to counter such challenges is by supporting impeachment. As more Democrats jump on the bandwagon, more moderate Democrats join in to avoid looking like defenders of Trump’s misconduct.

Mark Twain supposedly joked that “history does not repeat itself but it often rhymes.” But in this case, repetition seems to be the right word. The political logic that trapped the Republicans in 1998 will operate the same way on the Democrats in 2019.

Earlier this year, Japan’s SoftBank Group Corp. announced a $5.5 billion share buyback program as it said valuations for its technology investments continued to soar. Eight months later, and those technology investments are imploding, has since sent Softbank’s stock into a bear market. 

SoftBank’s share buyback program included measures to repurchase 112 million shares worth $5.5 billion through 1Q20, or about 10% of its current outstanding shares, excluding treasury stock.

Upon the announcement of the buyback program, Softbank’s equity nearly doubled from early February to late April. Then by late summer into early Fall, SoftBank’s shares plunged 28% in the last 42 trading sessions, pressured by troubling issues with the SoftBank Vision Fund, the company’s $103 billion venture portfolio.

SoftBank Vision Fund owns significant stakes in technology companies across the world. Some of the most recent pressures have been the valuation implosion of Uber and WeWork, reported Bloomberg. 

“Uber and WeWork, marquee investments by SoftBank, have both had a lamentable 2019. Uber finally went public in May, however its shares have tumbled more than 30% since then, hit by a $5.2 billion loss in its most recent quarterly earnings. Uber’s growth metrics are also starting to slow down, which is bad news for a company justifying its high burn rate on the basis of prodigious expansion.

WeWork, valued at as much as $47 billion, stumbled when it tried to go public as investors balked at its vertiginous valuation and unconventional governance practices. Chief Executive Officer Adam Neumann stepped down from the post, with Son’s SoftBank Group pushing for change. He is also tapping SoftBank Group Chief Operating Officer Marcelo Claure to help turn the company around, as WeWork faces a liquidity crunch. SoftBank Gives ‘Very Public Lesson’ to Founders in WeWork Ouster,” Bloomberg noted. 

The Vision Fund also owns significant stakes in technology companies in Asia, including a 29.5% stake in Alibaba Group Holding Ltd., one company that has found itself center stage in the trade war between the US and China. 

Alibaba saw its shares slide 11.4% in the last six trading sessions, with a 7.3% drop on Friday, due to new reports the Trump administration could delist Chinese companies from US exchanges.

New delays in the T-Mobile US Inc., Sprint Corp. merger have also added more woes to the fund, thus pressuring SoftBank’s stock. The fund has an 85% stake in Sprint, which SoftBank founder Masayoshi Son has been eager to see the merger close. 

Son’s aggressive risk-taking in technology companies dazzled investors in the last decade — but there are concerns that he might have overlooked valuation metrics for some. 

“The size and pace at which SoftBank made its investments raises issues of whether it paid close attention to the usual valuation metrics,” wrote Barry Ritholtz, a Bloomberg Opinion columnist and chairman of Ritholtz Wealth Management.

“Perhaps the Vision Fund allowed the hype to get the best of its assumptions about future growth and singular domination by these companies.”

SoftBank Vision Fund could be headed for a hard landing after valuation concerns of some of its technology holdings, could send SoftBank shares even lower, despite a $5.5 billion buyback program. 

S&P Global Ratings warned in July that SoftBank’s announcement of Vision Fund 2 is “extremely aggressive growth strategy and underlying financial policy… are likely to continue to restrain its credit quality.”

It’s only when the tide goes out that we find out SoftBank’s Vision Fund, managed by Son, has been swimming naked all along. The company took on too much leveraged and paid too much for unicorns. The tide is going out, and going out quick, SoftBank is likely headed for turmoil. 

The British pound swiftly erased a session’s worth of losses Tuesday evening local time following reports that the EU is ready to work with UK PM Boris Johnson to include a time limit on the controversial Irish Backstop.

Remember: The Irish backstop is a provision in the withdrawal agreement that would purportedly impose a hard border between Northern Ireland and the rest of the UK if the two sides can’t come up with a permanent trade deal during the post-Brexit negotiating period. The provision is a ‘backstop’ – meaning it only comes into effect if no binding agreement is reached.

But according to Bloomberg, the EU is reportedly on the verge of making a major concession to Johnson: Possibly agreeing to time-limit the backstop, which would help assuage British concerns that the backstop could leave them ‘trapped’ in the EU customs regime without any say over policy. Johnson himself has compared this status to being a “vassal state”.

If the report is accurate, this would be the most serious sign yet that the EU might be willing to fold to Johnson and grant him the concessions he needs to pass an updated version of Theresa May’s withdrawal agreement.

Per BBG, any time limit granted by the EU could be linked to giving the Northern Ireland Assembly a vote in whether the province remains in the backstop, which is designed to prevent a hard Irish border, the people said.

The news sent the pound surging.

Still, with Parliament in turmoil, it’s unclear whether Johnson would even be able to sell a modified Irish backstop. The deal would also need to be accepted by the Irish government.

But for months now, we’ve been pointing out that the EU doesn’t have the legal authority to force the UK and Ireland to build physical barriers – meaning that the bloc’s refusal to budge on the withdrawal agreement is merely a bluff.

Authored by Mike Shedlock via MishTalk,

Climate change alarmists have convinced the public something must be done now. The reports are easily debunked as fraud…

My Gift To Climate Alarmists

Tony Heller does an amazing job of showing how the fraud takes place in his video entitled My Gift To Climate Alarmists.

The video is only 12.51 minutes long.

Cherry Picking

• Heatwaves increasing since 1960

• Arctic ice declining since 1979

• Wildfires increasing since 1983

• Sea levels rising since 1920

When you want to mislead people with statistics picking the start date is very important.

Alarmist Heat Wave Chart Shown vs Underlying Data

US Wildfires as Presented by Alarmists vs Actual Data

Please compare the right hand portion of the above chart with the lower half of the heat wave chart to see the actual correlation.

Arctic Sea Ice Extent

US Sea Level Since 1920

US Sea Level Since 1850

Sea Level Rising for 20,000 Years

Waverly Ohio

Climate Fraud Tool

Tony Heller devised software to automatically pick the perfect start date for climate alarmists to use to portray what they want.

“Most scientists are keeping their mouths shut because they they have to. They would lose their career and income if they didn’t.”

“Adults won’t take climate change seriously. So we, the youth, are forced to strike.”

“The Green New Deal reads like the communist manifesto”.

Redistribute the World’s Wealth by Climate Policy

The climate change activists will of course claim that such statements are out of context.

I agree they likely are. But the brainwashing of kids isn’t.

Flashback 1989

Entire nations could be wiped off the earth by 2000.

Visit Real Climate Science for more information.

Heller shows some of the tricks alarmists use, but what about the actual long-term data?

Global Warming Swindle

William Land describes the actual underlying data for thousands of years in the “Great Global Warming Swindle“.

The video is long. However, the data aspect is fully covered in the first 35 minutes. The rest covers the politics of what’s happening. Here are some clips that I made.

Facts don’t Fit the Theory

Global Warming Fraud Basics

Co2 and Temp vs Solar Activity and Temp

Carbon dioxide does not fit the global warming cycle at all. Solar activity does.

Al Gores’ Ice Core examples

Al Gore’s ice core tests show Gore is wrong. Carbon dioxide lags temperature by 800 years.

Temperature leads CO2 not the other way around.

Cosmic Rays Inverted vs Temperature

• When cosmic rays went up, temperatures went down. When cosmic rays went down, temperature went up.

• Climate is controlled by the clouds. The clouds are controlled by cosmic rays. The cosmic rays are controlled by the sun.

• Vastly different records come together beautifully.

• It all comes down to the sun, not CO2.

Patrick Moore Greenpeace Co-Founder

Deniers and Heretics

Scientists who speak out face “climate denier” drumbeats.

Anyone who keeps it up long enough is labeled a heretic or worse.

“The environmental movement is really a political activist movement,” says the Greenpeace co-founder.

Worse yet, what should be a scientific debate, is now an unwinnable religious debate with indoctrinated kids used as tools.