Over a million people flood into the nation’s capital every day; lawmakers, lobbyists, civil servants, students and tourists – and around 10,000 of the world’s best spies.
As WTOP‘s J.J. Green notes in his three-part series on Washington D.C.;“Woven into that orderly bedlam are sophisticated networks of foreign nationals whose sole purpose is to steal secrets.
Green’s figure for 10,000 spies comes from the International Spy Museum in D.C. – and while there is “some quabbling about the numbers,” the FBI apparently agrees with the premise.
“It’s unprecedented — the threat from our foreign adversaries, specifically China on the economic espionage and the espionage front,” said the FBI’s Brian Dugan – Assistant Special Agent in Charge of Counterintelligence in the Washington Field Office.
“A spy is nondescript. A spy is going to be someone that’s going to be a student in school, a visiting professor, your neighbor. It could be a colleague or someone that shares the soccer field with you,” Dugan added.
The archetypal international spy in Washington for many years has been undercover diplomats and foreign intelligence agency assets.
There are more than 175 foreign embassies, residences, chanceries and diplomatic missions in D.C. Tens of thousands of international students reside in the region. And untold numbers of business people with links to foreign intelligence services flow in and out every day.
The training of highly skilled spies, especially those who work in Washington, makes them virtually invisible to ordinary, unsuspecting people.
Washington, according to current and former U.S. intelligence sources, is normally the place where most countries send their best spies. –WTOP
Longtime CIA covert operative Robert Baer told WTOP that even the best spy chasers have a hard time catching foreign operatives in Washington.
“Everybody in the espionage business is working undercover. So if they’re in Washington, they’re either in an embassy or they’re a businessman and you can’t tell them apart because they never acknowledge what they’re doing. And they’re good, so they leave no trace of their communications,” according to Baer, who added: “With the darknet and various private encryption platforms, algorithms and the rest of it, you can operate right here in Washington, D.C., and if you’re good and you’re disciplined and careful, the FBI will never see it.“
Russia Russia Russia
According to Kremlin defector Sergei Tretyakov before his untimely death in 2010, Russia regards the USA as its “main target,” where they sent their best assets.
Retired CIA official and Russia expert John Sipher agrees – telling WTOP in April 2018that Moscow has hundreds of spies living on American soil.
“They have somewhere on the order of 175 to 200 spies in the United States,” said Sipher. That said, Green notes that Russia’s actual intelligence footprint in the United States is much larger.
“The Russians are hyper focused on the United States. They see us as their main adversary, the main enemy. All the elements of state power — whether it be their diplomatic service or intelligence services or police services — are focused on the United States, Sipher added.”
Accomplices
According to Baer, one focus of D.C. spies is enlisting the help of Americans willing to break the law to help them.
“There’s a large population in retirement or getting close to retirement. The baby boomers are all leaving and that population is looking for post-government jobs,” said Dugan, adding that foreign spies are using social media and other resources to recruit those with national security and intelligence backgrounds.
“Of course there’s always going to be moments that we’re going to have people decide to cooperate with the enemy. And we’re going to find them, and we’re going to catch them,” said an optimistic Dugan.
via ZeroHedge News http://bit.ly/2WRmslm Tyler Durden
Three weeks ago, at the start of June, we mocked Goldman’s economics team for having come up with “Schrodinger’s Fed Funds”, when with Powell telegraphing an imminent easing cycle, the team of Jan Hatzius et al refused to throw in the towel and change its long-running forecast of no rate cuts in 2019 and one rate hike in 2020 even though at the same time it said that its “modal path” called for at least one rate cut by 2020. In other words, Goldman – which last December predicted 4 rate hikes in 2019 – was hoping to have its cake and eat it too.
Schrodinger’s Fed Funds: Goldman expects both 2 more rate hikes (modal path) and 1 more rate cut (expected path) at the same time pic.twitter.com/jAJM3S198Q
This followed just one month after Goldman, whose predictions in recent years have been absolutely disastrous, said that “the next move is more likely to be a hike than a cut, with the next rate increase coming after the election in 2020Q4, followed by another hike in 2021.”
Goldman: “the next move is more likely to be a hike than a cut, with the next rate increase coming after the election in 2020Q4, followed by another hike in 2021.”
And so, with Powell dropping hint after hint that the hawkish Fed chair of 2018 is no more, and has been replaced with Trump’s spineless footstool, we predicted two weeks ago, on June 7, that Goldman would finally capitulate as the Fed made clear that it is only a matter of time before rate cuts begin.
Goldman will capitulate today and project rate cuts
We were wrong… but by only 12 days because moments ago following today’s capitulation by Powell, Goldman has similarly capitulated and in the latest humiliation for the predictive abilities of Goldman’s economics team, which is now competing with Gartman for batting -1.000, Goldman writes that it now “expects cuts in July and September, as well as an end to balance sheet runoff in July. Our base case is for moves in 25bp increments, but a 50bp cut is possible if the news flow disappoints and/or Fed officials feel compelled to get ahead of bond market pricing (which currently implies a 32bp cut in July). Conversely, the hurdle appears to be very high for the committee to forego a cut in July”
Admitting that its weekend analysis that the Fed would disappoint the market was dead wrong, Hatzius writes that “the Fed… delivered a dovish message, even relative to market expectations” as “seven of the 19 participants projected 50bp of easing this year, and the statement provided an unqualified “will act as appropriate” signal that cuts are now likely.”
Separately, with Powell “strongly suggesting” that runoff will conclude as soon as the Fed delivers a rate cut, Goldman now expects that “the end of balance sheet runoff will be moved forward by two months, with an announcement at the July meeting that halts runoff in early August.”
While it is hardly relevant, considering just how gruesomely wrong Goldman has been about, well, everything, here is Goldman’s take on “what were the most important takeaways from today’s meeting” starting with…
1. The magnitude of the declines in the dots, the starkness of the change in Chair Powell’s tone relative to the May press conference, and the unqualified “will act as appropriate” phrase in the statement. First, eight participants projected at least one cut in 2019, including seven who saw a 50bp move, and the majority of the Committee now projects a cut by 2020 (see Exhibit 1).
And while this would imply a divided committee, in the press conference Powell suggested that there was a broader consensus moving in the direction of rate cuts and did nothing to discourage the interpretation that his own dot is calling for lower rates this year.
2. Second, the tone of the June press conference was much more dovish relative to the May press conference, at which Powell refused to discuss cases in which the Fed might cut rates and did not express immediate concern about downside risks to inflation expectations. As shown in Exhibit 2, Powell offered quite a different take today on several central issues.
What is bizarre, as we noted earlier, is that despite the sharp divergence in the dot “camps”, most of the changes in the Summary of Economic Projections were similar to our expectations, with the exception of lower projected core inflation next year (-0.1pp to 1.9%) and a surprising upgrade to the GDP projection (+0.1pp to 2.0% for 2020 growth). In other words, the Fed is cutting even with the economy firing on all 8 cylinders.
3. Third, when comparing the Fed’s statement to his redline, Hatzius points out that the phrase “will act as appropriate” was not qualified by the words “as always,” as it had been in Chair Powell’s speech at the Fed conference in Chicago on June 4. This kind of language, unless qualified, usually presages policy action Hatzius writes.
* * *
Here Goldman makes an interesting observation, asking why the Fed would cut rates if its baseline outlook remains “favorable”? The answer, according to Hatzius, is that growth concerns are the primary justification, with low inflation lowering the hurdle required for Fed action.
After all, Powell kicked off the press conference by emphasizing the Committee’s “overarching goal” of sustaining the expansion. Powell also offered a list of uncertainties that could warrant accommodative policy, ranging from global growth and trade policy to relatively minor headwinds such as the grounding of the Boeing 737 MAX and the drop in oil prices (-$10 since the May meeting).
As Goldman concludes, the statement and press conference strongly suggest that at least part of the Fed leadership believe rate cuts are appropriate. As shown in Exhibit 2, the Treasury market now views even larger cuts as likely.
So now that even Goldman accepts a rate cut is coming, the next question is whether it will be a single (25bps) or double (50bps) in July. Here Goldman predicts just one cut (so bet it all on 50bps) , as “Insurance cuts” that are more preemptive in nature “tend to be 25bp”, with larger cuts saved for circumstances in which the economy already appears at risk of sliding into recession. According to Hatzius, the rationale is that providing accommodation gradually in small doses “seems more natural when the motivation is to provide insurance against ongoing uncertainty rather than to provide a large immediate boost to growth.”
The punchline? Goldman’s admission that the Fed has not only capitulated, but also abdicated its role of being ahead of the market instead of being dictated to by it. Case in point, “the results of today’s meeting suggest that many FOMC participants are increasingly influenced by the expectations embedded in bond market pricing and other outside influences.”
This means that any time the bond markets wishes to, it can force the Fed’s hand from now on… even if it results in making the biggest cheap liquidity-driven asset bubble of all time even bigger.
So with the bond market already discounting a 32bp rate cut at the July meeting, and if expectations continue to creep toward 50bp, “the FOMC might well deliver a 50bp cut for fear of disappointing the market, even if the economic data do not paint a particularly worrisome picture.”
For those who still don’t get the picture.
The apparent influence of the bond market recalls the well-known comment by political strategist James Carville: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.” Carville spoke in the 1990s when the bond market worried about upside inflation risk, but the same basic logic might apply today.
And…
… if it is true that the Fed’s decisions have become increasingly responsive to bond market expectations, it might prove hard to stop cutting. The bond market might continue to price cuts even if downside risks merely linger, the White House is likely to continue calling for lower interest rates, and the idea that “an ounce of prevention is worth a pound of cure” when the effective lower bound limits the ability to respond to recessions might continue to gain popularity in monetary policy discussion. This creates a risk that easing will remain the path of least resistance beyond September.
Translation: the bond vigilantes are back, only this time it is not to push rates higher, but to make sure the Fed wins the race to the bottom, even as the biggest asset bubble of all time gets even bigger, creating a “huge risk” that in just a few months the Fed will be forced to intervene and to stop the ensuing melt up or risk losing all credibility.
via ZeroHedge News http://bit.ly/2RlI2rY Tyler Durden
For all of Joe Biden’s political experience – Jeff Gundlach recently said that Biden had spent 32 years running for president (unsuccessfully) – the former vice president has an uncanny habit of inserting his foot in his mouth at the worst possible times.
That’s precisely what happened to Joe Biden on Tuesday when he reassured a room full of mega-rich donors that “nothing would fundamentally change” if he wins the presidency in 2020, hardly the stuff progressive Democrats’ dreams are made of. Speaking to a room full of wealthy donors in New York City’s Carlyle Hotel, Biden said he would not “demonize” the rich and promised them that their lifestyles would not change under his watchful eye, the Hill reported.
“I need you very badly,” Biden told the room, explaining that he had “got in trouble” with some of his team for defending the rich, but said he did it because “rich people are just as patriotic as poor people.” He was also defending the rich when he told the rich he was defending them.
“No one’s standard of living will change, nothing would fundamentally change,” Biden told the room of 100 less than progressive supporters, who were served lobster hors d’oeuvres. The moderate Democrat also balked at the kind of revolutionary-style politics advocated by his more progressive-left opponents Bernie Sanders and Elizabeth Warren, promising the donors that he would be the candidate of marginal, incremental change.
The day before, Biden held a $2,800 per-person fundraiser at the $34 million New York City penthouse belonging to investment billionaire Jim Chanos, where he assured his most financially comfortable supporters that they are “going to do fine” if he wins.
To be sure, Biden’s opponents – and there are plenty of those – will likely seize on his latest comments to accuse him of being out-of-touch.
And speaking of Joe Biden criticism, the presidential candidate was also slammed by fellow Democratic presidential contenders Wednesday for something totally different: speaking kindly of two 1970s-era pro-segregationist senators.
“I have a great deal of respect for Vice President Biden,” Senator Kamala Harris of California told reporters. “But to coddle the reputations of segregationists — of people who, if they had their way, I would literally not be standing here as a member of the U.S. Senate — is I think, it’s just misinformed and it’s wrong.”
“Vice President Biden’s relationships with proud segregationists are not the model for how we make America a safer and more inclusive place for black people, and for everyone,” Booker said in a statement Wednesday. He was responding to Biden’s comments about the late Democratic Senators James O. Eastland of Mississippi and Herman Talmadge of Georgia during a fundraiser on Tuesday in New York.
“He never called me boy, he always called me son,” Biden said of Eastland, taking on a heavy Southern drawl as he recalled his early years representing Delaware in the Senate. Talmadge, he added, was “one of the meanest guys I ever knew, you go down the list of all these guys” but “at least there was some civility.”
The criticism by Harris and New Jersey Senator Cory Booker, who is also African-American, occurred as the race enters a new phase, with the South Carolina event and the first debates of the 2020 election next week.
Even Bill de Blasio, who for some unknown reason is running for president, tweeted his own condemnation of Biden’s remarks, accompanied by a photo of himself with his African-American wife and children.
“It’s 2019 & @JoeBiden is longing for the good old days of ‘civility’ typified by James Eastland,” de Blasio wrote. “He repeatedly demonstrates that he is out of step with the values of the modern Democratic Party.”
Democrats have in the recent past criticized Biden for praising the late Senator Strom Thurmond of South Carolina, another segregationist, as well as a string of Republicans who he’s described as decent people despite not sharing his political views.
Polls show Biden with a lead in South Carolina – a state where the majority of Democratic primary voters are African-American, and that is crucial to the hopes of Booker and Harris.
via ZeroHedge News http://bit.ly/2x4vgVo Tyler Durden
A 27-year-old former Democratic staffer who doxxed Republican senators during Supreme Court Justice Brett Kavanaugh’s 2018 confirmation hearings was sentenced to four years in prison on Wednesday.
Jackson Cosko – a Sanders supporter and son of a millionaire San Francisco developer tied to both House Speaker Nancy Pelosi (CA) and Sen. Dianne Feinstein (D-CA) – pleaded guilty in April to five felonies “related to an unparalleled effort to ransack a Senate office, extorting a Democratic senator, illegally harming Republicans for their political views, and blackmailing a witness,” writes the Daily Caller‘s Luke Rosiak.
Cosko was a staffer for Sen. Maggie Hassan (D-NH), and later Sen. Sheila Jackson Lee (D-TX). While in Hasan’s office working as a systems administrator – and completely separate of the doxxing incident, he installed keylogging equipment that stole work and personal email passwords, downloaded a “massive trove” of data from Senate systems, and repeatedly used someone else’s key to enter the office. You know, like a spy would do.
Sen. Maggie Hassan (D-NH)
Prosecutor Demian Ahn said during trial that Cosko’s actions resulted in “the largest data breach in Senate history.”
“These are deliberate and malicious crimes that the defendant engaged in,” said Ahn, accusing the defendant of a “months-long, deliberately planned, meticulously executed crime spree.”
Prosecutors say that after Cosko was fired from Hassan’s office last year, he used Deforest-Davis’s keys to repeatedly return to the office, copy dozens of gigabytes of sensitive data, and install sophisticated keyloggers that captured the work and personal computer passwords of Hassan staffers as they logged in.
Prosecutors say Deforest-Davis didn’t give Cosko permission to use her keys the first time he surreptitiously entered Hassan’s office, but the colleague later agreed to loan Cosko her office key and agreed to “wipe down” computers in the office to erase traces of Cosko’s fingerprints. Deforest-Davis and Cosko had a “close relationship” and she also owed borrowed money from Cosko to pay her rent, court papers say. –Politico
Notes from Jackson Cosko entered as evidence in court. (US District Court) via Daily Caller
Cosko also published the home addresses and phone numbers of GOP Sens. Lindsry Graham, Orrin Hatch, and Mike Lee to Wikipedia during Kavanaugh’s confirmation. Once the doxxing made headlines, he also released information about Majority Leader Mitch McConnell and Sen. Rand Paul, according to Politico. In one of the Wikipedia posts, Cosko appeared to engage in an extortion attempt – writing “Send us bitcoins.”
“We have … a society that has become very vicious,” said US District Judge Thomas Hogan, adding “It’s very concerning to the court and unfortunate that you played into that.”
Cosko apologized shortly before the sentence was handed down.
“I take full and complete responsibility for my actions,” he said. “I am embarrassed and ashamed for what I did.”
Cosko said that he’d been struggling with substance abuse and mental health issues and that the judge’s decision earlier this year to let him enter a treatment program was pivotal.
“I firmly believe that it saved my life,” he said.
Prosecutors had sought a 57-month sentence, while lawyers for Cosko asked for a two-year prison term. –Politico
Judge Hogan excoriated Cosko for putting the lives of senators, their families and others at risk. “You exposed them. People may want to harm them in our polarized society,” Hogan said.
Another Hassan staffer, Samantha Deforest-Davis, is expected to plead guilty to two misdemeanor charges related to the same scheme: tampering with evidence and aiding a computer fraud. There is no arraignment date set for her as of this writing.
via ZeroHedge News http://bit.ly/2x798K5 Tyler Durden
About 1 in 5 cardholders in New York City has a five-figure credit card balance, making it one of the nation’s most debt-burdened cities, reported CompareCards.
The study analyzed 1.2 million anonymized credit reports from LendingTree in 100 of the largest metropolitan areas across the country. It found a majority of the cities with the most significant percentages of people with five-figure credit card debt are located in metro areas on the East and West Coast.
Bridgeport, Connecticut had the highest rate of cardholders with five-figure debts at 22.9%. Virginia Beach, Virginia had 20.5% and Washington, DC with 19.9%, the survey revealed. New York City was ranked fourth with a rate of 19%.
CompareCards said cities with high credit card balances also had high levels of income inequality.
Of the five metro areas with the highest percentage of cardholders with five-figure card balances, three — Bridgeport, New York, and Los Angeles — are among those with high wealth inequalities.
The study investigates: Why is Bridgeport number one? Well, the wealth disparity between Greenwich and Bridgeport (separated by 29 miles) is some of the widest in the nation.
“When you have a large number of people like that in the same city or metropolitan area with a large number of people with poor credit who either can’t get credit or just get small lines of credit that prevent one from running up a high balance, you get a situation like we see in Bridgeport: a high percentage of people with high balances,” the report reads.
Furthermore, this is all happening as credit card charge-offs have spiked to a seven-year high, indicating US consumers are in far worse shape than assumed.
Regular readers may recall that two years ago we wrote that “Credit Card Defaults Surge Most Since Financial Crisis.” And while this deteriorating trend had more or less plateaued for much of 2018, it has taken another big step higher in 2019 and as Bloomberg reports “red flags are flying in the credit-card industry after a key gauge of bad debt jumped to the highest level in almost seven years.”
That said, a crisis is undoubtedly brewing in cities where five-figure credit card balances are high. On the other hand, with overall interest rates in the US still near historic, record lows, and possibly reverting to the zero lower bound before the next recession, it seems millions of consumers are sleepwalking into insurmountable debts ahead of the next downturn.
via ZeroHedge News http://bit.ly/31KWcYo Tyler Durden
NXIVM sex-cult leader and accused pedophile Keith Raniere was found guilty on Wednesday of running the ultra-secretive organization that hot-branded and tortured women as part of an organized scheme to provide himself with a constant supply of sex slaves.
Within Nxivm, Raniere ran a secret society called DOS, in which slaves were tasked with recruiting slaves of their own. The women were starved, branded with Raniere’s initials and forced to sleep with him or perform other sex acts, according to testimony. –NY Post
“Raniere, who portrayed himself as a savant and a genius, was in fact, a master manipulator, a con man and the crime boss of a cult-like organization involved in sex trafficking, child pornography, extortion, compelled abortions, branding, degradation and humiliation,” said Richard Donoghue, US attorney for the eastern district of New York.
The punishments could include being forced to hold painful poses, stand barefoot in the snow, take cold showers and whip each other on the “bare butt” with the strap, Ms. Salzman said. She recalled that Mr. Raniere once called during the beatings to tell the women to make sure that they snapped their wrists in a particular way to inflict maximum pain. –New York Times
The jury in Brooklyn federal court found Raniere guilty on all counts in the seven-week trial, including racketeering conspiracy, sex trafficking, sex trafficking conspiracy, attempted sex trafficking, forced labor conspiracy and wire fraud conspiracy according to the New York Post. He did not shake his attorneys’ hands after the verdict and before being handcuffed and let out of the courtroom.
Raniere’s co-defendants pleaded guilty earlier this year after accusations of pedophilia emerged. They include NXIVM president Nancy Salzman and her daugher Lauren, Smallville‘s Allison Mack and Seagram heiress Claire Bronfman – who used her interitance to bankroll the group for years.
Bronfman, the 39-year-old daughter of late Seagram CEO Edgar Bronfman, pleaded not guilty last July to charges of racketeering, money laundering and identity theft for NXIVM. According to a 2010 Vanity Fair report, Clare and her sister Sara contributed approximately $150 million of their trust fund to NXIVM.
Smallville‘s Mack, meanwhile, pleaded guilty to manipulating and procuring women for Raniere – who required that prospective “slaves” upload compromising collateral into a Dropbox account. One such recruit-turned-coach was India Oxenberg – daughter of Dynasty actress Catherine Oxenberg, whomet with prosecutors in New York in late 2017 to present evidence against Raniere. On Wednesady, Catherine Oxenberg sat in the back row of the courtroom, sobbing.
In one recorded conversation with Mack, Raniere said he wanted the group’s “hot-branding” ceremonies to resemble a “sacrifice.” Former cult member Lauren Salzman said it was the “most painful thing I have ever experienced.” In may, Salzman testified that she was forced to kneel and chant “Master, please brand me, it would be an honor, an honor I want to wear for the rest of my life,” after which she was held down on a massage table while someone branded Raniere’s initials into her pelvis.
Sarah Edmondson in 2017, after she left Nxivm, showing the brand she received at a ceremony.CreditRuth Fremson/The New York Times
Raniere was also indicted on charges of having sex with a 15-year-old girl before he formed NXIVM’s inner-circle, DOS, as well as producing kiddie porn, however there were no counts related to pedophilia in his verdict.
Raniere, 58, is accused of having a child “engage in sexually explicit conduct for the purpose of producing one or more visual depictions of such conduct, which visual depictions were produced and transmitted” –New York Post
In addition to exploiting women for sex, Prosecutors said Raniere charged a dead NXIVM member’s credit card over $100,000, and wrote checks in excess of $300,000 out of her bank account.
The evidence included seized documents, email messages, audio recordings and testimony from more than a dozen people, including women who had been former “slaves.”
The witnesses offered a chilling and sometimes surreal glimpse of daily life inside the highly secretive group, where Mr. Raniere was revered and appeared to exercise broad power.
Nxivm members thronged to late-night volleyball games in which he was a participant, eager to catch a glimpse of him and pay their respects. His birthday, in late August, was marked by several days of celebration called V-Week at a rustic retreat near Lake George in upstate New York.
High-ranking members of Mr. Raniere’s organization hacked into computer accounts and paid private investigators in an effort to obtain personal information on perceived enemies including Senator Chuck Schumer and the liquor magnate Edgar Bronfman Sr., whose two daughters became members of Nxivm, evidence showed. –New York Times
Raniere will be sentenced on September 25.
via ZeroHedge News http://bit.ly/2KYEefj Tyler Durden
The 10Y US Treasury yield is now down 11bps from the FOMC Statement, plunging back below 2.00% for the first time since November 2016, erasing almost the entire move since President Trump was elected…
30Y is also extending its gains, with the yield dumping to 2.50%, erasing all of the post-Trump growth move…
And the jaws of death keep yawning wider…
Something’s gotta give (reminder, Friday is quad witch)!
via ZeroHedge News http://bit.ly/2Y2DBFc Tyler Durden
A fourth cancer-causing compound was found in widely prescribed blood pressure pills, according to a new report by Bloomberg. The solvent dimethylformamide was discovered in the drug valsartan, manufactured by several companies including Novartis, by an online pharmacy, Valisure.
The solvent, also known as DMF, is classified by the World Health Organization as a probable carcinogen.
This adds to the worry about valsartan, which has seen dozens of its generics recalled since July 2018, when the carcinogenic chemical N-Nitrosodimethylamine (NDMA) was detected in a version of the drug made by a Chinese company. Valsartan is a treatment for hypertension that is frequently combined with other medicines into a single pill, and has been around for decades.
Online pharmacy Valisure found DMF in the drug that is still on the market in the US, including in medicines that the FDA had highlighted as alternatives to recalled drugs. These findings obviously complicate the FDA’s efforts to remove the drug from pharmacies while keeping doctors and patients abreast as to what is safe.
Novartis spokesman Eric Althoff said: “Novartis cannot currently fully exclude the possibility that traces of DMF (within acceptable limits) may have been present in materials.”
The FDA is currently investigating how the recalled medications were contaminated, including the possibility that the use of DMF in the manufacturing process may have led to chemical reactions that formed the other carcinogens.
The FDA is going to evaluate Valisure’s study, but is telling patients that they should continue taking the blood pressure medication even if it’s recalled, until they can talk to their doctor. The findings of the online pharmacy suggested the manufacturing of generic drugs may involve more parties than commonly thought.
Valisure Chief Executive Officer David Light said: “Medicines are kind of like used cars: By the time you get it it’s already five or six years old, it’s touched hundreds of hands and it’s got 100,000 miles on it.”
When drugs are made, the raw materials may need to change form before they go into a pill. Often times, a solvent like DMF can be used, but it is supposed to vanish by the time a pill is put into a bottle for sale. DMF is cheaper than some other solvents, which obviously gives it appeal for generic drug making, which is already a capital intensive business.
Valisure found DMF in valsartan made by five of the six drugmakers it tested. This includes in Novartis’ Diovan, which was first approved in the US in 1996. As Bloomberg noted, the FDA doesn’t regularly test pharmaceuticals, relying instead on companies to ensure that medicines work and are safe.
Suma Thomas, a cardiologist at the Cleveland Clinic, said: “I think we make assumptions that drugs, once they’re approved by the FDA or once they’re on the market for patients, that they’re OK and they’re all the same. We need more knowledge.”
via ZeroHedge News http://bit.ly/2WTuuKy Tyler Durden
About a year ago, Jerome Powell was widely seen as the most hawkish Fed chair in years, perhaps decades, as a result of his determination to hike rates no matter what the macro environment looked like, eventually launching the great Q4 selloff with his comment that the fed funds rate is a “long way away from the neutral at this point”, even though today the Fed indicated that the neutral rate has “dropped” all the way to 2.5% or right next door. Whether due to that experience which resulted in the first bear market (1) (footnote one because the S&P dipped below 20% from its ATH for a few minutes on Dec 24 before closing just outside bear market territory), Powell has since folded like a cheap lawn chair and ever since January, has successfully “surprised” the market dovishly at every possible turn.
So now that Trump has successfully scared the Fed into submission to either the bond market, which is pricing in just under 4 cuts for the next year), the only “other” question that matters, and which will determine the outcome of the final S&P print this year, is whether or not the US and China successfully resolve their trade differences with either a grand deal or at least a ceasefire at the G-20 meeting in Osaka neek.
Here, there are some good and some bad news.
First, the bad news. Unlike dovish Powell, the outcome here looks far less promising for the bulls. Despite a last minute agreement to meet at the G-20, the probability of a “best case” surprise from the Trump-Xi meeting is virtually non-existent.
What about the good news? Well, thanks to Goldman, there is now a way to track the probability of a deal in real time.
As Goldman’s Chinese research team writes, “understanding how trade risks are discounted in equity valuation is crucial for investors to navigate short-term market volatility and assess tactical risk/reward” (obviously), and as a result Goldman has developed a “trade tension barometer” to measure the intensity of market-implied trade concerns.
What the trade deal indicator shows, is that the perceived trade concerns are now moderately below the stressed points in late 2018/early 2019, but that more importantly, the market appears to be pricing in a ~20% chance that a trade resolution could be struck by the two sides, sharply lower from ~80% in mid-April.
A few extra points on this trade barometer. First, for those who wish to recreate it at home, Goldman lists the key “trade concern” proxies that feed as signals.
Chinese exporters to the US: While the US accounts for only 1% of total revenues for MSCI China index constituents, the US market is a significant export destination for select Chinese companies, predominately concentrated in Tech Hardware, Consumer Discretionary and Industrials. As such, Goldman focuses on their relative price returns and valuation gaps versus the benchmark to better understand how the trade tensions have been discounted in the equity market.
US companies with high China revenue exposures: Similarly, US equities are largely domestic-oriented from a revenue contribution standpoint but China is an important source of end-demand for a number of US consumer and tech companies, with China representing 17% of the top-line for the top-40 US firms in the S&P500 with the highest Greater China exposures. The bank focuses on these companies’ relative returns and P/E disparity relative to S&P500 to isolate the “trade factor” in their pricing regime.
Asian suppliers to the US/China: The impacts and concerns of trade frictions have so far been most visible (and aggressively priced) in direct exporters in the US and China, but Asian companies along the tech and consumer goods supply chains outside of the two markets will likely see disruptions given how intertwined the global supply chain has become over time. As such, the bank adds the relative returns and valuation series for a list of Asian tech and consumer companies (ex. China) with high US sales linkages and significant production exposures from China to the sample universe.
Rmb depreciation winners vs losers: While many macro and policy factors could move the Rmb, its seems that “trade” has been one of the most influential components in the Rmb pricing equation over the past 18 months. Therefore, the bank refers to its Rmb depreciation winners and losers baskets (performance and PE gaps) to gauge the potential FX/trade impacts on equities.
The recent moves in these various signals are shown below.
So what are the implications from the trade barometer… and the fact that odds of a trade deal are one in five?
According to the latest barometer reading, Chinese stocks are pricing in a scenario where the perceived trade tensions are just moderately below the stressed points in late 2018/early 2019, with the intensity spiking since late April after a period of moderation from late January to mid-April. The latest inflection point also coincides with the unexpected u-turn of the Sino-US trade negotiation in early May when the US administration threatened to impose 25% tariffs on US$300bn of Chinese exports and the subsequent imposition of administrative restrictions targeting Chinese tech companies.
Given the assumption that the observed datapoints are normally distributed, barometer readings can be seen as the market-implied probability for a “trade deal” if one believes the historical highs (Jan 19) or lows (Mar 18) over the past 18 months are in fact reasonable representations of those outcomes. Using this logic, the market is currently discounting around a 20% chance that a trade resolution could be reached by the two sides, versus close to 80% in late April. Once again, the barometer only focuses on the market-implied probability/expectation of a trade resolution, and the nature/feature of a “deal” is out of the scope of this analysis.
As the barometer appears fairly correlated with the aggregate index P/E, one can also deduce the expected market P/E under a “trade deal”/”no trade deal” scenario based on simple regression analysis. In a nutshell, the model shows thatMXCN should trade at around 11.5x forward P/E under Goldman’s China base-case growth (6.4% GDP), FX (USDCNY @ 6.95), and US monetary policy assumptions (US FCI ex Equity @100.2), but “trade”, as a standalone factor, could drive index PE to 13.5x and 10.5x in a “trade deal” and “no trade deal” situation, respectively. This is largely consistent with the suggested results from the barometer that the market is factoring in a fairly slim chance for a “trade deal” to materialize at the moment.
Overall, this exercise lends support to Goldman’s China Overweight call, which is predicated on China’s domestic policy flexibility (to counteract external challenges), stabilizing earnings momentum, inexpensive valuations with the trade concerns looking fairly priced (vs. our economists’ base case), and compelling investor positioning upside optionality in light of decade-low allocations in H shares and continued portfolio inflows to A shares due to index inclusions. That said, under a prolonged “no deal” scenario where we would expect the unfavorable trade impacts to percolate to other parts of the economy, we see potentially a 13% cut to corporate earnings growth by 2020 and as much as 20 % price return downside from here, with PEs comparable to their troughs in Oct 2018.
The bottom line: while the market seems to have discounted a fairly bearish trade negotiation outlook in equity prices, individual investors may have different views towards the trade development. As such, for the purpose of trading the “trade risk” for investors who embrace strong and active views on this particular subject, Goldman screens for Chinese stocks (and MSCI China index constituents) that have exhibited strong positive (i.e. trade tension losers) and negative (i.e. trade tension winners) relationships with the bank’s trade barometer in Exhibits 14 and 15 – their relative returns have tracked the barometer and the tariffs imposition time series well.
via ZeroHedge News http://bit.ly/2J0Rduq Tyler Durden
Tesla is once again hiking the price of what used to be a standard option on their vehicles: the color black. CEO Elon Musk tweeted out on Wednesday that the company is now going to be charging $1,000 extra for anybody that would like the luxury of having their car in the color black, effective on the first day of the next quarter.
Starting next month, Tesla will charge $1000 for color black (same price as silver)
In a subsequent tweet, Musk noted that the standard, free color is now going to be a “simple white”. We can’t help but wonder if this also happens to be the same “simple white” that the vehicle’s parts are colored upon arriving at Fremont for production, from their OEMs, to begin with.
As of now, Tesla’s website hasn’t updated the change, and also shows that midnight silver, deep blue, pearl white and red multi coat are all still paint color add-ons ranging from $1000-$2000.
It almost feels as though Tesla is trying to tweak every possible option to bring as much money through the door before the end of the quarter as possible. Now, why might that be?
At this rate, pretty soon, tires and a steering wheel will also be add-on options.
via ZeroHedge News http://bit.ly/2N1lfDo Tyler Durden
