Category: zerohedge

Authored by James George Jatras via The Strategic Culture Foundation,

In the wake of Robert Mueller’s calculated handoff of the “Get Trump” portfolio to the Democrat-controlled House of Representatives, two things are evident.

First, President Donald J. Trump is virtually certain to be impeached. That’s manifest despite doddering House Speaker Nancy Pelosi’s playing cute for now, seeking to ensure first that “we do want to make such a compelling case, such an ironclad case that even the Republican Senate, which at the time seems to be not an objective jury, will be convinced.” Translation: We don’t have the goods yet, but we expect to.

Second, like generals proverbially fighting the last war – namely, Republicans’ failed 1998 effort to oust Bill Clinton – many in the GOP have convinced themselves that a Trump impeachment will be unsuccessful and will only hurt the Democrats. Put another way, the Stupid Party once again rises to the occasion. Cue Karl Rove:

‘Knowing what they know today, if House Democrats move forward on the impeachment of President Trump, five things will happen.

‘First, swing voters will conclude the Democrats are conducting a highly partisan exercise.

‘Second, impeachment talk will largely or completely obscure anything else House Democrats will do legislatively. Voters could decide the Democrats are a do-nothing bunch.

‘Third, impeachment will play a much larger role in the Democratic presidential primary. The issue of impeachment will obscure the other messages of the Democratic presidential hopefuls and raise the prospect of a backlash against candidates like former Vice President Joe Biden and Sen. Bernie Sanders of Vermont, who have yet to embrace impeachment.

‘Fourth, the Republican Senate will quickly dismiss any impeachment resolution passed by the House, killing the issue.

‘And finally, any of the dozens of vulnerable House Democrats in Republican-leaning districts who back impeachment will have given their GOP opponents a big issue.’ [Emphasis added]

Make no mistake, while the Democrats hope to wound Trump even if the attempt to remove him fails, they are deadly serious that they have a realistic shot at finishing him off. Moreover, they know that removing him by impeachment is a better prospect than beating him at the polls.

The Democrats are not at all sure about winning in 2020, not least because of the pathetic gaggle of so-called candidates they’ve got to offer. Thus their main goal in pursuing impeachment will not be to weaken Trump for 2020, it is – still – to get him out of the White House.

That’s because, as was the case in 2016, Trump’s the only GOP candidate who has a shot at winning. The Democrats want a sure thing. Having underestimated him in 2016 they don’t want to roll the dice again. Even though Trump has not turned out to be the transformative president that many of his supporters might have hoped for, he certainly will be the lesser of evils compared to whoever ends up the Democratic nominee. (Spoiler alert: it won’t be Tulsi Gabbard.) Worse from their point of view, he remains a toxic avatar of the old America they thought well and truly laid to rest once and for all. They can’t breathe easy while he remains in office lest he, however unlikely in view of his failures of performance, serve as a catalyst for revival of the historic American nation facing extinction at the hands of certified victim classes.

Rove refers to the Democrats’ “knowing what they know today,” but Pelosi has made it clear that they intend to know a lot more before they pull the trigger. All the fluff over “obstruction” is just to keep the pot boiling while they get to the real meat and potatoes. Let House Judiciary Committee Chairman Jerry Nadler and House Intelligence [sic] Committee Adam Schiff yammer about obstruction while multiple committees and New York state and city prosecutors keep digging: taxes, business skullduggery in New York real estate, babes, racism. Remember, they don’t need to find a crime, only something that will give enough Republicans in the Senate an excuse to give Trump the heave-ho.

Rove says the “Republican Senate will quickly dismiss any impeachment resolution passed by the House.” That’s nonsense, and Rove knows it. The relevant analogue to the upcoming Trump impeachment isn’t Clinton 1998, it’s Richard Nixon 1974. Bill Clinton literally could have raped Juanita Broaddrick in the middle of Fifth Avenue in broad daylight and the Democrats still would have circled the wagons to defend him, as they in fact did, without a single Democratic vote to convict. As it hardly needs be added, the media unanimously supported them.

Nixon, however, was done in by his own party when Senate GOP leaders told Tricky Dick (loathed by most of his party, as Trump is) that he had to resign or they would vote to remove him. That’s because Republicans are not only the Stupid Party, they’re the Cowardly Party. Depending on what the Democrats dig up on Trump, Republicans can be counted on to see scary editorials in the Washington Post and New York Times and run away in panic: “I’ve always been supportive of the president, but I can’t defend that. So I have no choice but to …”

Add in the fact that between a quarter and a third of GOP Senators would jump at the chance to put a knife in Trump’s back if they got the opportunity, with prospective Brutus and sanctimonious warmonger Mitt Romney at the front of the line. At the appropriate time, establishment Republican poobahs like Rove will join them, basking in media praise for “putting country above party.”

Note that this is not a prediction that Trump will be removed, only that his impeachment will not be necessarily the futile exercise some claim because of the GOP majority in the Senate. It’s possible Trump will survive. The Democrats might come up empty on the required dirt. They may fall short of the number of Republicans they need to give him the “Nixon talk.” Even if Trump is given an ultimatum, he may decide, unlike Nixon, to fight – and he might actually win. But don’t take it as a given that impeachment won’t be a serious attempt to remove Trump that will only backfire on the Democrats. It might succeed.

If it doesn’t, with the advantages of incumbency Trump’s chances of winning reelection are better than even, though the landscape has become less favorable than it was in 2016. His base remains strong (most of his Deplorables think he’s actually delivering on his promises, because he says so in tweets and at his rallies. Look at that big, beautiful invisible nonexistent Wall! Winning!). On the other hand, failure to control our border means the demographic shift against Republicans has continued unabated, coupled with zero efforts to police voting by non-citizens and (notably in Florida) letting felons vote. If Trump loses either Florida or Pennsylvania, it’s probably all over even with a lousy Democratic opponent. That’s aside from whatever economic hiccup might occur between now and next fall. Or if Trump gets us into a war somewhere.

Finally, let’s note what was the most important substantive message from Mueller’s swan song: Russia! Russia! Russia! Mueller both began and ended his ramble with a denunciation of Russia’s supposed attack on the United States in 2016. Citing Mueller, Ranking Democrat on the Senate Intelligence [sic] Committee Mark Warner has called for redoubled efforts to pass “legislation that enhances election security, increases social media transparency”: a dog-whistle for the real threat to honest elections: using “Russian bots” and “hate speech” as justification for tech companies’ clampdown on dissent.

Whatever happens to Trump, our dangerous enmity with Russia is permanent – and possibly passing the point of no return – while erosion of Americans’ freedoms will continue apace.

via ZeroHedge News http://bit.ly/2QExO5G Tyler Durden

For much of 2019, the big conundrum facing investors has been justifying the unprecedented divergence between institutional sentiment as represents by historic outflows from equities on one hand, and the market’s honey badger-like ascent to new record highs in 2019 on the other, ignoring the continued redemptions, and propelled higher on the back of record stock buybacks, recurring waves of rolling short squeezes, and dealer gamma positioning.

To some, such as JPMorgan’s Marko Kolanovic, this divergence was to be glossed over as it was only a matter of time before the market skeptics were forced to throw in the towel on the S&P’s way to 3,000 (which Kolanovic predicted in February would be hit by mid-May… it’s now June, and the S&P is back down to 2750).

The JPMorgan strategist’s core argument is ignore what flows are telling you and just follow the price. And yet, a funny thing happened on the way to S&P 3,000: Trump first doubled down on trade war with China… then he escalated the trade war with Mexico,  “weaponizing” tariffs as a means to achieve his border policy,  and then – last week – he completed the trifecta when he also dragged India to the verge of the global trade war.

As a result, it now appears that all those screaming that “price is always right” were wrong, as was the overall market, and all those bear who found solace in the ongoing found outflows, were right all along.

Which is a problem for the market, because with the S&P having just suffered its third worst month since the US AAA- rating downgrade in August 2011, and its worst May in decades, all those who were already trimming their exposure will now double down, sending their redemption requests into overdrive.

But before we get there, first a recap of where we are now. 

According to Deutsche Bank, looking at the latest EPFT data, last week the safety bid in flows continued – as one would predict – with large outflows from equity (-$10bn) and HY (-$3bn) funds, but inflows to other bond (+$10bn) and money-market funds (+$12.9bn).

And here, a shocker: equity funds have now seen outflows of -$132bn YTD and -$237bn since December. This means that outflows over the last 6 months in dollar terms have now been larger than over any prior 6-month period.

As a percentage of AUM, the latest half-year outflows were only exceeded by those seen around the 2008-09 recession and the European financial crisis.

Breaking down the flows geographically: the US saw -$8.4bn in outflows, Europe -$1.8bn and Asia ex Japan -$1.7b), while Japan attracted $1.9b in inflows. Broad-based global funds (-$0.3b), global EM funds (-$0.1b) and Latam (-$0.1b), too, saw outflows although at moderate pace. European equity outflows were at their slowest pace in 16 weeks, and were driven both by domestic (-$1.3b) and foreign (-$0.5b) flows. In Japan, on the other hand, domestic investors pumped in $2.4b, while foreign investors pulled out -$0.4b. China funds saw outflows continue (-$1.7b) as it continues to bear the brunt of trade concerns, while India funds got their biggest inflows ($0.3b) since early 2018 after the election results showed a strong renewed mandate for the incumbent administration.

By contrast, bond funds have seen inflows of $220bn ytd…

… close to the largest on record over comparable periods in the past, and money-market funds have seen inflows of over $107bn just in the last 5 weeks, in what is usually a seasonally weak period.

And, as Deutsche Bank confirms what we have been saying through this entire rally, “With trade tensions ratcheting higher yesterday we are likely to see the safety bid strengthen further.”

So now that the selling avalanche is now just a matter of when, not if, Deutsche Bank provides some observations on which will be the first investor classes to capitulate:

• Vol Control funds will remain sellers as vol rises on the latest selloff. Since the end of April, Vol Control funds have sold net $13-$15bn in equity exposure and if the S&P 500 were to sell-off an additional -2% on Monday, they would have another modest $5-7bn to sell. And since allocations still remain on the higher side, DB warns that the risk is asymmetric to the downside.

• CTAs also have begun selling as near-term triggers are hit. According to DB, the CTA complex is net long S&P 500, but with lighter positioning versus 2018 sell-offs. Additional selling likely if short-term MAs cross long-term MAs, which requires spot to stay low for the next few weeks.

• Risk Parity funds have mostly not reacted to the sell-off yet – as thesestrategies are slow moving – but do have significant beta to the S&P 500. It is possible that some PMs with more discretion de-risked, but most have significant beta to the S&P 500… right as the sell-off is hitting. With 1M vol of the cross asset portfolio only at 5, the negative correlation between equities and bonds continues to offset some of the pick-up in equity volatility

• Away from systematic funds, traditional equity L/S is only down -2% in May…

• … with low net and gross exposure going into this sell-off (once again, not many appear to have listened to the JPMorgan quant). YTD returns are +4.9%, off from a high of +7%.

• Popular single-stock longs have performed in-line with popular single-stock shorts, while the recent Momentum rally has not significantly impacted returns given the Hedge Fund complex’s relatively flat exposure to the factor.

So as the equity outflows continue, it appears that all those who were betting that longs on the fence and who would be forced to jump in kicking and screaming, were wrong. The only question now is how much of a drop is expected before we finally do see some inflows…. unless of course, there is no catalyst that can take place to change the current status quo – and with both the Fed’s reversal and China’s record credit injection now in the rearview mirror, one wonders just what will prompt a turnaround to the fund flow direction – in which case global capital markets are about to face a historic day of reckoning.

via ZeroHedge News http://bit.ly/2wzUM4O Tyler Durden

Via Financial Sense,

“There’s an old saying, a wise man points at the moon and the idiot looks at the finger,” says Charles Gave, founding partner and chairman of Gavekal Research.

Tariffs, soybeans, and rare earth metals steal the headlines when it comes to US-China trade tensions, but these are just tools or weapons of warfare in a much larger battle over money and sovereignty, and China is playing the long game, Gave told Financial Sense in a recent interview on FS Insider (see China Preparing for a Monetary War, says Charles Gave).

The US dollar serves as the world’s reserve currency and is used for pricing and trade by a majority of nations around the globe. However, Americans have decided to weaponize the dollar, Gave stated, making any transactions between two nations susceptible to US action or scrutiny.

This is a “big loss of sovereignty” by other nations, Gave said, and China is taking the lead in forming an “alternative trading currency to the dollar.”

This is a real fight, he told listeners, and China is playing the long game.

“The fight that you hear about semiconductors and all that isn’t so important – the real fight is to know who will have the imperial money in Asia. Will the Chinese be able to buy their oil in renminbi from Russia, for example, and not priced in dollars? That will change the geopolitics of oil big time.”

Gave said China is also creating a new IMF, a new World Bank, and opened a futures market for oil in Shanghai, which now has the 3rd largest trading volume in the world, allowing people to buy oil in renminbi instead of the US dollar.

This is basically “a blow to the sovereignty of the US dollar as a reserve currency,” he said.

In terms of a trade deal, if one were to occur, it’ll be a temporary victory in a power struggle for years to come.

via ZeroHedge News http://bit.ly/2JVhT2f Tyler Durden

While the western world (and much of the eastern) has been preoccupied with predicting the consequences of Trump’s accelerating global trade/tech war, Beijing has had its hands full with avoiding a bank run in the aftermath of Baoshang Bank’s failure, scrambling to inject massive amounts of liquidity last week in the form of a 250 billion yuan net open market operation to thaw the interbank market which was on the verge of freezing, and sent overnight funding rates spiking and bond yields and NCD rates higher.

Unfortunately for the PBOC, Beijing is now racing against time to prevent a widespread panic after it opened the Pandora’s box when it seized Baoshang Bank two weeks ago, the first official bank failure in a odd replay of what happened with Bear Stearns back in 2008, when JPMorgan was gifted the historic bank for pennies on the dollar.

And with domino #1 down, the question turns to who is next, and will they be China’s Lehman.

This was the question we asked last Thursday, when we published a list of regional banks that have delayed publishing 2018 reports, the biggest red flag suggesting an upcoming bank solvency “event.”

One day later we may have gotten our answer, when the Bank of Jinzhou,  a city commercial bank in Liaoning Province, the second name in the list above, and with some $105 billion in assets, notably bigger than Baoshang, announced that its auditors Ernst & Young Hua Ming LLP and Ernst & Young had resigned, not long after the bank announced it would delay the publication of its annual reports.

For those confused, the delay of an annual report and the resignation of an auditor, means a bank failure is not only virtually certain but practically imminent.

As the bank – which first got in hot water in 2015 over its exposure to the scandal-ridden Hanergy Group – writes in a filing on the Hong Kong Stock Exchange, E&Y was first appointed as the auditors of the Bank at the last annual general meeting of the Bank held on 29 May 2018 to hold office until the conclusion of the next annual general meeting of the Bank. That never happened, because on 31 May 2019, out of the blue, the board and its audit committee received a letter from EY tendering their resignations as the auditors of the Bank with immediate effect.

The reason for the resignation: the bank refused to provide E&Y with documents to confirm the bank’s clients were able to service loans, amid indications that the use of proceeds of certain loans granted by the Bank to its institutional customers were not consistent with the purpose stated in their loan documents.

As a result, “after numerous discussions and as at the date of this announcement, no consensus was reached between the Bank and EY on the Outstanding Matters and the proposed timetable for the completion of audit.” As a result, after a clear breakdown in relations with its own auditor, the Board decided to appoint Crowe (HK) CPA Limited as the new auditors of the Bank to fill the casual vacancy following the Resignation and to hold the office until the conclusion of the 2018 annual general meeting of the Bank (we are taking the under with lots of leverage as Crowe will likewise quit in the coming weeks if not days).

And confirming that not even the bank’s management believes this “justification” will be enough to avoid a rout in the stock, the bank reported that it has requested the trading in the H shares (which was frozen on April 1) on The Stock Exchange of Hong Kong Limited to be suspended until the publication of the 2018 Annual Results. For anyone who hopes that these shares will ever be unfrozen for trading, there are a few bridges in Brooklyn that are for sale.

The real question facing Beijing now is how quickly will Bank of Jinzhou collapse, how will Beijing and the PBOC react, and what whether the other banks on the list above now suffer a raging bank run, on which will certainly not be confined just to China’s small and medium banks.

Source: Bloomberg/HKex.

via ZeroHedge News http://bit.ly/2HR3uC3 Tyler Durden

Authored by Graham Noble via LibertyNation.com,

Robert Mueller has now completed his special counsel assignment, but he may yet have a role to play in the unraveling Russia conspiracy. It is entirely possible that he will come to regret ever being appointed to investigate the phony collusion allegations against President Donald Trump. The fact that congressional Democrats – along with certain Republicans – are determined to haul him before House and Senate committees is only the beginning of what could become a very messy end to Mueller’s legacy of public service.

Mueller is on a collision course with Attorney General William Barr. The latter clearly believes that various government officials may have acted improperly, to say the least, during the 2016 presidential election campaign and in the months leading up to Mueller’s appointment. Abuses of power and unjustified and, perhaps, improperly authorized surveillance – or spying – may have occurred. Judges may have been misled and FISA warrants fraudulently obtained. An extensive political conspiracy against then-candidate, now-President Trump may have been working behind the scenes.

Justice Department’s Multi-Pronged Investigation

Barr is determined to get to the bottom of it all. Michael Horowitz, the inspector general for the Department of Justice, has already investigatedpossible political bias at the FBI and how it might have affected both the Clinton private email server investigation and the counterintelligence operation that targeted Trump campaign associates. Horowitz then took on a new task, described on the inspector general website as: “Examination of the Department’s and the FBI’s Compliance with Legal Requirements and Policies in Applications Filed with the U.S. Foreign Intelligence Surveillance Court Relating to a certain U.S. Person.”

Michael Horowitz

The IG’s final report on this matter is expected at any time. Horowitz has no subpoena or prosecutorial power, but elements of his report could be fed into other ongoing DOJ investigations. Those investigations are numerous. Their exact purpose and progress are being closely guarded by the DOJ though it is known that some of them relate to unauthorized leaks to – and the illegal acceptance of gifts from – members of the media by former FBI officials.

Two other investigations, being conducted by federal prosecutors, concern potential abuses by the FBI and DOJ of the Foreign Intelligence Surveillance Act (FISA).

All of these investigations converge on the genesis of the FBI operation, codenamed Crossfire Hurricane, that began in 2016 and continued up until Robert Mueller’s appointment as special counsel. At that point, the FBI handed off its investigation to Mueller. A team was put in place to handle the transition and bring the Office of Special Counsel (OSC) up to speed. Unless something went very wrong, the FBI would have handed over most of whatever intelligence and other materials it had gathered during Crossfire Hurricane.

Just When Mueller Thought He Was Out

At this point, Mueller would have become one of the few people who knew everything about Crossfire Hurricane and the predication for its birth. It stands to reason, then, that the multi-pronged investigation, overseen by AG Barr, to find out why the FBI operation began and how it was conducted, will reach out to touch Mueller himself.

Considering the position Mueller occupied as the man who held in his hands the fate of a sitting president, there are some very big questions that need to be answered: How aware was Mueller that the FBI based its counterintelligence operation upon unverified opposition research paid for by Trump’s election opponent and upon comments solicited from Trump campaign people by FBI and CIA informants?

If Mueller was entirely unaware of these facts, then the FBI withheld from him information vital to his own investigation. If he was aware of them, then he knew from the beginning that his own assigned task was rooted in political mischief and undercover surveillance of U.S. citizens. That would mean he either ignored or concealed wrongdoing within the senior ranks of the FBI.

Robert Mueller

Another question only Mueller can answer: At what point did he come to the realization that there was no coordination or conspiracy between Russian officials and Trump associates with regard to the 2016 election? How long after that realization did he continue to investigate – and why?

There can be little doubt that Mueller was well aware that the FBI had used, as the centerpiece of its investigation, the so-called Steele dossier. It is hardly believable that the special counsel was unaware of its provenance as a collection of uncorroborated gossip and allegations, compiled by Christopher Steele for use by the Clinton campaign against Trump; after all, Mueller’s number two at the Office of Special Counsel was Andrew Weissman. Weissman – a staunch Clinton partisan – was previously a senior FBI official who was well aware of the existence and nature of the Steele dossier.

If the DOJ concludes, then, that Crossfire Hurricane was a politically-motivated fabrication involving fraudulently obtained FISA warrants to spy on Trump associates, the further conclusion that the Mueller investigation was an extension of that conspiracy is virtually unavoidable. How could the DOJ possibly pursue its investigations to completion without questioning Mueller, Weissman, and perhaps numerous other individuals who worked at the OSC?

Source: GrrrGraphics

Trump has often described Mueller as “conflicted.” It may be that the president knows far more than anyone realizes or his use of that word may be nothing more than a comment on Mueller’s association with former FBI Director James Comey, whose firing ushered in Mueller’s appointment. Whatever the answer, it seems increasingly likely that former special counsel was, indeed, extremely “conflicted.” He may become a key witness in Barr’s investigatory endeavors – and being only a witness could be the most fortunate outcome for Robert Mueller.

via ZeroHedge News http://bit.ly/2EQaPA9 Tyler Durden

As if trade war wasn’t enough for traders to worry about with futures reopening sharply lower after China’s government blamed the U.S. for the latest collapse in trade talks, it appears that Boeing is about to resume the position as yet another very popular 737 model suddenly finds itself in hot water.

Accord to Bloomberg, the wing components on as many as 312 Boeing 737s, including some of the grounded 737 Max, are prone to cracking and must be repaired within 10 days, aviation regulators said late Sunday.

With Boeing already under scrutiny for the 737 MAX fiasco, Boeing – which is suddenly finding a lot of faults that never existed before the company found itself under congressional scrutiny – informed the FAA that so-called “leading edge slat tracks” may not have been properly manufactured and pose a safety risk, the agency said. The parts allow the wing to expand to create more lift during takeoff and landing.

In response, the FAA plans to issue an order calling for operators of the planes worldwide to identify whether the deficient parts were installed and to replace them. A complete failure wouldn’t lead to a loss of the aircraft, the FAA – which was humiliated for siding with Boeing and was initially against the grounding of the 737 MAX only to flip flop when the rest of the world boycotted the troubled airliner – said, but “could cause damage during flight.”

Because “damage during flight” of a key component rarely if ever leads to a “loss of the aircraft”?

As Boeing noted in the statement, it has notified operators of the planes about the needed repairs and is sending replacement parts to help minimize the time aircraft are out of service, the company said in a statement.

Boeing identified 148 parts made by a subcontractor that are affected. The parts may be on a total of 179 737 Max aircraft and 133 737 NG planes worldwide, including 33 Max and 32 NG aircraft in the U.S., the FAA said. The NG, or Next Generation, 737s are a predecessor to the Max family (which by that logic must be the next, next generation).

So many 737MAX… pic.twitter.com/uG5OMusg8l

— Jeremy Dwyer-Lindgren (@photoJDL) June 2, 2019

This latest quality control fiasco piles on even more problems for Boeing, whose 737 Max has been grounded worldwide since March 13 after two fatal crashes tied to a malfunction that caused a flight control system to repeatedly drive down the plane’s nose. Boeing is finalizing a “software fix” along with proposed new training that will be required before the planes fly again. One only hopes that Boeing’s software “fix” isn’t in some way connected to the Google cloud…

via ZeroHedge News http://bit.ly/2WpGkMg Tyler Durden

Despite California’s reputation as a ‘sanctuary state’ that promises to welcome illegal immigrants with open arms and taxpayer-funded handouts, rich Democrats in the Golden State are afflicted with a severe case of NIMBY-ism, according to the Washington Examiner‘s editorial board. 

And while tens of thousands of immigrants are answering the call amid a crisis-level housing shortage, these virtue-signaling Democrats refuse to commit state resources towards accomodating the influx of new residents. 

Via the Washington Examiner Editorial Board

NIMBY California Democrats

California’s increasingly left-wing residents want open borders, and they want their state to give handouts to immigrants, legal and illegal. But they don’t want any building to house this low-income riffraff anywhere near their expensive homes.

California Democrats’ NIMBY-ism, or “not in my backyard,” is a perfect case study in modern left-wing hypocrisy. Gestures and virtue signaling about tolerance and openness? They’re all for those. But don’t suggest opening the gates to their communities.

California’s housing shortage has reached crisis levels. Home prices are more than twice the national average. The state has the nation’s second-lowest ratio of homes to residents.

Lawmakers in Sacramento considered Senate Bill 50, which would have forced local governments to permit high-density housing in specific areas. Left-wingers who actually, rather than just rhetorically, welcome all comers would pass such a bill. But California Democrats, of course, did not. Instead they passed Senate Bill 451, a tax credit for rich people who restore historic buildings.

SB 451 would grant a 20% tax credit for the restoration of qualifying buildings and a 25% tax credit for the rehabilitation of those historic houses on federal surplus property, include affordable housing, are in a designated census tract or military base, or is a transit-oriented development. Yes, there is some lip service there to affordable housing, but that’s all it is. Weighing the marginal benefits, the owners of low-density historic properties will be happy to renovate at one-fifth taxpayers’ expense and then charge high rents.

From the Spanish colonial and Georgian revivalist structures across Los Angeles County and the Victorian to beaux-arts in the Bay Area, California has plenty of architectural gems worthy of preservation. But wealthy owners of such properties have every reason to maintain and preserve them without a handout. Subsidies to preserve low-density housing amid a severe housing shortage is nuts, or mercenary, or both.

California needs prolific development of high-density housing to cut prices and sustain the influx of immigrants flowing over the southern border.

Homelessness has skyrocketed by 17% in San Francisco and 43% in neighboring Alameda County in the past two years. This bill won’t just fail to help those who have nowhere to live, but it will also cost the state money it doesn’t have.

Residents of prosperous Pasadena and Palm Springs have emphatically endorsed the bill. Why wouldn’t they? It’s free money to spend on their multimillion-dollar estates, from which they can write letters to the editor cursing President Trump and professing their love for immigrants — as long as those foreigners don’t live too close by.

via ZeroHedge News http://bit.ly/2KlnH4x Tyler Durden

Something is not quite right with SoftBank.

Last week, we reported that in a surprising twist, Masayoshi Son’s SoftBank, which in early May was reportedly considering a $100 billion IPO for its Vision Fund, had instead changed track and was now seeking to take out a $4 billion margin loan collateralized with its stake in Uber, and to a lesser extent, Guardiant Health and Slack (which itself has yet to go public).

This prompted us to ask: “just how much cash does the fund really need, and what, exactly, is going on behind Softbank’s closed doors?“

The question got a renewed urgency on Sunday, when the WSJ reported that SoftBank’s attempt to raise a second mega fund has been met with “a chilly reception from some of the world’s biggest money managers”, signaling that as the WSJ put it politely, “a crucial initiative for the firm faces significant hurdles.” We would put it less politely: the fact that the company behind many of the largest VC investments in the past decade is suddenly encountering the proverbial “closed window” may be the surest sign yet – more than even the Uber and Lyft IPO flops – that the second tech bubble of the 21st century has now popped.

According to the report, the Japanese tech giant made preliminary approaches to some of the world’s largest investors as it seeks to raise $100 billion for another fund dedicated to tech startups, but was rebuffed after several of these prominent investors reportedly planned to make limited or no contributions. These include Canada Pension Plan Investment Board and Saudi Arabia’s Public Investment Fund, whose $45 billion check made it the largest backer of SoftBank’s first tech fund, known as the Vision Fund (Saudi Arabia is having its own problems with oil once again sliding, putting the country’s budget in jeopardy and forcing Riyadh to buckle down on foreign investments).

There is another reason why SoftBank, seen by many as nothing more than a venture fund-of-funds, may be having capital raising problems: why give it money in the first place? Indeed, many of the biggest and most sophisticated funds already have existing and programs to invest directly in late-stage startups and aren’t interested in paying fees to another party, the party in question being SoftBank. 

Meanwhile, some of those with less experience who might benefit from the Vision Fund’s access to deals said they are concerned about its lack of transparency and its governance and see an investment as a bet on the acumen of one person: SoftBank Chief Executive Masayoshi Son.

The question then becomes whether Masayoshi Son some investing guru, or whether his track record is a case study of how a rising tide lifts all boats. Clearly, Son’s experience in trading bitcoin, which he bought at the all time highs, only to sell it more than 50% lower in early 2018, booking a $130 million loss, leaves quite a few questions about his investing philosophy (even if cryptocurrencies are clearly a special investing case).

In any case, to overcome investor skepticism, the WSJ reports that SoftBank tapped Cantor Fitzgerald to help with the fundraising effort:

Cantor recently contacted prospective investors seeking commitments of as little as $50 million—or even less if they join feeder funds run by the investment bank, according to an email that was seen by The Wall Street Journal and people familiar with the matter.

There was a silver lining: SoftBank didn’t authorize Cantor to seek even smaller commitments, and the investment bank scrapped internal plans for feeder funds and commitments of as little as $50 million after the company objected, for obvious reasons: if SoftBank represents that it is desperate for cash, it may as well turn off the lights (which doesn’t mean it is not desperate for cash).

Of course, a plan to rely on hundreds of smaller investors will be a massive departure from SoftBank’s first Vision Fund, which was anchored by a dozen or so big contributions, and as the WSJ notes, “accepting money from small investors tends to be a last resort for firms raising big investment pools.”

Which brings up another odd decision by SoftBank: Why Cantor? The company which was crippled on Sept 11, is best known as a bond broker and doesn’t have the distribution network of a Goldman Sachs or a Bank of America. But its president, Anshu Jain was formerly co-CEO of Deutsche Bank, where Rajeev Misra, who heads the Vision Fund, was a key lieutenant and the men are friends. Cantor is hoping to tap Jain’s network as well as contacts of Howard Lutnick, Cantor’s CEO, for investors, people close to the firm said.

Meanwhile, there is also the question whether the “equity check” from SoftBank will even arrive. The Japanese megabank has said it could contribute $50 billion in cash and other assets to Vision Fund II, but according to the WSJ, the company is under financial pressure because of a heavy debt load and weakness at Sprint which it controls. SoftBank is trying to sell Sprint to T-Mobile US Inc., but the deal has run into resistance at the Justice Department; if it isn’t approved, SoftBank’s ability to put so much into the new fund could be jeopardized leaving outside investors in the cold.

In short, a perfect storm is forming for SoftBank, whose first fund, raised two years ago is already almost fully spent, after generating a 29% annual return through March. Adding urgency to the new plan, Son – who believes in distracting skeptics with his furious investing pace – continues to eye even more and ever more expensive deals.

But with such a return, existing investors should be delighted to reinvest in Son one would think. Well, maybe not, because some clear fissures have emerged between SoftBank and its core sovereign wealth fund investors. Specifically, the Saudi PIF and Abu Dhabi’s Mubadala Fund, which invested $15 billion in the first Vision Fund, have veto power over investments above $3 billion and $5 billion, respectively, and that has clogged the deal-making process on at least one occasion. One of the Vision Fund’s investments in delivery startup DoorDash took four months after it was held up by Saudi Arabia, and both sovereign-wealth funds balked at a planned $16 billion investment in co-working startup WeWork last year.

So if SoftBank’s largest investors are getting cold feet about allocating any more cash to Mr. Son, why would anyone else want to? That, of course, is the $100 billion question.

Prospective investors say they have met or spoken with Misra and Penny Bodle, the Vision Fund’s head of investor relations. Those that have signed a nondisclosure agreement were given a 37-page pitch deck, a copy of which was reviewed by the Journal, and which likely includes slides like this one.

The document, which of course is light on financial details, includes a timeline indicating how Son has foreseen major technological shifts over the years, such as the birth of the internet. It also contains case studies of a number of holdings—among them Indian hotel-booking startup OYO Hotels & Homes; Southeast Asian ride-hailing company Grab Holdings; and WeWork—and outlines how they benefit from interaction with other members of the Vision Fund portfolio.

The truth: Son has had just one blockbuster trade so far – his purchase of a $20 million stake in Alibaba in 2000. The vast majority of the fund’s profit is still on paper and predates the disappointing IPO of Uber Technologies, one of SoftBank’s top holdings. The fund’s paper profit on its $7.7 billion investment in the ride-hailing company stands at $1.3 billion as of Friday’s close, down from $2.3 billion at the time of the IPO.

The sudden questions about his investing acument haven’t stopped Son’s deal-making frenzy, with recent investments in DoorDash, GetYourGuide, grocery-delivery startup Grofers India, London-based finance startup Greensill Capital and General Motors’ driverless-car division just in the month of May.

A SoftBank spokesman said the idea that big investors have been cool to the second Vision Fund is “misleading and even inaccurate.” Only time will tell who is telling the truth.

via ZeroHedge News http://bit.ly/2MojGyZ Tyler Durden

Merkel’s shocking announcement last week that she was “unretiring” after the CDU’s abysmal showing in last week’s EU Parliamentary election – the party’s worst result ever in a national election which cost the CDU/CSU’s position as the largest party in the bloc’s largest legislative body – and as a result the Chancellor would withdraw her support from her own hand-picked successor, Annegret Kramp-Karrenbauer, or AKK, has itself been throw into chaos after the leader of Chancellor Angela Merkel’s junior coalition partner, the SPD, resigned on Sunday from her party’s top posts, raising the possibility that Germany’s embattled government could collapse.

Andrea Nahles, who heads – or rather headed – the centre-left Social Democratic Party (SPD), came under intense pressure after voters handed the party its worst European election results a week ago as Europe continues to revolt against establishment parties.

Ahead of three key state elections in eastern Germany in September, the SPD had initially planned to re-examine its partnership with Merkel’s centre-right CDU-CSU alliance in the autumn. But ahead of the planned leadership vote on Tuesday, Nahles said she would give up her jobs as both party chief and head of its parliamentary group, the AFP reported.

“The discussions in the parliamentary group and the broad feedback from the party showed me that the support necessary for the exercise of my offices is no longer there,” Nahles said much to Merkel’s shock, as suddenly the coalition government exists only in theory.

The 48-year-old said she hoped her resignation “would open the possibility that the succession can take place in an orderly manner”.

Merkel – whose approval has also collapsed ever since she admitted over a million Syrian refugees in Germany as a result of her disastrous “Open door” policy – said on Sunday that Germany’s government would push on with its work despite the setback.

“What I want to say for the government is that we will continue with our work with all seriousness and with great responsibility,” she said.

Maybe not: speaking to Bild, Harald Christ, deputy chief of the SPD’s economy forum, said that Nahles’s decision had put the future of the coalition in serious doubt.

“To all those who are happy today: it is a great loss for German politics. Nahles stands for the existence of the GroKo – whose stability is now in question,” he said, using the German short-form for grand coalition.

Some of those who were quite happy are all the newly ascendant parties, like the Greens and AfD, which have torn Germany’s centrist system apart, resulting in an unprecedented (well, one precedent) divergence between the extreme left and right.

Which is why anxiously watching as the SPD tumbled into disarray, CDU heavyweights urged their centre-left partner not to endanger the coalition: “The voter mandate is valid for four years and political parties must ensure stability in difficult times,” the CDU’s Bundestag deputy president Hans-Peter Friedrich told Bild, clearly anticipating the collapse of the government.

“An early end of the GroKo would only benefit the political fringes.”

Of course, Merkel’s CDU itself has been scrambling to retain voters, after it too scored a record low in the European elections.

Following Nahles’ bombshell, the CDU said both Kramp-Karrenbauer and Merkel would address the press later on Sunday. But the far-right AfD had already counted its chickens, and said the government was already disintegrating.

“Not only is the SPD dissolving, the GroKo too is walking the political stage only as one of the undead,” wrote the co-leader of the AfD’s group in parliament, Alice Weidel, on Twitter.

According to the AFP, some of Germany’s largest newspapers reached similar conclusions.

Bild noted that “the SPD is bleeding to death. The GroKo too”. And the Sueddeutsche daily predicted that “the coalition has come to an end”, adding that “the Social Democrats have just defeated the woman who with great effort brought the alliance together. What’s the point now then of continuing to torment themselves with this?”

The point is that the alternative is the the beginning of the end for Europe as we know it, and Brussels will do everything in its power, and beyond, to prevent giving power back to the people.

via ZeroHedge News http://bit.ly/2IjZp8q Tyler Durden

A couple of new bombshell leaked NSA documents from the Snowden archive published days ago by The Intercept confirms the extremely close level of cooperation between American and Israeli intelligence services, especially as part of the so-called “global war on terror” since 9/11. The documents reveal the NSA even assisted in an aggressive targeted assassination campaign waged by Israel inside Lebanon, especially during the 2006 Lebanon War. 

According to The Intercept’s report — aptly titled “Israel Hated American Ban on Sharing Intel for Assassinations, so US Made New Rules” — the newly unearthed NSA memos reveal attempts to find a legal loophole of sorts on the part of the US intelligence officials which would allow unprecedented information sharing related to a deeply controversial targeted assassination campaign by Israel.

The Intercept report states:

As Israel and the Lebanese militia Hezbollah exchanged blows during their short-lived but devastating 2006 war, Israeli military officials used private channels to pressure their American counterparts in the National Security Agency for intelligence to help assassinate Hezbollah operatives, according to a pair of top-secret NSA documents. The NSA was legally restricted from providing such information but, after Israeli officials asked for an exemption, U.S. intelligence officials decided on a new framework for information-sharing.

Essentially the Israeli SIGINT National Unit (ISNU), considered “Israel’s NSA”, convinced their US intelligence counterparts to circumvent US laws and procedures regarding intel sharing with with allied nations. 

“To ISNU, this prohibition [on sharing data for targeted killings] was contrary not only to supporting Israel in its fight against Hizballah but overall, to support the US Global War on Terrorism,” the NSA memo stated. 

“ISNU’s reliance on NSA was equally demanding and centered on requests for time sensitive tasking, threat warning, including tactical ELINT” — electronic intelligence — “and receipt of geolocational information on Hizballah elements,” the NSA official wrote. “The latter request was particularly problematic and I had several late-night, sometimes tense, discussions with ISNU detailing NSA’s legal prohibition on providing information that could be used in targeted killings.”

From a NSA presentation on Israeli intelligence sharing published by The Intercept:

“Even with his full understanding of the US statutes, [ISNU Commander] BG Harari sought assistance from NSA for an exemption to this legal policy. To ISNU, this prohibition was contrary not only to supporting Israel in its fight against Hizballah but overall, to support the US Global War on Terrorism.”

The Intercept concludes in its analysis of the leaked memo that NSA officials found a way around the official US prohibitions, though the precise extent of its help in the Israeli targeted assassinations campaign remains undisclosed:

The account goes on to suggest that the NSA ultimately reached a compromise with its Israeli counterpart by working with the Office of the Director of National Intelligence, or ODNI, the cabinet-level office that oversees U.S. intelligence efforts. “In the end,” the article states, “a framework was decided upon by ODNI that defined the parameters and methods of what could and could not be shared with the Israelis.” The documents do not give details of this framework.

The NSA memo recorded the Israeli reaction as follows: “Throughout all of my discussions – no matter what the tone or subject – ISNU stressed their deep gratitude for the cooperation and support they received from the NSA.”

From a leaked NSA presentation on Israeli intelligence sharing published by The Intercept:

Interestingly, one leaked NSA presentation referred to ISNU as “NSA’s most valued third party partner,” but simultaneously acknowledged “high anxiety” among the Israelis as they had “heavy reliance on NSA for support”.

One slide reads “What Did ISNU Want? Everything!!!” and lists as “issues” that might prove legal roadblocks with the US government sensitive “geolocational data” and “NSA resources” — both of which suggest US officials knew Israel could use data to potentially track Americans. 

via ZeroHedge News http://bit.ly/312Gnw1 Tyler Durden