A month and a half before OPEC and its allies are set to sit down and discuss how to proceed with their production cut pact, the leader of the non-OPEC partners, Russia, is sending mixed signals on its willingness to continue taking part in the supply agreement.
This is nothing new for Russia, which had dragged its feet in supporting each of the previous production deals with OPEC ever since the parties decided to team up to manage global oil supply and oil prices beginning in January 2017. After 2017, ahead of each meeting, comments and hints of top Russian officials, including Vladimir Putin, left the oil market and analysts only guessing would Moscow play ball this time around.
It did, every time.
At the meeting in December 2018, when the current oil production cut deal was forged, it was Putin—through his energy minister Alexander Novak—who sat down separately with each of the ministers of Saudi Arabia and Iran and convinced them to word the supply agreement in such a way that Iran would vote for the deal, because OPEC needs a unanimous vote to pass decisions.
Now that we are approaching the date for the revision of the pact—June 25-26—Russia is sending mixed signals once again about its commitment to the deal, again.
Not that OPEC’s members are sending unambiguous signals either.
The U.S. threw a major challenge to the cartel and allies’ supply pact by ending all sanction waivers for Iranian oil buyers, leaving the organization and the market guessing just how much supply will be lost from Iran until June and afterwards, and how much more the other OPEC members—those with spare production capacity like Saudi Arabia and the UAE—will have to potentially pump to offset the lost Iranian barrels.
Saudi Arabia says that it is prepared to meet all market demand for oil and, as always, “works toward market stability”, but it has reiterated that it wouldn’t rush in to ramp up production until it sees the actual barrels coming off the market.
However, OPEC’s task in estimating global oil supply going forward has been made more difficult by mounting uncertainty over Russian oil supplies to Europe via the Druzhba pipeline, expectations of further production declines in Venezuela, and the possibility of an outage in Libya, which is in the midst of a civil war with rival armies fighting for the capital Tripoli.
Amidst all this, Russia sent several ambiguous messages to the market last month. First, its Finance Minister Anton Siluanov said that OPEC and Russia might choose to fight for market share against the U.S., even if this means quitting the OPEC+ deal and sending oil prices significantly lower.
Then at the end of last month, Putin said that he hoped the Saudis wouldn’t break their promises under the OPEC+ deal, adding that he hadn’t heard of anyone indicating willingness to quit the agreement.
As for Russia itself, it has been struggling to reduce its oil production to the agreed upon level under the pact.
Moreover, Russian oil companies have been balking at the output cuts because the OPEC+ deal has been meddling with their production growth plans. Russia’s firms benefit from higher oil production and don’t need oil prices as high as Saudi Arabia does, for example, to balance its budget.
True, Russia’s budget has benefited from the higher oil prices due to restricted production from OPEC+, but higher production is also important for Russian companies that aim to develop new oil fields and offset declines from maturing fields in the Urals region and West Siberia.
Russia’s oil firms believe that production is just as important as oil prices, Alexei Kalachev, an analyst at Moscow-based investment firm Finam, told Petroleum Economist.
Russia’s position on the OPEC+ deal will probably not be known until the very day of the meeting with OPEC at the end of June, so the market and analysts will continue to speculate on the fate of the pact for another month and a half. This time around, Russia may decide that the time has come to start developing new oil fields and ditch the pact.
Yet Putin may decide that cozying up to OPEC and its de facto leader Saudi Arabia could continue to give Russia additional power in global oil supply management without actually being part of any formal organization. The Saudis are the ones who need the higher oil prices and Russia could continue to play ball to secure additional geopolitical leverage.
via ZeroHedge News http://bit.ly/2VoufBw Tyler Durden
As asset managers piled into their VIX puts, culminating in a record speculative short position just before last week’s big market blowup, Nomura’s Charlie McElligott repeatedly warned that another intense selloff might be just around the corner after the melt-up that had characterized much of the market activity from the past couple of months.
Exposing just how fragile the market’s position had become, all it took was a couple of Trump tweets to trigger the worst selloff since December. And Nomura’s Charlie McElligott, the quant whose CTA pricing model has been eerily reliable at predicting stress points in the market, was there chronicling the action as he often does in his daily notes to Nomura’s clients.
Once again, McElligott’s model proved useful in showing that the 2,890 level, around where the S&P 500 ended last week, was significant for sytematic traders recalibrating their leverage.
So perhaps it’s fitting that after what was undoubtedly the most action-packed week for markets this year, McElligott sat down for a lengthy interview with MacroVoices host Erik Townsend Thursday night, where the two discussed some of the dynamics at play, including the VIX curve inversion, and the role that the ‘gamma flip’ – that is, where options dealers were forced to buy more volatility to hedge all of these short-vol positions.
And particularly where we were last week – there were two really big observations – in, frankly, recent weeks.
We saw the overall scale of the market gamma position, the gamma profile – in both S&P futures and SPY ETF options – the combined gamma profile reach some serious extremes. Both S&P, SPY, QQQ –representing the Nasdaq side – as well as the delta in the market.
And, really, what was critical for me was that, when I see 99th percentile, 100th percentile gamma in the market, the next thing I do – and I know that we have extreme sensitivity to changes in underlying, let’s say.
From there, when I see that point in our, using our internal estimations, when the long gamma that’s been built into the market – and the long gamma is built into the market because in a trending, grinding, higher type of a market, generally speaking, you can assume that short-volatility strategies are proliferating, are growing.
More people are doing systematic roll-down. More people are selling condors. More people are selling straddles. All sorts of yield-enhancement strategies. You can call overwriting, put underwriting. You can assume that dealers are getting long gamma.
The key for me, though, is where is the point that we actually inflect towards short gamma? And knowing the scale of what Trump tweeted, I knew at an approximation on where we –calculating a flip to short gamma, which means that (I think most readers know), as the market goes lower, dealers are getting wrong-sided and have to actually keep selling more to maintain their hedges.
So that’s where you can get in a short-gamma environment, get these really slippery moves. The convergence that I talked about, though, was the fact that on a gap move lower, which I knew we were going to get – generically I “finger in the air” assumed a 1.5% selloff for the Monday – was that that gap lower was going to gap us down to where our momentum trend, CTA trend model, actually was roughly anticipating the next deleveraging levels.
As was the case during the last two sustained bouts of market volatility, the role of volatility-targeting funds is being scrutinized once again. Monday’s WSJ featured a story about how the deleveraging by risk-parity and other vol-targeting funds contributed to last week’s selloff.
McElligott expands on this point later in the interview, where he discusses how his CTA-positioning models are useful in reading market moves beyond CTAs. Ultimately, McElligott concludes that there’s still “some chop” that must feed through the system before volatility starts looking rich enough to get “tactically constructive” again. Because when the market turns, “it’s going to go.” This won’t be the last explosion of volatility, as the structure of the new market paradigm and the algorithmic trend-followers that populate it has created “this kind of Minsky moment type of world that we live in. Stability breeds instability.” In contemporary markets, its not just “brainiac” quant funds doing the vol-targeting: It’s the ‘real money’ asset managers who are looking to squeeze more returns out of a low yield market.
And why? Because this is the market that central banks and their quantitative easing have created.
And that’s what’s so insane about the world that we live in and the central bank daisy chain where vicious cycle turns to virtuous cycle and then back again.
That’s why I don’t see this ever stopping, frankly, because the central bank policy has dictated this market structure. And I closed my note this morning with this quote a buddy wrote on social media, as follows: If you’re short vol, you make money but eventually die. But if you’re long vol, you die before you make money.
And that’s this current stasis that we’re in right now where you’re waiting for the next shoe to drop. But, in the meantime, you’ve got to dance, you’ve got to generate yield, you’ve got to short volatility, you’ve got to ride the momentum, grind higher – until central bank policy or some sort of a market accident tips everything over and then we start again.
Readers can view McElligott’s full chartbook here (only accessible for MacroVoices members).
Listen to the full interview here:
And read a transcript of the interview below:
Erik: Charlie, it’s really great to have you back on the program, especially this week. There is so much to talk about that’s going on tactically, with moves in the market and fears about what might or might not happen with this trade deal and so forth.
But why don’t we start at a high level and begin with the big picture?
Last time we had you on the program, you told us to watch carefully as to what the market did in March. You said around the beginning or middle of March there was a risk that we might see a big selloff if we hit certain trigger levels. We started to see that start to come true.
But you also told us if we managed to get through the end of March and we still hadn’t gotten closing prints below those trigger levels, that it was a setup for a melt-up. And, of course, that’s exactly what has happened.
So, in terms of the big picture, late-cycle dynamics, and so forth, why don’t you give us an update on big picture macro landscape? And from there we can start to go deeper into this week’s tactical issues.
Charlie: Absolutely, Erik. I would say that the six-month world view into March is important to set the table here because, as aligned with my core thesis last year was that, starting last summer, this view that the yield curve was going to steepen.
And, depending on the catalysts, it could be both a bull steepener and a bear steepener – meaning that the curve is steepening while Treasuries are rallying, or the curve is steepening while Treasuries are selling off.
I would say that the best setup for the bull steepener, which was that October through March window, was the fact that my long-held view that the market smelled the slowdown. And into the back half of last year in the US, and certainly the financial conditions tightening tantrums that we went through last year, the market sniffed the slowdown before the Fed.
And thus the curve began to steepen based on anticipated policy change. Not only the removal of future hikes that had been priced into the short-term interest rate curve, but then, ultimately, going all the way from removing those hikes to then pricing in easing – based on the extent of both the economic slowdown and, certainly, the tightening of financial conditions into Q4 of last year. And frankly into Q1 of this year.
That was a bull steepener. And that was important, because this is such a change from this kind of perpetual decade-long flattening that we’ve experienced that has built so many of the thematic trading themes and narratives that have been built around this never-ending flattening of the yield curve story.
What ended up happening in March, at the peak of this bull steepener, was that we had a quick scramble of negative global growth data. And, at the same, time there was a real significant capitulation within the rates complex – legacy kind of bearish rates trades that were out there that hadn’t been fully cleared out during the growth scare of Q4 and the growth scare into Q1.
And that was really exacerbated particularly – we kind of hit the lows in Treasury yields, the highs in rates on March 27 – that last blast of rate volatility actually was driven by convexity hedgers. So, primarily, mortgage-backed security types of players who – those are negatively convexed products.
So you had technical factors that really created this false optic with regards to the extent of the global growth slowdown. And the crazy thing was – and thus the opportunity – was that it was happening at the perfectly wrong time. It was happening at the perfectly wrong time in the context that the lagging benefits of the Chinese stimulus, Chinese easing, and Chinese deregulation, was really starting to kick in.
And, at the same time, the Fed was discussing more openly now this more pro-inflationary stance as part of their overall inflation strategy rethink.
So you had this setup where I saw very long capitulated into rates and Treasuries positioning. You had this really long bullish view on the overall Treasury rates complex. At a time where you had a beautiful entry point in a more bearish more pro-growth trade. At the same time, you had a flurry of data coming over the next week’s span, led by Chinese credit and new loan and credit, social financing data.
And what you ended up getting over the course of the week was a massive kick-down-the-doors positive Chinese credit impulse set of data: New loans, shadow financing, social financing, big China pumping credit, pumping liquidity in the system.
And, during the same time, you had announcements of property regulation easing, which I believe we currently discussed as being the area that matters most to the Chinese economy with regards to all the peripheral positives based around the housing industry and how important it is for the Chinese economy overall.
So you have the Fed messaging changing on a more pro-inflationary dialogue back in our end of the universe. And what you end up getting after you got that big Chinese credit growth data, you had a big set of US data, you had a big ISM beat, I believe we had some PMI beat, you had European retail sales beat – which was Europe has just been a one-way economic surprise miss. We had some beat there.
And, all of a sudden, what ended up happening was this catalyst for this overshoot. And the rates market overshot. And then you had this all-of-a-sudden awareness that, hey, you know what? We might have overshot with regards to how negative we are on the overall health of the global economy and now we have to reprice growth higher.
So, Boom! Pow! April became the month of the bear steepener. And, as part of that thesis, I went out with – a bear steepener is my bread and butter with regards to reflationary types of trades. April was pure reflation. It was long tips over short nominals, meaning just long inflation break-evens.
It was long value over short momentum within equities. You know synonymous – another way of saying long cyclical short defensives. And part of the catalyst of this whole concept was how crowded the slowflation positioning has been as a narrative within investors.
So we really wiped that out over the course of April. And then we got to last week’s Fed meeting that changed the dynamic again and is causing a meaningful rethink.
Erik: Let’s go a little deeper on this bread-and-butter trade. You have written quite a bit in your daily letters over the past several months about the advantages of the curve steepener. Because, as you’ve described just now, it can play either as a bear steepener or a bull steepener, and there’s arguments for both.
So, originally, I think it was 5s30s steepeners that you recommended in one of your more recent letters in the last few weeks. I believe that you changed your positioning to be long the 2s10s curve.
Is that still the position? And what’s your outlook? How long do you see that trade continuing to be the bread and butter that it’s been for you?
Charlie: The curves capped, which is an option, basically, on the shape of the yield curve. And it’s playing swaps – has been a great trader. We talked about it since advocating it, starting last summer.
The 5s30s cash curve has tripled, kind of gone from 20 to 60 let’s say. Right now I’m looking at it – it’s 60.3 bips. So it’s been a home run. I think part of the idea with regards to – and also, too, we’ve seen a doubling in the 2s30s cash curve.
This is – the front end of the curve is more reflective of central bank policy. And clearly that has inflected, after what happened in January. The Fed had to catch up with the market and catch up with the deteriorating data and deteriorating financial conditions.
The long end has been stickier and harder to move. And that’s really the difference between the bull and the bear steepener. The long end is the part that is going to be most responsive to actually a forward view on growth and a forward view on inflation.
Which is why, in April, you had this narrative changer into the bear steepener, which really boosted that long cyclical short defensives trade. And even not just short defensives, but short tech. Tech is a long-duration asset. Expensive growth stocks are long-duration assets because they need lower rates to justify their valuation.
The 2s10s switcheroo was really about a more attractive entry point and the idea that the others had participated, whereas the 2s10s had not yet broken out. I think the thing here, too, is that I really saw a massive long accumulating in the Treasury space.
And the best proxy and the thing that everybody owns for that long, of course, is TY, the 10-year future. So I liked the fact that the 10-year in particular could reprice and make the 2s10s more attractive.
What I would say, Erik, with regards to the game changer – even though it was a very incremental, nuanced message – the game changer that was last week’s Fed meeting has put this thing on ice for the near term. And that’s because into extremely dovish expectations built into the market, due to the Fed’s own position pivot, starting since January, Jerome Powell came out and spoke from a much more balanced perspective.
And that balanced perspective was best exemplified by his focus on transitory inflation weakness. And that move that, you know what, we’re not going to be super-reactionary with regards to the inflation issue that they’re having with regards to the forever grinding lower inflation is a big part of what this repricing of growth, higher reflation type of a trade is.
So he just bought some time.
But in the meantime, this very profitable bull steepener of the prior six months and then this big bear steepener – and, again, all I care is that the curve is going steeper, not whether it’s a bull or a bear necessarily – is kind of on ice, as I said, simply because some folks were taking money off the table. Which, unwinding the steepener means you’re going to flatten for a little bit.
I think from here, to really tie this all up, it’s going to come down to the Fed language as we head into their big June inflation symposium where they’re going to have to come out and crystallize where they stand on policy – as well as a second Fed center-point, which is what they’re going to do with their balance sheet as QE-Lite (as I like to call it) begins in October as they take their mortgage-backed security reinvestments and begin buying Treasuries again (thus QE-Lite).
Erik: Charlie, you mentioned the Fed’s inflation symposium that they’re having in June. Help me understand this. Because, as I understand the Fed’s messaging, there’s absolutely no problem with inflation.
They’ve got it all under control, but somehow they need to have a symposium all about it in June. What’s going on here?
Charlie: So, the Fed has announced a year-long review of policy. And the one part of the policy that matters right now – and, essentially, coming out after that January pivot from the Fed, I went out and basically said, look, the Fed has torched any misconception. They are strictly a one-mandate institution now.
And that’s basically – the mandate has become not just a one mandate around inflation but it’s become asymmetric around inflation – meaning that the lower it goes the more reactive they’re going to be with regards to cutting, with regards to trying to stimulate inflation – then the opposite, which is much less likely to hike in the event that inflation overshoots.
And that’s a very big deal, because the language that helped really trigger so much of that April reflation phenomenon from the guys that matter most – Clarida, Williams, Evans – taking this message too was the idea that the trajectory of core PCE year-over-year is a real concern, it’s a problem, it’s got to be addressed.
And that’s why this June symposium – it’s a research symposium – is super-important.
And one of the things, actually, that I think was a clue for us with regards to the future read of where this policy is heading was that multiple speakers spoke about the potential that NAIRU is below the U-rate.
And basically this is telling us that – the Fed is acknowledging that they need to run the jobs market hot, and asymmetrically hot, really message forward guidance wise that you are going to cut rates in the event that inflation slows more so than the opposite to stimulate inflation, to stimulate the Phillips curve.
And this problem of the zero bound, as we near the zero bound. And certainly the lower bound of where we are right now.
So I think that this then came out along the same time that we got the agenda for the June meeting. And about a third of the meeting is made up of labor discussions, labor working groups, labor research papers.
Which tells us that, at the same time that some Fed speakers are talking about looking at jobs as a vehicle labor market, as a vehicle to run to try to play catchup in this inflation-averaging framework that everybody has spoken about from Janet Yellen to Jerome Powell himself, that then too – if you’re willing to run hot through potentially cutting rates to stimulate the labor overshoot here – that that’s probably where the future state will be.
At the same time, too, they even began piling on with the discussion of “insurance cuts.” And Clarida specifically mentioned that, into a still-strong economic backdrop in ‘95 and ‘96, the Fed cut rates under weakening price pressures, which is similar to where we are now. And even highlighted in ’98, cutting into a still-strong economy on account of external factors, which was the emerging markets crisis and the long-term capital management crisis.
So they really set the table for this asymmetric overall policy far more likely to ease than the bar it would require for them to jump over to hike again.
And that’s a big deal when we’re talking about not just the Fed June symposium, but the Fed having to update both the composition of their balance sheet into QE-Lite – meaning that our view that they’re going to be buying more bonds in the front end, which steepens the curve, which is actually a catalyst for a lot of this reflationary thematic trade that we’re talking about – as well as the third point, the third leg of this stool, that China is still in no position to scale back their stimulus.
In fact, and even up to the overnight data that we’ve got (and ex any of the trade war tariff discussion), [they have] very ugly export data again. So they’re going to keep the pressure down there. Which is inherently going to be a positive for inflation-sensitives, cyclicals, things of that nature.
So I think that’s the view that I want to leave with regarding the structural stuff.
Erik: Well, Charlie, I know that our listeners are dying to hear you get into the tactical outlook because it’s been quite an interesting week. I can certainly say that when I saw “Charlie McElligott” in my inbox on Sunday I knew something was up. And, sure enough, we’ve seen that there was a triggering of one of your CTA levels on Tuesday, I believe.
So give us a rundown of how we got here and what comes next.
Charlie: So, obviously, as the tariff news came out, something that I have been increasingly aware of – you know I love to highlight asymmetries in the market and imbalances, crowding risks, especially when there is a narrative behind them – one of the things that I think we keep seeing with regards to some of the successes that we’ve had, capturing or flagging these directional shifts ahead of time, are the
convergences of a few different indicators.
And particularly where we were last week – there were two really big observations – in, frankly, recent weeks.
We saw the overall scale of the market gamma position, the gamma profile – in both S&P futures and SPY ETF options – the combined gamma profile reach some serious extremes. Both S&P, SPY, QQQ –representing the Nasdaq side – as well as the delta in the market.
And, really, what was critical for me was that, when I see 99th percentile, 100th percentile gamma in the market, the next thing I do – and I know that we have extreme sensitivity to changes in underlying, let’s say.
From there, when I see that point in our, using our internal estimations, when the long gamma that’s been built into the market – and the long gamma is built into the market because in a trending, grinding, higher type of a market, generally speaking, you can assume that short-volatility strategies are proliferating, are growing.
More people are doing systematic roll-down. More people are selling condors. More people are selling straddles. All sorts of yield-enhancement strategies. You can call overwriting, put underwriting. You can assume that dealers are getting long gamma.
The key for me, though, is where is the point that we actually inflect towards short gamma? And knowing the scale of what Trump tweeted, I knew at an approximation on where we –calculating a flip to short gamma, which means that (I think most readers know), as the market goes lower, dealers are getting wrong-sided and have to actually keep selling more to maintain their hedges.
So that’s where you can get in a short-gamma environment, get these really slippery moves. The convergence that I talked about, though, was the fact that on a gap move lower, which I knew we were going to get – generically I “finger in the air” assumed a 1.5% selloff for the Monday – was that that gap lower was going to gap us down to where our momentum trend, CTA trend model, actually was roughly anticipating the next deleveraging levels.
[See Slide 9] And when you pile those two factors together, on top of what then becomes an almost inevitable VIX curve inversion – so for all of these people that have been shorting volatility, even though there was an offsetting long in the VIX ETN complex, the VIX curve will invert as a lot of these roll-down strategies are then forced to cover their short. Those three things converging, then you’re going to see fireworks.
And that’s exactly what happened Monday.
There was a reason on the follow-through on the Tuesday that we actually closed back up, that we rallied, which is not for any trade talk optimism but instead almost completely based around options-related behavior. Both from dealer desks – people that were long VIX ETN – that we still had a wave of systematic deleveraging as well as a catalyst, too, for a very fundamental part of the universe, the sell.
And that was the fact that asset managers had accumulated almost $130 billion of US equity futures longs in recent months. And, even in just the year to date alone, it was like $65 billion.
So they finally had this catalyst to be in this even risk. And Boom! You get the asset managers kind of taking down this exposure. Boom! You trigger dealer negative gamma on the gap lower.
Boom! You get the CTA trend deleveraging level, which in S&P did actually go from the plus 100% signal to selling down to a plus just a 60% signal. And you got the VIX curve inversion. That’s how we’ve driven this incredibly volatile two-and-a-half-session environment of the past few days.
Erik: Charlie, for our listeners’ benefit, as you’re talking about the gamma, some of that’s on Slide 5 and the VIX inversion is on Slide 9. I think we may have lost a few people on the slides there.
Let’s go back to Slide 1 in the deck. Why don’t you talk us through how you knew that this was going to be futures-driven and what you saw next? And just talk us through the slide deck here.
Charlie: There was this qualitative observation that, for sure, we knew asset managers have gotten this trade right. They bought the dip in December. They kept loading up January, February, March. That they were going to be incentivized to take some risk off the table. So that kind of got this ball rolling.
We knew that as part of that overall $130 billion of US equity futures length – and $65 billion just year-to-date alone – that that was going to drive a significant uptick in futures buying, because that’s where they held the position. Additionally, though, was this understanding of course that the CTA trend, per our model, was going to be de-levering.
So what we looked at then was this confirmation of this view where we just took a look of the percentage of notional futures uptick versus the overall cash notional uptick. And what it showed you was this 1.3 times behavior, which is the single largest overshoot, let’s say, of the past nine years. It was a 3 z-score event.
Which really just confirms that yesterday was about likely confirming that this was a futures-led move and that the two real inputs here, besides dealer gamma hedging, were the asset manager de-risking as well as the deleveraging from the CTA universe.
The second slide captures exactly what I spoke about, the scale of that US equities futures long from asset managers. You can see some of that accumulation, which has continued all the way up until this last month, still buying an additional $9 billion across S&P, Nasdaq and Russell. So you just knew they were long and it made sense for them to take some chips off the table under this kind of risk event.
The third slide – this is what I know a lot of folks care about. As a word of caution, these are not static. These change based on both the new price levels on a daily basis plus the realized volatility profile over a trailing window. So these cannot be treated as static.
But you can see on that move, let’s say, from 2,897 – if you see that position column, the multicolored position column, where we went from in the same span of two points basically 2,897 and down – we went from that 100% signal to the 60% signal.
And what you can then see – if you move back left, you see that two-week column and that one-month column – those are the two windows of our model that flipped short. The price momentum signal for S&P lost its strength and actually flipped. So that’s capturing where the pain points were for the model.
I think this [Slide 4] is actually one that gets people very interested. And, again, a snapshot in time, but it’s a forward look of our trigger levels. You can see this dynamic where, because of the environment, generally speaking, of a year ago that has those days that were in our one-year sample lookback set dropped in or out of the picture, our pivot levels change.
And what you see – the top is S&P, the middle is NASDAQ, the bottom is Russell – is that those pivot level numbers really jump up.
So what that means to me is that the pressure is going to be on to stay at this lower overall signal weight for both S&P and even NASDAQ. NASDAQ had so much wiggle room for the longest time because of the year-to-date performance and the explosive moves in tech. Even NASDAQ is now at risk of deleveraging, even if the market just holds sideways from here.
And at the very bottom you see that Russell is nearing a point of going outright short again. And, for what it’s worth, Russell has been a great indicator with regards to periods of volatility. So that’s just one to keep on the radar.
Erik: Okay. So, as we interpret this chart on Slide 4, I want to remind our listeners this is a moving target. You recalculate these numbers every day and it depends on the tape action and what the price is.
But all other factors being equal, if we just assumed a flat return right now, it looks like, as we get about two or three weeks out, the market has to be above 2,940 or so in order for this signal not to be triggered, which would start more selling.
So do you think we’re headed back up to those levels? Or do you think we’re going to be triggering the selling before we even get to two weeks out?
Charlie: It’s really just about maintaining this current 60 level, let’s say, for the S&P as our example here. The good news is that, at least from the perspective of CTAs, for the S&P we’ve already deleveraged.
And the next level to actually see more selling and actually more outright short is way below the market.
So to get there we would probably need to see a pretty negative outcome into – by tomorrow at midnight into Friday – the re-imposition of tariffs.
If it came out that talks had broken down, the tariffs are back on, in no confusing terms the market is going to be down 2% or 3% that next day, for sure. Even with this kind of next move.
And then, all of a sudden, that next level of deleveraging happens.
I happen to believe that we understand how much Donald Trump loves the stock market as a weather vane, as a scoreboard for him. He had 500 points of S&P in his pocket since the last time he talked this up.
The Reuters article today spoke to an almost disrespectful Chinese dismissal of previously agreed-to terms across the board, across all of the key talking points. I think he has gotten their attention.
And all it takes for him is to say, look – and for him to dictate to Lighthizer and Mnuchin to a lesser extent, that, hey, roll back the tariffs. Let’s tell them we delay the tariffs, we’re making a lot of progress in these talks.
And then, all of a sudden, I think we’re retesting our prior highs. Even just on the idea that we’re going to keep kicking the can, we’re going to keep extending and pretending to get this thing right. We just needed to get them honest and get some concessions from them again.
I personally think that they will kick off the tariffs. Tomorrow night at midnight, I think those go through. I do think, too, they will counteract that with some language about ongoing discussions.
And maybe they put a limit on those tariffs. Maybe they say, we’ve made a lot of progress, there’s a possibility that we take the tariffs off in two weeks or one month out from now.
I think it’s going to be a more nuanced message. And I think that’s important with
regards to knowing that it would take a pretty meaningful negative outcome from these events to get anywhere close to that next level of deleveraging.
The one thing I would like to add though, Erik – and I always talk about the CTAs because that’s kind of been our bread and butter, and my view that it’s not simply a discussion of commodity trading advisors.
It’s the fact that, in a post-QE world, almost any trader or fund that operates under a VaR model is a de facto risk-controlled, risk-targeting, target volatility fund. And that simply means that your exposures, your leverage, your sizing, are going to be dictated by the underlying realized volatility signals.
So when I talk about these numbers and these break points, I’m talking about more than just CTAs. I’m talking about where the bodies lie and where things inflect and where stuff becomes painful and where things can go wrong.
There are other systematic strategies out there, though, that matter. I have high confidence that on a 1.90 handle down-trade in a day and a half confirmed, that these flows had shifted. Asset managers started deleveraging. CTAs began to de-lever part of their long.
And then you also, too, had the VIX curve invert, which created knockoff hedging requirements – both for dealers or people short – that also bleed into S&P.
Another part of this are target volatility funds. And this might be a little bit wonky for readers, but this is almost any variable annuity. This also can overlap with CTA, with risk parity. But just to get an understanding of what that is.
And if you look at S&P-indexed 20-day realized, so a one-month lookback, which is standard – and I’d also generically benchmark the typical target volatility fund struck at a target volatility of 10 – right now that 20-day realized volatility is, say, 9.5.
Mechanically, though, upon crossing that 10, there will be unwinding flows. And what that requires are another few days, just by staying up here in realized volatility. And you can see on the day stocks are flat, VIX is flat, that’s going to naturally drag up these trailing realized volatility levels.
And that’s why I still feel confident that there’s probably ongoing more supply than demand type flow, unless we get a positive outcome – for probably just another day or two.
Only after we clear any sort of down-trade around whatever happens with the tariffs into Friday could I then want to say, hey, let’s go out and take advantage of how rich volatility is. Let’s go out and sell puts. Or let’s go out and buy some upside calls or call spreads to take advantage of what eventually becomes a deal.
So I think we’ve got to clear through some chop first, and there still is this flow out there that is deleveraging flow that’s got to go through the system – before we can then get that purge and get tactically constructive again.
Erik: Okay, Charlie. So it seems like we’ve kind of got a dilemma here, because clearly this trade negotiation is not over yet. It’s not clear, even after Friday and the deadline and who knows what happens this weekend, come Monday it’s not going to be completely over then either. At least I strongly doubt it will be.
So where does that leave us in terms of being able to put a trade on that makes sense?
Charlie: I think that part of what’s happening right now is that – it’s twofold.
From a hedging perspective, you still have exposure on, you’re not totally flat, you’re still waiting long. I personally think that Eurodollar futures as a hedge, which are just a short-term interest rate product – meaning that your long rates or your long Treasuries as a de-risking hedge still works during this equity volatility spike, that risk-parity-like strategy of long low-volatility assets like Treasuries has done its job.
Plus you get the additional kicker that the more this tariff situation devolves, if it were to do so, the more likely that the market is going to price in the likelihood of an even more dovish Fed or even a rate hike.
It’s that same idea. The Fed is cornered into an asymmetric policy. There’s a much lower bar to ease than to hike.
Now, from an actually playing offense perspective – and it’s still too early, as I just mentioned, that right now we have to see the outcome, we have to see that final purge.
We saw the first purge and capitulation in the VIX complex. You know, vVix – which is volatility of volatility – was the first signal. The VIX complex went yesterday. I think any further stuff will then be the delta one products, structured products, and things like that that were built around equities, volatility notes, things like that – would be the final thing to purge.
And we talked about this – potential that if you get a negative message out of this meeting, you’re down 2%.
But I have to always look at the next move.
And the next move is that right now the market is pricing in much more crash down than crash up. And that’s the opportunity. Upside skew is 3rd percentile. Downside skew is 81st percentile, meaning really rich, like people are slapping on their tail hedges.
The ratio of a 25 delta put to a 25 delta call is 91st percentile. So that’s when you want to start inching closer to getting tactically offensive.
And I think, as it stands right now, that’s probably through selling puts more so than calls. But when this thing turns, it’s going to go. And you’re going to want to take advantage of this rich volatility market.
I think the one thing that I’d want to say, and I think it’s an interesting way to close the conversation, is that why does this keep happening? Why do we keep having these almost quarterly it seems like – certainly a couple of times a year – short-vol, easy-carry, momentum-type environments?
Then we have a blowup and then we have a V-shaped snapback. And the V-shaped snapback, let’s say, certainly didn’t materialize yet today. But that last 20-point rally in the last 15 minutes of yesterday’s market was certainly that.
And, as I kind of alluded to earlier, that was guys that were long-vol – whether that’s retail guys, you know that were long the VIX ETN, or dealers like ourselves who were sold volatility from the buy side – or people that were short delta, so short S&P futures, either as they were dynamically hedging or even people who were trying to front-run the systematic trend inflection.
That profit-taking from those players in the last 20 minutes of yesterday was what created that big upswing in the tape.
You were unwinding profitable trades. You sold some of your long volatility and you covered some of your short delta, which is bought futures. So that’s why you get these V-shaped snapbacks.
But I think from a bigger existential larger level. It’s what I talk about often, which is this kind of Minsky moment type of world that we live in. Stability breeds instability.
And if you look at the central bank playbook post the crisis, the plan has been large-scale asset purchases and providing forward guidance on lower interest rates forever and flatter curves forever. And what that’s done is that it suppresses cross-asset volatility because it’s suppressing interest rates.
And, ultimately, you create this intentional financial repression which drives, as the Fed likes to call it, portfolio rebalancing. As I like to call it, it’s pushing people out on the risk curve. It creates that risk-for-yield behavior.
So why does stuff like yesterday happen, even though these might be largely systematic strategies?
It’s not some HFT brainiac quant hedge fund, necessarily, that’s the issue here. Really, to me, it’s real-money institutions have moved post the crisis from being before-the-crisis buyers of volatility and buyers of tail-risk hedges who are instead now vol sellers in this post-crisis period.
As I mentioned, call overwriting, put underwriting, all systematic, all rules-based, condor, strangle selling, VIX curve roll-down. They’re all doing this in order to generate yield in a world void of yield.
And that’s what’s so insane about the world that we live in and the central bank daisy chain where vicious cycle turns to virtuous cycle and then back again. That’s why I don’t see this ever stopping, frankly, because the central bank policy has dictated this market structure.
And I closed my note this morning with this quote a buddy wrote on social media, as follows: If you’re short vol, you make money but eventually die. But if you’re long vol, you die before you make money.
And that’s this current stasis that we’re in right now where you’re waiting for the next shoe to drop. But, in the meantime, you’ve got to dance, you’ve got to generate yield, you’ve got to short volatility, you’ve got to ride the momentum, grind higher – until central bank policy or some sort of a market accident tips everything ober and then we start again.
Erik: Okay, to summarize, we can expect the fireworks to continue as this trade negotiation takes whatever direction it’s going to take. That’s probably going to induce more fear and uncertainty and pump up those put premiums even higher than they already are. When it’s finally over is going to be your opportunity to sell those puts and maybe go long indices and ride the upside of this.
via ZeroHedge News http://bit.ly/2LHBFAh Tyler Durden
American journalist Matt Taibbi has said that the American press began its rapid decline during the Monica Lewinsky scandal that rocked Bill Clinton during his presidency. The mainstream media is no longer even attempting to portray objectivity, but simply “packaging anger” for the brainwashed American public.
In a new “On Contact” episode, host Chris Hedges and Taibbi dive into the roots of the decay of journalism in the United States, which preys on prejudices and fear while pitting people against each other and paving the way for demagogues. According to RT, Taibbi says this all started back when Bill Clinton was president.
From Monica Lewinski to Hillary Clinton, the coverage of major news stories by the U.S. media has grown increasingly strident, with cable channels no longer trying to project a picture of objectivity but “selling a story that makes people angry,”Taibbi, an award-winning journalist, and author says.
Taibbi says that the result of this journalistic decay and emotional fear mongering is a public addicted to hating each other.
Americans have become addicted to the news that agrees with their bias, and it was set up that way on purpose. The only thing anyone will hear when they turn on the news are stories specifically crafted to manufacture outrage, make you hate the other side, and fuel the addiction to anger.
In this characteristically turbocharged new book, celebrated Rolling Stone journalist Matt Taibbi provides an insider’s guide to the variety of ways today’s mainstream media tells us lies. Part tirade, part confessional, it reveals that what most people think of as “the news” is, in fact, a twisted wing of the entertainment business.
Heading into a 2020 election season that promises to be a Great Giza Pyramid Complex of invective and digital ugliness, Hate Inc. will be an invaluable antidote to the hidden poisons dished up by those we rely on to tell us what is happening in the world.
After Trump revealed late on Friday that the US would proceed with raising 25% tariffs on the remaining roughly $300 billion in Chinese exports, the next major development as we noted earlier today…
Next market-moving headline: US announces tariffs on $300BN of remaining Chinese exports
… was the official triggering of such tariffs, which as Goldman calculated over the weekend, threatens to send inflation sharply higher and lead to another round of aggressive Chinese escalation, which would likely result in tumbling stocks.
But before that happens, the office of the US Trade Representative, Robert Lighthizer, was expected to file a request for public comments and hold a hearing on the $300 billion in new proposed 25% tariffs. That’s precisely what happened late on Monday, when the USTR announced this hearing would take place June 17, and provided the following information:
In accordance with the direction of the President, the U.S. Trade Representative (Trade Representative) proposes a modification of the action being taken in this Section 301 investigation of the acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation. The proposed modification is to take further action in the form of an additional ad valorem duty of up to 25 percent on products of China with an annual trade value of approximately $300 billion. The products subject to this proposed modification are classified in the HTSUS subheadings set out in the Annex to this notice. The Office of the U.S. Trade Representative (USTR) is seeking public comment and will hold a public hearing regarding this proposed modification.
As a reminder, the US has already pulled the trigger on 3 specific tranches of tariff actions against China, summarized in the following diagram from Rabobank:
The proposed action would be the 4th and Final Tariff Tranche (shown above the in the light blue bubble with the question market), and would target primarily consumer goods.
Specifically, the proposed action would take the place of “an additional ad valorem duty of up to 25 percent on products of China covered in the list of 3,805 full and partial tariff subheadings set out in the Annex to this notice. The proposed product list has an approximate annual trade value of $300 billion. The proposed product list covers essentially all products not currently covered by action in this investigation. The proposed product list excludes pharmaceuticals, certain pharmaceutical inputs, select medical goods, rare earth materials, and critical minerals. Product exclusions granted by the Trade Representative on prior tranches from this investigation will not be affected.
For those who are pressed for time to read through the entire list, Deutsche Bank explained earlier that the remaining Chinese exports are significantly different from the other Chinese exports, as they include mostly consumer goods such as smartphones, computers, and textiles, and US consumers are more dependent on China for these goods. These are shown in the red box below:
Additionally, Goldman economists noted that imports from China account for a much larger share of total imports in the categories covered by Tranche 4 than in prior rounds. For example, computers, cell phones, and toys are some of the largest categories in Tranche 4, and China accounts for 80% or more of total US imports of each product group. This, according to Goldman chief economist Jan Hatzius, “could make it harder for US importers to source from other countries not affected by the new tariffs.”
It also means that if the US does, in fact, implement the full tariffs as proposed, US consumer will be facing much higher inflation, and potentially force the Fed to hike rates soon, prompting fresh fury from the US president.
The first piece of bad news was that Bayer just lost the third trial in a row over claims its Roundup weedkiller causes cancer.
In the stunning verdict, sure to be appealed, a jury in state court in Oakland, California, issued its verdict Monday, awarding a total of more than $2 billion in punitive damages to a husband and wife over there cancer claims.
The jury hit Monsanto with another $1 BILLION in punitive damages for Alva Pilliod. The total is a $2.055 billion verdict.
As Bloomberg reports, the jurors agreed that Alva and Alberta Pilliod’s use of Roundup over about 30 years for residential landscaping was a “substantial factor” in causing them to develop non-Hodgkin’s lymphoma.
“In this case there appeared to be more detailed evidence damaging to Monsanto, which strengthens plaintiffs’ cases down the pipeline even further,” said Anna Pavlik, senior counsel for special situations at United First Partners LLC in New York, who has followed the trials.
Monsanto Co., the maker of Roundup acquired by Bayer last June, is the named defendant in similar U.S. lawsuits filed by at least 13,400 plaintiffs. Bayer is appealing the earlier verdicts and the award of $2 billion will be vulnerable to a legal challenge
by Bayer because courts have generally held that punitive damages shouldn’t be more than 10 times higher than compensatory damages.
* * *
The second piece of bad news was a Reuters story reporting that Bayer said on Monday its Monsanto unit, which is being investigated by French prosecutors for compiling files of influential people such as journalists in France, likely did the same across Europe, suggesting a potentially wider problem.
French prosecutors said on Friday they had opened an inquiry after newspaper Le Monde filed a complaint alleging that Monsanto – acquired by Bayer for $63 billion last year – had kept a file of 200 names, including journalists and lawmakers in hopes of influencing positions on pesticides.
Bayer acknowledged the existence of the files, saying it does not believe any laws were broken but that it will ask an external law firm to investigate.
“It’s safe to say that other countries in Europe were affected by lists … I assume that all EU member states could potentially be affected,” Matthias Berninger, Bayer’s head of public affairs and sustainability, told journalists on Monday.
“When you collect non-publicly available data about individuals a Rubicon is clearly crossed,” regardless of whether data privacy laws were actually violated, he added.
Bayer said in its initial statement that “Currently, we have no indication that the preparation of the lists under discussion violated any legal provisions.”
The world appears to be tiring of globalization and hegemons, and that trend may doom the Belt & Road to irrelevancy.
The conventional narrative holds that China’s Belt & Road Initiative is cementing China’s global superpower status. There’s an alternative narrative, however: it’s a decade too late. From this perspective, global trade has reached the top of the S-Curve and is in the stagnation phase, which will be followed by decline or collapse.
Why could global trade decline as a secular trend? The answer of the moment–trade wars– is more a symptom than the disease itself, which is the benefits of globalization have declined and the negative consequences are becoming unavoidable.
Trade is never “free;” there are always losers to any trade, and if the benefits accrue to the few at the expense of the many, the gains no longer offset the losses. Resistance to globalization is rising, and national interests are gaining political ground.
Then there are the strategic considerations of trade. Do you really want your nation overly dependent on other nations for energy, food, semiconductors and capital?Food security makes little sense by itself; the spectrum of autarchy / self-sufficiency must also include energy, critical technologies and capital–human, institutional and financial.
Going forward, the last thing nations will want is increasing dependence on China–or any other hegemon.
China’s debt diplomacy–pressuring “partners” to borrow immense sums from China, backed by collateral like harbors and ports–is already drawing resistance. If global trade has indeed topped out and shifted to secular decline, all the strategic reasons to limit dependency on other nations will start becoming more important than private-sector profits reaped by politically powerful corporations.
Then there’s the asymmetric inefficiencies of diesel trucks versus sea transport. The “maritime road” in the one belt, one road (OBOR) scheme is nothing new; these routes through the Indian Ocean linking Africa, the Mideast, India and Asia have been followed for hundreds of years. China isn’t bringing any new efficiencies to these longstanding sea routes.
As for moving goods by truck: it’s up to five times more expensive in terms of fuel efficiency and ecological impacts than shipping by sea. Furthermore, unlike the sea, roads require constant maintenance: not only is trucking expensive, maintaining thousands of trucks and thousands of kilometers of roads is costly. These costs don’t scale: every truck and every kilometer of road costs money to maintain.
So where are the economic advantages in trucking goods thousands of kilometers? Landlocked regions which depend on trucks already might see some benefit, but are those benefits significant enough to make the entire OBOR investment profitable?
Let’s say diesel fuel costs rise going forward: what are the consequences?Depending on how much fuel costs rise, trade earns diminishing returns for all but the highest-value goods.
Then there’s security. The world is becoming more dangerous as non-state entities gain disruptive technologies. Hundreds of kilometers of roads through trackless wastelands are essentially impossible to secure against primitive IEDs (improvised explosive devices), and more advanced threats make hundreds of kilometers of natural gas pipelines and other infrastructure through sparsely populated regions vulnerable.
If trade declines, fuel costs increase, security emerges as an issue and strategic concerns reduce the appeal of globalization and dependency on others, the Belt & Road becomes a bottomless boondoggle. Maybe a decade ago, when trade and globalization were on the upswing, the Belt & Road would have been an instant success.
But now, the tidal forces that supported globalization and dependency are reversing. In a decade hence, will China reign supreme as the global hegemon as a result of the Belt & Road, or will the entire Initiative be viewed as a colossal malinvestment that undermined China’s attempt to wield soft power via debt diplomacy and trade-based dependency?
The world appears to be tiring of globalization and hegemons, and that trend may doom the Belt & Road to irrelevancy–or worse.
In at least one important way, President Trump’s decision to browbeat the Fed into pausing its program of interest-rate hikes is paying off bigly for America’s most vulnerable corporate borrowers.
The Fed’s decision to ‘pause’ interest rate hikes comes as nearly one-third of the entire $1.2 trillion US high-yield market is slated for maturity over the next four years. That’s a record proportion, according to a team of strategists at Barclays led by Bradley Rogoff, and compares with a post-2000 average of just 20%. And after the historic market ‘freeze’ late last year where not a single high-yield bond was issued, corporate America has apparently got the message: Now is the time to strike while the iron is hot. The more speculative-grade the rating, the more important it is for companies to act now to refinance that debt.
Though many companies have years to plan on refinancing (almost none will pay off their debt tabs entirely), many are choosing to refinance now, while rates are low, and demand for higher-yielding debt is high. Junk bonds tanked last week as markets shunned risky assets, but this didn’t dampen buyers’ appetite: Last week was the biggest week for issuance in nearly two years, with junk issuers selling $12 billion. So far this year, more than $80 billion of bonds that listed refinancing in the prospectus have been issued. That has accounted for more than 70% of the issuance so far this year, according to Bloomberg.
And while credit analysts at some of the bigger fund managers insist that this is ‘healthy’, they seem to have neglected the fact that the president has effectively given corporations a green light to continue on their debt binge by effectively putting off their day of reckoning until the Democrats take back control of the White House.
“Companies are extending maturities out, and that’s healthy,” said Scott Roberts, head of high-yield debt at Invesco Ltd. Refinancing is a better use of debt than buying back shares, he added. “I’ve seen frothy before and this is not it.”
[…]
“I feel good about this high-yield market and we are trying to push issuers to take advantage of it,” said Richard Zogheb, global head of debt capital markets at Citigroup Inc. “Investors are so excited now that the underlying rate environment is more dovish, and that’s really good news for high-yield borrowers.”
Companies that backed out of their issuance plans late last year during the sudden market drought are beginning to realize that ‘market conditions’ probably aren’t going to get much better than they are now.
“We had half a dozen companies that were planning to go as early as nine or 10 months ago, then the market started weakening and we never got to the point where we could do those deals,” said John Gregory, head of leveraged-finance syndicate at Wells Fargo & Co., referring to when junk bond prices fell late last year. “Now we’re finally getting to that point.”
What’s more, floating-rate leveraged loans have become less attractive thanks to the Fed’s capitulation, creating something of a perfect storm for the junk-bond market, which is great for heavily indebted companies hoping to lock in the lowest possible interest rate.
“I can’t remember when $5 billion worth of deals came in one day,” said Matt Eagan, a portfolio manager at Loomis Sayles & Co.
[..]
“The market is generally wide open for issuers,” said Jenny Lee, co-head of leveraged loan and high-yield capital markets at JPMorgan Chase & Co. “We’re advising issuer clients to look harder at doing high-yield bonds.”
Even if borrowers truly can’t afford it, the longer they can delay their day of reckoning, the greater the chance that the Fed takes care of their obligations for them when the central bank inevitably pivots to buying corporate debt – as former Fed Chairwoman Janet Yellen recently suggested – during QE4.
via ZeroHedge News http://bit.ly/2Q4U6NF Tyler Durden
If the order is given, the Iranians and their proxy Hezbollah could rain an enormous amount of death and destruction down upon Israel, and of course Israel would hit them back even harder. We are talking about a scenario that could potentially trigger World War 3, and the Iranians apparently believe that the possibility of such an outcome will keep Trump from taking military action against them. The following comes from the Times of Israel…
A senior Iranian official on Sunday dismissed the US military buildup in the region as psychological warfare, saying that the US will not attack for fear of provoking an Iranian assault on Israel.
“The US military forces’ deployment in the Persian Gulf is more of the nature of psychological warfare. They are not ready for a war, specially when Israel is within our range,” Iranian Parliament’s Vice-Speaker Ali Motahhari said on Sunday, according to the FARS news agency.
In addition to its own missiles, Iranian proxies like Hezbollah in Lebanon and Palestinian Islamic Jihad in the Gaza Strip have hundreds of thousands of rockets aimed at Israel.
Perhaps the Iranians are correct and the U.S. has no intention of starting a war. But we have already seen that the Trump administration has not been afraid to engage in a campaign of “maximum pressure” that has pushed us to the brink of military conflict. In recent days the Trump administration has decided that they will not allow Iran to sell oil to anybody at all, and the crushing sanctions that were imposed on Iran last year have been absolutely devastating for the Iranian economy…
The sweeping unilateral sanctions that Washington re-imposed when it quit the agreement a year ago have dealt a severe blow to the Iranian economy, pushing the value of its currency to record lows, driving away foreign investors and triggering protests.
And for good reason: the plunging value of the rial has affected the prices of imported staples as well as locally produced goods. According to the Statistical Center of Iran, the cost of red meat and poultry has increased by 57% over the past 12 months; milk, cheese and eggs by 37%; and vegetables by 47%.
The Iranians are growing deeply frustrated, and they appear to be convinced that an alliance headed up by the U.S., Israel and Saudi Arabia would love to see regime change in Iran.
And as Iran’s Foreign Minister Javad Zarif said, Tehran is convinced that what he calls “the B Team”—Bolton, Bibi, bin Salman, and bin Zayed, the last three being Israeli Prime Minister Benjamin Netanyahu, Saudi Crown Prince Mohammed bin Salman, and Mohammed bin Zayed, the crown prince of Abu Dhabi and effective ruler of the United Arab Emirates—are determined to force regime change in Iran. “President Trump says that the pressure will bring Iran to its knees,” said Zarif.
“The other day, Secretary Pompeo was asked if he was planning a coup d’état in Iran. And you know what he said? Any diplomat, even if they’re planning a coup, would deny it! But he said, if I were planning a coup, I wouldn’t tell you. Sometimes people say what’s in the back of their mind,” Zarif added. (The exact quote, according to Axios, came in a speech by Pompeo to an Iranian-American group, in which he said, “Even if we [were], would I be telling you guys about it?”)
And Zarif is probably correct on this point. If the U.S, Israel and Saudi Arabia could snap their fingers and establish a completely new government in Iran, they would almost certainly do it.
But all attempts to encourage an internal revolution have fizzled, and a full-blown war would seem to be unthinkable.
The Iranians have made their military a core priority in recent years, and they have developed weapons systems of immense destructive power. At one time they would have been intimidated by a U.S. carrier group being moved into the Persian Gulf, but those days are long gone. The following comes from Reuters…
“An aircraft carrier that has at least 40 to 50 planes on it and 6,000 forces gathered within it was a serious threat for us in the past but now it is a target and the threats have switched to opportunities,” said Amirali Hajizadeh, head of the Guards’ aerospace division.
“If (the Americans) make a move, we will hit them in the head,” he added, according to ISNA.
The ISNA news agency quoted hardliner Ayatollah Tabatabai-Nejad in the city of Isfahan as saying: “Their billion-dollar fleet can be destroyed with one missile.
“If they attempt any move, they will face dozens of missiles because at that time government officials won’t be in charge to act cautiously, but instead things will be in the hands of our beloved leader Ayatollah Ali Khamenei.”
Of course Nejad is exaggerating, but the truth is that our fleet will definitely be sitting ducks in the Persian Gulf. If the Iranians wanted to do so, they could definitely take the entire fleet out.
We are so close to war, and let’s hope that nobody starts getting itchy trigger fingers.
Iran is run by a bunch of nutjobs that believe that war with the U.S. and Israel is inevitable. Meanwhile, war hawks John Bolton and Mike Pompeo are the top foreign policy officials in the Trump administration and Saudi Crown Prince Mohammed bin Salman has already shown us what he is capable of doing.
We need someone to step forward and be a voice of reason before we plunge into a nightmarish apocalyptic conflict that we will not be able to escape, and that voice of reason may have to be President Trump himself.
In the end, it will be Trump that makes the final call on any war with Iran, and that decision will have enormous implications for all of us.
via ZeroHedge News http://bit.ly/2Jiwnt2 Tyler Durden
With MSCI World down another 2% today, adding to the losses from last week, trade turmoil has wiped around $3.5 trillion in market cap (down $1 trillion today) from global stocks. Not a fleshwound…
China’s Friday afternoon panic-bid from The National Team gave way overnight
Europe was also ugly, led by Germany, as Trump’s auto-tariff deadline looms…
US equities were ugly as China retaliation struck (what a shock)…erasing all the post “constructive” bounce and then some
On the cash side, The Dow dropped over 700 at its worse but some jawboning from Mnuchin and Trump lifted stocks off their lows…
All major US equity indices are back below key technical levels.
S&P ETF (SPY) has seen outflows every day this month (on pace for its worst month of outflows since March 2018 in the middle of ‘volmageddon’)…
Uber
Humor?
Some Goldman Clients to Get Uber Stock at 40% Discount: WSJ
Or they can just wait 2 days and buy it there in the open market
One of the biggest profile names caught up in the largest college admissions scandal ever, actress Felicity Huffman, has pled guilty today, according to Bloomberg and Reuters. She now faces prison time.
Huffman, who once starred in the television series “Desperate Housewives”, pled guilty in Boston federal court to a conspiracy charge for paying $15,000 to have somebody secretly correct her daughter’s SAT entrance exam answers. She is the latest in a line of defendants who have pled guilty as a result of the scandal.
Huffman’s daughter scored a 1420 on her SAT, 400 points higher than her Preliminary SAT exam a year earlier. Huffman is said to have discussed the scheme on a recorded phone call with the scheme’s mastermind, William “Rick” Singer.
Huffman is married to actor William H. Macy and was nominated for an Oscar for “Best Actress” in 2005.
She’s among 50 total people accused in taking part of a scheme by Singer that involved cheating, bribing test proctors, and bribing athletic coaches to help parents gain preferred admission spots at universities like Yale, Georgetown and USC for their children.
In an April statement, Huffman said:
“I am in full acceptance of my guilt, and with deep regret and shame over what I have done, I accept full responsibility for my actions and will accept the consequences that stem from those actions. I am ashamed of the pain I have caused my daughter, my family, my friends, my colleagues and the educational community. I want to apologize to them and, especially, I want to apologize to the students who work hard every day to get into college, and to their parents who make tremendous sacrifices to support their children and do so honestly.”
As we’ve reported, the fallout from the scandal has been wide ranging. As part of our coverage, we detailed how financial speaking gigs and elite high schools helped facilitate the scam for years. We also covered when UCLA’s Men’s Soccer Coach and former U.S. Men’s national team player Jorge Salcedo recently resigned from his position at the university as a result of taking bribes. We wrote about how students were being encouraged to fake learning disabilities in order to cheat on college entrance exams and, about a week ago, we reported that Georgetown’s tennis coach had allegedly taken hundreds of thousands of dollars in bribes to help students gain admission to the school as potential recruits.
The scheme’s mastermind, Singer, pled guilty in March to charges that he facilitated the cheating and helped bribe coaches. He has since been cooperating with the government.
Huffman was scheduled to plead guilty alongside of another parent, California businessman Devin Sloane, who is accused of paying Singer $250,000 to help his oldest son gain admission to USC as a purported recruit for the school’s water polo team.
Huffman made a $15,000 contribution to Singer’s foundation in exchange for having one of Singer’s associates secretly correct her daughter’s answers on a college entrance exam at a test center that Singer controlled.
Huffman said her daughter: “knew absolutely nothing about my actions, and in my misguided and profoundly wrong way, I have betrayed her.”
As a result of her plea, prosecutors have agreed to recommend a prison term at the low-end of the 4 to 10 months that she faces under sentencing guidelines. While Huffman is set to face the music, another big name actress in the scandal, Lori Loughlin, has decided to fight prosecutors, recently entering a plea of not guilty, as we reported last month.
via ZeroHedge News http://bit.ly/2HiElju Tyler Durden
