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Authored by Bernard Goldberg, op-ed via TheHill.com,

John Lennon’s “Imagine” is a seductive ballad that asks us to dream of a world at peace, a place where there’s “nothing to kill or die for.” Nice sentiment if you live in San Francisco and still have flowers in your hair, but it makes for a terrible foreign policy. Someone needs to tell that to the Democrats running for president.

The Democrats couldn’t wait 10 minutes before unloading on President Trump, condemning him for needless provocation, for taking the United States to “the brink of war,” because he ordered the drone strike that took out Iran’s top general, Qassem Soleimani.

Pinning blame for the heightened tensions in the Middle East on President Trump makes for irresistible presidential year politics. He’s a warmonger, they’re saying in one form or another; we’re the rational, peaceful ones. What you won’t hear them say, not in so many words, is that they’re the ones pandering to a pacifist, progressive base — because that’s where the heart and soul of the new Democratic Party seems to be.

We’ve seen how far left the Democrats have gone on domestic policies, but now we’re seeing how progressive they’ve become on foreign policy, too. They make Barack Obama look like a war hawk by comparison; he launched more than 500 drone attacks on America’s enemies, after all.

But now we get Joe Biden, the supposed moderate, telling us that President Trump “just tossed a stick of dynamite into a tinderbox.” 

Sen. Bernie Sanders (I-Vt.) tweeted that “Trump’s dangerous escalation brings us closer to another disastrous war in the Middle East that could cost countless lives and trillions more dollars.” 

Sen. Elizabeth Warren (D-Mass.) called the strike “reckless.” 

Corey Booker (D-N.J.), who since has abandoned his presidential campaign, joined the chorus and tweeted: “We have a president who has no strategic plan when it comes to Iran and has only made that region less stable and less safe.” Memo to Sen. Booker: The Middle East was never Switzerland. When exactly was the region either stable or safe?

Reasonable people may speculate on the wisdom of President’s Trump’s decision to eliminate Soleimani. It’s understandable that politicians would have questions about a presidential order to take out the second most powerful person in Iran: Why now? Was he really planning an imminent attack on Americans? 

Fair enough. 

But for Democrats running for president, “Donald Trump is always wrong” is the default position. You get the impression that if he suddenly came out against building a wall on our southern border, they’d suddenly be in favor of it.

And since we’re imagining, let’s imagine that President Trump didn’t launch the attack on Soleimani; that he said the risk of killing such a prominent figure wasn’t worth it. And imagine if the general did indeed initiate a plan to kill Americans.

What would Democrats say then?

Donald Trump surely would be condemned for not taking action.

Heads, they win; tails, he loses.

Donald Trump didn’t start the fire in the Middle East. It was burning long before he set foot in the Oval Office. He isn’t the one who “just tossed a stick of dynamite into a tinderbox.” Qassem Soleimani and the mullahs who turned to him whenever they wanted to provoke the “Great Satan” are the ones who have been playing with dynamite — a reckless and deadly game, as they now have discovered. 

The Democrats running for president may be playing a dangerous game, too. Showing more disdain for Trump than for a terrorist such as Soleimani may play well among their hyperpartisan progressive base that despises everything about this president. But reminding voters that Democrats have a bad habit of blaming America first may not sit nearly as well with those nonpartisan swing voters in battleground states — the ones who will decide the 2020 presidential election. 

If Donald Trump – with all his faults — comes off looking like the one who will keep Americans safe, and if Democrats come off looking like appeasers who lack the backbone to take on the bad actors in this world, imagine how that will play out in November.  

As many predicted while seeing the obvious writing on the wall after the Jan.3rd drone assassination of IRGC Quds Force Gen. Qasem Soleimani, the Iran nuclear deal is fast unraveling and perhaps is in reality already dead — just few in Europe want to recognize it after essentially caving to Trump’s maximum pressure campaign. 

But Iran’s leaders themselves seem to accurately perceive where things actually stand, given President Hassan Rouhani announced during a television address on Thursday:

“We are enriching more uranium [than] before the deal was reached… Pressure has increased on Iran but we continue to progress.”

This after a Jan.6 declaration that Tehran no longer sees its nuclear energy program as beholden to limits under the JCPOA. And this newest proclamation reveals Iran is now enriching more uranium than before 2015. 

German foreign minister Heiko Maas had warned in the days after the killing of Soleimani that the event marks the “first step towards the end” of the nuclear deal. But we would suggest it in reality marked the final step — given Iran’s Thursday declaration positively boasting that any and all enrichment limits have been blasted through. 

Indeed in these latest comments Rouhani reaffirmed that “no restrictions on nuclear energy” remain and that Iran is “better off in terms of nuclear power.” 

That’s it, no going back, apparently — though after the UK, France and Germany early this week took the drastic step of triggering the nuclear deal’s ‘dispute resolution mechanism’ in order to “bring Iran back into full compliance with its commitments under the JCPOA” —   the clock starts on 65 days of intensive negotiations before UN sanctions would be reimposed if no resolution is reached. But Rouhani did add in this speech that “dialogue” with the world is “still possible”.

Rouhani’s claim is still in doubt, as Al Jazeera explains:

Iran has only modestly increased its nuclear activity after the US pullout. In recent months it boosted its enrichment of uranium to 4.5 percent – higher than the 3.67 percent limit set by the agreement, but far from the 20 percent enrichment it was engaged in before the deal.

Uranium must be enriched to 90 percent to be used in a nuclear weapon.

Meanwhile Iran has accused Europe of caving to Trump’s “bullying” — a charge for which there appears to be some evidence.

A frustrated FM Zarif told reporters on Wednesday:

“They say ‘We are not responsible for what the United States did.’ OK, but you are independent” he began. And then added a stinging rebuke: “Europe, EU, is the largest global economy. So why do you allow the United States to bully you around?“

Now Europe is worried about nuclear proliferation after the dizzying events leading to serious escalation over this past month, despite Iranian leaders claiming their program remains solely for peaceful nuclear energy purposes. 

One European official close to negotiations with Iran told The Guardian this week that they fear the next ‘point of no return’ step is for Iran’s scientists to “learn something that it is not possible for them to unlearn”.

As first reported on Tuesday, moments ago the BLS confirmed that starting March 1, the Trump admin will ban all electronics including computers from the room where journalists receive early advance access to major economic reports, in an effort to ensure a level playing field, a U.S. official told the same wire services that stand to suffer the most from this major overhaul of how economic data is disseminated.

As discussed on Tuesday, currently, the Labor Department hosts “lockups” for major reports lasting 30 to 60 minutes, where journalists receive the data in a secure room, write stories on computers disconnected from the internet, and transmit them when connections are restored at the release time.

Confirming our speculation that this was a way for the Trump admin to hit Mike Bloomberg and his eponymous organization where it hurts, the U.S. official, speaking on a conference call with journalists, said “the change is being made because several news organizations that participate are able to profit by providing the numbers to algorithmic traders in a format that provides them an advantage.”

Translation: Trump is now going after the source of Mike Bloomberg’s wealth – the selling of zero-latency market-moving information to HFTs.

The overhaul will take effect March 1, the official said. Labor Department officials were asked if the change was specifically aimed at Bloomberg News, which participates in the lockups and whose founder and majority owner, Michael Bloomberg, is running for the Democratic presidential nomination. The official denied any political motivation and cited a prior recommendation by the Labor Department’s inspector general.

For those who missed the background on this critical, to all market participants, strateigsts, and traders story, here it is again.

Any time the US Department of Labor releases the jobs report on the first Friday of the month, wire agencies such as Bloomberg and Reuters already have a prepared barrage of market-moving data points ready to go to their paying subscribers (and, on the nanosecond, to frontrunning HFT clients) together with a commentary wrapper that is prepared in the 30-60 minutes before the official data release, prepared by journalists who are in “lockup” in a given government data room, which is meant to prevent them from leaking the data to other, more interested (and better funded) parties.

This is shown schematically in the image below.

However, starting as soon as this week, the “lockup” may now be history, as well as those flashing red jobs headlines that set the market mood for the day, and often, the rest of the month (assuming, of course, that eventually fundamentals will matter again), because in what Bloomberg dubbed the “biggest change to economic data releases in decades“, the Trump administration plans to limit the news media’s ability to prepare advance stories on market-moving economic data, such as the monthly jobs report, “in a move that could create a logjam in accessing figures such as the monthly jobs report.”

Needless to say, Bloomberg – along with Reuters, and countless other wire services, who sell lockup data to extremely generous HFT clients for a lot of money – are not happy.

As noted above, currently the Labor Department hosts “lockups” for major reports lasting 30 to 60 minutes, where journalists receive the data in a secure room, write stories on computers disconnected from the internet, and transmit them when connections are restored at the release time.

However, for reasons not fully clear, the department under pressure from the administration, is looking at changes such as removal of computers from that room, and an announcement could come as soon as this week, said Bloomerg sources.

That, as Bloomberg which would be directly and very adversely affected notes, “could hinder the media’s ability to provide headlines, comprehensive stories and tables at the exact release time.”

That’s one interpretation, another is that it will further democratize information, allowing, or rather forcing, everyone to come up with their own fast take of the data, and even open up the field to new competitors who currently don’t have access to the lockup.

Indeed, as one FX strategist noted, “Quant strategies focusing on reading headlines will need a rethink. Will lead to huge info asymmetry post data releases. Although may boost role of market economists who need to digest raw data as quickly as possible.“

This is big for markets. Quant strategies focusing on reading headlines will need a rethink. Will lead to huge info asymmetry post data releases. Although may boost role of market economists who need to digest raw data as quickly as possible. Watching closely 👀 #GameChanger pic.twitter.com/y0vPeLYGcP

— Viraj Patel (@VPatelFX) January 14, 2020

Did we mention that Bloomberg isn’t happy? As the news organization belonging to the Demcoratic presidential candidate notes, “the move would upend decades of practice, and media organizations including Bloomberg News and Reuters have challenged prior changes to procedures. The shift could also spur an arms race among high-speed traders to get the numbers first and profit off the data, raising questions about fairness in multitrillion-dollar financial markets.”

Thank you for the spin Bloomberg, but the arms race between HFTs has been going on for a decade, and it is companies like Bloomberg that not only enabled it but profited generously from it. In fact, a contract that shoots over the data with zero latency is said to cost millions of dollars, something which Bloomberg will not be too happy to see flee to those who are faster and more accurate at reading the data in real time.

There is another fringe benefit such an action would deliver: the US government would finally have to enter the 21st century with modernized websites:

Without news services transmitting their reports at the release time and allowing additional access points, the government may have to prepare its websites to handle potentially heavier loads under the new system, which could mean adding security measures or increasing the traffic capacity.

To be sure, this is not the first time the government tried to overhaul the lockup structure: in 2012, Obama’s Labor Department sought to alter lockups to require journalists to use government-owned computers to write their stories. Officials at the time framed the change as addressing security risks.

After protests from Bloomberg News and other news organizations, and a congressional hearing in which editors testified, the department agreed to allow the media to continue using their own equipment and data lines. Reporters are required to leave mobile phones and other electronic devices in lockers outside of the lockup room, along with personal effects such as umbrellas and purses.

On the other hand, it’s not like this move would be unprecedented: the Labor Department move would follow a similar decision by the U.S. Department of Agriculture in 2018 to scale back lockups covering farm products, particularly the closely-watched monthly crop forecasts that typically move markets in soybeans, corn and wheat.

Finally, the big question remains: why is Trump doing this? One potential explanation is that Trump is seeking to hit his political challenger, Mike Bloomberg, where it hurts: As we noted earlier, if the BLS removes lockups, “billions in HFT data feed fees to wire services like Reuters and Bloomberg go up in smoke.” Leading to the logical question: “Is this Trump targeting Bloomberg terminal?”, which for decades has been Mike Bloomberg’s golden goose, spewing billions in annual subscription fees, allowing him to spend a similar amount to remove Trump at any cost…

If BLS removes lockups, billions in HFT data feed fees to wire services like Reuters and Bloomberg go up on smoke.

Is this Trump targeting Bloomberg terminal?

— zerohedge (@zerohedge) January 14, 2020

It’s official: The Senate has passed President Trump’s USMCA trade accord that revamps the 1994 NAFTA agreement.

The final count: 89 to 10, with several high-profile Democrats, including Cory Booker and Chuck Schumer, opposing the measure.

By allowing Trump to sign USMCA into law on Thursday, the vote will enable his administration to celebrate two back-to-back wins on trade policy.

The vote on H.R. 5430 is ongoing, but a majority of senators have voted to approve the deal. It was passed by the Democrat-controlled House nearly one month ago.

The Commerce, Foreign Relations, Appropriations and Health, Education, Labor, and Pensions Committees all approved the deal on Wednesday, removing the final obstacle to a floor vote. The Senate’s approval will come more than a year after the underlying deal, which would replace the 1993 North American Free Trade Agreement, was reached between the U.S., Canada, and Mexico.

A few Democrats said they would vote against the deal; Dem leader Chuck Schumer, the top Senate Dem, acknowledged that the bill makes gains for labor, but doesn’t do enough to combat climate change, and thus didn’t vote for it.

Watch the vote live below:

Ukraine has asked the Federal Bureau of Investigation (FBI) to assist in its probe of a suspected cyber attack by Russian military hackers on Burisma – an energy company owned by a notoriously corrupt oligarch who paid Joe Biden’s son Hunter more than a fortune 500 board member to sit on its board.

President Trump’s request to investigate Burisma’s relationship with the Bidens is at the heart of impeachment proceedings brought by Democrats.

On Monday, the New York Times reported that Silicon Valley cybersecurity firm Area 1 claims that Russian hackers from a military intelligence unit known formerly as the G.R.U. operating under the alias “Fancy Bear,” used so-called phishing emails that appear designed to steal usernames and passwords, to gain access to Burisma’s network.

“It is noted that the hacker attack most likely took place in cooperation with the Russian special services,” said Ukrainian Interior Ministry official Artyom Minyailo at a briefing, where he added that the FBI had been asked to assist in the investigation. The interior minister later announced an investigation into claims that former US ambassador to Kiev, Marie Yovanovitch, was illegally surveiled.

Of note, Area 1 was co-founded by two former NSA hackers – one of whom was a lead employee at cybersecurity firm Crowdstrike, which was the only company allowed to analyze the DNC servers in connection with a 2016 breach – which it concluded “fancy bear” was also behind. Area 1 founder Oren Falkowitz is an active donor to Democrats, contributing to the 2020 election campaigns of both Elizabeth Warren and Cory Booker.

Authored by Wolf Richter via WolfStreet.com,

Shipment volume in the US by truck, rail, air, and barge plunged 7.9% in December 2019 compared to a year earlier, according to the Cass Freight Index for Shipments. It was the 13th month in a row of year-over-year declines, and the steepest year-over-year decline since November 2009, during the Financial Crisis:

The Cass Freight Index tracks shipment volume of consumer goods and industrial products and supplies by all modes of transportation, but it does not track bulk commodities, such as grains. As always when things get ugly, the calendar gets blamed – Christmas fell on a Wednesday, as it does regularly.

More realistically, December was also the month when Celadon Group, with about 3,000 drivers and about 2,700 tractors, filed for Chapter 11 bankruptcy and ceased operations — the largest truckload carrier ever to file for bankruptcy in US history. It rounded off a large wave of bankruptcies and shutdowns of trucking companies in 2019, most of them smaller ones, but also some regional carriers, and on December 9, Celadon.

Rail traffic in December capped off a miserable year, with carloads down 9.2% year-over-year in December, and container and trailer loads (intermodal) down 9.6%, according to the Association of American Railroads. For the 52-week period, traffic of carloads and intermodal units fell 5%.

The 7.9% year-over-year drop of the Cass Freight Index pushed it below a slew of prior Decembers, including December 2011. The top black line represents 2018, the fat red line 2019:

Cass derives the data from actual freight invoices paid on behalf of its clients ($28 billion in 2018). So this data is not based on sentiment surveys. It’s based on a large sample of the actual shipments in the US, involving real money, sent by numerous companies across many sectors.

The shipment boom in 2018 was a sight to behold. It had been fired up by widespread efforts to front-run the tariffs by loading up on merchandise. So some backtracking was to be expected. But not this plunge in shipments to multi-year lows.

Freight expenditures fall, but remain high.

In 2018, shippers such as industrial companies or retailers or manufacturers groaned under the surging freight expenditures – and complained about it in their earnings reports. Total freight expenditures paid by shippers are a mix of freight rates, including fuel surcharges, and the volume of shipments. Some freight rates have remained high, and some companies such as UPS and FedEx have raised their rates, despite this environment of falling shipment volume.  Other freight rates have come down under pressure, particularly in the trucking spot market. And for months, even as shipment volume was dropping, the total amount that shippers paid remained stubbornly high. But now this is starting to change.

In December, total freight expenditures – the amount shippers, such as manufacturers, retailers, or industrial companies, spent on freight by all modes of transportation – dropped 6.2% from a year ago.

That’s a steep drop, but expenditures are still dropping more slowly than shipment volume, indicating that there are pockets – FedEx, UPS, etc. – where freight rates continue to rise, and this leaves the Cass Freight Index for expenditures in December at still high levels, though dropping sharply (2019 = fat red line). Note the yellow line (2017) and the top black line (2018), as an indicator of how much freight expenditures surged in those two years:

What is causing this sharp decline in shipments?

Retail sales, powered by ecommerce, are holding up. Ecommerce is red-hot and brick-and-mortar retail is dismal. December data has not emerged yet, but in November total retail sales, including ecommerce, rose 3.1% year-over-year.

Total construction spending has bounced off in recent months from lower levels. In November, it grew at an annual rate of 4.1% year-over-year, but remains below the peak of February 2018.

But manufacturing is weak and getting weaker. One of the data points on this theme – and there are many others: The ISM Purchasing Managers Index for December dropped 0.9 percentage points from November to 47.2%, the fifth month in a row of contraction, and the fastest contraction since June 2009, with employment, new orders, new export orders, production, backlog of orders, and inventories all contracting:

The Oil-and-Gas-Bust.

The oil-and-gas sector is now undergoing phase 2 of the bust that started in mid-2014. The price of oil is still down by nearly half from where it was then. The price of natural gas remains in total collapse mode. And the cashflow-negative fracking industry is getting morose, trying to curtail the bleeding, by cutting investments, cutting purchases, cutting employment, trying to persuade investors that they should send even more money their way.

And now this solid recession indicator is starting to concern me again. Read...  It’s Time to Pay Attention to Commercial & Industrial Loans

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With the market meltup accelerating at an unprecedented pace, and hitting new all time highs day after day even as broad S&P valuations are now at nosebleed levels last seen during the dot com bubble…

… investing luminaries have emerged from the woodwork to issue increasingly dire warnings to anyone who buys stocks here.

And so, two days after Oaktree founder Howard Marks told Bloomberg TV that “now is not a good time to be investing“, Greg Jensen, the co-CIO of Bridgewater, warned that he his fund was cautious on stocks, describing them as “frothy” as “most of the world is long equity markets in pretty extreme situations”, and predicted that gold would soar to $2000 and higher because the Fed and other central banks would let inflation run hot for a while and “there will no longer be an attempt by any of the developed world’s major central banks to normalize interest rates. That’s a big deal.”

In an interview with the FT, the man who oversees $160 billion at the world’s biggest hedge fund, also anticipated even more “political turbulence” on multiple fronts as slowing US economic growth exacerbates the divide between rich and poor while tensions rise with China and Iran.

It is against this backdrop that Jensen said gold could rise 30% from its current price of $1,550 and should be considered as “a cornerstone of investors’ portfolios.”

“There is so much boiling conflict. People should be prepared for a much wider range of potentially more volatile set of circumstances than we are mostly accustomed to.” Jensen told the FT.

Addressing an issue we have repeatedly said is the weakest link in the bubble-bust loop, namely the Fed’s inability to correctly measure and thus target inflation, Jensen said even if inflation were to reach the central bank’s 2% target, “the Fed won’t be pre-emptive” which “takes off the table, in the short term, the normal reason cycles end . . . For most of the post-World War II recessions, the Fed dealing with inflation has ended the cycle.”

In short, as Richard Breslow said earlier, the Fed now “owns” this bubble, and once the market crashes so will the last trace of Fed reputation. 

And not just the Fed: soaring recession fears in 2019 which sent a record $17 trillion in debt in negative yield territory prompted 49 central banks around the world to cut rates 71 times in 2019, according to JPMorgan. The Fed itself reduced interest rates three times last year, and launched QE4 in October ostensibly to “fix” the repo market but in reality to push stocks higher, just as the president had demanded.

It gets worse: while the “tinfoil” blogosphere has repeatedly said the Fed could cut rates back to zero, if not negative, Jensen is one of the first “serious people” who told the FT he would not rule out the possibility that the Fed could slash rates to zero this year as it looks to avoid recession and disinflationary pressures.

But the main reason why Bridgewater is going long gold is also the most startling one: as a result of coming inflation surge and the ballooning US budget and trade deficits, the status of the US dollar as the world’s reserve currency could be threatened.

“That could happen quickly or it could happen a decade from now. But it’s definitely in the range of possibilities. And when you look at the geopolitical strife, how many foreign entities really want to hold dollars? And what are they going to hold? Gold stands out.”

What about other assets? After all, Bridgewater is mostly an equity fund? Well, if there was one word to summarize Jensen’s position it would be that of Howard Marks: “sell.”

Although rate cuts by the Fed have bolstered equity markets, Jensen said the group was “more cautious” on US stocks, describing them as “frothy.” Echoing what we said in “Institutions, Retail And Algos Are Now All-In“, Jensen warned that “most of the world is long equity markets in pretty extreme situations”, particularly in the US, raising the appeal of emerging markets.

What happens next? Well, since humans are rather predictable creatures, he expects even more frothiness until it all comes crashing down: “a decade-long outperformance of the US is now being extrapolated and so people are generally under geographically diversified.”

Is Bridgewater talking its book?  Probably – its flagship Pure Alpha strategy was flat in 2019, while its All Weather fund gained 16 per cent for the year. That said, it is unclear if the “book” that is being talked in this case is the long gold, or short equities one.

Blain’s Morning Porridge, submitted by Bill Blain

“Give them an act with lots of flash in it, and the reaction will be passionate..”

US stocks hit new highs, the Dow breaches 29,000, the Bank of England is thinking about easing rates, the Phase 1 Trade Agreement is actually signed, a global recovery is (apparently) underway, recession fears are just a distant memory. What’s not to like? Well…. Just about everything, but hey-ho! Party on! The drink is free, the music is great, the girls and boys are pretty, so Let’s Dance, and damn the consequences! Never mind the debt bubble, the stock bubble or that financial assets look an illusion of wealth. Boogie Wonderland indeed…

In terms of scepticism about the trade agreement, let me simply refer you to some of the better articles in the media: FT:  US-China “phase one” trade deal leaves markets virtually unmoved, BBerg – US and China Sign Phase One of Trade Deal. (The Oban Press and Journal said it all: US markets beat records amid China trade pact.)

If you want another perspective on the global outlook, this morning’s piece in the FT on Angela Merkel is well worth a read – Merkel warns EU: “Brexit is a wake-up call”. Her concerns on where Europe goes from here and how it fits the new global reality are well worth a few moments. But Germany is a story for another day…. 

Going back to yesterday’s deal, if I had the time this morning to trawl the last three years of trade headlines, I’d have analysed everything Donald Trump said he wanted from China and put them all on a list. I’d then put yesterday’s “agreement” beside it, and work out what’s missing. It’s likely to be a long list. 

Of course, some of that stuff will be phase 2, 3…n (n+1) trade agreements, (if they ever happen) but you get my drift: 3 years of trade noise, dither and uncertainty, all so Donald can present it with fanfare, hordes of adoring fans, and razzle-dazzle the electorate ahead of the election. And folk say Trump is stupid? Stupid is as stupid does. 

Of course, the Democrats want to rile him, so finally they play the impeachment trial. That will distract us momentarily – unless of course we get something truly shocking from witness statements, but they would have to be “Donald Trump ate my baby” magnitude for Republican senators to find him guilty… and even then…. 

Trump gets what Trump wanted. The “trade-deal” (for want of a better term) gives him a marginally stronger chance of 4 more years before the US becomes an SEP (a Someone Else’s Problem). Its Short-Term. 

It’s great news if you are a US Soyabean producer. Its going to be more interesting to see how China really delivers demand on other aspects of US agribusiness. While the agreement looks great on paper in terms of addressing the trade balance, just what do Chinese Consumers want to buy that is made in the US?

And let’s not ignore the Huawei trap – that’s an incredibly complex box of frogs in terms of not just supply chains, but systems tech.

For the Chinese their perception of the Long-Term reality is very different. I suspect they will react to yesterday’s trade signing as a Munich 1938 Moment. They come back with a piece of paper saying trade war is averted – equivalent of peace in our time – and continue with the economic equivalent of rearmament: girding their economy for ongoing denial of access to US tech forcing them to develop and innovate their own Tech ecosystems, (which they are confident of doing), with increasingly limited access to US markets, increased geo-political tension, and the likelihood the US tries to persuade it allies to join an embargo of China across global commerce.  

OF course, I don’t actually have time to spend re-reading the last 3 years of Trump. I’ve got a day job – in Alternative Assets.  

Overheated financial assets and the prospect of ongoing global trade distractions means Alternatives are worthy of more attention than ever.  As markets continue to rally on non-news, expectations of central bank support, and ignore the realities of changing global supply chains, earnings, implausible P/E ratios and put their faith in messianic cult investments, you have to wonder how safe the distorted bubbles in financial assets can be?  

Remembering the old adage: the market can stay irrational longer than you can stay solvent, it’s time to be thinking about hedging for the coming top.  Alternative Assets range from private equity, direct lending, secured assets, infrastructure, property, real assets, etc, but if they have one characteristic, it’s the degree to which they are decorrelated from financial assets. 

For instance – if I buy an airline or aircraft maker’s stock, I reap the upside in today’s frothy market – market risk, but bear the downside risk if the bubble bursts, plus I’ve got credit risk and all the other associated  business risks. However, if I own aircraft and lease them to airlines I still face a degree of credit risk on the users of my assets, but the ability to re-lease the asset to other users. My risks are different and less exposed to purely inflated financial asset risks. Alternatives are less dependent on volatile market risks, in the case of aircraft its economic risks like the propensity of people to fly which is an economic factor (although FLygSkam is an increasing consideration). If the supply of aircraft assets is limited, as it is, then the simple rules of demand and supply determine the economic value of the plane as an asset.  

Before Central Banks discovered QE we believed the invisible hand of markets determined the value of financial assets, but the last 8 years of monetary experimentation and distortion has simply flooded financial assets with liquidity creating enormous inflation in financial assets, which many investors simply don’t get!