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Iraqi Prime Minister Adel Abdul-Mahdi, who is still serving in a ‘caretaker’ capacity, has informed Secretary of State Mike Pompeo that the US must establish a mechanism for the full withdrawal of remaining US troops in Iraq, which according to most estimates numbers around 5,000. Toward that end the Iraqi PM requested a US delegation be sent to work out such a plan.

According to the AP, Abdul-Mahdi made the request during a phone call with Pompeo on Thursday night. Specifically, the statement urged the administration to “send delegates to Iraq to prepare a mechanism to carry out the parliament’s resolution regarding the withdrawal of foreign troops from Iraq.”

Despite what appears a temporary de-escalation following Iran’s ballistic missile ‘counter-attack’ avenging the death of Qasem Soleimani, Abdul-Mahdi appears to have maintained his stance that the Americans should depart: “The prime minister said American forces had entered Iraq and drones are flying in its airspace without permission from Iraqi authorities and this was a violation of the bilateral agreements,” the statement continued.

Since the summer there’s been a growing political movement in Iraqi parliament to vote to formally expel the US military presence following the demise of ISIS, but most importantly after a series of unauthorized airstrikes on Iraqi soil targeting Shiite paramilitaries carried out by the United States and Israel. 

At the start of this week, Iraq’s parliament did hold a largely symbolic vote to expel American forces which passed; however, despite international headlines suggesting it was a ‘done deal’, the reality is that it was merely a ‘non-binding’ though significant first step that could ultimately prove slow in realizing. 

Despite the earlier confusion over a potentially leaked Pentagon letter which claimed to initiate immediate US troops withdrawal with the Iraqis, resulting in denials and confusion running through the chain of command, Secretary of Defense Mark Esper has since underscored that US troops will not be leaving Iraq. 

And according to Axios, US officials attempted to halt the weekend Iraq parliament vote to expel American forces. “It’s our concern that Iraq would take a short-term decision that would have catastrophic long-term implications for the country and its security,” one unnamed Trump administration official was quoted as saying. 

“But it’s also, what would happen to them financially,” the official told Axios. “If they allowed Iran to take advantage of their economy to such an extent that they would fall under the sanctions that are on Iran?”

Surprisingly, the administration has of late invoked the threat of sanctions on its ally the Iraqi government, despite for years propping up the post-Saddam political system and military. 

Authored by Richard Breslow via Bloomberg,

One take away from the earliest days of this new year is that the global central banks are intending to stick with dovish policies, come what may.

Whether it was Richard Clarida, Mark Carney or Stephen Poloz, among others, they have made it clear that official rates aren’t going higher anytime soon. Regardless of the numbers. That’s what they mean by forward guidance.

And it’s likely to prove an effective tool. It will define the trading environment for the foreseeable future.

Source: Bloomberg

One investor’s asset bubble is another one’s anti-recession insurance policy.

Source: Bloomberg

We keep hearing that the economy is in a good place. That things are moving in the right direction. That global headwinds, recent Middle East events notwithstanding, are easing. Or at least in abeyance. There is cautious optimism about the European economy and positive excitement about Asia. All of that is true. Or, at least, a valid operating assumption. But it will not translate into changing the odds of rate hikes.

In the last few days, much has been made of the massive volume of investment-grade debt issuance. Credit spreads are minuscule, rates low and investor appetite, domestic and international, strong as a bull. Don’t think of this as borrowers trying to tap some perceived limited window of opportunity before it closes. It’s just a wonderful environment to issue debt. Money is pouring into IG funds. Undeterred by new-issue concessions that are barely noticeable. Lipper reported that in the U.S., inflows for the week ended January 8 was the largest ever reported. The interesting side of this equation is the investor appetite even more so than on the grateful issuers. Investors are buying, literally, into the notion of low rates forever.

One additional consequence of all this is that asset price volatility is likely to stay low. Expectations for a lot of things starting to whip around may be disappointed. That’s exactly what central banks want and they very much might be rewarded. This could end up being an investor’s paradise and a trader’s frustration. Outside influences can always interfere with the best laid plans. I can’t help wondering if it will be politics rather than economics that drives matters.

In this benign environment it’s possible that emerging markets can do well regardless of whether the dollar stays strong or not. And it is, indeed, hard to see it getting hit against the majors. If everyone is on hold, the dollar has a lot of appeal. The Dollar Index is just above its one-year average price and that seems about right. Many analysts posit that the world would benefit from a lower U.S. currency. And in normal circumstances that would be the case. This could be an exception. Developed markets would welcome soft currencies and it doesn’t hurt emerging ones? That’s a win-win.

The yield curve is a tougher call. And economic numbers will have some influence. But if Treasuries end up staying in the range we’ve experienced in the last several months, which looks like a distinct possibility, we could be going nowhere fast.

As for equities, at the moment, there seems little, barring an exogenous shock, that will shake the longs from their bullish resolve. It’s a strange place to be that everyone can be complacently comfortable with their positions and it’s hard to argue with them. That may end up being the biggest threat out there.

Like in airplanes, Teslas are equipped with “black boxes” that log critical information in the seconds and minutes leading up to accidents and crashes. They record details like braking, airbag deployment and other measurements. 

While conventional vehicles can have their Black Boxes accessed widely, cars with automated driving technologies can only have their information accessed by the manufacturer. This means that any potential investigation hinges on information that would need to be handed over by the company that’s being investigated. 

And so Bloomberg’s Dana Hull asks a good question: should we be worried that the only people that have access to this information are the manufacturers themselves?

And we’ll ask another question: isn’t this even more true when, say, that company perhaps doesn’t have the best track record for unbridled honesty?

Sam Abuelsamid, principal analyst for Navigant Research in Detroit said: “We should not ever have to rely on the manufacturer to translate this sort of data, because they are potentially liable for product defects and they have an inherent conflict of interest.”

“As we deploy more vehicles with these partial automation systems, it should be mandatory to record information about the state of automation and the driver,” he continued. 

After one 2016 crash in Florida, the NTSB came out and called for the Transportation Department to define what data should be collected. 

In the 2016 crash report, the NTSB commented: “As more manufacturers deploy automated systems on their vehicles, to improve system safety, it will be necessary to develop detailed information about how the active safety systems performed during, and how drivers responded to, a crash sequence. Manufacturers, regulators, and crash investigators all need specific data in the event of a system malfunction or crash.”

Meanwhile, the NHTSA says it is reviewing a crash in California involving a Tesla that took place this weekend. They have not commented on whether or not Autopilot was engaged at the time of the accident. 

Raul Arbelaez, vice president of the Insurance Institute for Highway Safety’s Vehicle Research Center, said: “The the inability to readily access that data impedes the ability of researchers to understand how automated driver-aids are performing in the field, especially in less-severe crashes that account for the vast majority of traffic collisions.”

He continued: “How do people interact with these technologies? What conditions do they tend to work in? Do they work really poorly at night with snow and rain, or are they excellent under those conditions? I’m sure it is very useful for the auto manufacturers to help them improve their products down the line, but in terms of understanding how the current fleet is performing, we really don’t have access to that in these crashes that are happening very quickly without working with the manufacturers.”

In the case of the 2016 Florida crash, the Tesla didn’t have an event data recorded that could be read by widely available tools. Instead, the company had to turn over the information that revealed the driver was using Autopilot. 

The last rule to govern these devices, made in 2006, requires 15 parameters that the NTSB says  “are inadequate to comprehend even the simplest questions of who/what controlled an automated vehicle at the time of a crash”.

The NTSB continues to investigate several crashes involving Teslas and Autopilot:

The NTSB is investigating other Tesla vehicles crashes that occurred while Autopilot was in use, including a March 2018 fatal collision in Mountain View, California. The NHTSA, meanwhile, has launched probes into 13 crashes that it believes may have occurred while drivers were using Autopilot, including a Dec. 7 crash in Connecticut in which a Tesla driver rear-ended a parked police cruiser.

The agency is taking interest in how the new technology is being used, the article claims. However, we can’t help but believe the NTSB and the NHTSA have been dragging their feet at taking what we believe to be an extremely dangerous “feature” off the roads.

We have often asked how many more people need to wind up decapitated, like the 2016 driver, whose Tesla drove itself under a semi-truck while trying to change lanes, for regulators to act.

Authored by Steve Watson via Summit News,

During a rally in Ohio Thursday, President Trump slammed Democrats for criticizing his decision to take out Iranian terrorist General Qassem Soleimani, saying that if he’d informed Congress ahead of the surgical strike, ‘pathetic’ House leaders would have called the ‘corrupt media’.

The President also claimed that the ‘sadistic mass murderer’ “Soleimani was actively planning new attacks and he was looking very seriously at our embassies, and not just the embassy in Baghdad.”

“But we stopped him, and we stopped him quickly and we stopped him cold,” Trump told the crowd in Toledo, adding that the actions saved American lives and delivered ‘American justice.’

“Now I see, the radical left Democrats have expressed outrage over the termination of this horrible terrorist.” The President continued adding, “you know what, instead they should be outraged by Soleimani’s savage crimes, and that fact that his countless victims were denied justice for so long.”

“We have Bernie and Nancy Pelosi, we have them all – they’re trying to say, ‘How dare you take them out that way. You should get permission from Congress. You should come in and tell us what you want to do. You should come in and tell us so that we can call up the fake news that’s back there and we can leak it,” Trump said, slamming the Democrats.

“We had to make a decision.” Trump roared, adding that he didn’t have time to call “nervous Nancy,” who is “not operating with a full deck.”

“They’re so pathetic. So they want us to call them,” the President continued, adding “Now, Schiff is a big leaker, you know. He leaks to crazy CNN, Not too many people are watching CNN. But he leaks!”

“So he’ll say: ‘You know, uh, off the record – I got to hurry up because everyone’s watching me in the hallway on my cell phone – off the record, they’ve got the No. 1 terrorist in the world – Soleimani. And they’re going to get him, they’re going to take him out in the next 10 minutes. Please, don’t tell anyone I told you,” Trump said, imagining Schiff taking pleasure in leaking the story to CNN.

Trump touted the strike as ‘the anti-Benghazi,’ saying “We got there very quickly. We got there very quickly. This is the exact opposite. We did it exactly the opposite of Benghazi where they got there so late.”

The President followed up in a series of tweets after the rally:

Under my administration, we will NEVER make excuses for America’s enemies – we will never hesitate in defending American lives – and we will never stop working to defeat Radical Islamic Terrorism! pic.twitter.com/022PjwhHjs

— Donald J. Trump (@realDonaldTrump) January 10, 2020

After years of rebuilding OTHER nations, we are finally rebuilding OUR nation. We are finally putting AMERICA FIRST! #KAG2020 pic.twitter.com/azKL54A6BU

— Donald J. Trump (@realDonaldTrump) January 10, 2020

After years of rebuilding OTHER nations, we are finally rebuilding OUR nation. We are finally putting AMERICA FIRST! #KAG2020 pic.twitter.com/azKL54A6BU

— Donald J. Trump (@realDonaldTrump) January 10, 2020

While it is safe to say that the Fed – and markets – will largely ignore today’s payroll print in a time when the central bank is injecting $100BN in in liquidity every month regardless of the macro data, it is still notable that the December payrolls report was a disappointing 145K, missing expectations of 160K (and the whisper number of 180K), and 111K lower from the downward revised 256K in December (revised from 266K).

Developing

Millennials are now considered “generation broke” with their insurmountable student debts, near-record auto loans, high credit card balances with rates at two-decade highs, and limited savings. Many are stuck in the gig-economy with more than one job. Finding a high-paying job this late in an economic expansion is hard to come across. 

So paging all millennials, a new press release via Taco Bell details how the Tex-Mex fast-food restaurant is planning a pilot program to hire managers with a starting salary of $100,000 at company-owned restaurants in select markets.

The Yum! Brands Inc.-owned chain will run the pilot program in the US Midwest and Northeast. The company will also increase pay for mid-level employees who want to take on other leadership roles. 

“We are constantly exploring new ways to invest in our people, enhance morale and boost recruitment and retention,” Ferril Onyett, Taco Bell’s senior director of global training and international HR, told MarketWatch in an emailed statement. Managers have “a huge impact” on the restaurant performance, customer experience, and “team member satisfaction,” she added.

“We are constantly exploring new ways to invest in our people, enhance morale and boost recruitment and retention,” Ferril Onyett, Taco Bell’s senior director of global training and international HR, told MarketWatch in an emailed statement. Managers have “a huge impact” on the restaurant performance, customer experience, and “team member satisfaction,” she added.

Onyett said there’s no timeline on when all 450 company-owned stores will get $100,000 managers, adding that current managers make around $50,000 to $80,000. 

“We hope we can evaluate the effect of increased salaries on manager and team morale, restaurant performance, recruitment and retention, and customer experience,” Onyett said.

The announcement comes as nearly half of all US restaurants are suffering from rising labor costs. We outlined this new phenomenon plaguing restaurant operators on Thursday.

While rising labor costs might not lead to the end of the $5 Taco Bell box, it will undoubtedly lead to margin compression as the company will have to eat higher labor costs and avoid raising food prices on low-income Americans, or their customer base will shift to other fast-food options. 

As for broke millennials with insurmountable debts, no savings, and several jobs in the gig-economy so late into an economic expansion, it might be a good time to contact Taco Bell to secure a $100,000 managerial job before the next recession.

Authored by Charles Hugh Smith via OfTwoMinds blog,

The global economy and financial system are both running on the last toxic fumes of financialization and globalization.

For two generations, globalization and financialization have been the two engines of global growth and soaring assets. Globalization can mean many things, but its beating heart is the arbitraging of the labor of the powerless, and commodity, environmental and tax costs by the powerful to increase their profits and wealth.

In other words, globalization is the result of those at the top of the wealth-power pyramid shifting capital around the world to exploit lower costs of labor, commodities, environmental regulations and taxes.

This manifests as offshoring of jobs, the stripmining of forests, minerals, etc., the degradation of local ecosystems, the decline of tax revenues derived from capital and the explosive rise in stock market valuations as wages stagnate or decline.

A key element in globalization is the transfer of risk from the owners of capital to the workers and public resources. Examples of this transfer of risk abound: rather than pay workers benefits, corporations game part-time/full-time labor laws so workers’ health insurance is paid by taxpayers (Medicaid). Corporations pay wages too low to survive so workers depend on public-sector assistance (food stamps, etc.)

Rather than provide vehicles to workers who drive for a living, corporations such as Uber and Lyft transfer all the risks of ownership, maintenance and enterprise to the drivers. And so on.

Financialization is the exploitation of assets/income that were previously safe from predation by those with access to low-cost central bank credit. While definitions vary, mine is:

Financialization is the mass commoditization of debt collaterized by previously unsecuritized assets, a pyramiding of risk and speculation that is only possible in a massive expansion of low-cost credit and leverage for those at the top of the wealth-power pyramid: financiers, banks and corporations.

One example is the student loan “industry,” which prior to financialization did not exist. A previously safe from predation asset/source of income–college degrees–has been securitized so that loans issued to students for largely worthless diplomas can be sold globally as “secure assets with guaranteed yields.”

That the exploited class of students have little to no income and no guarantee of income doesn’t matter. What matters is a previously unexploited asset can be turned into debt that can be sold at an immense profit.

And so student loan debt has skyrocketed from near-zero to $1.6 trillion in less than a generation. This rapacious, ruthless exploitation would not have been possible without the central bank (Federal Reserve) and federal government enabling and enforcing the supremacy of private capital and the predation of the higher-education cartel.

The subprime mortgage loan bubble was another example of financialization: a previously inaccessible asset/income–the earnings of households with poor credit ratings–was suddenly available for exploitation, and guaranteed-to-default subprime mortgages were packaged with lower-risk mortgages and sold globally as “secure assets with guaranteed yields.”

That this was outright fraud didn’t matter to either the Federal Reserve or federal government.

Alas, all good predations end when the herd of prey has been dragged to the ground and consumed. All the fruit of financialization and globalization have been plucked by the powerful, and now both the engines of “growth” are sputtering.

The Federal Reserve and other central banks enabled this exploitation, but they’re powerless to extend it: central banks can create nearly free credit for the powerful, but they can’t conjure up new herds to be preyed upon.

As a result, the global economy and financial system are both running on the last toxic fumes of financialization and globalization, the final extremes of exploitation and predation as the pack of predators has exploded in size and influence while the herd of prey has been decimated.

In the dying light of the predators’ last feast, the Fed is worshipped as an omnipotent entity with god-like powers to levitate markets higher forever. But since the Fed is powerless to restore the upward trajectory of financialization and globalization, its omnipotence is about to expire.

The prey always seem limitless to the predators, but this illusion expires when suddenly there is no longer enough for the ravenous pack of financial predators. At that point, the predators turn on each other. That is the narrative that will come to the fore in 2020 and play out in the decade ahead.

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My recent books:

Will You Be Richer or Poorer? Profit, Power and A.I. in a Traumatized World (Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

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