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Late in the day Tuesday the official Algerian state press agency APS announced the two-decade long ruler, Presdient Bouteflika, has formally resigned, finally giving in to both popular protests that have rocked the country for weeks, and following demands issued by army chief General Ahmed Gaid Salah that he immediately handover power.

“President Bouteflika notified the president of the Constitutional Council of his decision to put an end to his term,” a translation of the APS news release reads.  

Have we just witnessed a quiet military coup in Algeria? Or is this a willing handover of power per constitutional requirements that the ailing 82-year old president Abdelaziz Bouteflika, unable to perform his public duties since suffering a strong years ago, should step down? 

The resignation came just moments after the Army repeated calls for him to leave immediately — a demand reportedly coupled with security forces arresting businessmen known to be close to Bouteflika. 

One week ago the military said it was prepared to act against the two-decade long ruler who had rarely been seen in public since his stroke in 2013. At that time General Salah, commander of the army as well as the country’s deputy defense minister, said in a live speech broadcast on private television station Ennahar that the protesters’ demands that he not run for a fifth term were “legitimate”.

“To resolve the crisis [in the country] right now, the implementation of article 102 is necessary and is the only guarantee to maintain a peaceful political situation,” Gen. Salah said on March 27. “These protests have continued up till now in a peaceful and civilized way … and could be exploited by parties with bad intentions inside and outside of Algeria,” the general added.

UPDATE #Algeria :

• Army calls for President Bouteflika Exit IMMEDIATELY
• Cites Articles 102, 8, 7
• Says it agrees w people demands
• Said yesterday’s statement Null
• 13 businesssmen arrested, can’t travel (corruption)
• Calls for immediate transition, no delay

— Joyce Karam (@Joyce_Karam) April 2, 2019

Algeria’s army chief further called for the invocation of a constitutional clause declaring the office of the presidency vacant. 

The army gave Bouteflika two weeks to vacate, and on Monday state media indicated he was expected to step down before his term expired on April 28.

The Algerian constitution indicates power goes to the chairman of the upper house of parliament, in this case Abdelkader Bensaleh, who becomes interim president until fresh elections are held.  

via ZeroHedge News https://ift.tt/2TTr04e Tyler Durden

With investor attention increasingly focusing on what most believe will be the catalyst for the next financial crisis, namely a tsunami in corporate defaults as a result of the disastrous combination of record leverage, higher rates and an economic slowdown, overnight we presented the view of FTI global co-leader of corporate finance and restructuring, Carlyn Taylor, who predicted that “a spike in defaults is on the way, sooner or later.”

The expansion is pretty long in the tooth and there’s definitely a lot of buildup. The activity level of restructuring is rising, maybe not at the rate of bankruptcies, but the pipeline of companies we think are going to end up in restructuring, based on metrics that we analyze, that volume has gone up. And we’re so busy, which we don’t think is just market share, because we think our competitors are also very busy.

Yet while investor worries have centered on record corporate leverage…

… a growing number of strategists are warning that corporate bond market illiquidity is an even greater risk factor.

Not long after Goldman most recently warned that the biggest threat facing the broader market in general, as well as corporate bonds in particular, is a sudden collapse in liquidity, overnight UBS credit strategist Steve Caprio and his team laid out four major reasons why global corporate bond market liquidity has deteriorated over time.

These are:

1. Rising investment fund ownership of corporate debt,
2. Low interest rates,
3. A lack of dealer intermediation, particularly in periods of rising credit risk, and
4. Potential new EU regulation on trade settlement failures.

UBS notes that credit investors were shocked by the spread blowout in Q4’18, followed by major spread tightening in Q1’19, and notes that “these spread moves are worrying in that they are somewhat divorced from fundamentals, as default risks remain low.” The bank then notes that it believes these shifts in risk premia are likely to remain with us for the foreseeable future, and as evidence is uses a novel liquidity tracker by the Intercontinental Exchange which highlights that global HY bond liquidity has been deteriorating steadily since 2016, while the bank’s own simple measure of gauging HY liquidity, through the beta of spread changes to flows, is also elevated.

There are two other critical reasons for the collapse in liquidity, one of which is central banks themselves. As Caprio notes, credit returns will be more negative in the future when fundamental stress arises, because there is less (US) or no (EU) room for sovereign yields to fall further. The % of index yield that is spread ranges from 31% and 58% in US IG and US HY, to 100%+ in EU IG and EU HY. This makes global credit a less diversifying asset. The empirics bear this out, with rising correlations of credit to equity returns. In addition, EU HY finds itself behind US HY in terms of reversing the QE-led portfolio rebalancing effect. Lastly, while US IG credit can receive risk-off inflows from broad bond funds, given Treasury yields are attractive as a portfolio hedge; EU IG flows are more dependent on credit-specific funds.

One additional critical reason why bond liquidity is collapsing is because US and EU dealer inventories of credit have declined notably, while dealer reaction functions to spread changes are shifting: “Pre-crisis, dealer purchases of credit were uncorrelated to spread changes. Post-crisis, dealer demand is reacting like retail funds, buying when spreads tighten and selling when spreads widen.” This lack of willingness to provide liquidity, UBS warns, “is likely to remain with us, due to capital & liquidity requirements.”

“In a world where sudden bouts of volatility may become the norm, funds are more likely to sell bonds than dip into cash reserves to meet redemptions when the next leg of risk aversion hits. This increased concentration by investor type both with respect to subordinated debt as well as HY credit exacerbates liquidity risk further in our view, which naturally increases potential downside risk.”

While UBS hedged, trying not to sound too bearish, and noting that it doesn’t believe corporate bond market illiquidity “will bring down a cycle on its own,” the Swiss bank does expect more credit spread volatility going forward, “with the real challenge for markets taking place in a broader downturn when liquidity risk intersects with default risk”, i.e., the perfect storm for the bond market.

Echoing UBS, Deutsche Bank’s credit strategist Jim Reid published an almost identical report at almost the same time, in which he agreed that it’s not so much default risk and deteriorating fundamentals, but rather liquidity that will precipitate the next crisis.

Reid writes that a look at long-term credit fundamentals shows corporates are levering up in this cycle “but that this is more of an IG than HY story and therefore reduces the default implications”, although one could counter that with over $3 trillion in BBB-rated debt just waiting to be downgraded to junk, it is only a matter of time before this becomes a bigly HY story. Deutsche also notes that while leveraged loans are a concern, it’s not clear the increase in cov-lite issuance will bring large-scale defaults in the next cycle as without covenants there are fewer triggers. As a result the German bank doesn’t think corporate fundamentals will cause this cycle to turn but will clearly deteriorate when it does.

So what will cause the cycle to turn? As Reid suggests, echoing what UBS warned above, the next recession will be not so much about default risk (outside of the natural increase) but instead about liquidity risk. Just like UBS, Deutsche writes that since the financial crisis, the size of the credit market has increased dramatically, but regulation has sharply cut dealer liquidity, and “in a recession we will likely see one-way selling and large gap risk for spreads.” Reid explains:

The overall market dynamics have shifted aggressively since the GFC. Figure 41 republishes a chart we have shown on numerous occasions over the last several years detailing that the US corporate bond market has near tripled in size since the GFC due to QE, lower yields encouraging companies to issue and high demand for fixed income and spread product, thus providing a captive pool of  capital. Meanwhile, regulation has ensured dealers/market-makers have less and less ability to warehouse risk.

The next chart looks at US IG, HY and Treasury daily trading levels relative to the size of the market:

How bad would this self-fulfilling liquidity crisis be? The answer:

It’s quite possible the next recession will see the third-worst spread peak in history (behind only the Depression and the GFC) due to these market dynamics.

But don’t worry folks: central banks will bail you out, as usual:

… these peaks may not last long as central banks will probably be forced to buy to ease pressure on the market. In fact, this is probably a more traditional function of central banks: to lend money to solvent entities when there is a liquidity problem. Companies are unlikely to have liquidity problems, but those holding the bond might well do.

Meanwhile, keep an eye on the tsunami of fallen angles: “a large BBB market vs. HY will also  exacerbate the technicals when downgrades occur.” Finally as to timing, Reid warns that “as many indicators are late cycle, this is a real risk over the next couple of years.”

via ZeroHedge News https://ift.tt/2OFeEM5 Tyler Durden

Authored by Adam Taggart via PeakProsperity.com,

Stocks are poised to break big, one way or the other…

It’s make or break time in the markets cautions Sven Henrick, technical analyst and lead market strategist for Northman Trader.

His weekly flurry of trendline charts warn that the major indexes have been compressing in rising wedges that increasingly point to a binary outcome: either a massive new leg up that will result in the market making new all time highs, or a bad breakdown that could waterfall into a 2008-style correction.

One high-level chart he tracks closely indicates that if the S&P 500 does not soon rise above the blue trendline that began in 2009, a sharp roll-over is highly likely:

His reams of data increasingly suggest that today’s global elevated asset prices are in no way justified by the fundamentals of the underlying world economies. And that someday — perhaps quite soon — a reckoning long overdue will occur:

Passive investing obviously is becoming a larger portion of the investing mix to the point where we have more ETFs investing than we actually have stock traders. And so there’s this element of automatic allocations. A lot of these are driven by market cap weightings, for example.  

So to the extent that you have a lot of influence coming in from passive funds or ETFs, they will buy a certain set of stocks more actively than others, because it’s just the way it’s allocated. We saw that last summer — and this is one of the things want to pay attention to, when you see divergences and deviations.

In September of last year, I wrote a piece called “Lying Highs” in which I pointed out that we were seeing ever-narrowing slope of the rally, driven by fewer and fewer stocks. It’s kind of one of those classic ‘popping’ signs, but the problem with it is it doesn’t give you precise timing. This stuff can drag on, and on, and on. We saw that throughout all last summer.

So these passive investing vehicles come in and keep buying high cap tech stocks —remember, this drove Apple to $1 trillion dollars market cap, Amazon to $1 trillion dollars, and analysts kept raising their price targets. And so money keeps flowing in and stock prices go higher. It attracts more money, and  that attracts more money, and that attracts more money. It becomes this pyramid scheme — until something breaks. And that’s what we saw in the fall. The rally was just too thin leading up to that, and then required the technical downside reaction. That’s the danger of it.

I like to say “Just because they’re buying doesn’t necessarily mean that they know what they’re doing.” Because these momentum moves just defy reason. You got to be able to shut off your brain and understand what’s driving this. It’s not fundamentals, necessarily. It’s basically just the flow of money at the end of the day. And the algorithms buy it. So be aware of the structure of the market.

Now, I’ve been very critical of how this rally has formed so far this year.

One of the lessons I drew out of 2018 was this simple message: Extremes will become more extreme. And that’s the biggest danger for traders, because you can easily get chopped up. And when things get so extreme, you’ve got to be very careful in not losing sight of the big picture and be patient and wait for the right setup.

The fact that we’re here now 10 years after the GFC and the Fed tried for only three brief months in 2018 to be non-accommodative. Jay Powell dropped the “accommodative” just in the September/October time frame, and it blew up in their faces. And the ECB is still sitting with negative rates — they ended QE at the end of December and European growth is maybe 1%, and Germany looks around 0.6%. We’ve never been in an environment where we are risking entering a recession with negative rates. We have no idea what that means.

And so the concern is that this past decade’s wave of cheap money will be our undoing. Since 2007 global debt has increased by $70 trillion. We’ve now got corporate debt at $6 trillion. And at the same time, when you look at real GDP growth, it just never kicked into high gear.

If you go back to the last 30 years, and you can look at the Fed funds rate, you can look at the TNX 10-year, and you can look at real GDP growth. It’s the story of lower highs all around. And it’s all sustained by massive, massive debt. And so now that we’ve tried it for 10 years, and the Fed recently admitted that they’re done and that they can’t do anymore. It’s highly concerning.Because how do you sustain an economy that can’t even handle a 2.5% Fed funds rate?

The economy is dealing with two major issues. One is obviously demographics. There’s an aging wave that’s just not changeable, and it’s got implications. We have huge unfunded liabilities. We’ve got a whole replacement cycle going on that’s not conducive of productivity. And then on top of that, we have the greatest deflationary force the planet has ever seen—technology. Facebook, for example, does not need that many people to handle over a billion customers.

So there’s this deflationary force that’s built into the economy that’s preventing from proper growth taking place as well. At the same time, you’ve got all these debt issues that are not being resolved. They act like a dual brake on the economy, and they can’t solve it.

And it seems we have no political structure anywhere globally at the moment that’s able to address structural issues in any shape or form. I don’t see it in the US. I don’t see it in Europe. Take Brexit as an example; it’s total chaos. There’s no way to come to a cohesive solution on anything.

How do you fix the structural issues in the economies if you don’t have any type of political cohesion taking place? There’s really no way out of that.

Click the play button below to listen to Chris’ interview with Sven Henrich (50m:04s).

via ZeroHedge News https://ift.tt/2WIfSsQ Tyler Durden

Another day, another subpoena…

The House Oversight Committee on Tuesday voted to authorize a subpoena for a former White House official to testify behind closed doors as part of the panel’s investigation into the Trump administration’s security clearance process.

As Jennie Taer reports for SaraCarter.com, before Tuesday’s hearing, Cummings received a letter from an administration whistleblower alleging national security concerns in the Trump White House. The whistleblower alleged that 25 officials had received security clearances ‘improperly’, which she shared during a meeting with committee Democrats on Saturday.

Tricia Newbold, who was the adjudications manager in the White House Personnel Security Office told Cummings and a bipartisan staff that her office had issued 25 denials of security clearances that have been overturned by the White House.

“I just want to emphasize that point — she came forward because the system at the White House is so dysfunctional that she believes Congress needs to intervene,” Cummings said.

“She is begging us to do something because she simply wants her government to work the way it is supposed to work. She gets it after 18 years,” he continued.

According to Cummings letter, Newbold’s concerns were serious and need further investigation. 

• Why whistleblower came forward: “I would not be doing a service to myself, my country, or my children if I sat back knowing that the issues that we have could impact national security.”

• The impact to national security: Security clearance applications for White House officials “were not always adjudicated in the best interest of national security.”

• White House retaliation: “I’m terrified of going back. I know that this will not be perceived in favor of my intentions, which is to bring back the integrity of the office.”

• Congress needs to act now: “this is my last hope to really bring the integrity back into our office.”

However, the Republican staff on the committee responded to both Cummings and Newbold. The members complained that Cummings “cherrypicked” partisan information and didn’t not give ample opportunity for Republican members to respond to Newbold.

In the rebuttal letter, Republican staff stated: 

• Ms. Newbold generally focused her testimony on her concerns about Carl Kline, who served as OSCO’s Director of Personnel Security (and Ms. Newbold’s manager) until June 2018. Kline left the White House in January 2019.

• Ms. Newbold’s primary concern with Kline was that he disagreed with her adjudication determinations in 25 cases, granting favorable adjudications when Ms. Newbold had recommended unfavorable outcomes.

•  Ms. Newbold also lodged complaints about the office’s environment—ranging from how office files are stored, to the manner in which employees were required to scan documents into emails, to the physical position of aKline’s computer monitor on the desk inside of his office.

• Ms. Newbold testified that OSCO has been plagued by poor management during the majority of her 18-year tenure as an employee. She acknowledged, however, that the Trump Administration has implemented improvements to the office.

Of course, New York Congresswoman Alexandria Ocasio-Cortez had to chip in. She delivered a fiery rant Tuesday, targeting Senior Advisor to President Trump and his son-in-law Jared Kushner, which some Democrats have accused of being a national security concern.

“Every day that we go on without getting to the bottom of this matter is a day that we are putting hundreds if not potentially thousands of Americans at risk. I mean, really, what is next, putting nuclear codes in Instagram DMs?!? This is ridiculous.” said Ocasio Cortez.

.@RepAOC @AOC: “Every day that we go on without getting to the bottom of this matter is a day that we are putting hundreds if not potentially thousands of Americans at risk. I mean, really, what is next, putting nuclear codes in Instagram DMs?!? This is ridiculous.” pic.twitter.com/EkTPWbwIn4

— CSPAN (@cspan) April 2, 2019

On Monday night, Kushner told Fox News’ Laura Ingraham “I’ve been accused of all different types of things, all have been false”.

The White House has blasted the security clearance investigation as “dangerous” and “shameful.”

via ZeroHedge News https://ift.tt/2FSC9OR Tyler Durden

Multiple whistleblowers have come forward claiming that Federal Aviation Administration (FAA) safety inspectors were not properly trained and did not hold valid certifications on the Boeing 737 Max aircraft, according to a letter to FAA Acting Administrator Daniel Elwell from Sen. Roger Wicker (R-MS). 

“Allegations from these whistleblowers include information that numerous FAA employees, including those involved in the Aircraft Evaluation Group (AEG) for the Boeing 737 Max, had not received proper training and valid certifications,” the letter reads. 

“Some of these FAA employees were possibly involved as participants on the Flight Standardization Board (FSB),” a group formed to evaluate the 737 Max 8 to determine requirements to rate pilots, develop minimum training recommendations, and to ensure “initial flightcrew member competency.” 

Two Boeing 737 Max 8s were involved in similar crashes within a five month period, while investigators are pointing to sensor failures connected to an anti-stall system known as the Maneuvering Characteristics Augmentation System (MCAS). 

Of note, an off-duty pilot flying in the jumpseat on a Lion Air 737 Max 8 last October was able to talk pilots through disabling the MCAS system on the same plane that crashed a day later off the coast of Indonesia, killing all 189 on board. 

The FAA whistleblowers also claim that the FAA may have been informed of the 737 Max 8s deficiencies as early as August 2018, two months before the Lion Air crash. 

As we noted last month, several Pilots repeatedly warned federal authorities of safety concerns over the now-grounded Boeing 737 Max 8 for months leading up to the second deadly disaster involving the plane, according to an investigation by the Dallas Morning News. One captain even called the Max 8’s flight manual “inadequate and almost criminally insufficient,” according to the report. 

***

“The fact that this airplane requires such jury-rigging to fly is a red flag.Now we know the systems employed are error-prone — even if the pilots aren’t sure what those systems are, what redundancies are in place and failure modes. I am left to wonder: what else don’t I know?” wrote the captain. 

At least five complaints about the Boeing jet were found in a federal database which pilots routinely use to report aviation incidents without fear of repercussions. 

The complaints are about the safety mechanism cited in preliminary reports for an October plane crash in Indonesia that killed 189. 

The disclosures found by The News reference problems during flights of Boeing 737 Max 8s with an autopilot system during takeoff and nose-down situations while trying to gain altitude. While records show these flights occurred during October and November, information regarding which airlines the pilots were flying for at the time is redacted from the database. –Dallas Morning News

One captain who flies the Max 8 said in November that it was “unconscionable” that Boeing and federal authorities have allowed pilots to fly the plane without adequate training – including a failure to fully disclose how its systems were distinctly different from other planes. 

 

via ZeroHedge News https://ift.tt/2VfHRj0 Tyler Durden

Authored by Patrick Buchanan, op-ed via Tonwhall.com,

When Donald Trump meets with NATO Secretary General Jens Stoltenberg today, the president should give him a direct message:

The roster of NATO membership is closed. For good. The United States will not hand out any more war guarantees to fight Russia to secure borders deep in Eastern Europe, when our own southern border is bleeding profusely.

And no one needs to hear this message more than Stoltenberg.

In Tblisi, Georgia, on March 25, Stoltenberg declared to the world:

“The 29 allies have clearly stated that Georgia will become a member of NATO.”

As for Moscow’s objection to Georgia joining NATO, Stoltenberg gave Vladimir Putin the wet mitten across the face:

“We are not accepting that Russia, or any other power, can decide what (NATO) members can do.”

Yet what would it mean for Georgia to be brought into NATO?

The U.S. would immediately be ensnared in a conflict with Russia that calls to mind the 1938 and 1939 clashes over the Sudetenland and Danzig that led straight to World War II.

In 2008, thinking it had U.S. backing, Georgia rashly ordered its army into South Ossetia, a tiny province that had broken away years before.

In that Georgian invasion, Russian peacekeepers were killed and Putin responded by sending the Russian army into South Ossetia to throw the Georgians out. Then he invaded Georgia itself.

“We are all Georgians now!” roared uber-interventionist John McCain. But George W. Bush, by now a wiser man, did nothing.

Had Georgia been a NATO nation in 2008, the U.S. could have been on the brink of war with Russia over the disputed and minuscule enclave of South Ossetia, which few Americans had ever heard of.

Why would we bring Georgia into NATO now, when Tblisi still claims the breakaway provinces of South Ossetia and Abkhazia, both of which Moscow controls and defends?

Are we not in enough quarrels already that could lead to new wars — with Iran in the Gulf, China in the South China Sea, North Korea, Russia in the Baltic and Black Sea, Venezuela in our own hemisphere — in addition to Iraq, Syria, Yemen, Afghanistan and Somalia where we are already fighting?

Among neocon and GOP interventionists, there has also long been a vocal constituency for bringing Ukraine into NATO.

Indeed, changes in the GOP platform in Cleveland on U.S. policy toward Ukraine, it was said, were evidence of Trumpian collusion with the Kremlin.

But bringing Ukraine into NATO would be an even greater manifestation of madness than bringing in Georgia.

Russia has annexed Crimea. She has supported pro-Russian rebels in the Donbass who seceded when the elected president they backed was ousted in the Kiev coup five years ago.

Kiev’s recent attempt to enter the Sea of Azov by sailing without formal notification under the Putin-built Kerch Strait Bridge between Russia and Crimea, proved a debacle. Ukrainian sailors are still being held.

No matter how supportive we are of Ukraine, we cannot commit this country to go to war with Russia over its territorial integrity. No Cold War president from Truman to George H. W. Bush would have dreamed of doing such a thing. Bush I thought Ukraine should remain tied to Russia and the Ukrainian independence movement was born of “suicidal nationalism.”

Trump has rightly demanded that Europeans start paying their fair share of the cost of NATO. But a graver question than the money involved are the risks involved.

You will find more infographics at Statista

Since the end of the Cold War, NATO has added 13 nations: the Czech Republic, Slovakia, Poland, Hungary, the Baltic states of Estonia, Lithuania and Latvia, and six Balkan countries — Bulgaria, Rumania, Slovenia, Croatia, Albania and Montenegro.

Also attending the NATO gathering in Tblisi a week ago were Sweden, Finland and Azerbaijan. Are these three also candidates for U.S. war guarantees?

The larger NATO becomes, the further east it moves, the greater the probability of a military clash that could lead to World War III.

Yet none of the nations admitted to NATO in two decades was ever regarded as worth a war with Russia by any Cold War U.S. president.

When did insuring the sovereignty and borders of these nations suddenly become vital interests of the United States?

And if they are not vital interests, why are we committed to go to war with a nuclear-armed Russia over them, when avoidance of such a war was the highest priority of our eight Cold War presidents?

Putin’s Russia, once hopeful about a new relationship under Trump, appears to be giving up on the Americans and shifting toward China.

Last week, 100 Russian troops arrived in Caracas. Whereupon, The Wall Street Journal lost it: Get them out of our “backyard.” The Monroe Doctrine demands it.

Yet, who has been moving into Russia’s front yard for 20 years?

As the Scotsman wrote, the greatest gift the gods can give us is to see ourselves as others see us.

via ZeroHedge News https://ift.tt/2ODsP4a Tyler Durden