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The headline-hypersensitivity continues ahead of the G-20 meetings with an overnight drift lower instantly erased by algo panic buying on confusing lighthizer headlines.

So, how is one to manage through the next 48-72 hours of market rumors, innuendo, and news? Former fund manager and FX trader Richard Breslow has some thoughts…

Via Bloomberg,

Ahead of whatever the G-20 meetings deliver, markets have tried to do as little as possible. And that makes perfect sense. Still, we couldn’t avoid some subdued movements as hints, unsubstantiated comments, or just the ebb and flow of emotions about the likelihood of a particular result from the shared list of potential outcomes. Sad to say for something so important, and entirely under human control, it remains just a guessing game.

But for those who want to partake in the speculation, there is certainly no shortage of people using some kind of game theory to posit what will happen. Or more importantly for traders, what will happen after.

It has actually been a somewhat interesting day because the seeming fluctuating handicapping of possible results hasn’t been in sync between assets. There have been no signs of student body right, student body left behavior. Which strongly suggests that, so far, each individual market is clearing the business they have to rather than expressing any newfound conclusions.

Absent hard news, take everything with a grain of salt. It certainly hasn’t been a good day trading strategy to assume, as one would typically do, that the Shanghai Composite’s nice afternoon rally would spill over to the likes of emerging markets, S&P 500 futures or the Australian dollar. Leave that for early Monday.

One thing to remember as you strategize about how to react to the news is that all markets don’t open at the same time. Foreign exchange will be the only game in town from the get-go.

There will be a lot of proxy trading going on, which will need to get swapped out as other assets become available to trade. Potentially with large gaps.

It could all be quite sloppy and fun. But it might not be friendly. And, while it probably won’t matter at the beginning of the week, you can’t ignore the implications for central banks. Not that I think they are going to intervene but tailwinds versus headwinds will matter as you price future rate changes. Not to mention that the dinner also holds potential implications for European auto tariffs.

Even a deal, or the promise to delay tariffs and work toward one down the road, isn’t going to instantly cure what has been ailing the Chinese economy. Risk assets could fly without taking away the speculation surrounding a near-term PBOC cut to the reserve requirement ratio. Conversely, you might want to reread Fed Chairman Jerome Powell’s latest speech. It’s a bitterly sad commentary that no deal might end up being the less ambiguous side to trade. Although, no matter what happens the knee-jerk reactions should be pretty straightforward. Famous last words, I know.

I had an interesting debate with myself last night about how to view monthly charts with such a significant event coming on the Saturday after we close November’s books. I’ve concluded, for better or worse, that today’s is the relevant close. The reason being that if things get motoring, the important longer-term chart points will be the best guide to where there should be liquidity to source. Even if it doesn’t stop things. Just remember, momentum algorithms don’t care about my technical levels.

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This may come as a shock to some, but Dennis Gartman may soon be 3 for 3 in his latest market-timing recos.

Back on November 8, following the mid-term election market surge when trader hopes for another BTFD moment briefly peaked (before being promptly snubbed) and JPMorgan’s Marko Kolanovic tripled down on his bullish call for stocks, one prominent contrarian voice emerged when Dennis Gartman said that he was “officially recommending shorting this rally.” In retrospect he was spot on with stocks tumbling, broadly ignoring the JPM bullish case.

Then, on Monday, just ahead of a broad market rebound and Wednesday’s Powell-inspired surge, Gartman flipped again, and said he was covering his “material short position for a very short while”, although as he added “covering our short positions does not mean even for a moment that we are turning bullish of shares and shall be buying them to be long for we are not and we shall not.”

Indeed it did not, because on Friday morning with futures set to slide ahead of tomorrow’s G-20 dinner between Trump and Xi, Gartman U-turned again, and as he wrote in his latest daily note, the time has come to short stocks again, if for now only in his retirement account, and not yet “officially” as a recommendation. To wit:

We are reiterating the point one more time… truly putting redundancy to test yet again… that covering our short position earlier this week did not mean then and does not mean now that we are turning bullish of shares and that we shall be buying stocks for the long term for we are not; we have not and we will not. Being as clear as possible, we state once again for the record that this is a bear market in broad, global terms and as we have said all week this week, in bear markets one can have but one of three possible positions: very short of shares; modestly short of shares or, finally, neutral of them. So it has been… and is still… to the sidelines for us, where we have been all week. But it may be time to re-enter the short side. We’ve actually done so in an exploratory and thus very small fashion in our retirement account although we are not “officially” making that as a recommendation… yet.

Will this mark the 3rd consecutive time that Dennis Gartman has been correct in the span of just three weeks? If so, it would be a 12-sigma, but more importantly, it could put an entire industry of Gartman-fading algos out of business.  Stay tuned.

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Amid sliding national PMIs, plunging home and auto sales data, collapsing oil prices, and disappointing headlines everywhere, the purchasing manager of Chicago are ebullient…

Just as the ‘soft’ survey data was starting to catch down to the reality of hard economic data, Chicago PMI explodes from 58.4 to 66.4 in October…

This is well above the forecast range (50.3 – 60) from 28 economists surveyed:

The number of components rising vs last month was five.

• Business barometer rose at a faster pace, signaling expansion

• Prices paid rose at a slower pace, signaling expansion

• New orders rose at a faster pace, signaling expansion

• Employment rose at a faster pace, signaling expansion

• Inventories rose at a slower pace, signaling expansion

• Supplier deliveries rose at a faster pace, signaling expansion

• Production rose at a faster pace, signaling expansion

• Order backlogs rose at a faster pace, signaling expansion

We await November’s crash back to reality.

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Authored by Patrick Buchanan via The Unz Review,

On departure for the G-20 gathering in Buenos Aires, President Donald Trump canceled his planned weekend meeting with Vladimir Putin, citing as his reason the Russian military’s seizure and holding of three Ukrainian ships and 24 sailors.

But was Putin really the provocateur in Sunday’s naval clash outside Kerch Strait, the Black Sea gateway to the Sea of Azov?

Or was the provocateur Ukrainian President Petro Poroshenko?

First, a bit of history.

In 2014, after the pro-Russian regime in Kiev was ousted in a coup, and a pro-NATO regime installed with U.S. backing, Putin detached and annexed Crimea, for centuries the homeport of Russia’s Black Sea fleet.

With the return of Crimea, Russia now occupied both sides of Kerch Strait. And this year, Russia completed a 12-mile bridge over the strait and Putin drove the first truck across.

The Sea of Azov became a virtual Russian lake, access to which was controlled by Russia, just as access to the Black Sea is controlled by Turkey.

While the world refused to recognize the new reality, Russia began to impose rules for ships transiting the strait, including 48 hours notice to get permission.

Ukrainian vessels, including warships, would have to notify Russian authorities before passing beneath the Kerch Strait Bridge into the Sea of Azov to reach their major port of Mariupol.

Sunday, two Ukrainian artillery ships and a tug, which had sailed out of Odessa in western Ukraine, passed through what Russia now regards as its territorial waters off Crimea and the Kerch Peninsula. Destination: Mariupol.

The Ukrainian vessels refused to obey Russian directives to halt.

Russian warships fired at the Ukrainian vessels and rammed the tug. Three Ukrainian sailors were wounded, and 24 crew taken into custody.

Russia’s refusal to release the sailors was given by President Trump as the reason for canceling his Putin meeting.

Moscow contends that Ukraine deliberately violated the new rules of transit that Kiev had previously observed, to create an incident.

For his part, Putin has sought to play the matter down, calling it a “border incident, nothing more.”

“The incident in the Black Sea was a provocation organized by the authorities and maybe the president himself. … (Poroshenko’s) rating is falling … so he needed to do something.”

Maxim Eristavi, a fellow at the Atlantic Council, seems to concur:

“Poroshenko wants to get a head start in his election campaign. He is playing the card of commander in chief, flying around in military uniform, trying to project that he is in control.”

Our U.N. Ambassador Nikki Haley, however, accused Russia of “outlaw actions” against the Ukrainian vessels and “an arrogant act the international community will never accept.”

Predictably, our interventionists decried Russian “aggression” and demanded we back up our Ukrainian “ally” and send military aid.

Why was Poroshenko’s ordering of gunboats into the Sea of Azov, while ignoring rules Russia set down for passage, provocative?

Because Poroshenko, whose warships had previously transited the strait, had to know the risk that he was taking and that Russia might resist.

Why would he provoke the Russians?

Because, with his poll numbers sinking badly, Poroshenko realizes that unless he does something dramatic, his party stands little chance in next March’s elections.

Immediately after the clash, Poroshenko imposed martial law in all provinces bordering Russia and the Black Sea, declared an invasion might be imminent, demanded new Western sanctions on Moscow, called on the U.S. to stand with him, and began visiting army units in battle fatigues.

Some Westerners want even more in the way of confronting Putin.

Adrian Karatnycky of the Atlantic Council urges us to build up U.S. naval forces in the Black Sea, send anti-aircraft and anti-ship missiles to Ukraine, ratchet up sanctions on Russia, threaten to expel her from the SWIFT system of international bank transactions, and pressure Europe to cancel the Russians’ Nord Stream 2 and South Stream oil pipelines into Europe.

But there is a larger issue here.

Why is control of the Kerch Strait any of our business?

Why is this our quarrel, to the point that U.S. strategists want us to confront Russia over a Crimean Peninsula that houses the Livadia Palace that was the last summer residence of Czar Nicholas II?

If Ukraine had a right to break free of Russia in 1991, why do not Crimea, Donetsk and Luhansk have the right to break free of Kiev?

Why are we letting ourselves be dragged into everyone’s quarrels — from who owns the islets in the South China Sea, to who owns the Senkaku and Southern Kurils; and from whether Transnistria had a right to secede from Moldova, to whether South Ossetia and Abkhazia had the right to break free of Georgia, when Georgia broke free of Russia?

Do the American people care a fig for these places? Are we really willing to risk war with Russia or China over who holds title to them?

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It was just this past Monday when GE resumed its plunge after a tentative stabilization, following a research report that questioned the value of GE Capital’s goodwill following the recent bankruptcy of a helicopter leasing company.

And, in a delightful (if not for the few remaining bulls) symmetry, GE is now closing off the week the same way it started it, with its stock sinking after two analysts raised more red flags around the company’s liquidity, while a report said former GE employees were being questioned by federal investigators about its troubled insurance business.

On the sell-side, Deutsche Bank analyst Nicole DeBlase slashed her price target on the stock by more than a third, from $11 to $7, over continuing questions on the industrial conglomerate (and shadow bank’s) liquidity outlook. According to Bloomberg, in DeBlase’s model, GE will likely be able to build up its balance sheet next year with cash flow from its industrial units to around 34 cents a share, assuming economic headwinds don’t worsen in the next three years and debt comes down, she said. Still, the scenario supports a lower price target on the stock, resulting in a new price target of $7.00 (down from $11.00). The bearish “downside case” assumes power unit earnings continue to decline and GE’s other business units are hit by a modest downturn. DeBlase sees the industrial units facing a cash burn of about 21 cents per share next year.  However, unlike some of her even more bearish colleagues, she doesn’t see the company facing a liquidity crisis, “even in this drastic scenario.”

And speaking of her bearish colleagues, GE’s nemesis – JPM analyst Stephen Tusa – who has long been the most bearish GE voice on Wall Street, said commentary from GE’s partner Safran “supported his view that profit and cash flow growth at the aviation segment would be below consensus expectations.”

Adding injury to sellside insult, also on Friday Morning, the Wall Street Journal reported that Federal investigators are questioning former employees of General Electric about details in a legacy insurance business that led to accounting problems at the conglomerate in the past year, and whether the business failed to internally acknowledge worsening results over the years. The employees also said that they were interviewed by government lawyers.

Shares fell as much as 3.7% in pre-market trading in New York, sliding deeper into 7-handle territory and approaching its financial crisis lows of $6.66.

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We don’t expect the West to denounce xenophobia and prejudice on this one: officials in Kiev have announced that Russian men will be barred from the country following the imposition of martial law this week. 

The ruling targets men aged 16-60, who will no longer be able to enter the country, with the only exceptions being for “humanitarian cases” like funerals or an emergency. Martial law is in effect in 10 Ukrainian regions until December 26 following the Russian Navy seizing three Ukrainian ships and 24 sailors in the Black Sea last Sunday as the crew stands accused of “dangerous maneuvers” in Russian territorial water. 

The new restrictions connected to the martial law decree from early this week were announced following a meeting between President Petro Poroshenko and the country’s top security officials and border guard chiefs in Kiev. The president said in a public statement that the policy aimed to prevent the further formation of “private armies” in Ukraine — a reference to pro-Russian militia groups and separatist organizations Kiev has fought since 2014.

A sizable amount of the Ukrainian population has relatives living just across the Russian border and vice versa. These families will be most impacted by the travel ban especially over the holidays. Currently direct flights between the two countries have been suspended by Kiev authorities, which along with the Russian travel ban will have a huge impact, given that 1.5 million Russian nationals visited Ukraine last year alone, according to official statistics published by Unian news agency, cited in the BBC.

Russian Foreign Ministry spokeswoman Maria Zakharova reacted to the ban by assuring that Moscow had no plans to “mirror” the measure as this “could result in full madness”. 

Україна ввела обмеження щодо в’їзду громадян РФ чоловічої статі віком від 16 до 60, щоб РФ не формувала в Україні загони “приватних” армій, які насправді є представниками Збройних Сил РФ. Щоб не дати росіянам здійснити в Україні ті операції, які вони планували ще у 2014 році. pic.twitter.com/upJyp1JLrO

— Петро Порошенко (@poroshenko) November 30, 2018

The ban will apply to all entry points to Ukraine, especially along the 1200+ miles of the Ukrainian-Russian land border, which is enforced by a system of Ukrainian border fortifications — through the ambitious project akin to a “border wall” is still in development and unfinished. Further details of how security officials plan to enforce the ban have yet to be revealed. 

In mid-September, one Ukrainian province in the western part of the country issued an official ban on all Russian-language books, films, broadcasts and songs. A regional council had voted to “impose a moratorium on the public broadcast and use of Russian-language content” until Russian forces “withdraw” from Ukraine, however unlikely it is to actually enforce. 

Early this week in a televised interview Poroshenko condemned what he described as a rapidly increased Russian military presence on the border with Ukraine, saying, “The number of [Russian] tanks at bases located along our border has tripled,” according to the AFP.

The Ukrainian president added that “the number of units that have been deployed along our border – what’s more, along its full length – has grown dramatically.” He ultimately concluded that the military buildup meant that the country is “under threat of full-scale war with Russia.”

But Kiev’s latest anti-Russian travel ban is sure to only stoke tensions dramatically, especially as it takes the conflict far beyond the mere political domain, targeting language and identity in a Balkanized sense, and dividing families in the process. 

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Having slumped to session lows, US stock futures – extremely sensitive to any trade-related headlines – surged instantly when Bloomberg reported that trade hawk Lighthizer had a good feeling about tomorrow’s dinner and would be surprised if the China dinner fails:

• LIGHTHIZER SAYS HE WOULD BE SURPRISED IF CHINA DINNER FAILS

The headline was enough to spike equity futures, however algo momentum was quickly stopped when Reuters published its own take on what Lighthizer had just said:

• LIGHTHIZER: EXPECT XI-TRUMP DINNER TO BE A ‘SUCCESS,’ BUT NO PREDICTION ON POSSIBLE DEAL

The following clarification from Reuters did not help sentiment either:

• LIGHTHIZER SAYS WHETHER OR NOT TRUMP AND XI REACH A TRADE DEAL IN THEIR MEETING IS ENTIRELY UP TO THE TWO PRESIDENTS

… but by then the headline scanning algos had established enough upside momentum, and having spiked on Bloomberg’s initial take which boosted optimism for a favorable outcome especially once CNBC’s own creative take came in…

… and refuting the Goldman pessimism we reported earlier, animal spirits have awoken with the Trump administration clearly intent on massaging stocks before – and perhaps after – the much anticipated dinner tomorrow.

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As we have repeatedly documented in these pages, Goldman Sachs’s relationship with the Federal Reserve isn’t limited to one between a regulator and regulatee. In fact, for decades, Goldman Sachs, more than any other bank, enjoyed an influence over the Federal Reserve – and particularly the New York Fed, the “first among equals” of the Federal Reserve system – that flips the conventional wisdom on its head: To put it succinctly, it was Goldman that dictates the rules to the Fed, not the other way around.

Any doubters can familiarize themselves with the story of Carmen Segarra, who – at personal risk to any future career in banking or government – came forward several years ago with a cache of secret recordings the revealed the pervasiveness of “regulatory capture” at the New York Fed, which included evidence that her superiors repeatedly brushing aside her insistence that Goldman’s regulatory rating be downgraded because of the “conflict-ridden” nature of some of its deals (note: Segarra was making her recordings exposing the central bank’s unwillingness to challenge Goldman around the same time that the storied “Vampire Squid” was underwriting the $6 billion in 1MDB bonds, despite evidence that the bank ignored its own compliance department’s warnings about the deal). And let’s not forget the incident that unfolded five years ago where a junior Goldman banker received insider information directly from a “source” inside the NY Fed – offering unmitigated evidence of collusion between the two organizations. That banker, though fired from Goldman, was later let off with a slap on the wrist. 

This renders last week’s “leak” that the Fed had asked Goldman to tighten oversight of its investment committees to better protect against conflict of interest as self-serving. That’s because the NY Fed knows that, so long as the DOJ’s spotlight lingers on Goldman’s malpractice, it’s only a matter of time before the regulator itself comes under scrutiny.

But the Fed’s tacit campaign to show the public (and, more importantly, certain Fed skeptics in Washington) that it is “doing something” to change this toxic culture of complicity before Goldman helps another gang of plutocrats siphon off billions of dollars in public money continued on Thursday, when Bloomberg published a “leaked” report alleging that the Fed is ramping up its investigation into how Goldman managed to evade both its internal compliance controls, as well as the Fed’s controls, while pursuing the 1MDB deal (though we imagine the endorsement by Goldman’s then-CEO had something to do with it).

The Federal Reserve is ramping up its investigation into how Goldman Sachs Group Inc. executives dodged the bank’s internal controls while helping Malaysian authorities raise billions of dollars that later went missing, according to people briefed on the matter.

The probe examines the actions of the New York-based investment bank as well as individuals and has been gaining momentum in recent weeks, the people said, asking not to be identified because the inquiry is confidential. The Fed doesn’t have the powers of a criminal prosecutor, but it can and often does sanction people involved in banking scandals.

The Fed has previously interviewed current and former employees at the firm, prying into how easy it is to short-circuit compliance systems, the people said. In recent weeks, representatives from Goldman Sachs met with the Fed and defended the bank’s controls, according to a person with knowledge of the matter.

As Goldman Sachs’s main regulator, the Fed has broad authority to penalize the bank or impose other changes. Earlier this year, it capped Wells Fargo & Co.’s size until the lender shores up internal controls.

“It is the Federal Reserve’s policy not to confirm or deny the existence of investigations,” the central bank said in an emailed statement. “We refer criminal violations to the Department of Justice as necessary and exercise our enforcement and safety and soundness authorities if the facts are warranted.”

If the New York Fed has been so bamboozled by Goldman’s ability to evade oversight, they should look no further than the fact that former Goldmanites have been running the US financial system for decade. Former NY Fed Governor Bill Dudley worked at Goldman. Treasury Secretary Steven Mnuchin also worked there, and former Trump economic advisor Gary Cohn once helped run the bank. But most importantly, many of the central bank’s employees yearn for the opportunity to walk through the “revolving door” leading from the doldrums of government hackery to the untold riches of the private sector.

Need more evidence that 1MDB was the result of a systemic problem? Look no further than Tim Leissner, the former head of Goldman’s Southeast Asia operation who recently pleaded guilty to knowingly abetting money laundering and violations of the Foreign Corrupt Practices Act, alleged in his plea agreement that his actions were the result of a “culture of corruption” Goldman.

In a statement to the court, Leissner said his behavior was “very much in line of its culture of Goldman Sachs to conceal facts from certain compliance and legal employees.” The Justice Department has also said in filings that the business culture at Goldman Sachs, particularly in Southeast Asia, prioritized consummating deals ahead of the proper operation of its compliance functions.

Still, the DOJ filings said individual bankers knowingly circumvented controls the bank had in place and hid certain details about the deal to prevent compliance officers from seeking to block the firm’s involvement in the transactions.

While we’re sure the people of Malaysia appreciate Goldman CEO David Solomon’s feigned “outrage” over Goldman’s behavior, the bank’s attempts to paint Leissner as a rogue employee have been seriously undermined by reports about the involvement of its senior leadership in the deal. Because 1MDB is just the latest in a long line of Goldman’s regulator enabled disregard for the wellbeing of its client and, well, anybody who isn’t Goldman. But maybe this time, the public backlash against the bank, and the decision of at least two high-profile clients to sue over 1MDB, will force Goldman to reconsider such “short-term” thinking by jeopardizing the only thing that matters to Goldman: Its client book.

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