“I’m Not Going To Agree That I Lied”: Corsi Rejects Mueller’s Plea Deal, Plans To Sue

Roger Stone associate Jerome Corsi said on Monday that he is refusing to sign a plea deal offered by special counsel Robert Mueller.

Corsi, who fell under suspicion as an intermediary between Stone and WikiLeaks during the 2016 US election, said he was offered a deal to plea on one count of perjury. 

“They want me to say I willfully lied. I’m not going to agree that I lied. I did not. I will not lie to save my life. I’d rather sit in prison and rot for as long as these thugs want me to,” Corsi said. 

“They can put me in prison the rest of my life. I am not going to sign a lie,” Corsi told CNN. 

According to OANN Host Jack Posobic, Corsi plans to sue Mueller.

On Monday President Trump raised the question of Mueller’s impartiality – tweeting:

“When Mueller does his final report, will he be covering all of his conflicts of interest in a preamble, will he be recommending action on all of the crimes of many kinds from those “on the other side”(whatever happened to Podesta?), and will he be putting in statements from hundreds of people closely involved with my campaign who never met, saw or spoke to a Russian during this period? So many campaign workers, people inside from the beginning, ask me why they have not been called (they want to be). There was NO Collusion & Mueller knows it!“

Developing… 

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Morgan Stanley Breaks Consensus, Downgrades US Stocks To Sell

The decoupling is over for the US economy and its stock market according to Morgan Stanley which has long held a bearish outlook on the US, but overnight officially downgraded US stocks to “sell”, expecting the S&P to end 2019 at 2,750, while double upgrading emerging market to overweight.

In a note release by Morgan Stanley strategist Andrew Sheet, he expects a sharp slowdown for the US economy, along with a pick-up in global inflation that will keep monetary tightening intact, urging clients to get out of credit, load up on emerging markets and stock up on cash. In short, while 2018 was defined by “rolling bear markets”, 2019 will be the year of “turning.”

Additionally, Sheets writes that last year’s ‘tricky handoff’ of slower growth, higher inflation and tighter policy continues, and is now joined by key shifts in the relative trend of growth and policy. These macro shifts will mean turning points in five key market
relationships, and as Morgan Stanley explains, it differs from the consensus when it comes to: USD weakens, US and EU rates converge, EM outperforms, US stocks underperform, value beats growth, EM sovereigns outperform US HY.

Summarizing the bank’s key cross-asset views for the coming year, they are one where

  • Macro turning points: The world still faces slower growth, higher inflation and tighter policy. But 2019 should see a turning point in this narrative, specifically in US growth, inflation and policy relative to the rest of the world.
  • Market reversals: Turning point in macro coupled with extreme pricing means we expect: 1) US and European yields to converge. 2) USD to make a cyclical peak. 3) EM assets to outperform. 4) US equities and high yield to underperform. 5) Value to outperform growth.
  • Where we differ: We think our calls for USD weakness, UST outperformance, US equity underperformance, value > growth and EM vs. US credit are non-consensus, materially different from market pricing, or both.
  • Strategy implications: We remain neutral equities (+0%), underweight credit (-5%), neutral government bonds (+1%) and overweight cash (+4%). Within this defensive posture, we are taking larger relative positions, and adding to EM.

While the note is quite bearish on the US, where growth is seen slowing to an annualized rate of just 1% by the third quarter of 2019, it is also a glowing praise of stocks outside the U.S. which the bank expects to do better than their American peers.

In a nutshell the bank’s 2019 global macro outlook is that this will be a year in which EMs “retake the lead” as a result of:

  • Global growth slows towards trend
  • US/DMs slow
  • Fed pauses/dollar weakens
  • China easing works
  • Growth differentials move in EMs’ favour

Meanwhile, as the Fed pauses its rate hikes in Mid-2019 offering emerging markets a break from the pressure posed by Treasury-yield and dollar gains this year, Sheets predicts that China’s easing measures will finally kick in…

… providing a much needed boost to EM markets, even as risks are skewed to the downside due to i) US corporate credit; ii) trade tensions; iii) continued USD strength and iv) growing political risks.

While hardly a surprise, Morgan Stanley also notes that 2019 is also the year when QE turns decisively into QT. While the Federal Reserve’s balance sheet has shrunk this year, those of Japan and Europe still grew meaningfully. In 2019, the full G3 central bank balance sheet declines.

As the US economy slows, Morgan Stanley notes that this narrowing of US versus RoW growth differentials leads to a narrowing of policy differentials.

As a result, Morgan Stanley believes that the Federal Reserve will eventually adjust to the weaker growth outlook, pausing after two hikes in March and June. The ECB and BoE, in contrast, will sound increasingly committed to  tightening (relative to market expectations), as eurozone growth bounces back from a temporary 3Q18 soft patch, and the UK faces higher inflation in a variety of Brexit scenarios, according to the bank.

That said, and echoing recent comments from Nomura’s Charlie McElligott, Sheets says that he doesn’t think that a ‘pause’ in the Fed hiking cycle is a boon for US assets, “at least not for now.” Before pausing, the Fed will likely sound determined to keep  tightening policy, given still-easy financial conditions, rising inflation and a tight job market.

As a result, the bank thinks that a major challenge for US assets next year is that they’re ‘boxed in’ as “better-than-expected growth will simply mean more Fed tightening, while weaker-than-expected growth will raise slowdown risks, with limited scope for policy support.”

In an assessment that promises to create more headaches for traders, the bank predicts that “in a major change from the last 10 years, both good news and bad news create problems for US markets.“

Focusing again on the US, and what many believes will be the catalyst for the next crisis, namely credit, Morgan Stanley reminds its clients that the credit bear market started when IG spread hit the tights in February 2018. The resulting selloff is a renormalization as real rates continue to rise, offering a far broader menu of investments for yield-chasing investors.

The bank then asks rhetorically, how many “idiosyncratic” problems do we need to see before concluding that the issues are not one-off?

Shifting away from Credit and to FX, the bank predicts that underperformance of US growth leading to relatively less tightening from the Fed should drive broad-based USD weakness, especially given its expensive starting point.

We think that this weakness is broad-based, with both DM and EM currencies gaining. Our most controversial assertion is EUR strength, a direct function of our expectations for better relative growth, more relative hawkishness and positive political surprises versus the US next year.

With the broad trade-weighted dollar less than 1.1% from its 2017 peak, and dollar sentiment unusually bullish, the set-up looks ripe for reversal as the market struggles to add more hikes into the expected Fed path.

This is generally bad news for US stocks, which tend to underperform when the US Dollar weakens.

Even so, don’t expect much more downside to US stocks because as of Q4, US stock valuations now compensate “to a significant degree” for the risks which are out there.

That said, growth stocks remain expensive to value on a worldwide basis.

Commenting on these expected rotations, Morgan Stanley writes that within global equities, it sees a strong case to favor RoW over the US, with Japan and EM leading Europe within RoW, while value will outperform growth.

US equities, which face the sharpest deceleration in GDP and EPS growth, and the greatest valuation pressure from rates, move to an underweight. In addition to a turning point in RoW versus the US, we see a turning point for value over growth, with value supported by extreme relative valuations and better estimate achievability in all four major regions.

Finally. while the bank sees a 60% probability of its “ditch the US” scenario materializing, it has also forecast bull and bear cases which represent 20% scenarios on either side:

  • Bull case – no growth slowdown: Growth in Asia and Europe bounces back more strongly after a weak 2018, and the US shows signs that rising productivity could extend the cycle greatly. In such a scenario, central banks are able to tighten more  aggressively, driven by a desire to reclaim policy tools ahead of the next downturn. Also falling under this scenario is a secondary bull case where growth doesn’t bounce back as strongly, but we overestimate the willingness of central banks, especially the Fed, to tighten policy.
  • Bear case – a US recession: the bank puts the chance of a US recession at ~20% for 2019, and while such a recession would be mild, we do not think that it is close to being expected, or in the price for markets. The largest implication would be for the fed funds rate, which falls to 0.125% by end-2020 in this scenario. While initially extreme, we think that such a cut is actually quite possible, given that a large deficit means that the US will lack the usual fiscal tools. The result would be much lower yields, a significantly weaker USD and the worst returns for US HY credit since 2008.

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Scott Gottlieb’s FDA Is Moving Toward a Stealth Ban on Cigarettes and Cigars: New at Reason

Earlier this month, Food and Drug Administration Commissioner Scott Gottlieb announced sweeping new rules governing e-cigarettes and tobacco in the United States. The most striking change is a ban on the sale of most flavored e-cigarettes in retail locations that admit minors, which will limit most in-person sales to specialty retailers like vape shops and tobacconists. The FDA also announced its intention to eventually ban menthol cigarettes and all forms of flavored cigars.

More worryingly, these moves may pave the way for even more radical regulations that would, in essence, make it illegal to sell the combustible tobacco products favored by cigarette and cigar smokers throughout the United States.

The new vaping rules fall short of the stricter interventions favored by many anti-smoking activists. But even though Gottlieb is a former fellow at the American Enterprise Institute who was appointed by Donald Trump with the expectation that he would champion deregulatory policies, his longer term plans align the FDA with the most strident anti-smoking groups. In addition to banning menthol cigarettes and flavored cigars, Gottlieb is steering the FDA toward mandating low nicotine yields in combusted tobacco, a regulatory intervention that would effectively outlaw most traditional tobacco products.

Paired with his support for e-cigarettes, the policies evolving at the FDA break down the standard framing of debates within tobacco control, which typically pits advocates of harm reduction against abstinence-only hardliners. The newly emerging division is between those who embrace a liberal, dynamic approach to regulation and aggressive interventionists who advocate technocratic central planning of the tobacco market. Despite his intellectual ties to free market think tanks, Gottlieb increasingly looks like a radical restrictionist out to ban the sale of smoking products as we now know them forever.

View this article.

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Those “Not In Labor Force” Will Surge Over The Next Decade

Authored by Chris Hamilton via Econimica blog,

There are presently about 96 million Americans whom are 16+ years old and considered to be “not in the labor force” (those neither working nor actively looking for work).  Those “not in labor force” has increased by over 17 million since 2008, while those employed has increased by 11 million, and those employed full time has increased by nearly 8 million.  But these will be remembered as the good times compared to what is coming.

The chart below tracks the total non-farm payroll, those employed full time, and those “not in labor force”.

To simplify this, I break out the periods, detailing jobs growth (total and full time) vs. “not in labor force” side by side (below)…the accelerating growth among not in labor force is plain.

The obvious reason for this growth in “not in labor force” is boomers living far longer but not continuing to work.  The chart below shows the change per period of “not in labor force” vs. change in those aged 15 to 64yrs/old and 65+yrs/old.  The surging elderly population and receding working age population tracks the surge in “not in labor force”.  But this is nothing compared to what is coming in the next decade…far right column below.

As the vast majority of population growth will be among the 65-74yr/old and the 75+yr/old populations…noting their minimal labor force participation is critical (labor force participation by age groups called out in ovals below).  Only 27% of 65 to 74yr/olds participate in the labor force, and just 8% among the 75+yr/olds (compare this to about 80% of those aged 25 to 54yrs/old).

The chart below details that the majority of US population growth over the next decade will be among 65+yr/olds.  This means 9 out of 10 newly added 75+yr/olds will be added to the “not in labor force”…and ditto for 7 out of 10 of 65 to 74yr/olds.  From 2019 through 2028, this is over 14 million 65+yr/olds moving into the “not in labor force” while just 3 million of this cadre will be among the labor force! 

Of course, typically at least 20% of the working age population does not work, as well…so quick math says that at least 16 million will be joining the “not in labor force” over the next decade…while likely just 6 million will be available to join the labor force (detailed in link…HERE).

Few will read this and even fewer will spend the time to understand and/or contemplate the implications of the charted data…but the math is about as simple as it gets.  Invest accordingly.

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Is crypto finished?

Think back to this time last year, around 2017’s Thanksgiving holiday in the US. . .

As you probably remember, BITCOIN was the dominant theme of the day, whether around the dinner table or in the news headlines.

Crypto prices had soared throughout 2017, climbing from $1,000 at the beginning of the year to around $7,500 by last November’s Thanksgiving holiday.

Then, over the course of that single weekend, Bitcoin jumped to nearly $10,000 as the buying frenzy heated up.

In a matter of days, crypto-broker Coinbase opened hundreds of thousands of new accounts during the 2017 Thanksgiving weekend.

Mobs of speculators were piling in, bidding the price up to new highs on a daily basis, until it cracked $20,000 a month later.

We started warning about this in early November last year, arguing that, while crypto represented great technology to improve the financial system, Bitcoin’s rapid price rise was “purely speculative… not sustainable demand,” and “anything that’s pure speculation is eventually going to pop.”

At the end of 2017, we told you about Saxo Bank’s prediction that Bitcoin would collapse to $1,000 in 2018.

If things keep up this way, they may be proven right.

Bitcoin peaked in early January and has declined throughout 2018 along the lines of Hemingway’s famous quote about going broke: “gradually, then suddenly.”

Over this past weekend (ironically, the 2018 Thanksgiving holiday), Bitcoin’s price fell from $6,000 to less than $4,000.

What a difference a year makes.

Last December and in early January we wrote about how this could happen, explaining that crypto prices were ‘reflexive.’

In other words, as Bitcoin’s price rose rapidly, more people wanted to buy it because they believed the price would continue rising. This created a ton of demand.

But at the same time, very few people were willing to sell. Anyone who owned Bitcoin saw that the price was rising so rapidly and figured, “Why sell today if I can sell tomorrow at a higher price?”

This mismatch of extreme demand and reduced supply caused the price to jump, which created even more demand and reduced supply.

It was all based on a belief that crypto prices would continue rising.

And as we wrote last year, it would work the same in reverse: everyone selling and few people buying causes huge price declines, which makes even more people want to sell and fewer people want to buy.

That’s exactly what we’re seeing now.

I personally know several die-hard Bitcoin fanatics who have finally capitulated and are selling out, getting whatever they can, while they can.

That’s because a lot of folks who profited from crypto’s price rise never actually cashed out.

They believed that the Bitcoin price would continue rising and made blanket assertions like “Bitcoin is going to $1 million. . .”

In the meantime, they loaded up on expensive houses, cars, boats, etc., much of it financed by debt.

Yet while the value of their crypto assets has collapsed 80% from the peak, they still have to service that debt.

So now even some true believers are selling in a panic, simply so that they won’t have to declare personal bankruptcy.

Does that mean it’s over? Are Bitcoin and its cousins headed for the historical dustbin alongside Dutch tulips and Pets.com?

There are so many worthless coins and tokens out there, and many of them are absolutely headed to zero.

Perhaps Bitcoin too. I’ve discussed a few times that Bitcoin is one of the most technologically INFERIOR cryptocurrencies, so it makes little sense that it should be the most valuable.

Personally I think there will continue to be demand for niche, utility-specific coins for things like privacy or more secure e-commerce.

The concept itself is still sound: a medium of exchange that isn’t controlled or manipulated by central bankers, that’s widely accepted across the world for online transactions with minimal costs.

That was the original idea behind Bitcoin as described in its first white paper a decade ago. And some iterative cryptocurrency may still realize that vision some day.

(This is no more far-fetched than Amazon.com gift cards being used as a form of money. . .)

As we’ve written a number of times, though, the bigger opportunity in crypto is in applying its core Distributed Ledger Technology (DLT) to the countless ways it can be used in commerce and finance.

Look at the banking system as an example: It’s almost 2019. Yet it still often takes 3-5 days to transfer money, whether it’s a domestic ACH transfer in the Land of the Free, or a cross border wire internationally.

Seriously. Are these banks loading crates of cash onto a boat and shipping money via sea freight to one another? It doesn’t make any sense.

Sending money should be as easy as sending email. And the Distributed Ledger Technology that was created around cryptocurrencies makes this possible.

Shockingly, banks are hard at work to make this a reality. It’s as if the rise of crypto finally scared them  into raising the bar and improving their services.

But there are countless other industries where these types of applications are sorely needed.

A few decades ago, entrepreneurs (and the investors who funded them) made vast fortunes applying the new technology of the consumer Internet in ways that fundamentally changed our lives– how we shop, share and store information, consume media, engage in personal relationships, etc.

That same opportunity exists today with crypto and DLT.

So from that perspective, this ride is far from over. It’s just beginning.

Source

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Mexico To Beef Up Border Security After Migrants “Violently” Attempt To Enter US

Mexico has pledged to enhance its security near the US border after 39 migrants were arrested out of hundreds of Central Americans who “violently” tried to enter the US following a peaceful protest to appeal for faster processing of asylum requests. US agents fired tier gas into the Tijuana river aqueduct to try and stop some of the migrants making the push.

Approximately 500 migrants will immediately be deported after the attempted border crossing, according to Mexico’s interior ministry, while the more than three-dozen arrested migrants were detained for disturbing the peace and other charges. 

Following the incident, most of the 5,000-plus migrants who have been camped out at a Tijuana sports arena for over a week returned to their shelter to rest and wait in line for food. 

As the situation spiraled out of control on Sunday, US authorities closed all traffic through the San Ysidro port – the nation’s busiest land crossing, while agents deployed tear gas. Over 100,000 people enter the US daily via the port. 

The gas reached hundreds of migrants protesting near the border after some of them attempted to get through the fencing and wire separating the two countries. American authorities shut down the nation’s busiest border crossing at San Ysidro for several hours at the end of the Thanksgiving weekend.

The situation devolved after the group began a peaceful march to appeal for the U.S. to speed processing of asylum claims for Central American migrants marooned in Tijuana.

Mexican police had kept them from walking over a bridge leading to the Mexican port of entry, but the migrants pushed past officers to walk across the Tijuana River below the bridge. More police carrying plastic riot shields were on the other side, but migrants walked along the river to an area where only an earthen levee and concertina wire separated them from U.S. Border Patrol agents. –ABC

The use of the gas has sparked a debate of its own between the left – which has decried its use on women and their children who were put in harm’s way when they made a run for the border, and the right – which has noted that the gas was non-lethal and justifiable. 

US Customs and Border Protection helicopters were spotted hovering overhead throughtout Sunday, while DHS Secretary Kirstjen Nielsen said in a statement that US authorities will maintain a “robust” presence along the Southwestborder and will prosecute anyone found to have damaged federal property or who violates US sovereignty. 

“DHS will not tolerate this type of lawlessness and will not hesitate to shut down ports of entry for security and public safety reasons,” said Nielsen. 

President Trump on Monday threatened to close the border permanently if needed, tweeting that Mexico should move “stone-cold criminal” migrants back to their home countries. “do it by plane, do it by bus, do it any way you want but they are NOT coming into the U.S.A!,” Trump tweeted, adding “”we will close the border permanently if need be” before demanding that Congress “fund the WALL.”

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The Fallacy Of The Positive Impact From Falling Oil Prices

Authored by Lance Roberts via RealInvestmentAdvice.com,

“If you repeat a falsehood long enough, it will eventually be accepted as fact.”

In the financial markets, and economics, it is a common occurrence for the media and commentators to latch onto a statement which supports a cognitive bias. They then repeat that statement until it is a universally accepted truth.

When such a statement becomes universally accepted and unquestioned, well, that is when you should probably question it.”

Last week, I had a conversation with a friend of mine about the plunge in oil prices in recent weeks. One of the biggest fallacies about plunging oil prices, and subsequently lower gasoline prices, is that it is a huge windfall for consumers. Even President Trump stated as much last Wednesday morning. To wit:

But is that really the case?

Oil prices are indeed important to the overall economic equation and, as I showed recently, there is a correlation between the oil prices and inflation, and interest rates.

“Oil is a highly sensitive indicator relative to the expansion or contraction of the economy. Given that oil is consumed in virtually every aspect of our lives, from the food we eat to the products and services we buy, the demand side of the equation is a tell-tale sign of economic strength or weakness…the chart combines rates, inflation, and GDP into one composite indicator to provide a clearer comparison. One important note is that oil tends to trade along a pretty defined trend…until it doesn’t. Given that the oil industry is very manufacturing and production intensive, breaks of price trends tend to be liquidation events which have a negative impact on the manufacturing and CapEx spending inputs into the GDP calculation.”

“As such, it is not surprising that sharp declines in oil prices have been coincident with downturns in economic activity, a drop in inflation, and a subsequent decline in interest rates.“

We can also view the impact of oil prices on inflation by looking at breakeven inflation rates as well. As I noted in“Oil Sends A Crude Warning:”

“The short version is that oil prices are a reflection of supply and demand. Global demand has already been falling for the last several months and oil prices are now waking up that reality. More importantly, falling oil prices are going to put the Fed in a very tough position in the next couple of months as the expected surge in inflationary pressures, in order to justify higher rates, once again fails to appear. The chart below shows breakeven 5-year and 10-year inflation rates versus oil prices.”

Zero Sum

The argument is that lower oil prices gives consumers more money to spend certainly seems entirely logical. Since we know that roughly 80% of households in America effectively live paycheck-to-paycheck, they will spend, rather than save, any extra disposable income.

Spending in the economy is a ZERO-SUM game as for each positive impact there is an equal and offsetting negative impact. Falling oil prices are an excellent example of this as gasoline sales are part of the retail sales calculation.

Let’s take a look at the following example:

  • Oil Prices Decline By $10 Per Barrel

  • Gasoline Prices Fall By $1.00 Per Gallon

  • Consumer Fills Up A 16 Gallon Tank Saving $16 (+16)

  • Gas Station Revenue Falls By $16 For The Transaction (-16)

  • End Economic Result = $0

Now, the argument is that the $16 saved by the consumer will be spent elsewhere, which is true. However, this is the equivalent of “rearranging deck chairs on the Titanic.”

So, let’s now extend our example from above. Oil and gasoline prices have dropped so John, who has $100 to spend each week on retail related purchases goes to the gas station:

  • Big John Fills Up His Truck For $60 (Used To Cost $80) (+$20)

  • Big John Spends His Normal $20 Per Week On His Favorite Craft Beer

  • Big John Then Spends His Additional $20 Savings On Roses For His Wife (He Makes A Smart Investment)

————————————————-
Total Spending For The Week = $100

Now, economists quickly jump on the idea that because he spent $20 on roses, there has been an additional boost to the economy. However, this is false. John may have spent his money differently this past week but here is the net effect on the economy.

Gasoline Station Revenue = (-$20)
Flower Show Revenue = +$20
—————————————————-
Net Effect To Economy = $0

Graphically, we can show this by analyzing real (inflation adjusted) gasoline prices compared to total Personal Consumption Expenditures (PCE). I am using “PCE” as it is the broadest measure of consumer spending and comprises almost 70% of the entire GDP calculation.

As shown, falling gasoline prices have historically equated to lower personal consumption expenditures and not vice-versa. In fact higher oil and gasoline prices have actually been coincident with higher rates of PCE previously. The chart below show inflation-adjusted oil prices as compared to PCE.

While the argument that declines in energy and gasoline prices should lead to stronger consumption sounds logical, the data suggests that this is not the case.

The only thing that will increase consumer spending are increases in INCOME, not SAVINGS. Consumers only have a finite amount of money to spend. They can choose to “save more” which is a drag on economic growth in the short-term (called the “paradox of thrift”) or they can spend what they have. But they can’t spend more.

A Bigger Drag Than The Savings

Another important issue to this analysis is that falling oil prices are a bigger drag on economic growth than the incremental “savings” received by the consumer.

In 2014, when oil prices were plunging, I discussed the issue of the impact on oil and gas production as it relates to oil prices and the economy. To wit:

“Oil and gas production makeup a hefty chunk of the “mining and manufacturing”component of the employment rolls. Since 2000, when the oil price boom gained traction, Texas has comprised more than 40% of all jobs in the country according to first quarter data from the Dallas Federal Reserve.“

The obvious ramification of the plunge in oil prices is that eventually the loss of revenue will lead to cuts in production, declines in capital expenditure plans (which comprises almost 1/4th of all capex expenditures in the S&P 500), freezes and/or reductions in employment, and declines in revenue and profitability.

Let’s walk through the impact of lower-oil prices on the economy.

First, declining oil prices leads to declining revenue for oil and gas companies. Given that drilling for oil is a very capital intensive process requiring a lot of manufactured goods, equipment, supplies, transportation, and support, the decrease in prices leads to a reduction in activity as represented by Capital Expenditures (CapEx.) The chart below shows the 6-month average of the 6-month rate of change in oil prices as compared to CapEx spending in the economy.

Of course, once CapEx is reduced the need for employment declines. However, since drilling for oil is a very intensive prices, losses in employment may start with the energy companies but all of the downstream suppliers are also impacted by slower activity.

As job losses rise, and incomes decline, it filters into the economy.

Importantly, when it comes to employment, the majority of the jobs “created” since the financial crisis have been lower wage paying jobs in retail, healthcare and other service sectors of the economy. Conversely, the jobs created within the energy space are some of the highest wage paying opportunities available in engineering, technology, accounting, legal, etc. In fact, each job created in energy related areas has had a “ripple effect” of creating 2.8 jobs elsewhere in the economy from piping to coatings, trucking and transportation, restaurants and retail.

If oil prices, a reflection of global economic demand, remains depressed for a considerable period of time, the negative impacts of loss of employment, reductions in capital expenditures and declines in corporate profitability could outstrip any small economic benefit gained from lower oil prices. For those of us who have lived in Texas long enough to remember the oil rout in the early 80’s, the greatest fear going into 2019 is that oil prices remain low.

Simply put, lower oil and gasoline prices may actually have a bigger detraction on the economy than the “savings”provided to consumers.

Newton’s third law of motion states:

“For every action there is an equal and opposite reaction.”

In any economy, nothing works in isolation. For every dollar increase that occurs in one part of the economy, there is a dollars’ worth of reduction somewhere else.

President Trump should be implementing fiscal policy which would lead to stable oil prices at a level which supports healthy and robust economic activity.

Unfortunately, he isn’t.

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‘We Will Close the Border Permanently If Need Be’: Reason Roundup

“We will close the Border permanently if need be,” President Donald Trump tweeted Monday morning after a tumultuous weekend at the U.S.–Mexico border near Tijuana and San Diego. On Sunday, Customs and Border Patrol (CBP) agents used teargas on Central American migrants seeking asylum in the United States—a toxic cloud that wafted far past the minority of rioters and into a peaceful protest that included young children.

For hours after that, CBP shut down the busy port of entry to all legal foot and motor traffic. The port is normally privy to about 100,000 people a day, notes The Washington Post.

It’s also where asylum-seekers can have their claims processed. The limit for processing claims there is 100 per day, though lately CBP has fallen far short of that. Saturday and Sunday saw just 40 people per day admitted to submit asylum claims.

Meanwhile in Tijuana, thousands of asylum-seeking migrants are camped out in a large and cramped sports arena, part of a caravan that started in Honduras. In the past two weeks, say Mexican authorities, their numbers have grown to more than 8,000—almost entirely in Tijuana and Mexicali. The mayor of Tijuana has declared it a humanitarian crisis.

During yesterday’s chaos, “thousands stayed behind the sports complex,” notes the Post. But a small portion held a protest against the slow pace of the asylum claim process. Among the protesters, “the majority of the group approached and gathered at the fence peacefully.” But as protesters approached a pedesterian crossing,

Mexican police in riot gear blocked their way, and a scuffle broke out between police and a couple of dozen protesters. After the protesters were rebuffed, the situation grew more chaotic, with some migrants running across a dry canal and others trying to cross in different places.

CNN reports that about 500 people “overwhelmed police blockades“; 39 people were arrested by Tijuana police. As some ran toward the border, CBP agents fired tear gas and rubber bullets.

Here is CBP’s statement: “Today, several migrants threw projectiles at the agents in San Diego. Border Patrol agents deployed tear gas to dispel the group because of the risk to agents’ safety. Several agents were hit by the projectiles. The situation is evolving and a statement is forthcoming.”

FREE MARKETS

Is the App Store a monopoly? If you want an iPhone app, you have to get from Apple’s own digital store. Does this amount to an illegal monopoly by Apple? That’s what the U.S. Supreme Court will consider today in Apple Inc. v. Pepper. Read more about the case here.

QUICK HITS

• The U.S. abortion rate has hit another record low, according to the latest data. The numbers cover 2015 and were released last week.

• “The hope is that the next attorney general has drug policy ideas that are not straight out of the 1980s,” said Drug Policy Alliance Director Michael Collins.

• Twitter has added “deadnaming” to its list of unforgivable sins.

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Momo ‘Seasonals’ Versus G-20 Event Risk – Nomura Warns “One More Purge” Ahead In Stocks

A hopeful bounce in risk-assets overnight has resurrected dip-buyers bravado in US stocks, but as Nomura’s cross-asset strategy MD Charlie McElligott notes, the “bear market bounces” overnight (boosted by meaningfully weaker USD) are especially focused in “rinsed” positioning with “risk-on” optics more about underweighted positioning than a shift in sentiment per se…

Nomura notes that the vapor-move in recently “purged” Equities overnight is especially notable as our CTA model shows meaningful “re-leveraging” levels either already triggered or “in-play”: SPX, Russell, Eurostoxx, DAX, FTSE, CAC and Kospi all back in the “buy zone” – indicating to me that much of the overnight move is likely via the Systematic universe and not the Fundamental space – although the “synthetic short gamma” within Fundamentals too remains susceptible of a “force-in” trade…aka “buyers are higher.”

US bond / stock performance overnight too resembles behavior in-line with pension rebalancing flows, with estimates of significant size in Equities to “buy” (Spooz +1.2% overnight vs SPX -2.9% MTD) against Bonds for “sale” (TY -0.1% overnight vs TLT +1.4% MTD) into the month-end.

However, McElligott notes that the “reversal risk” (stocks higher, USTs lower) potential remains very high into this week’s Powell and G20 event-risk, where straddles are pricing-in big moves (Dec 7th expiration to capture the full window):

  • SPX 3.1%; IWM 3.5%; QQQ 4.3%

  • Tech 4.2%; Fins 3.6%; Cons Disc 3.7%; Energy (XLE) 4.8%; Energy (XOP) 7.4%

  • Eurostoxx 2.7%; DAX 2.9%; Japan (DXJ) 3.2%; Emerging Mkts (EEM) 4.2%; China (FXI) 4.4%

  • Crude (USO) 10.7%; Gold (GLD) 1.6%

This risk then becomes that today’s CTA Equities “re-leveraging” sees another “de-leveraging” wave out of any potential G20 disappointment, as “sell levels” remain close-below the market …

 

But as McElligott notes, while there remains a strong negative story to performance, investors should watch for a December “momentum longs” bounce:

US “Momentum” factor shows the performance pain from the “chop,” -7.1% MTD / -9.8% QTD, expressed by my HF L/S model -2.0% last week as “Popular Longs” significantly underperform “Popular Shorts”

HOWEVER it need be noted that December remains a +++ seasonal for “Momentum” factor due to the year-end PM phenomenon of “window-dressing” (adding winners)

The performance is largely driven by the “Momentum Longs” +2.9% on avg in Dec since 1984 (while “Momentum Shorts” squeeze against you on “bottom fishing” ahead of the new year, on avg +1.7% since ’84)

However, McElligott notes that Anecdotally, discretionary Equities managers continue to believe you get one more purge (perhaps a final quant de-leveraging) before getting long into the start of 2019.

So, do you feel lucky?

BTFD for a Santa rebound in momo stocks, bet on continued pension fund rebalancing (in favor of stocks), punt on some hopeful headlines from G-20 (or Powell), or sit on your hands as another quant purge looms?

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Gartman Covers His “Material Short Position”

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. Fast forward to today, with stocks substantially lower and with traders increasingly concerned whether this time buying the dip will work (it won’t according to Morgan Stanley), when Dennis Gartman has spoken again, and in his note to clients writes that “it seems wise then to cover in our material short position for a very short while; to take the substantive profits that have accrued and to wait upon the sidelines for the markets to once again become over-bought.” 

That said, the world-renowned commodity guru isn’t capitulating on his bearish call, and will merely wait for “strength into which we shall sell that which we are covering today and a bit more. We have the luxury of doing so and we shall take advantage of that luxury.”

Credit where credit is due: after several years of ill-timed attempts to top and bottom-tick the market, this time Gartman got it spot on. Will his bottom-call be as successful as his bearish inflection point two weeks ago: find out in the next few days.

Here is the full excerpt from the latest Gartman Letter:

The markets are bouncing a bit and they need to do so given the severity of the recent declines and given the normal propensity on the part of equities to correct themselves after moving violently in one direction. That much needed bounce has begun and it may last a week or two… even perhaps three, although we have our doubts as to the latter. But with the CNN Fear & Greed Index having found “support” in the low single digits for the past two weeks, it is signaling how severely over-sold the global equity market has become and it is signaling that a bounce is warranted.

To that end, it seems wise then to cover in our material short position for a very short while; to take the substantive profits that have accrued and to wait upon the sidelines for the markets to once again become over-bought and into which strength we shall sell that which we are covering today and a bit more. We have the luxury of doing so and we shall take advantage of that luxury.

However… and this is yet again another one of those import “however” that have become more and more common… 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. This is a bear market and in bear markets one can have only three possible positions: very short; modestly short or neutral. We’ve been of the former of late; we are going to be of the latter for a few days. It is that simple.

That said, let’s first understand how substantive is the global bear market. It is one thing to say that our rather narrowly defined International Index is down materially for the year to date, but it entirely another to note just how broad is the weakness in stocks around the world. Barrons’ lists “Key Foreign Stock Market Indices” each week and lists 44 different exchanges or indices. Of those 44, only 6 are higher for the year to date.

As for the “internal market numbers” here in the US we draw attention to the fact that the CNN Fear & Greed Index has risen a bit from 7 to 14 but even so it remains below 20 and as we said here yesterday and the day previous, 7 is the lowest level to which this index has fallen since the spring of this year and again several weeks ago when it had fallen to 6. The market is egregiously, preposterously, violently and almost unprecedentedly over-extended to the downside but… and again as we said here yesterday and as is being proven correct as the stock index futures are trading briskly lower as we write… sadly we fear that stocks generally have even further to go to the downside before they can turn for the better. We remain steadfastly bearish and once again we shall suggest strongly that strength is to be sold into; weakness is not yet to be bought.

In light of this morning’s spike in futures, any Gartman-fading algos out there are understandably confused.

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