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Following news of GM’s mass layoffs affecting over 14,000 workers and widespread plant shutterings in the US and abroad, it was only a matter of time before President Trump chimed in with many expecting that today’s news that the icon of US business is not doing well would prompt a less than excited response from Trump. That’s precisely what happened moments ago when Trump, speaking to reporters said he “wasn’t happy” about the General Motors news, noting that the country has done a lot for GM.

He also said that he does not like’s GM’s decision on North American auto production, and said he expects that GM will put something else in Ohio.

• TRUMP SAYS HE WASN’T HAPPY ABOUT GENERAL MOTORS NEWS
• TRUMP SAYS COUNTRY HAS DONE A LOT FOR GM
• TRUMP SAYS DOES NOT LIKE GM’S DECISION ON NORTH AMERICAN AUTO PRODUCTION

Trump also said that he told GM to stop making cars in China, and that he told GM to open a new plant in Ohio “quickly”

Trump also addressed the sharp escalation in tensions between Russia and Ukraine, where the seizure of three Ukraine vessels which allegedly violated Russian territorial waters near the Kerch Strait led Ukraine’s parliament to back president Poroshenko’s proposal to institute a 30-day Martial law on the border with Russia. Trump said that he “doesn’t like” the situation between Ukraine and Russia, and said that the US is working with Europe to resolve it.

As reported earlier, martial law is scheduled to be in place from November 26 to January 26, with the Ukrainian army put on full combat alert even before the martial law was declared amid Ukraine rumors that Russia was preparing for a land invasion.

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In late October, as federal officials were hot on the trail of a person who sent at least 14 suspected pipe bombs to Democratic public figures, two Secret Service agents visited actor and comedian Tom Arnold to determine whether he posed a threat to President Trump over tweets he had made. 

According to video recorded by Arnold’s closed-circuit camera system, the agents warned Arnold that his tweets could cause violence. 

During a campaign rally a few days prior, Trump had praised Rep. Greg Gianforte (R-Mont.) for once body-slamming a reporter. Outraged, Arnold reacted by challenging Trump to a fight. He tweeted, “I say put up or shut up @realDonaldTrump Me vs You. For America. First body slam wins. Any Rally. Any Time. Between now & the midterms. #FridayFeeling.” And Arnold, a onetime Trump pal who became a passionate Trump detractor, followed that up with a tweet that referenced the infamous photo of comedian Kathy Griffin holding a bloody replica of Trump’s head: “Next time Kathy won’t be holding his fake head!” –Mother Jones

“We’re not the First Amendment police… You’re free to say whatever you want to say within certain boundaries… In your type of case, what we’re concerned with a lot, too, is the audience it can reach, that it could incite somebody to do something,” the agents told Arnold, adding “You see a lot of times when we’ve had previous attempts on the president’s life, they got motivated by somebody… So that’s the worry. It’s kind of twofold. We’re addressing the tweet, but we also want to make sure what you said, what can be taken as… And then obviously at the end of this whole thing, the biggest thing is to make sure it doesn’t happen again.”

Hey @TomArnold, it’s a Federal crime to threaten POTUS @realDonaldTrump

You asked him to fight you, and responded with “next time Kathy Griffin won’t be holding his fake head”, which suggested you would kill him in your proposed fight @SecretService pic.twitter.com/Mn3A9iOSRG

— Gabe Hoffman (@GabeHoff) October 21, 2018

To Arnold – a former friend of Trump who turned on the billionaire president – hosting a short-lived show revolving around a search for a tape of Trump using the “N” word, the whole thing was a joke. Not so much for the Secret Service, which reached out to Arnold’s agent on October 24 from their office in Los Angeles – acting on instructions from their headquarters in Washington. The next day, the two agents showed up to Arnolds’ home.  

Arnold recorded the hourlong encounter that took place in his living room. According to Arnold, the agents were aware he was filming the conversation with a security camera that was visible to them. He has allowed Mother Jones to review the full video and post a portion of it. (At Arnold’s request, Mother Jones is not identifying the agents.) Asked about the visit to Arnold’s house, a Secret Service spokeswoman said, “For operational security reasons, the Secret Service cannot discuss specifically nor in general terms the means, methods or resources we utilize to carry out our protective responsibilities.” –Mother Jones

 The agents had a list of “routine questions” for Arnold, including (via Mother Jones): “his height, his weight, his Social Security number. They asked whether he had ever been trained in martial arts. (No.) Did he have any intention of attending a Trump rally? (No.) Not even as a publicity stunt? (No.) Did he have any plans to fly to Washington to try to confront Trump? (No.) How does he typically behave when he gets angry in the workplace? (You put it into the performance.) When was the last time he fired a gun? (“I fired for movies.”) Did he know how to make IEDs? (No.) If he saw Trump, would he have an “impulse…to swing at him?” (“I’m not a crazy person.”) Did he have any ex-wives? (Three, including one named Roseanne.)”

Arnold explained that he had known Trump for decades – as the two of them had gone to the Playboy Mansion together, but that he decided to break off the friendship after Trump “began promoting the racist birther conspiracy theory about Barack Obama.” 

Arnold detailed his previous addictions and his efforts to become sober. He explained his Griffin tweet as “a random throw-away” and insisted that he had been appalled by the Griffin photo shoot. “I would never be part of something like that,” said Arnold, who grew up in Iowa. “I worked at a meatpacking plant on the killing floor for three years.” –Mother Jones

Arnolds’ wife Ashley was then told by the agents, “We always are more concerned about who you could motivate or incite to that action,” to which Ashley responded, “That’s how we feel about Trump.”

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Authored by James Howard Kunstler via Kunstler.com,

Murphy’s Law to the Rescue!

What can go wrong will go wrong. It’s so fundamental to the operation of the universe that Sir Isaac Newton should have installed it between his 2nd and 3rd Laws of Motion — but he had his hands full losing a fortune in Britain’s South Sea Bubble circa 1721, after muttering to a colleague that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Note to all you hedge fund cowboys out there: Old Isaac was probably smarter than you (and all the algos you rode in on.)

Was it a fretful Thanksgiving this year, a family feud of political recrimination with a lot teeth gnashing through mouthfuls of candied sweets? Well, yes, coming after the extraordinary fiasco of the Kavanaugh hearings and the disputed midterm elections, but the glide path to Yuletide looks kind of bumpy, too, so here’s a short bill or particulars of things tending to go wrong:

Ukraine verges on martial law after a naval incident with Russian ships in the waters off Crimea. Say what? Martial Law? They might as well declare a Chinese Fire Drill. Details of the actual incident in the Straits of Kerch between the Black Sea and the lesser Sea of Azof remain murky besides the fact that two Ukrainian gunships and a tug disobeyed orders from Russian ships to stand down in Russian maritime waters and shots were fired. Who knew that Ukraine even had a navy, and how can they possibly pay for it? But now NATO is trying to get into the act, meaning the USA will get dragged into just the sort unnecessary and idiotic dispute that kicks off world wars. Note to the Golden Golem of Greatness (aka Mr. Trump): this dog-fight is none of our goddam business. Russia, meanwhile, asked the UN Security Council to convene over this, which is the correct response. What could go wrong?

Yesterday, about five hundred Central American migrants rushed the border at Tijuana. The US Border Patrol tear-gassed them and they backed off. Bad optics for those trying to make the case for open borders. Naturally, The New York Times portrayed this as an assault on families, defaulting to their stock sob story, though the mob assembling down there is overwhelmingly composed of young men. Complicating matters, a new Mexican president, Andrés Manuel López Obrador, takes over next Saturday, a Left-wing populist and enemy of Trumpismo. Tijuana is now choking on the thousands of wanderers who were induced to march north to test America’s broken immigration policies. What could go wrong?

Congressional Democrats are said to be “loading the cannons” with subpoenas for Trumpsters to get raked over-the-coals in a circus of committee hearings when they take over the majority in January. They’ll be matched by Senators firing back in hearings controlled by Republicans, setting up the worst political pissing match since the Civil War. In a fair universe, enough dirt would come out on either side to disable the most sinister forces of the Deep State – especially the seditious “intelligence community.” But life is unfair, as Jimmy Carter once observed and the exercise will only fan the flames of already-extreme antipathy. What could go wrong?

The engine pulling that choo-choo train of grievance is Robert Mueller’s Russian Collusion investigation. I expect him to produce mighty rafts of charges against Mr. Trump, his family and associates, and anyone who ever received so much as a souvenir mug from his 2016 campaign. But I doubt that any of it will have a bearing on Russian election “meddling.” And in that case, the charges will be met by counter-charges of an illegitimate investigation, meaning welcome to that constitutional crisis we’ve been hearing about for two years. That’s a mild way of describing anything from a disorderly impeachment to troops in the American streets. What could go wrong there?

Finally, there’s the elephant in the room with the 800-pound-gorilla riding on its back: the economy and its diabolical engine the financial markets. Anyone notice on the lead-up to Thanksgiving and Black Friday that the markets have been going south (and not on holiday to Cozumel)? Stocks are roaring back up again as I write. The TBTF banks and their ringleader, the Federal Reserve, have had a few days to engineer a rally, and the sharper it goes up, the more remaining “greater fools” will get roped in for eventual slaughter. Bond rates are charging back up too, meaning the price is skidding down. Bad combo. The poison cherry-on-top is Bitcoin, which has plunged about 40 percent in ten measly days to a 3000-handle and is headed to zero. So sad, as The Golden Golem might put it. It seemed like such a sure thing less than a year ago. What could have gone wrong?

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Not a day passes lately without GE stock getting hit by some unexpected development, and today was no exception.

GE shares, which are down 58% YTD, were over 2% lower, after dropping as much as 4.1% earlier in the session following a research report by Gordon Haskett analyst John Inch which prompted fresh questions about the treatment of goodwill at GE Capital.

In a letter to clients, Inch flagged the recent bankruptcy of helicopter leasing company Waypoint Leasing, the result of ongoing distress in the offshore oil & gas sector, and said that major energy customers have reduced helicopter usage, resulting in challenging conditions in the helicopter leasing industry, with excess fleet capacity and lower demand.

Why is this relevant to GE? Because as Inch also notes, in 2014 GE acquired Milestone Aviation – another provider of aircraft and helicopter leasing services  – for $1.8 billion in 2014, and assuming the industrial behemoth has not since written down Milestone’s goodwill, the helicopter business would account for nearly 75 percent of GE Capital’s reported goodwill of $984 million at third quarter of 2018, the analyst added according to Bloomberg.

“A write-down of its Milestone assets could prove highly material to GE Capital,” Inch said.

And with the market on edge about any potentially negative news regarding GE, no matter how immediately actionable, traders have sold first and no longer even bother to ask questions later, as GE’s intraday stock price reflects.

 

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Remember that 2011 NY Fed study which found that since 1994, there was a distinct and observable tendency for the S&P 500 to rise in the period just before FOMC meetings. In fact, as authors David Lucca and Emanuel Moench found, a stunning 80% of all equity returns for U.S. stocks (in the 1994-2011 period) were generated over the twenty-four hours preceding scheduled Federal Open Market Committee announcements, a phenomenon called “the pre-FOMC drift.”

While the authors provided several possible explanations why this trade worked as well as it did, there was never a definitive agreement. In any case, the news of “drift” became so prevalent, and the trade so popular that eventually it became a self-fulfilling prophecy as traders bought into the “drift” ahead of the FOMC, expecting other traders to buy the trade, and so on, in the process becoming one of the “safest” trades in the stock market.

Yet cracks emerged earlier this year, when some analysts started questioning whether this strategy was indeed as fail-safe as the Fed, and subsequent trader lore, made it out to be, with Kevin Muir going so far as to compartmentalize the trade’s returns, finding that after a steady rise from 2009 to 2015, over the past three years, the strategy has flatlined, prompting the following conclusion:

the Federal Reserve made its first hike in almost a decade on December 15th, 2015 and this was also the point where the FOMC Drift stopped working

Perhaps hearing these trader complaints about their “strategy”, earlier today the NY Fed authors of the original study, Lucca and Moench, reran the data to update their original analysis with more recent data.

What they found was surprising: while there is still evidence of continued large excess returns during FOMC meetings in the period 2011-2018, it only occurs on those days featuring a press conference by the Chair of the FOMC. On days without a presser, not only has the upward drift disappeared, but market returns have actually been notably negative.

As the NY Fed authors note, the chart below updates their original analysis through the period starting in April 2011 and ending in June 2018. It is worth noting that since April 2011, the Fed Chair has been giving a press conference at every other FOMC meeting. At these meetings the FOMC also releases the summary of its members’ economic projections (SEP), so that three forms of communication take place: the FOMC statement, the SEP, and the press conference with the Chair.

In 2011 and 2012, FOMC statements (including the SEP) that were scheduled with a press conference were released at 12:30 p.m., and the press conference started at 2:15 p.m. FOMC statements without a press conference (and hence without SEP) were released at 2:15 p.m. as in the pre-2011 sample. Starting in 2013, FOMC statements are always released at 2:00 p.m., while press conferences start at 2:30 p.m. (and SEP material is released at the start of the conference). The chart below shows four vertical lines that mark each of these times.

The results of the study are summarized in the next chart, which shows the distinct outperformance on presser days, vs the clear underperformance on days without a press conference (or economic projections) when the market’s return is effectively as negative as it is positive during presser days.

This may explain why using a blended analysis of the “Pre-FOMC drift” trade shows that it no longer works: it does work, only not on non-presser days. Here is the authors’ take:

On days without a press conference, there is no longer any evidence of excess returns ahead of the release of the FOMC statement. While we see negative returns following the release of the statement, this effect is not statistically significant, as the gray shaded area encompasses the zero line. Instead we see large returns ahead of announcements for meetings with press conferences. Interestingly, these returns accrue a bit earlier than in the pre-2011 sample, and more specifically, in the morning of the day before the announcement.

In addition, there is some further appreciation at, and after, the announcement(s). On net, the pre-FOMC announcement drift on press conference days is about 40 basis points when computed from the open of the day before to about lunchtime of the day of the announcement day—in line with the pre-FOMC drift in the original sample. One can also see an additional 30 basis points return by the end of the press conference, which could reflect news released either in the statement, press conference, or SEP, or a risk premium as predicted by financial theory (see, for example, Ai and Bansal or Wachter and Zhu). What remains puzzling in the post-2011 period is the pre-FOMC announcement drift.

What may account for this bifurcation in returns on presser vs non-presser days? One possible explanation is that since the economic projections – which traditionally tend to be overly optimistic (as they are made by the Fed) – are only released at meetings with press conferences and since policy rate changes have only taken place at these meetings since 2011, the authors note that some investors have “reportedly discounted the amount of information that could be released at meetings without press conference.” And,consistent with this attention reallocation hypothesis, this may have reduced the amount of re-pricing ahead of the meetings absent press conferences.

Still, as the authors note, an “attention reallocation hypothesis” still begs the question as to why some sophisticated investors would not attempt to profit from the positive returns. Well, as we said up top, it appears that they do, and according to the NY Fed study, “the timing of the post-2011 returns suggests that such activities may have occurred.”

Pre-FOMC returns were positive in the post-2011 sample on press conference days from the open of the day before the FOMC, while cumulative returns were positive starting only in the afternoon of the day before the announcement in the pre-2011 sample. This suggests that some investors could be attempting to profit from the pre-FOMC returns, pushing prices up earlier than before.

And the punchline from the authors, who muse that if this arbing by sophisticated investors was the reason for the shift in the timing of the returns, “such a process would imply that the pre-FOMC returns should eventually disappear.“

In theory yes, but in practice it takes a lot of time to wean traders away from a trade, especially one as heavily incorporated into trader psyche as this one.

The silver lining here is that while the trade may no longer work – at least half the time, on those FOMCs when there is no presser – it will soon be retested in its full, 100% glory. The reason: as the Fed announced in June starting January 2019, all FOMC meetings will include a press conference.

As the authors conclude: “it remains to be seen if the pre-FOMC announcement drift is to again become a more regular phenomenon or the extent to which any future arbitrage activity could make the pre-FOMC drift disappear.“

Something tells us that in a world in which increasingly fewer “sure” trades work, it is only a matter of time before the market’s “safest trade” is back in vogue, even if there is really no fundamental reason why it should work… besides of course belief in the presence of even greater fools.

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Authored by Alex Kimani via Safehaven.com,

For investors looking for stability and income, bonds are usually considered an attractive proposition. In the current environment of rising interest rates, international bonds are likely to outperform U.S. bonds. At first glance, that might seem counterintuitive given that many international bonds offer lower yields than U.S. bonds with some even providing negative yields. Yet, rising yields usually lead to a fall in bond prices that’s usually more than enough to counteract higher yields thus leading to lower overall returns.

Case in point: the Vanguard Total International Bond ETF (BNDX) sports higher total returns compared to the U.S.-focused Vanguard Total Bond Market ETF (BND).

One such class of international bonds is Saudi bonds, which have been roiled by a sharp fall in oil prices as well as the ongoing outrage over the murder of international journalist and Washington Post columnist, Jamal Khashoggi.

Saudi Arabia is extremely reliant on oil, with oil revenue accounting for 90 percent of the nation’s export earnings and 42 percent to GDP. Oil prices have declined sharply, with WTI falling from mid-70s per barrel to mid-50s in less than two months, partly due to the U.S. granting surprise waivers for sanctioned Iran crude.

Meanwhile, international outrage on the role played by the Saudi government in the murder of Khashoggi in the Saudi consulate in Turkey seemed to increase the risk that the U.S. would impose stiff penalties on the country.

The confluence of these factors has led to Saudi bonds falling quite dramatically with yields climbing. Saudi Arabia’s $5 billion bonds due 2028 have recorded a sharp rise in yield during the last week. The bonds now yield 4.6 percent – significantly higher than the U.S. 3 percent yield for 10-year notes.

Source: Bloomberg

Meanwhile, the kingdom’s five-year credit default swaps jumped 41 percent during the last quarter to 99 basis points, the most among 40 contracts tracked by Bloomberg across the globe.

Source: Bloomberg

Good Entry Point

Despite the murky geopolitical situation in the country, it doesn’t seem very likely that the situation will deteriorate further.

Washington has already announced sanctions against 17 Saudi officials in connection with the murder of Khashoggi. However, it seems unlikely that President Trump’s administration will announce measures that target the Saudi regime more broadly despite some U.S. lawmakers calling for more punitive measures.

On Tuesday, Trump issued an extraordinary statement declaring that the U.S. will remain a steadfast partner to Saudi Arabia despite conceding that crown prince Mohammed bin Salman may have been aware of a plot to kill Khashoggi. Indeed, Trump has gone ahead and thanked Saudi Arabia for lower oil prices in a tweet on Wednesday:

The administration’s willingness to overlook human rights abuses—even the murder of a U.S. citizen—seems to be the latest twist in a tacit deal between Washington and Riyadh where the former is expected to eliminate or reduce Iran’s oil export revenue while the latter continues stabilizing prices in its traditional role as a swing producer. Nobody at this point expects oil prices to collapse to 2014 levels, so that provides a nice floor for investors.

The latest development, therefore, offers a good entry point for bargain hunters who are hoping that Saudi bonds will not continue dropping once they build positions.

But it’s not just Saudi bonds that have recorded rising yields.

Oman and Bahrain, two of the region’s weakest economies, have seen their bonds hit by the oil rout, with Oman bonds now yielding 6.6 percent. Despite the fall in crude prices, Gulf economies are expected to remain strong. GCC (Gulf Cooperation Council) economies are expected to expand 2.4 percent this year and 3 percent in 2019 after contracting in 2017.

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