The transitional team of Mexico’s president-elect declared that the populist-nationalist will pursue a so-called “negotiated peace” with the drug cartels when he assumes office in December.
This policy is extremely risky because of the chances that it could counter-productively embolden non-violent drug dealers and legitimize their influence over society if the proposed plan passes a referendum sometime in the future, thereby representing a Hybrid War security risk for the US if this leads to an increase in Mexico’s drug and migrant “exports” to the country. It could even be because of the credible risk that this plan poses that Trump decided to go forward with his most ambitious border security proposals at the time that he did, rightly predicting that Andres Manuel Lopez Obrador – commonly known by his initials as AMLO – would win last weekend’s election and prepare to set this policy into motion.
For all intents and purposes, the country has been embroiled in an undeclared civil war with no clear political objectives, and the state’s struggle has been made all the more challenging by the fact that many of its institutions – and especially its police and military – are infiltrated by the cartels, therefore creating a parallel “state-within-a-state” and placing Mexico on the verge of collapse as a functional political entity. Faced with this dire predicament, AMLO is hoping that the Colombian model of “transitional justice” can stabilize the situation.
View of illegal poppy flowers during a confiscation operation in March 15, 2018 at Los Pericos village, Mocorito municipality in Sinaloa state, Mexico
The president-elect’s team has repeatedly praised the South American nation’s efforts at ending its decades-long civil war with FARC, believing that the “soft” approach of shunning state violence and instead working to reincorporate armed militants into society is the best possible strategy available.
The issue, however, is that Mexico’s cartels don’t have any formal political vision despite the influence that they wield in this sphere and the comprehensive control that they have over certain parts of the country, so it remains to be seen what relevance this key aspect of the Colombian model would have. Although they both traffic drugs and have carried out killings, there isn’t much else in common between FARC and the cartels to justify this approach.
Mexico is therefore in a conundrum because it must urgently deal with the cartels yet there’s no perfect solution for doing so, as the existing “hard” policy has evidently failed while the “soft” one could amount to surrendering the state to their clutches.
These groups are also much too enticing of a lever of possible influence against the Mexican government for US intelligence agencies to willingly abandon them, especially since they might one day want to exploit them as Hybrid War instrumentsagainst AMLO if his foreign policy becomes too multipolar. Still, if left unchecked, these very same cartels could pose a serious national security threat to the US, meaning that it has a natural stake in the outcome of AMLO’s risky bet one way or another.
Transportation Security Administration (TSA) screeners have gained the upper glove when it comes to being sued by travelers subjected to assaults, false arrests or other abuses, thanks to a Wednesday ruling by a federal appeals court.
In a 2-1 decision, the 3rd US Circuit Court of Appeals in Philadelphia ruled that TSA screeners are not “investigative or law enforcement officers,” which shields them from liability under the Federal Tort Claims Act (FTCA).
While the judges said they were “sympathetic” to concerns that their decision would leave victims of TSA gropings with “very limited legal redress,” the panel ultimately concluded that screeners and security personnel are not covered by the law.
“For most people, TSA screenings are an unavoidable feature of flying, and they may involve thorough searches of not only the belongings of passengers but also their physical persons — searches that are even more rigorous and intimate for individuals who happen to be selected for physical pat-downs,” wrote Circuit Judge Cheryl Ann Krause in her decision.
The Wednesday ruling came as a major defeat for Nadine Pellegrino – a Boca Raton business consultant who sued the TSA for false arrest, false imprisonment and malicious prosecution over a July 2006 incident at the Philadelphia International Airport.
According to court papers, Pellegrino had been randomly selected for additional screening at the Philadelphia airport before boarding a US Airways flight to Fort Lauderdale, Florida.
Pellegrino, then 57, objected to the invasiveness of the screening, but conditions deteriorated and she was eventually jailed for about 18 hours and criminally charged, the papers show. She was acquitted at a March 2008 trial. –Reuters
Circuit Judge Thomas Ambro was the lone dissenter on the panel, who faulted the majority judges for preventing victims of TSA abuses from recoveries “by analogizing TSA searches to routine administrative inspections.”
The court did note, however, that the head of the TSA – the Under Secretary of Transportation for Security does have the authority to designate TSA employees as “law enforcement officer[s] under 49 U.S.C. 114(p)(1).
The same court threw out a First Amendment claim against the TSA last August, after Roger Vanderklok said he was arrested in retaliation for a request to file a complaint against a surly TSA supervisor.
Not so long ago, student debt was mostly the responsibility of students. That is, you paid for college with loans and then paid off those loans with the proceeds of the good job you got with an advanced education.
These days it’s a little different. The cost of higher education is soaring, the jobs available to college grads don’t pay as much, relatively speaking, as they used to, and the size of loans available to students – though huge – don’t cover the full cost of many degrees.
One might expect these changes to lead more students to work for a few years and save up, or choose a cheaper degree, or eschew college altogether (as a lot of successful people now recommend) and substitute work experience for a diploma.
Some of that is happening but apparently the biggest change is that parents have stepped in to cover the difference between what their kids can borrow and the cost of a degree. As the chart below illustrates, until just a few years ago, the average debt of students exceeded that of students’ parents. But post-Great Recession, parents have given up trying to moderate the cost of their kids’ education and started doing the borrowing themselves. They’re now taking on the majority of new debts, and the gap is widening dramatically.
So we can add student loans to the list of instances where people who once tried to control their borrowing have stopped trying and are now just going with the flow. Which means several things.
First, kids who if left to themselves and the market would probably opt for one of the aforementioned cheaper alternatives are still in high-cost, frequently low-reward degree programs, and are being sheltered from the consequences by well-meaning parents.
Second, the retirement crisis that everyone is talking about – in which people who have never saved a penny are approaching retirement age and looking at 30 years of abject poverty – is being made that much worse by parents taking on new debts at a time of life when they should be aggressively trending towards debt-free/cash-rich.
Third and most important for people who aren’t participating in this game of financial musical chairs, the eventual implosion of the student loan market – i.e., the point at which loan defaults become intolerable – will lead to a government bailout, making student loans everyone else’s problem.
But of course the government won’t raise taxes or otherwise inflict immediate consequences on the electorate. It will borrow the money and create enough new currency to cover the first few years’ interest, leaving the longer-term consequences for later years and other people.
As with all the other mini-bubbles out there, if student loans were an isolated problem in a sea of rock-solid financial behavior they’d be easily managed. But they’re just one of many time bombs set to explode shortly.
The question then becomes, how many of these bursting bubbles can the US paper over before the currency markets figure out that each will be followed by another, for as far as the eye can see?
GOP lawmakers were pleased with former FBI attorney Lisa Page’s Friday closed-door interview with select House committee members – in sharp contrast to her former FBI co-worker and lover Peter Strzok’s Thursday testimony which was mostly a ten-hourtrain wreck.
After just five hours, a “cooperative” and “credible” Page answered many questions Strzok didn’t, according to Rep. John Ratcliffe (R-TX) as reported by Politico‘s Kyle Cheney, in large part because FBI attorneys present at the session backed off and let her answer more questions.
Rep. Ratcliffe says Lisa PAGE answered many questions Strzok didn’t and that lawmakers learned a lot of new information. He declined to provide any other details.
Rep. Mark Meadows (R-NC) – one of Page’s harshest critics leading up to her appearance, said that her cooperation “speaks well of her” according to The Hill.
“We certainly learned additional things today, but I can tell you that the last thing anyone wants to be is falsely accused and her willingness to cooperate today speaks well of her” -Rep. Mark Meadows
Remarkably, we learned new information today suggesting the DOJ had not notified Lisa Page of Congress’ outstanding interview requests for over 7 months now. The DOJ/FBI appear to be continuing their efforts to keep material facts, and perhaps even witnesses, from Congress.
Meadows: Lisa Page is a very credible witness..she’s doing her best to help us find the truth and I think in ways she’snbeen falsely accused of not being willing to cooperate. We’ve learned.. evidence..that would suggest that she’s been willing to help in a spirit of transparency
Rep. Matt Gaetz (R-FL) said that Page’s testimony heightened his concern over whether the FBI was driving towards a “desired outcome” in its Russ’a probe.
Rep. Gaetz says the questions Lisa Page answered — but Strzok would not — heighten his concern about whether the FBI was driving toward a “desired outcome” in its Russia probe.
He said FBI counsel was still there and at times intervened to prevent her from answering.
Gaetz also questioned the presence of FBI attorneys during the private testimony.
“Lisa Page is not an FBI employee, but the FBI was here providing counsel and giving her direction as to which questions to answer or not answer and there is a question as to the propriety of that before the House,” Gaetz said, according to the Hill.
But he said he also found Page to be “more credible” than Strzok, the New York Post reported.
“I didn’t agree with her characterization of every text message and every piece of evidence,” Gaetz said as he left the House hearing. “But we did not see the smug attitude from Lisa Page that we saw from Peter Strzok.” –Fox News
The three GOP lawmakers wouldn’t say whether what Page shared during her closed door appearance was consistent with Strzok’s Thursday session, they did get new information.
All three, though, declined to say whether her testimony was consistent with Strzok’s. They got *new* info but not necessarily inconsistent testimony.
And while special agent Peter Strzok freaked people out with his Devil’s Advocate performance on Thursday, Lisa Page now appears poised to redeem herself through honesty and transparency. Who knows, maybe watching her former side-piece do this freaked her out too:
Completely real. I personally recorded it from my tv. I was so shocked when I saw it and played it back. I only cut the first part of the arguing. This is the full recording I captured. I couldn’t believe it. pic.twitter.com/fL3Ji16qP1
Note Page’s depiction in the media has gone from this:
To this:
Furthermore, we learn from Freedom Caucus Chairman Mark Meadows (R-NC) that the DOJ had not notified Page of Congress’ outstanding requests to interview her for over seven months, confirming that the pushback against any probe into what really happened as the “deep state” started probing the Trump circle in 2016 goes to the very top of the Department of Justice.
Remarkably, we learned new information today suggesting the DOJ had not notified Lisa Page of Congress’ outstanding interview requests for over 7 months now. The DOJ/FBI appear to be continuing their efforts to keep material facts, and perhaps even witnesses, from Congress.
2018 will forever be remembered as the year that hating plastic straws went mainstream. Once the lonely cause of environmental cranks, now everyone wants to eliminate these suckers from daily life.
In July, Seattle imposed America’s first ban on plastic straws. Vancouver, British Columbia, passed a similar ban a few months earlier. There are active attempts to prohibit straws in New York City, Washington, D.C., Portland, Oregon, and San Francisco. A-list celebrities from Calvin Harris to Tom Brady have lectured us on giving up straws. Both National Geographic and The Atlantic have run long profiles on the history and environmental effects of the straw. Viceis now treating their consumption as a dirty, hedonistic excess.
Not to be outdone by busybody legislators, Starbucks, the nation’s largest food and drink retailer, announced on Monday that it would be going strawless.
“This is a significant milestone to achieve our global aspiration of sustainable coffee, served to our customers in more sustainable ways,”said Starbucks Kevin Johnson CEO in a press release announcing the move.
The coffee giant says that by 2020 it hopes to have eliminated all single-use plastic straws at its 28,000 stores worldwide. It will now top all its cold drinks with fancy new strawless lids that the company currently serves with its cold brew nitro coffees. (Frappuccinos will still be served with a compostable or paper straw.)
As is to be expected, Starbucks’ decision was greeted with universal adulation.
The World Wildlife Fund and Ocean Conservancy both provided ebullient quotes for Starbucks’ press releases. Liberal magazine The New Republicpraised the move as an “environmental milestone.” Slatehailed the Starbucks straw ban as evidence of as a victory for a bona fide anti-straw movement, one that would hopefully lead to bans of more things plastic in years to come.
Yet missing from this fanfare was the inconvenient fact that by ditching plastic straws, Starbucks will actually be increasing its plastic use. As it turns out, the new nitro lids that Starbucks is leaning on to replace straws are made up of more plastic than the company’s current lid/straw combination.
Right now, Starbucks patrons are topping most of their cold drinks with either 3.23 grams or 3.55 grams of plastic product, depending on whether they pair their lid with a small or large straw. The new nitro lids meanwhile weigh either 3.55 or 4.11 grams, depending again on lid size.
(I got these results by measuring Starbucks’ plastic straws and lids on two separate scales, both of which gave me the same results.)
This means customers are at best breaking even under Starbucks’ strawless scheme, or they are adding between .32 and .88 grams to their plastic consumption per drink. Given that customers are going to use a mix of the larger and smaller nitro lids, Starbucks’ plastic consumption is bound to increase, although it’s anybody’s guess as to how much.
In response to questions about whether their strawless move will increase the company’s plastic consumption, a Starbucks spokesperson told Reason“the introduction of our strawless lid as the standard for non-blended beverages by 2020 allows us to significantly reduce the number of straws and non-recyclable plastic” as the new lids are recyclable, while the plastic straws the company currently uses are not.
This is cold comfort given the fact that even most of the stuff that is put in recycling bins still winds up at the dump. The company did not address, nor did it dispute, that its transition to strawless lids would increase its overall plastic consumption.
The weight of plastic—not the raw number of plastic objects used, or whether those objects are recyclable—is what should really concern environmentalists.
Pictures of turtles with straws up their noses are certainly jarring. However most plastic, whatever form it enters the ocean as, will eventually be broken up into much smaller pieces known as micro-plastics. It is these micro-plastics that form those giant ocean garbage patches, pile up on the ocean floor, and leech into the stomachs and flesh of sea creatures.
Reducing the amount of micro-plastics in the ocean thus requires cutting down on the aggregate weight of plastics entering the ocean each year. It cannot be stressed enough that straws, by weight, are a tiny portion of this plastic.
At most, straws account for about 2,000 tons of the 9 million tons of plastic that are estimated to enter the ocean each year, according to the Associated Press—.02 percent of all plastic waste. The pollution problem posed by straws looks even smaller when considering that the United States is responsible for about one percent of plastic waste entering the oceans, with straws being a smaller percentage still.
As countless experts have stressed, truly addressing the problem of marine plastic pollution will require going after the source of this pollution, namely all the uncollected litter from poorer coastal countries that lack developed waste management systems.
Straw banners have proven stubbornly resistant to this logic. Instead, they have chosen to rely on either debunked statistics (such as the claim that Americans use 500 million straws a day, which was the product of a 9-year-old’s research) or totally unproven notions (like the theory that straws are a “gateway plastic”) in order to justify petty prohibitions on innocuous straws. And they have been helped along by an uncritical media. Coverage of Starbucks’ strawless move saw The New York Times, The Wall Street Journal, and National Geographic all cite the 500-million-straws-a-day figure.
By adopting a myopic focus on banning straws, environmentalists, city councils, and conscious capitalists are, at best, having no significant impact on the overall problem of marine plastic waste. At worst, they are pushing expensive prohibitions on consumer choice that are counter-productive—at least in the case of Starbucks’ ban—and come with all sorts of unintended consequences.
For instance, straw bans will likely hurt disabled people who lack the motor skills necessary to pull off a flawless cup-to-lip motion. While reusable straws exist, they are hard to clean and not always handy when one needs them. “What if you decide on the spur of the moment to go have a drink with friends after work but forgot your reusable straw that day? [That] doesn’t leave a lot of room for spontaneity—something nondisabled folks get to largely take for granted,” Lawrence Carter-Long of the national Disability Rights Education & Defense Fund toldNPR. Senior citizens and parents with young children will likely be affected for the same reasons.
Why not use more eco-friendly disposable straws? Because they are terrible. Paper straws are known to collapse halfway through a drink. Compostable straws cost six to seven times more than their plastic alternatives, don’t keep for long, and fall apart when exposed to high heat.
Straws, although not essential for most people most of the time, are still a wonderful convenience that help people enjoy a drink on the go, preserve their carefully-applied lipstick, or save their teeth from the corrosive effects of some beverage. Just yesterday, we as a nation celebrated 7-Eleven’s “Free Slurpie Day,” a holiday that can’t hope to survive in a strawless world.
Giving up on free slurpies and dignity for disabled people in the pursuit of totally illusionary environmental benefits seems like a poor trade-off, yet that is the trade-off straw prohibitionists are forcing the rest of us to accept.
“I thought there must be something more virtuous, more ennobling to do with one’s life than make rich people richer” – Michael Steinhardt
In a recent interview with RealVision, the “dean of financial reporters” Jim Grant, publisher of “Grant’s Interest Rate Observer”, interviewed Michael Steinhardt, a member of the old guard of hedge-fund titans, about his views on markets and the hedge fund industry. And he’s certainly qualified to have an opinion: Steinhardt achieved, during his more than 30-year career, a phenomenal return, and those who invested $1 with Steinhardt in 1967 would have $481 in 1995, compared to $19 if one had stuck with the S&P.
While Grant admits that the title “world’s greatest investor” is bandied about without much thought nowadays, he believes Steinhardt truly does have a legitimate claim: One of Steinhardt’s first investors, a man from Chicago who put up $500,000 when Steinhardt Partners launched in 1967, noticed at one point that he was worth $100 million.
As an introduction to Steinhardt’s view on markets, Grant starts the interview with one of the most widely debated questions in finance: Is the efficient market hypothesis – the idea that asset prices reliably reflect all available information – correct? Are markets truly efficient?
The question made Steinhardt smile: markets are, after all, human institutions, he said. Meaning he has his doubts that this mythical “efficiency” has ever truly been achieved, even though the level of intellectual prowess lurking in markets has only increased since he left.
Efficiency is a funny word. Markets fluctuate. And the degree of volatility hasn’t changed in a secular sense, to my knowledge. So can markets be efficient and be as volatile as they have been historically? I’m not sure.
[…]
They are human institutions. And the idea of efficiency is one that has attracted intellectual thought from all sorts of investors, some of whom claim to do better in efficient markets, some, relatively few, who claim to look toward volatility, and, if you will, inefficiency as the route to opportunity.
I would be one of the latter. But I at the same time – and this is an important point. And I’m going to use my Brooklyn accent, if you will. I don’t know from efficiency. I don’t know that sort of stuff. I don’t know alphas, and betas, and all the efforts that the modern investor has made to create a new understanding of markets.
But while the efficiency question is widely discussed, having a well-developed view on this matter isn’t what’s important when it comes to investing, according to the legendary investor. Rather, Steinhardt argues, a good investor is one who has “the correct variant perception.”
There were trends in the market and areas of popularity and unpopularity that reflected themselves in exaggerated price movements…and those exaggerated price movements became the basis for that phrase that you used about what’s popular and what’s not popular.
In which you can in your own efforts create a degree of confidence that you may be right, there’s no easier way to make money in markets than having correct variant perceptions.
I must say from my early teen years until when i retired in 1994-1995, I was totally committed to one thing. Not building the biggest firm not having a well-oiled organization. I was committed to one thing and that was: Having the best performance as a money manager, period. I was prepared to do all sorts of things for which I wasn’t so well trained.
Steinhardt was an early entrant into the world of hedge funds, if not one of the first with his Steinhardt Partners, which was launched in 1967. But shortly after his exit from the industry in 1995, he has been what he calls “figuratively short” on hedge funds – and he still is (despite his subsequent return to head WisdomTree, which currently has over $43BN in AUM). He was an early skeptic in the hedge fund space, which has received endless criticism for its high fees and disappointing performance in recent yeas. Yet the industry has only grown as “30 somethings of no particular talent [asked fees of] 30 and up that seemed, if not unconscionable, at least aggressive.”
It was different in Steinhardt’s time: he achieved a 99% return in his first year of operation, and told his investors when he was first starting out that they should expect 15% annualized returns, over time. But if a hedge fund achieved those returns today, it would be cited as a grand achievement.
The call was early, because from 1995, when I left the business, until today, there has been an extraordinary blossoming in the number and the size of hedge funds. I hear there are 9,000 or 10,000 hedge funds. And although hedge fund performance in the last few years has not been so great, I don’t think it’s reduced the number of hedge funds very much.
I remember when we were trying to get people to invest with us, they would ask the question, what sort of returns do you think you will get? And I remember we had a fairly stock line. And the stock line was, we should be able to achieve 15% on average, year in, year out, with important variations per year. And if we do that, we will be happy.
To give readers an idea of how Steinhardt thinks about markets, Grant asked the hedge fund icon about some of his trading “triumphs”, the greatest of which Grant envisioned as Steinhardt’s “bond bet”: on which modern managers like Bill Gross have frequently tried to replicate, if with far less success . Steinhardt, traditionally an equity manager, realized in the early 1980s, not longer after Paul Volcker became Fed Chairman, that interest rates could not rise forever.
It was an interesting time. And Volcker had an important impact. And interest rates kept going up. And it was clear to me, because it so fit this variant perception, that interest rates could not go up forever. They had to, at some point, impact the economy. And in doing so, they would, by their own weight, decline.
So the question was, how to do it? When to do it? How much leverage to use? And what instruments to use?
So, Steinhardt went long two-year notes. The trade was an immediate money loser, and several prominent clients ended up pulling their money before it was over.
…What we used to do at what was then Steinhardt Partners was give our investors a monthly letter listing our major positions, longs and shorts, and describing our performance for the month. And I thought that was an obligatory thing for a hedge fund to do, because if people were investing with you, they didn’t have to invest so blindly. It was reasonable for them to know what was going on.
At one point the bond position became so large that I listed as one of our longs – US treasury notes. Because I think we had twos and fours, or something like that. And they were notes. They were not bonds. Toward the end of our then fiscal year, I started to get calls from investors.
And they were nasty calls. What are you doing in the bond market? You don’t know anything about bonds. You don’t know anything about fixed income. What gives you the right to take our money and fling it around, on leverage, in bonds?
[…]
Not a bad question. And I didn’t have such great answers. And we lost – I remember. I’ll use a name that I shouldn’t use. We were the first, and for a while the only, hedge fund investment of McKinsey. McKinsey. I mean, they’re fancy people. They withdrew, because of the bond bet.
Other people withdrew their investment from us because of the bond bet, because we were not deemed able to overcome the vast amount of common information that came to one in the world of bonds.
But when the federal government’s new fiscal year began in 1981, the bond market took a dramatic turn. Steinhardt was vindicated, and his position made a fortune.
And the punchline: when the bond market turned, it turned so furiously, that the bulk of the profits were concentrated in just the first 10 minutes of the reversal trade.
And I’m not sure if we made all that much more through the rest of the bond bet than we had made in the first, figuratively, 10 minutes of the bond bet. It was extraordinarily fulfilling, because it was a very difficult bet.
I remember– and I may have mentioned this in my book– that I used to go down at the end of the day to get a cab. And then I said, I need measures. I need measures that are distinctive and individual, and not commonplace as to what’s really happening in the economy. So I would stand on the corner. My office at that time was 39th and Park. On 39th and Park. And I would count the cabs. And there are two types of cabs, one with a light on, meaning empty, and one with a light off being filled.
And I came to the conclusion that over time for the economy to fade there had to be more empty cabs and less full cabs, cause taking a cab ride at that time was a consequential thing for most people.
And I did that. And I asked every question I could. I had a good friend named Peter Foreman who was a stockbroker in Chicago. And he knew the industrial world. And I had him go to these various companies and try to get nuanced judgments as to what was going on in rail car manufacturers, and all sorts of companies that I wasn’t so familiar with. And I did everything I could to try to persuade myself that this bet wasn’t going to last to be of such duration that it would end my duration as a money manager, which was always possible. Because you really could lose or gain a lot in a short period of time.
Gain he did and with a lot of leverage, as well as margin calls in the process:
Between 95% and 98% [of the trade was] borrowed. That’s leverage. Which was common. I think we borrowed it through Goldman Sachs. And I think we got a few margin calls, but not many.
But it was scary. And it was fulfilling. And it captured, perhaps, as well as anything the idea of variant perception, because it was variantly perceived that interest rates could come down and could come down a lot when you were in the midst of Volcker, who was tough, and kept raising the short rate, and felt that he was doing the right thing. So that was a moment in my life that turned out to be a happy one. But it certainly could have been otherwise.
All because he had the courage to stand by his view against the consensus – something which by definition is impossible for the trend-following algorithms, and many of the new generation of traders, that dominate the market today.
Like David Einhorn, Horseman Global had a very ugly month, in fact its 6.9% drop in June which dragged YTD performance back into the red (-2.83% YTD), was the worst month for Horseman going back to the end of 2016.
However, unlike Einhorn, who lost 8% in June bringing his YTD performance to -19% and whose woes can be mostly attributed to the relentless rise of the tech names that make up his “short basket”, Horseman was hit due to something else entirely: its aggressive short dollar bet. Like so many other funds who turned bearish on the greenback at the start of the year only to suffer a violent short squeeze, Horseman was caught in the trade war tug of war, in which China – for one reason or another – saw the Yuan depreciate last month by the most on record surpassing even the August 2015 devaluation. Subsequent dovish language from both the ECB and BOJ did not help as Horseman CIO Russel Clark explains:
it seems the larger consensus position in the market is to be short US dollar. More dovish than expected messages from the European Central Bank (ECB) and Bank of Japan (BOJ) led to a surge in the value of the dollar against all currencies. As the fund strategy has been built around flows into the US reversing and creating a weak dollar, our long book suffered without commensurate gain from a short book.
Due to the violent whiplash in the dollar, technicals also promptly reversed, making the long dollar trade the biggest pain trade for the hedge fund community:
Short dollar and long commodity trades had attracted a great deal of trend following money, and Commodity Futures Trading Comission (CFTC) data and broker estimates now show that CTA and trend following funds have reversed their short dollar position, and are now long dollars, while long positioning in commodities have been largely cleared out.
The concurrent collapse in emerging markets, one of Horseman’s preferred trades for the past year, did not help performance.
Which brings us to Horseman’s key point in his latest letter to investors, as well as a major question: what is prompting the yuan devaluation? Is it merely China’s stealthy, if petulant, response to the Trump’s escalating trade salvos, is it a reaction to China’s weakening economy, or is something else going on. To Clark, the answer is “something else.”
The big question which remains unanswered is why have the Chinese become willing to let their currency fall after a period of keeping it strong? Where is there self interest in letting their currency weaken when there was little need for it, and it potentially destabilises the economy?
And the response:
The most reasonable answer to my mind is that they have tired of the endless currency devaluation policies of the BOJ, and possibly the ECB.
The reason for this is due to a structural change in the Chinese economy, which “now runs trade deficits with both Japan and Europe, so why should they allow the Euro and Yen to continue to devalue against the CNY?”
Why indeed, but if that interpretation is accurate, and if China’s latest Yuan deval is the product of trade concerns and not a simplistic response to Trump, Clark believes that this has two profound implications, one for traders the other for the economies of Europe and Japan:
Firstly, that CNY weakness is a not sign of economic weakness at all, which is shown by the underlying data. Hence investors positioning for further Chinese and emerging market weakness could be very disappointed. Especially as dollar weakness still looks a structurally sound trade in my mind.
Secondly, if CNY is managed now to prevent either the Euro or the Yen to weakening against it, while the dollar is likely to fall against all three currencies, this has negative connotations for European and Japanese exporters, who look to be hemmed in by a trade war with the US and a new Chinese currency policy. Combined with Chinese policy of keeping commodity prices high, the environment for Japanese corporate cashflow is turning negative. As Japan cashflow weakens, less of this money is likely to find its way to the US corporate bond market, likely causing corporate bond spreads to widen. We are seeing that Japanese have become the dominant buyers of US corporate debt and leveraged loans.
And yet, in his synthesis of these trends, instead of seeing the return of some virtuous leveraging cycle, Clark comes up with a conclusion which is especially bearish for the market, as he sees the recent shift in Chinese currency policy, and the current yuan weakness, as the potential catalyst that precipitates the collapse of several “unsustainable” trends, to wit:
For a long time, I have considered the BOJ quantitive easing policy, the US corporate bond market and volatility selling markets as unsustainable, but with little idea of what the catalyst would be for these markets to unwind. This change in Chinese currency policy could be a catalyst for change.
Well, as we have said for the past 3 years, it is the world’s most bearish fund for a reason, and not just before of its gross and net short exposure of -135.5 and -44.3%, respectively.
Clark’s latest full letter is below:
Your fund lost 6.87% last month. Losses came from the long book and currency book.
I had thought the big consensus trade in the market was short bonds, and I had moved the fund to be largely neutral with respect to bond yields. To offset our short REIT and Pharma positions which do well with lower yields, I had taken a long bond position and short financial position (financials tend to do badly when bond yields fall). However, it seems the larger consensus position in the market is to be short US dollar. More dovish than expected messages from the European Central Bank (ECB) and Bank of Japan (BOJ) led to a surge in the value of the dollar against all currencies. As the fund strategy has been built around flows into the US reversing and creating a weak dollar, our long book suffered without commensurate gain from a short book.
With the dollar rally, markets have taken to punishing emerging market assets. Emerging markets certainly were weak during the 2013 taper tantrum, and the Chinese devaluation of 2015, so selling these assets during a dollar rally is perfectly logical. However, the differences between 2013, 2015 and today are profound, particularly for the mining sector. June saw new cycle highs for thermal coal and dry bulk shipping prices. We have also seen Chinese steel output rise to new all-time highs, at the same time Chinese domestic iron ore output has been reduced, which has led to rising imports. Major miners continue to cut capex and repay debt. Indian commodity demand continues to rise. Indian billionaire, Anil Agarwal, has looked to buy minorities out of his listed mining company, and try a buy the assets of Anglo American, as market valuations are very cheap despite an improving outlook.
Short dollar and long commodity trades had attracted a great deal of trend following money, and Commodity Futures Trading Comission (CFTC) data and broker estimates now show that CTA and trend following funds have reversed their short dollar position, and are now long dollars, while long positioning in commodities have been largely cleared out.
The big question which remains unanswered is why have the Chinese become willing to let their currency fall after a period of keeping it strong? Where is there self interest in letting their currency weaken when there was little need for it, and it potentially destabilises the economy? The most reasonable answer to my mind is that they have tired of the endless currency devaluation policies of the BOJ, and possibly the ECB. China now runs trade deficits with both Japan and Europe, so why should they allow the Euro and Yen to continue to devalue against the CNY? This seems perfectly reasonable to me and has two profound implications.
Firstly, that CNY weakness is a not sign of economic weakness at all, which is shown by the underlying data. Hence investors positioning for further Chinese and emerging market weakness could be very disappointed. Especially as dollar weakness still looks a structurally sound trade in my mind.
Secondly, if CNY is managed now to prevent either the Euro or the Yen to weakening against it, while the dollar is likely to fall against all three currencies, this has negative connotations for European and Japanese exporters, who look to be hemmed in by a trade war with the US and a new Chinese currency policy. Combined with Chinese policy of keeping commodity prices high, the environment for Japanese corporate cashflow is turning negative. As Japan cashflow weakens, less of this money is likely to find its way to the US corporate bond market, likely causing corporate bond spreads to widen. We are seeing that Japanese have become the dominant buyers of US corporate debt and leveraged loans.
For a long time, I have considered the BOJ quantitive easing policy, the US corporate bond market and volatility selling markets as unsustainable, but with little idea of what the catalyst would be for these markets to unwind. This change in Chinese currency policy could be a catalyst for change. Your fund is long commodities, short developed markets.
Does Deputy Attorney General Rod Rosenstein’s indictment of 12 Russian military intelligence officers for allegedly hacking Hillary’s emails and interfering in the US election have any purpose other than to throw a monkey wrench in President Trump’s upcoming summit with Putin?
Don’t forget that Rosenstein is implicated in the orchestration of Russiagate as a weapon against Trump, a weapon that serves the interests of the Democratic Party and the military/security complex about which President Eisenhower warned us 56 years ago to no avail. Rosenstein’s indictment of 12 Russians for allegedly hacking computers is a political indictment aimed at President Trump. The indictment is otherwise pointless as the Russian government will certainly not turn over its military personnel to a Washington kangeroo court. The indictment serves no purpose except to poison the atmosphere of the summit.
If you read the indictment, you will see that it consists of nothing but improbable accusations. There is no way on earth that the US Justice (sic) Department would be able to acquire the information in this fictional story that Rosenstein has presented. Moreover, there is no sign whatsoever of any evidence in the indictment. Rosenstein knows that he needs no evidence, because the accused will never be brought to trial.
Rosenstein has thrown red meat to the presstitutes, who are assets of the military/security complex and Democratic Party, and the presstitutes will pressure the Republicans to get behind Rosenstein’s call for a united front against Russian interference. You can imagine what would happen if Trump and Putin were to have a successful summit and normalize the relations that Washington ruined between the two countries. If your imagination is not working, consult here.
During the presidential election campaign, I pointed out that Trump was not Washington savvy, did not know who would support his positions, which were antithetical to the interests of powerful interest groups such as the military-security complex and global offshoring corporations, and that Trump ran the risk of being destroyed by his own appointments.
Rod Rosenstein is a Trump appointment. Moreover when Trump’s Attorney General ordered Rosenstein’s resignation, Trump refused to accept it and kept Rosenstein in office. Trump’s miscalculation is so enormously wrong that he deserves the knife in the back that Rosenstein just delivered.
If there were a valid indictment of 12 Russians, for the sake of the summit’s success, a normal functioning deputy attorney general would have held the indictment until after the summit results and, if the summit were successful, would have deep-sixed the indictment regardless of whether there is a basis for it.
My 25 years in Washington tells me clearly that Rosenstein has knifed Trump in the back. If Rosenstein has caused the summit to fail, Rosenstein has raised the risk of thermo-nuclear warfare.
There is an alternative to the explanation above. The alternative is that Trump, being a bully, was convinced by those in his administration, who most certainly do not want any normalization with Russia, that the indictment would put Putin on the spot and give Trump the advantage in the bullying arena. I can hear the CIA and John Bolton telling Trump that the indictment would put Putin on the defensive and permit Trump to pressure him into a summit outcome favorable to Washington’s hegemony.
This is a clever way of setting Trump up for failure in his meeting with Putin that could possibly poison the relations between the countries ever further without the failure being blamed on Rosenstein. Thus, Rosenstein’s position as Trump’s political assassin would not be threatened. He would still be running Russiagate with a recused Jeff Sessions sitting there useless.
Stephen F. Cohen, professor emeritus of Russian studies and politics at NYU and Princeton, and John Batchelor continue their (usually) weekly discussions of the new US-Russian Cold War. (You can find previous installments, now in their fifth year, at TheNation.com.)
As Cohen pointed out in previous discussions, US-Russian (Soviet and post-Soviet) summits are a long tradition going back to FDR’s wartime meeting with Stalin in Yalta in 1943. Every American president since FDR met with a Kremlin leader in a summit-style format at least once, several doing so multiple times. The purpose was always to resolve conflicts and enhance cooperation in relations between the two countries. Some summits succeeded, some did not, but all were thought to be an essential aspect of White House-Kremlin relations.
As a rule, American presidents have departed for summits with bipartisan support and well-wishes. Trump’s upcoming meeting with Russian President Putin, in Helsinki on July 16, is profoundly different in two respects. US-Russian relations have rarely, if ever, been more dangerous. And never before has a president’s departure—in Trump’s case, first for a NATO summit and then the one with Putin—been accompanied by allegations that he is disloyal to the United States and thus cannot be trusted, defamations once issued only by extremist fringe elements in American politics. Now, however, we are told this daily by mainstream publications, broadcasts, and “think tanks.” According to a representative of the Clintons’ Center for American Progress, “Trump is going to sell out America and its allies.” The New York Times and The Washington Post also feature “experts”—they are chosen accordingly—who “worry” and “fear”that Trump and Putin “will get along.” The Times of London, a bastion of Russophobic Cold War advocacy, captures the mainstream perspective in a single headline: “Fears Grow Over Prospect of Trump ‘Peace Deal’ with Putin.”
An anti-“peace” Washington establishment is, of course, what still-unproven Russiagate allegations have wrought, as summed up by a New Yorkmagazine writer who advises us that the Trump-Putin summit may well be “less a negotiation between two heads of state than a meeting between a Russian-intelligence asset and his handler.” The charge is hardly original, having been made for months at MSNBC by the questionably credentialed “intelligence expert” Malcolm Nance and the, it seems, selectively informed Rachel Maddow, among many other “experts.” Considering today’s perilous geopolitical situation, it is hard not to conclude that much of the American political establishment, particularly the Democratic Party, would prefer trying to impeach Trump to averting war with Russia, the other nuclear superpower. For this too, there is no precedent in American history.
Not surprisingly, Trump’s dreaded visit to the NATO summit has only inflated the uncritical cult of that organization, which has been in search of a purpose and ever more funding since the end of the Soviet Union in 1991.The New YorkTimes declares that NATO is “the core of an American-led liberal world order,” an assertion that might startle many of the non-military institutions involved and even some liberals. No less puzzling is the ritualistic characterization of NATO as “the greatest military alliance in history.” It has never—thankfully—gone to war as an alliance, only a few “willing” member (and would-be member) states under US leadership. Even then, what counts as “great victories”? The police action in the Balkans in the 1990s? The disasters in the aftermath of Iraq and Libya? The longest, still-ongoing American war in history, in Afghanistan? NATO’s only real mission since the 1990s has been expanding to Russia’s borders, and that has resulted in less, not more, security for all concerned, as is evident today. The only “Russian threat” since the end of the Soviet Union is one provoked by the US-led NATO itself, from Georgia and Ukraine to the Baltic states. And only NATO’s vast corporate bureaucracy, its some 4,000 employees housed in its new $1.2 billion headquarters in Brussels, and US and other weapons manufacturers who gain from each new member state, have profited. But none of this can be discussed in the mainstream, because Trump uttered a few words questioning NATO’s role and funding, even though the subject has been on the agenda of several think tanks since the 1990s.
Also not surprisingly, and unlike in the past, mainstream media have found little place for serious discussion of today’s dangerous conflicts between Washington and Moscow: regarding nuclear-weapons-imitation treaties, cyber-warfare, Syria, Ukraine, Eastern Europe, the Black Sea region, even Afghanistan. It’s easy to imagine how Trump and Putin could agree on conflict-reduction and cooperation in all of these realms. But considering the traducing by the Post, Times, and Maddow of a group of senators who visited Moscow around July 4, it’s much harder to see how the defamed Trump could implement such “peace deals.” (There is a long history of sabotaging or attempting to sabotage summits and other détente-like initiatives. Indeed, a few such attempts have been evident in recent months and more may lie ahead.)
Nor is the unreasonably demonized Putin without constraints at home, though none like those that may cripple Trump. The Kremlin’s long-postponed decision to raise the pension age for Russian men and women has caused his popular ratings, though still high, to drop some 8 to 10 percent in recent weeks. More significantly, segments of the Russian military-security establishment do not trust Putin’s admitted “illusions” about negotiating with Washington in the past. And like their American counterparts, they do not trust Trump, whom they too view as unreliable, if not capricious. These Russian “hard-liners” have made their concerns known publicly, and Putin must take them into account. As has been a function of summits over the decades, he is seeking in Trump a reliable national-security partner. Given the constraints on Trump and his proclivities, Putin too is taking a risk, and he knows it.
Even if nothing more specific is achieved, everyone who cares about American and international security should hope that the Trump-Putin summit results at least in a restoration of the diplomatic process, the longstanding “contacts,” between Washington and Moscow that have been greatly diminished, if not destroyed, by the new Cold War and by Russiagate allegations. Cold War without diplomacy is a recipe for actual war.
We should also hope that the Democratic Party’s reaction to the summit, in its pursuit of Trump, does not make it the party of unrelenting Cold War, as it may be already becoming.
A surge in trade war talk and a brief tariff tantrum has done nothing to slow the roll of the market’s most-leveraged longs.
In fact, as VIX ignored the rise of Trump’s trade war that the world and their pet rabbit believes will crash the global economy and bring fire and brimstone from the earth, VIX futures traders have piled back into their shorts…
With hedge funds (leveraged investors) now back at their most short VIX since Dec 2017…
But, while the ‘complacent’ vol-sellers are back en masse at the index level, trade war anxiety among individual stock traders is running high…
As Bloomberg reports, it’s showing up in indicators that plot bearish and bullish options, in a lingering preference for defensive industries and the refusal of hedge funds to commit new money.
With stocks nudging unerringly higher, options traders worry they’ll fall. The Cboe put-to-call ratio for equities, tracking volume in bearish versus bullish bets, averaged 0.6 in the 10 days through Wednesday, the highest since early May.
And the ProShares Ultra VIX Short-Term Futures ETF, which rises when volatility goes up, has seen dramatic inflows in the last two weeks (even as the price has fallen).
Additionally, Bloomberg points out that most of the nervousness is being felt in individual stocks and enough industries are doing well that the effect is masked when you look at indexes, said Victor Lin, a Credit Suisse strategist. A lack of lockstep moves has been one of the market’s signature qualities for the last few months, pushing correlation to a five-month low.
“The correlation between stocks helps dictate how much single stock volatility manifests at the index level,” Lin wrote in a note this week. “When correlation is higher, index volatility is closer to the average single stock volatility. However, in a low correlation regime, index volatility is significantly lower than average single stock volatility.”
(as a reminder, implied correlation infers the relative volatility between the index and its underlying components – the lower the correlation, the higher the relative individual risk is to the index)
“You have these two forces pushing against each other, strong economic fundamentals and a volatile news cycle, with talks of trade wars,” said Todd Fungard, who oversees $1.2 billion as chief investment officer of McQueen, Ball & Associates Inc.
“The market is up, which is reflecting the fundamentals, but the defensive posture is reflecting people’s caution.”
However, as Deutsche Bank warns, trade wars and tariffs in their early stage act as a source of temporary disequilibrium. The underlying dislocation raises the level of contingency and is supportive for volatility.
Trade wars inject temporary volatility and dislocate markets as search for a new equilibrium takes place. Tariffs create market barriers; they raise the price of imports and, therefore, pose a threat to profits of exporting economies.
With trade wars and tariffs being a destabilizing force and a possible catalyst for a risk-off trade, there could be continued threat of bullish reversal at the long end of the volatility curve. At the same time, the inflationary overtones of these same tariffs and their possible interference with growth could take the economy in the unwanted direction where it would be difficult to find an adequate monetary policy response.
We believe that the Fed is likely to continue its course without excessive concerns about what their hikes could do for EM. The current tensions are likely to be resolved through the currency channel with different effects across other market sectors. We expect volatility to start in the EM and, depending on the subsequent developments, it could spread to risk assets and possibly developed markets.
For now, it is Oil and high yield credit markets that remain at elevated risk levels while, rates and FX have fallen back with stocks as the trade war escalates…
Finally, Bruce Bittles, chief investment strategist at RW Baird in Florida, sums it all up well:
“Investors are worried, but when you see the Nasdaq make a new high, that’s lot of speculative juices there…”How deep is the worry?””
An anonymous San Francisco resident took out a full-page ad in the San Francisco Chronicle Friday claiming an encounter with a homeless man at a Neiman Marcus cafe left her feeling “horrified.”
The ad first noted by Business Insider reads “WATCH YOUR BACKS — NOBODY ELSE IS ….as if stepping over used syringes and filth in Maiden Lane wasn’t bad enough….”
The woman then goes on to detail the incident in which she says that a “psychotic homeless person” was opening and closing scissors “erratically” behind her which made her fear for her safety while trying to enjoy her lunch.
“Over my right shoulder and behind me I noticed a youngish homeless man acting silent, strange and trying to peer over the food counter. It struck me how out of context this was…
…I turned around and saw this homeless person wielding a large pair of SCISSORS that he was opening and closing erratically, previously behind my back!…
…While waiting for security, this psychotic homeless person took a glass of water and walked out of the door onto Geary St. wielding the scissors.”
Some anonymous lady took out a full-page ad in the San Francisco Chronicle because a homeless-looking person had a pair of scissors in the Nieman Marcus cafehttps://t.co/J2XpRnSHJgpic.twitter.com/Wi3EX1lq6u
The ad claims to have been paid for by the “Fed Up Populace Campaign.” However, it doesn’t appear to have an online prescence whatsoever.
In short; A rich woman was frightened by homeless man at a Neiman Marcus, then took out a full-page ad in the local paper to alert people to watch their backs.
And while the plight of a sheltered rich woman may not garner much sympathy from some, San Francisco has fallen into absolute squalor as homeless people roam around – littering the streets with mountains of trash, bags of shit and syringes.
