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Did something get into the water at the New York Times? Because the latest from their Editorial Board – which “represents the opinions of the board, its editor and the publisher,” is entitled:

Trump Got From NATO Everything Obama Ever Asked For

It begins: 

Now that the smoke has cleared from the NATO summit meeting, the most tangible result is apparent: President Trump advanced President Barack Obama’s initiative to keep the allies on track to shoulder a more equitable share of NATO’s costs. Mr. Trump even signed on to a tough statement directed at Russia. For once he saw eye to eye with his predecessor. –New York Times

To be sure, the Times dings Trump for bruising a few EU egos (while making his Chief of Staff John Kelly cringe during a particularly blunt public excoriation of Germany), and they rebuke the President for suggesting the US might withdraw from NATO if military spending targets aren’t met by member nations. At the end of the day, however, the New York Times just gave President Trump massive credit for achieving significant progress on a longstanding dispute over fairness and commitments.  

*  *  *

Trump Got From NATO Everything Obama Ever Asked For

But alliance members leave Brussels bruised and confused.

By The Editorial Board
The editorial board represents the opinions of the board, its editor and the publisher. It is separate from the newsroom and the Op-Ed section.

Now that the smoke has cleared from the NATO summit meeting, the most tangible result is apparent: President Trump advanced President Barack Obama’s initiative to keep the allies on track to shoulder a more equitable share of NATO’s costs. Mr. Trump even signed on to a tough statement directed at Russia. For once he saw eye to eye with his predecessor.

Yet whether Mr. Trump himself is clear about the strategy he’s pursuing, or whether he in fact has one, remains as mysterious as ever.

Mr. Obama persuaded NATO leaders to increase their military spending at a meeting in Wales in 2014, after a newly aggressive Russia invaded Ukraine. Back then, alliance members pledged to work toward raising spending levels to 2 percent of their gross domestic products by 2024. All 29 allies have begun to increase their military budgets in real terms, and two-thirds of them have plans to reach the 2 percent target by 2024. And they reaffirmed their “unwavering commitment” to these targets in the communiqué issued at the end of the two-day summit in Brussels this week.

Of course, two days of gratuitous and self-defeating Trump bombast and threats preceded this resolution.

The president publicly browbeat and insulted allies as deadbeats taking advantage of American generosity. He then raised the ante, demanding that they meet the 2 percent target — it’s a target, not some specific legal obligation — by January and then go on to raise spending to 4 percent of G.D.P. Why that much? What strategic objective, what threats to the alliance, is Mr. Trump worried about? He didn’t say.

Since he came into office, Mr. Trump’s urging has gotten some allies to accelerate spending increases. The response to his latest remonstrations, though, was mainly  bafflement. Even after a military spending increase under President Trump, American military spending is only 3.2 percent of G.D.P. this year. What’s more, it’s expected to fall to 2.8 percent in 2024, leaving it unclear as to how even the United States would meet the 4 percent figure.

As Mr. Trump, and Mr. Obama before him, have argued, Europe can do more to help itself. The allies rely too heavily on the Americans to transport troops and equipment, for instance, and the fact that France ran out of bombs during the 2011 Libya operation demonstrated a crucial weakness. There may be other shortcomings, too — NATO is not transparent with its data.

Greater spending by American allies might mean the United States could lower its own spending and bring thousands of troops home. Mr. Trump didn’t make that argument, but he has often talked about withdrawing forces and closing bases, whether in Germany or Syria or somewhere else.

So would the president then push for cuts in the Pentagon budget, which now stands at roughly $700 billion, more than the next eight countries in the world spend together, and use it for, say, badly needed infrastructure? Don’t bet on it. Mr. Trump has relentlessly pushed for a bigger military, seemingly mesmerized by the flashy hardware and the show of hard power that it projects.

Even so, the spending metric is a narrow measure of what NATO needs to meet today’s challenges, and it may need to be discarded. One example is Denmark, which has made important contributions to alliance operations in Afghanistan and has sacrificed considerable trade with Russia because of sanctions — yet spends less than 2 percent of G.D.P., according to a study by the Center for Strategic and International Studies.

Other allies could better advance their own security, and NATO’s, by spending more to solve the migration crisis and other problems that have fanned nationalism and authoritarianism, and weakened democratic institutions, especially in Turkey, Hungary and Poland. This trend, encouraged insidiously by Russia, may be the biggest threat, eroding the alliance from within.

Such sensible discussions weren’t possible in Brussels, as allies were left instead with angst over Mr. Trump’s hint that he may withdraw from NATO if the military spending targets are not met. He said on Thursday that he could probably withdraw from NATO on his own authority.

This threat seems more in line with Mr. Trump’s broader interests. He has made clear that Russia’s attack on Ukraine and seizure of Crimea are of little matter to him. He’s spoken more warmly of President Vladimir Putin than of any ally, even disputing the Russian leader’s role in undermining the 2016 election.

For these reasons, it’s imperative that Congress, which has abdicated to Mr. Trump on many crucial issues,  pass immediately legislation prohibiting him from leaving NATO unilaterally. The Senate had to ratify the treaty when America created NATO, and it should block any move to destroy the alliance that has been an anchor of trans-Atlantic stability over seven decades.

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Commerce Secretary Wilbur Ross has been reprimanded by federal ethics officials for failing to sell individual stocks that he had agreed to divest within three months of his confirmation (he was confirmed in February 2017), creating “the potential for a serious criminal violation.” Claiming that he had forgotten about the remainder of his stake, Ross earned himself an additional 15% return when he finally cashed out of his remaining Invesco shares as equity prices continued to rise after his confirmation. As part of his ethics agreement, Ross pledged to divest his Invesco holdings and other equities within 90 days of his confirmation, and more complex assets within 180 days, according to Bloomberg. 

Then again, perhaps investors should interpret Ross’s decision to finally sell as a warning, given that one of the men in charge of the US economy has sold the rest of his stocks and is buying Treasury bonds – hardly an encouraging indicator for the economy.

In fact, Ross hasn’t just sold stocks – in some cases, he’s gone short, saying that he’s shorted shares of holdings to which he doesn’t have access. Ross has reportedly taken short positions in five stocks.

Ross shorted shares of Navigator Holdings Inc., a company in which he owns a $250,000 stake, even though he wasn’t required to under his ethics agreement after he found out the New York Times was readying a story about his holdings in the company.

Ross defended the lapse by arguing that he has many complex investments and that it’s difficult to keep track of them all. Ethics officer David Apol said Ross’s negligence “may have negatively affected” public trust in the administration. Apol also faulted Ross for the short sales.

Ross defended himself in a statement. “My investments were complex and included hundreds of items,” he said, adding that he “self-reported” his errors, and worked with Commerce’s ethics office to avoid conflicts. Ross said that to restore public trust, he would sell equities he was allowed to retain under his ethics agreement and place the proceeds in U.S. Treasury securities.

Ross also sold between $20 million and $50 million worth of Invesco shares last December, about eight months after he had promised to divest them, explaining that he mistakenly believed the holdings had already been sold. The shares increased in value by 15.5 percent in the interim.

Invesco, an investment management company, acquired Ross’s company, WL Ross & Co. LLC. in 2006.

In reports filed with OGE, Ross also disclosed late sales of at least $250,000 worth of stock in Greenbrier Companies Inc. and $1,000 in Sun Bancorp Inc. in December, and at least $50,000 in Air Lease Corp. in June, long after he was supposed to divest them. In each case, Ross explained he had been unaware that he still held the assets.

Ross received a 90-day extension beyond a May 15 deadline to file his financial disclosure for 2017. Apol urged the Commerce secretary to “devote the resources necessary” to ensure the report is accurate, and avoid “any self-help” remedies in future attempts to comply with ethics rules.

Ross disclosed assets worth at least $336 million ahead of his Senate confirmation hearing. He’s believed to have a net worth of $860 million. But Ross has not only retained his investment in Navigator, which some lawmakers said raised a “clear” conflict of interest, he’s also retained investments in private-equity investments mostly tied to foreign property markets. Given the character of his investments, it’s probably prudent for investors to ask themselves: ‘Why is he selling now’? And ‘what does he know that I don’t?

Read the ethics officer’s letter below:

Wilbur Ross Letter July 12 by Zerohedge on Scribd

 

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Traders were unfazed by Friday the 13th, and instead Asian and European stock markets burst higher out of the gate, riding on the Thursday US market gains which came as the U.S. and China signaled they were open to restarting talks over trade after days of exchanging threats, although Treasury Secretary Mnuchin said Beijing must commit to deeper economic reforms.

However, US S&P futures promptly faded all gains and were traded unchanged, just below 2800, following the latest economic data from China, which showed posted a modest slowdown as reported earlier, but most importantly, showed that China’s trade surplus with America hit a new all time high…

…serving as a stark reminder that trade tensions aren’t going away, even as investors’ focus shifted to second-quarter earnings. The result was a roundtrip in the E-mini which was hugging the unchanged line.

Earlier, the Stoxx Europe 600 Index edged higher, amid subdued volume as commodity producers underperformed on Chinese fears. Meanwhile, stocks in Asia were set for a first weekly advance in five as benchmarks in Japan, Hong Kong and South Korea gained.

The latest Chinese credit creation data did not help sentiment, with Total Social Financing once again badly missing consensus amid a broad crackdown on shadow lending, which in turn pushed China’s M2 to a new all time low.

A report that China’s $941 billion sovereign wealth fund may move money home weighed on the gauges.

The Chinese news catalyzed a sharp reversal in the offshore Yuan, which slumped from 6.67 back to 6.72 and back below the 6.7000 levels that prompted intervention not so long ago, both verbal and physical, but no official or unofficial ‘action’ seen so far to leave conspiracy theorists thinking about devaluation in the US-China trade dispute rather than counter import tariff measures.

As a result of the Yuan weakness, the Bloomberg Dollar Spot Index rises 0.3%, extending its advance this week to 1% even as volumes in major currencies are relatively muted ahead of the start of earnings season.

In other FX news, the pound slipped as much as 0.8% to 1.3103, set for its biggest weekly drop since May, weakening after Trump said Theresa May’s soft Brexit plans may kill off a trade deal with the U.S. Meanwhile, the yen is headed for its worst week since September as a rally in equities supported risk-taking even amid U.S.-China trade tensions

In rates, the US 10Y yield is unchanged, while European bonds edge higher across the curve with core markets leading gains.

Investors will feel some relief as earnings season gets underway in earnest, allowing attention to pivot away from trade relations. The latter seemed to ease somewhat, with officials in Beijing appearing to moderate their responses to Trump’s tariff threats amid a slowing economy, falling stock market and weakening currency. Still, China’s monthly trade surplus with the U.S. rose to a record in June and exports to the nation also soared, underlining the cause of the escalating trade war.

For those who missed the big overnight news, late on Thursday President Trump warned UK PM May that a soft Brexit would probably kill a potential future trade deal between UK and US as they would be dealing with the EU instead of the UK. This also comes amid reports that UK PM May could suffer the defeat of a crucial Brexit bill as early as Monday after Eurosceptics reacted angrily to the white paper she published yesterday. 

Oil is currently trading in the red, with Brent -1.0% and WTI -0.3% as we approach the weeks end, and is set for its second consecutive weekly fall. Both measures are finding support at moving average levels, however, with WTI still supported by its 50DMA (USD 69.43/BBL), and Brent finding support at its 100DMA (USD 73.07/BBL) level. Russian Energy Minister Novak said he is not ruling out an output adjustment depending on other countries or a quick move on >1mln BPD from OPEC+ if needed. He also said he sees Russia’s output boost by the end of July at 200k BPD.

Gold prices are sliding as the DXY is extending its rally past the 95.000 level. Shanghai steel has hit a 10 month high on  the back of low inventories and source reports suggesting the closure of steel mills in China’s largest steel making city, Tangshan, for 5 days amid pollution concerns. Copper is down 0.5% and set for the 5th consecutive weekly fall as US-China trade concerns  are weighing on the construction material.

Today’s data include University of Michigan Consumer Sentiment Index. Citigroup and JPMorgan are among companies reporting earnings.

Market Snapshot

• S&P 500 futures little changed at 2,800.75
• STOXX Europe 600 up 0.4% to 385.76
• MXAP up 0.5% to 165.20
• MXAPJ up 0.3% to 539.05
• Nikkei up 1.9% to 22,597.35
• Topix up 1.2% to 1,730.07
• Hang Seng Index up 0.2% to 28,525.44
• Shanghai Composite down 0.2% to 2,831.18
• Sensex up 0.2% to 36,607.85
• Australia S&P/ASX 200 unchanged at 6,268.39
• Kospi up 1.1% to 2,310.90
• German 10Y yield fell 1.9 bps to 0.338%
• Euro down 0.5% to $1.1620
• Italian 10Y yield fell 6.5 bps to 2.358%
• Spanish 10Y yield fell 1.4 bps to 1.272%
• Brent futures down 1% to $73.73/bbl
• Gold spot down 0.5% to $1,240.89/oz
• U.S. Dollar Index up 0.4% to 95.20

Top Overnight News

• President Donald Trump dealt a double blow to U.K. Prime Minister Theresa May, saying her plans for a soft Brexit would likely end hopes of a trade deal with the U.S. and that Boris Johnson, who quit her cabinet this week, would be a “great” leader
• China’s monthly trade surplus with the U.S. rose to a record in June and exports to the nation also soared, underlining the cause of an escalating trade war between the world’s two largest economies
• European Union is set to throw embattled British Prime Minister May a lifeline in Brexit talks because of concern the biggest risk to getting a deal done is now whether she can cling to power
• Britain’s financial industry slammed Prime Minister May’s latest proposal for Brexit, with some calling it the worst outcome possible
• U.S. and China signaled they were open to restarting talks over trade after days of exchanging threats, though Treasury Secretary Mnuchin said Beijing must commit to deeper economic reforms
• China’s monthly trade surplus with the U.S. rose to a record in June and exports to the nation also jumped, underlining the cause of an escalating trade war between the world’s two largest economies.
• Bonds in Indonesia, India and Australia are witnessing a flattening of yield curves that’s showcasing the challenges these formerly-favored markets face as dollar liquidity tightens
• North Korea has breached the cap on fuel imports imposed by the United Nations Security Council, likely using illicit transfers between tankers at sea, according to the U.S. government.
• With the Fed still raising rates and President Trump still increasing tariff threats, the selloff in markets may only get worse, market players say
• BNP Paribas SA, Credit Agricole SA and four other French lenders won a European Union court fight against the European Central Bank’s refusal to change the way it calculates the leverage ratio

Asian equity markets were mostly higher as the region took impetus from the upside in Wall St where all majors extended on gains after China’s lack of retaliation and in which tech outperformance pushed the Nasdaq to a fresh record high. This led to a positive open for ASX 200 (-0.1%) and Nikkei 225 (+1.9%) although the Australia index then floundered amid weakness in its top-weighted financials sector, while the Japanese benchmark sustained its outperformance as exporters cheered a weaker currency and with a surge in Fast Retailing on strong earnings. Elsewhere, Hang Seng (+0.2%) conformed to the predominantly positive risk tone in the region, while Shanghai Comp. (-0.2%) was negative after the PBoC refrained from reverse repo operations and with some jitters ahead of Chinese Trade Data, although the mainland index has since moved off its lows after the PBoC later announced an MLF operation and after data printed mixed with a larger than expected surplus, which eased some of the data-related fears. Finally, 10yr JGBs were flat with demand sapped amid outperformance of riskier assets in Japan, although downside was also stemmed by the BoJ’s presence for JPY 670bln of JGBs in the belly to super-long end. PBoC refrained from reverse repos, but later announced to lend CNY 188.5bln via 1yr Medium-term Lending Facility. PBoC set CNY mid-point at 6.6727

Top Asian News

• Hedge Funds Favor Tiny Stocks Instead of China’s Tech Giants
• Ex- PM Sharif Heads to Pakistan to Face Jail Before Elections
• Viva Closes Lower After Biggest Australian IPO in 4 Years

European equities are largely in the green, with the Euro Stoxx 50 (+0.2%) breaking through its 50DMA in late European trade yesterday and finding support at this level (3,452) this morning. Tech stocks are leading the gains (Infineon +1.7%, Micro Focus +4.3%) and all sectors positive as the positive sentiment from the US continues into European trade. The IBEX (-0.3%) is once again the only index in the red, and fallen through its 50DMA, with bank stocks extending the  losses seen in yesterday’s trade (BBVA -1.2%, Santander -1.1%). The FTSE 100 is outperforming as the GBP is softer. ThyssenKrupp (-0.6%) have named Guido Kerkhoff as their new CEO

Top European News

• Danske Bank Has Criminal Complaint Brought Against It by Browder
• French Banks Win EU Court Fight Over ECB Leverage Ratio
• Gilts Bid Forces Stops in Bund as Trump Comment Weighs on Cable
• EU Backs Bulgaria’s Bid to Join Euro Waiting Room in a Year

In FX, the DXY index is back above 95.000 and seemingly heading for strong close to the week, with momentum to challenge the current ytd high (95.531 from June 28) given blanket gains vs G10 peers. GBP/NZD – An unfortunate, if not unlucky Friday 13th for the Pound and Kiwi thus far, with Cable hit by more negative White Paper headlines amidst reports that US President Trump has delivered a damning verdict via a warning to UK PM May about the ‘soft’ proposal killing prospects of a trade deal between the 2 nations. Market contacts noted stops on a break of 1.3175 after the loss of 1.3200 and there is little in the way of support before the next psychological level at 1.3100 vs a circa 1.3105 low, and ahead of a speech from BoE’s Cunliffe due at 12.30BST. Meanwhile, Nzd/Usd has retreated through 0.6750 following a disappointing NZ manufacturing PMI overnight. EUR – The single currency also a victim of overall Dollar strength, or vice-versa, and looking vulnerable for a deeper pull-back from recent peaks having breached some key chart supports (like the 20 DMA at 1.1654 and a 50% Fib at 1.649 from the 1.1508-1.1790 rally from 2018 low to nearly July peak), with 1.1600 next in sight. CNH – The off-shore Yuan is back below 6.7000 vs the Usd and levels that prompted intervention not so long ago, both verbal and physical, but no official or unofficial ‘action’ seen so far to leave conspiracy theorists thinking about devaluation in the US-China trade dispute rather than counter import tariff measures.

In commodities, oil is currently in the red, with Brent -1.0% and WTI -0.3% as we approach the weeks end, and is set for its second consecutive weekly fall. Both measures are finding support at moving average levels, however, with WTI still supported by its 50DMA (USD 69.43/BBL), and Brent finding support at its 100DMA (USD 73.07/BBL) level. Russian Energy Minister Novak said he is not ruling out an output adjustment depending on other countries or a quick move on >1mln BPD from OPEC+ if needed. He also said he sees Russia’s output boost by the end of July at 200k BPD Gold prices are sliding as the DXY is extending its rally past the 95.000 level. Shanghai steel has hit a 10 month high on  the back of low inventories and source reports suggesting the closure of steel mills in China’s largest steel making city, Tangshan, for 5 days amid pollution concerns. Copper is down 0.5% and set for the 5th consecutive weekly fall as US-China trade concerns  are weighing on the construction material.

US Event Calendar

• 8:30am: Import Price Index MoM, est. 0.1%, prior 0.6%; Import Price Index YoY, est. 4.6%, prior 4.3%
  • Export Price Index MoM, est. 0.2%, prior 0.6%; Export Price Index YoY, prior 4.9%
• 10am: U. of Mich. Sentiment, est. 98, prior 98.2; Current Conditions, prior 116.5; Expectations, prior 86.3
• 11am: Fed Releases Monetary Policy Report to Congress
• 12:30pm: Fed’s Bostic Holds Town Hall Chat in Northern Virginia

 

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Overnight China reported its June trade data, which showed that export growth moderated modestly from 12.3% Y/Y in May to 11.3% in June, above the 9.5% consensus, however imports decelerated meaningfully, sliding from 26.0% Y/Y in May to just 14.1% in June, well below the 21.3% estimate, which may be related to the imports tariff cuts on automobiles and selected consumer goods effective on July 1.

In sequential terms, exports increased 0.4% M/M, at the same pace as in May, while imports declined -3.2% M/M slowing from +2.8% in April. As a result of the decline in imports, the trade surplus widened to US$41.6bn from US$24.2bn in May. Tariff changes from the US and China in July can potentially distort June trade data.

“Both imports and exports have seen robust growth in the first half as companies front-load orders ahead of the trade war, resulting in nice-looking year-to-date trade data, but the momentum is hardly sustainable in the future,” said Ding Shuang at Standard Chartered Bank. He said China still has solid domestic demand despite the decline in import growth.

Echoing the concern about the economy, Goldman said that “momentum of exports has slowed notably in recent months in 3m/3m terms. This has been against the backdrop of slowing global growth momentum so far this year, with the trend probably continuing in the near future, while appreciation of CNY over the past several months (at least before April) should have also contributed.”

Broken down by commodity type, imports declined notably across the board in volume terms, with iron ore imports declining 12.1% yoy, vs. +2.9% yoy in May; crude oil imports contracted 4.9% yoy, vs. +5.0% yoy in May; steel products imports decreased by 8.0% yoy, vs. +1.8% yoy in May. In value terms, iron ore imports continued to contract, at -5.1% yoy, vs. -6.8% yoy in May; crude oil imports grew by 42.2% yoy, vs. +41.3% yoy in May; steel products imports increased by 2.1% yoy, vs. +17.4% yoy in May.

In terms of exports to major destinations, the trade surplus with the European Union rose to the highest level since 2011, while the deficit with Japan shrank, as exports growth to Japan slowed while going up modestly to other major trade partners. Specifically, for major DMs, exports to US and EU inched up to +12.6% yoy and +10.4% yoy from 11.6% yoy and 8.5% yoy in May, while that to Japan slowed to 6.9% yoy from 10.2% yoy in May. For major EMs, exports to ASEAN grew by 19.3% yoy, up from +17.6% yoy in May.

* * *

But the most notable part of the trade report is that despite the modest slowdown in trade – and the latest development which may potentially add more fuel to the US-China trade war fire – China’s monthly trade surplus with the U.S. rose to a record in June at the worst possible time, as the number is sure to further infuriate Trump (and certainly Peter Navarro) and underlines the imbalance at the heart of an escalating trade war between the world’s two largest economies.

Specifically, China’s customs reported that the trade surplus with the U.S. stood at $28.97 billion, the highest on record going back to 1999. Curiously, imports from the US rose at the same time as exports also climbed to $42.62 billion, also a new high.

Commenting on the data, Wang Jian, economist at Shenwan Hongyuan Group, said that “the record bilateral surplus shows exactly that the U.S. economy is robust while that of China is weakening. China’s domestic investment is softening due to funding strains, while consumption is not particularly strong either.”

And as Bloomberg adds, while multiple factors will have influenced the data, including a rush by some manufacturers to sell goods before tariffs imposed this month hit, there’s little sign that the U.S. deficit with China will improve any time soon. As tax cuts fuel the U.S. expansion and a slowing Chinese economy may cool domestic demand, the almost-$340 billion annual gap will continue to provide the backdrop to the standoff.

The commentary from UBS’ chief economist Paul Donovan was also notable:

Data showed that China’s imports from the US rose. However, data also showed that China’s trade surplus with the US hit a record. A lot of what China exports, it first imports; so rising imports and exports are not unusual. There may also have been a desire to stockpile goods in the US and China before new taxes are imposed.

The burst in US exports may have also been prompted by the yuan, whose decline in June was the worst in any month since 1994, dropping more than 3% against the dollar. And while that ought to help exporters in the longer run, the yuan’s fall now is a sign of growing concern as the trade war arrives at a time when the economy is already slowing. In other words, President Xi Jinping may ultimately have to choose between softening his multi-year campaign to control debt levels, or letting growth dip below the target of 6.5 percent.

The trade data comes ahead of the gross domestic product report for the second quarter, which should give a more complete picture of how the world’s second biggest economy did in the first half of this year. That is scheduled for release on Monday, with economists forecasting a slight slowing of the quarterly growth pace to 6.7 percent from 6.8 percent.

In a separate report, China’s broadest measure of new credit expanded far below expectations in June, with further evidence of a contraction in shadow banking emerging. Aggregate financing stood at 1.18 trillion yuan in June, the PBOC reported, badly missing estimates of a 1.4 trillion increase, while China’s M2 growth slowed from 8.3% to 8.0%, missing estimates of 8.4%, and a new all time low.

The data confirms what we already know: China’s economy is rapidly slowing down and the trade war with the US comes at the worst possible time for Beijing. Investment, factory output and retail sales growth all slowed in May. The tighter credit tap will also subtract from infrastructure and property investment for the rest of the year, as local governments cut borrowing and property developers have less access to shadow financing channels, according to Bloomberg.

“Import growth declined due to fewer purchases of oil and iron ore last month, indicating industrial production is easing moderately, especially in upper-stream sectors such as smelting and chemicals,” said Gai Xinzhe, analyst at Bank of China Institute of International Finance in Beijing. That’s a “worrisome sign” for the second half of this year as domestic demand was already showing signs of a slowdown in previous months.”

Said otherwise, those looking for the catalyst of what happens next to the global economy and world markets, it will be all up to China – if it is unsuccessful in dragging itself out of its current economic slump, the next global recession may come much faster than most expect. Which is also why Goldman concludes that “with less strong support from external demand clouded by the trade tension, and still ongoing financial regulations which could continue to weigh on credit supply, we expect the government to ease policy to avoid a meaningful slowdown, through both further RRR cuts and lower interbank rates as we have forecasted, and more direct measures such as support from policy banks.”

In other words, the fate of the global economy is once again in China’s hands.

 

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Authored by Mike Shedlock via MishTalk,

On two recent days, Eurointellence made stunningly bad comments about the escalating capital flight from Italy.

The latest Target2 Chart from the ECB is from May. Newer totals are available in some individual countries.

Debtors, primarily Italy and Spain, now owe Germany close to €1 trillion. Realistically, this money cannot and will not be paid back except by a central bank bailout.

Yet, Eurointelligence whitewashed this as no big deal.

July 9 – German Panic About Target2

The German debate on the balances of the Target2 payment clearing system continues to rage. There are two reasons for this. On the one hand, the Bundesbank’s Target2 credit with the Eurosystem was over €976bn at the end of June, and is within weeks of exceeding the symbolic figure of one trillion. On the other hand, Germans have taken notice of Paolo Savona’s plan B for Italy to exit the euro, which involved defaulting on Italy’s external debt including its Target2 balance which is under €481bn and growing. In this context Peter Boehringer, the AfD MP and chair of the Bundestag’s budget committee, has criticised Olaf Scholz in a budget debate for making no risk provisions for the possibility of default on Target2 claims. Frankfurter Allgemeine has also spoken to Christian Dürr, the deputy leader of the FDP group in the Bundestag, who says it’s about time the finance minister put on the political agenda the threat of a default on the German taxpayer. The position of the CDU group is that the situation will correct itself because of the coming end of the ECB’s asset purchase programme, and trust in the eurozone’s southern states returning as a result of the ongoing economic recovery.

But the FAZ insists that something needs to be done. Should the Target2 claims – currently undated, unsecured, and paying no interest – be backed by assets? How could Target2 balances be remunerated when the ECB’s deposit rate is negative? And can politics interfere with how the ECB organises its payment clearing system without violating its independence?

That’s all well and good, but the article is littered with gross inaccuracies and misunderstandings that frame the German debate on Target2.

Let’s start with FAZ’ observation that the Italian central bank does not have enough gold and reserves to back the German claims. This implies that the Italian Target2 debit is owed to Germany. But any intra-day Target2 balances between the Italian and German central bank are netted out, and become claims between the national central banks and the ECB. What the German conservatives are ultimately pushing for is either that the ECB pledge assets as security to the Bundesbank, or that Italy secures its debit with the Eurosystem.

But there’s also the delirious claim that Target2, as a payment settlement system, actually allows Italians, Spaniards and Greeks to buy real estate, firms and bonds in Germany without money created at home at home either through a sale of goods and services or credit from their commercial bank. This is nonsense of the highest order. A payment clearing and settlement system does not magically allow payments to go through if the payer has no money in their account and no available credit line. FAZ implies that Target2 forces the Bundesbank to grant credit at zero interest to southerners. In actual fact, the only credit that the Bundesbank grants in the context of Target2 is to other central banks intra-day, and to the ECB on an ongoing basis. If Italians – or Spaniards, or Greeks – are buying stuff in Germany, it’s because they either had the balance in their bank account or their local bank granted them credit. It this is wrong the fault lies with the Single Supervisory Mechanism, not with Target2.

We keep wondering whether the German economists and MPs that FAZ talks to are actually advocating that the Bundesbank stop clearing incoming payments from Italy. This, by the way, is basically what the Greek capital controls amount to. But those were the result of ballooning emergency liquidity assistance from the Greek central bank to its commercial banks. That is, the locus of the lack of trust was the Greek private banks. What we’re talking about here is to shut out the Bank of Italy from the Eurosystem.

July 11 – There is No Target2 Conspiracy

Mark Schieritz has written a short column in Die Zeit attempting to defuse the panic that German conservatives are trying to whip up about the eurosystem’s Target2 balances. Schieritz tells his readers that no, the Bundesbank has not loaned one trillion euro to southern countries, but its Target2 claim is with the ECB itself. Second, contrary to the conspiratorial claim – made by the likes of the AfD – that the established political parties are hiding the issue from the voters, the data are published by the Bundesbank every month.

On whether the Bundesbank’s €1tn Target2 surplus is something to worry about, Schieritz argues that the Target2 balances are essentially fictitious, not affecting the real economy. The actual real-economy transactions that Target2 balances are a signature of have already been completed. That is the point of a payment settlement system. Of course, there would be a hole in the Target2 balances if a debtor country exited the eurozone, but central banks are not commercial banks. They could create fiat money and could plug any hole in their balance sheet if it is legally possible. However we fear that this latter argument, while wholly correct economically, won’t assuage the concerns of hard-money advocates especially in Germany.

Disingenuous Claptrap or Brutal Ignorance?

Eurointelligence has commented many times that preparations can become self-fulfilling prophecies.

Oddly enough, immediately following its Target2 conspiracy rebuttal, Eurointelligence commented on Italy leaving the Euro.

Observers were shocked, shocked to hear Paolo Savona’s latest comments in the Italian parliament. This is what he said (our translation)

“They ask me, do you want to leave the euro? It could be that we find ourselves in a situation in which others are making the decision. My position is that we need to be prepared for all eventualities.”

The danger is, of course, that overt preparations for a eurozone exit might turn into a self-fulfilling prophecy.

Eurointelligence knows full well the odds Italy leaves the Eurozone may be small, but they are well above zero.

If so, why shouldn’t Germany make preparations for Italy leaving? Of course this heads further down the self-fulfilling prophecies road.

The Real World

Eurointelligence blasts Faz for inaccuracies while spreading a pile of its own through the mouth of Mark Schieritz who says (translated) Do not be afraid of the trillions bomb.

Schieritz says: “The claims and the liabilities are fictional quantities. They exist virtually, in the balance sheets of central banks, not in the real world.”

One can stop there knowing full knowledge that Schieritz’s article is complete nonsense.

In the real world, Target2 imbalances are a measure of capital flight and loans that cannot be paid back. Even if there once was adequate capital for loans made by Italian banks, that capital vanished long ago.

Now, Italian depositors are very fearful of bail-ins and have pulled there money out of Italian banks.

That is the “real world”. Real people have real fears, and they should. Anyone holding money in Italian banks is a fool. I gave the same warning about Greece well ahead of capital controls. I make the same case again now, regarding Italy.

The ECB’s actions help paper over the fact that the Italian banking system is insolvent. By implication, the entire eurozone banking system is insolvent.

No Conspiracy

I will grant Eurointelligence one thing: There is no conspiracy. The numbers are pretty much out in the open.

Then again, the Eurointelligence conspiracy lead-in smacks of being a purposeful strawman argument.

Turn On the Printing Presses

I will grant both Eurointelligence and Schieritz another thing. The ECB can paper this over by printing money and giving it away to make banks whole.

Schieritz says “After all, a central bank is not a commercial bank. She prints the money herself and can simply ignore the hole in the balance sheet. If the AfD says that Finance Minister Olaf Scholz should make provision for possible losses in his household, then the question arises: For what exactly? And at what altitude?“

Excuse me for pointing out that process is exactly what I ultimately expect, and the longer this mess continues, the bigger the ultimate bailout.

I also point out that such actions are against the Maastricht on which the Euro was founded, and that such actions were Germany’s biggest fear from the get go.

Both Eurointelligence and Schieritz dismiss this as if it’s nothing. I am not surprised that some economically illiterate Europhile would dismiss these claims via the printing press.

I have come to expect more than a whitewash from Eurointelligence.

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Last weekend we reported that as part of the failure of a Chinese investor’s inability to make a €32 million debt owed to Paul Singer’s Elliott Management, the legendary investor and hedge fund billionaire was set to take control over the legendary Italian soccer club, AC Milan, whose debt infusion in the 2016 purchase of the Italian club by Li Yonghong, primed him for equity ownership in case of a default.

As a reminder, Paul Singer’s hedge fund played a key role in allowing Li to conclude the €740 million purchase of Italy’s most successful football club at the international level, which was sold by Silvio Berlusconi’s investment company Fininvest at just the right time in April 2017 top-ticking China’s M&A wave, by providing last-minute financing. Elliott then lent Li €303 million to complete the purchase “and provided a further €32 million to help the club resolve a dispute with soccer’s European governing body UEFA.”

This, of course, is the same Paul Singer who once seized an Argentinian frigate, the ARA Libertad, in 2012 as part of his long-running debt dispute with the recently insolvent Latin American nation (which then went on to troll bond investors by selling 100 year bonds just a few years later).

However, since running a football club is hardly the core specialty of the distressed investor, many were wondering if Singer would immediately flip the club to someone else, or if he would indeed keep it and try to turn it around. And if there is a club that needs turning around, it is AC Milan: ever since its acquisition last year by a largely unknown Chinese investors who was merely looking for a quick scheme to park some funds offshore, Milan’s troubles only grew and and on May 22, UEFA said that the team “breached financial fair-play rules because of uncertainties about the team’s effort to refinance the loan provided by Elliott.”  Because of this, AC Milan was banned from European competition.

Meanwhile, the football team hired Bank of America to refinance the team’s debt and according to Bloomberg, in recent weeks the club has attracted investors willing to buy controlling stakes, though no deals were secured. Possible buyers included Italian-American media magnate Rocco Commisso and the Ricketts family, which owns the Chicago Cubs Major League Baseball team.

Surely there were more than enough willing buyers who would take the Rossoneri off Singer’s plate?

Then overnight we got the answer when, as Bloomberg reported, Elliott Management said it plans to hold onto AC Milan and run the Italian football club alone, at least until it’s back on solid footing, and perhaps indefinitely.

On Tuesday, the New York-based hedge fund said it had taken control of AC Milan and in a statement said that its goal was to “achieve long-term success for AC Milan by focusing on the fundamentals and ensuring the club is well-capitalized.”

Elliott won’t consider selling the club or bringing in a partner in the foreseeable future while it works on stabilizing AC Milan’s finances, the people said, asking not to be identified because the details are private. Elliott has said it intends to inject 50 million euros ($58.4 million) in equity to stabilize the club and will add further capital over time to fund the transformation.

Elliott said one of its goals is “returning the club to the pantheon of top European football clubs where it rightly belongs.”

We for one are hoping that Elliott is successful in turning around the club that brought us such legends as van Basten, Gullit, Kaka, Pirlo, Costacurta, Rivera, Baresi and Maldini.

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Authored by Alex Gorka via The Strategic Culture Foundation,

The US-led series of drills in and around Ukraine’s Black Sea coastline is part of NATO exercise Sea Breeze that kicked off on July 9 to last until July 21. The training event involves an international armada representing 19 countries, including such non-NATO states as Ukraine, India, Georgia, the United Arab Emirates and Moldova. All in all, 29 warships, 1 submarine, and 25 aircraft are involved in the exercise held in Odessa and Mykolayiv and the northwestern Black Sea region.

The Black Sea regional security is actually an issue paid little attention to. It’s not addressed by an international forum. NATO official documents adopt an openly provocative language to challenge Russia.

The North Atlantic Alliance always emphasizes the Black Sea’s role as a critical intersection. The US-led NATO activities have been intensifying since 2014 to turn the region into another hotbed along with the South China Sea and the Baltic. Turkey, Bulgaria, and Romania, three of the six Black Sea countries, are NATO members. Ukraine and Georgia are the bloc’s close partners aspiring for membership. The alliance has a significant military presence in Romania, including a US Aegis Ashore BMD system capable of firing long-range cruise missiles at Russia.

American military presence in Romania and Bulgaria is gradually growing. The US plans to deploy up to 2,500 troops at Novo Selo, Bulgaria. The facility is large enough to accommodate as many as 5,000 servicemen. Heavy tanks deployment is envisaged. The 1997 NATO-Russia Founding Act, where NATO pledged not to deploy “substantial forces” near Russia, seems to be forgotten.

The US Navy’s policy is aimed at ramping up its presence there. The presence of American warships perilously close to Russia’s borders is undoubtedly provocative. For comparison, the Russian Navy does not stage regular maneuvers in the Caribbean Sea with such allies as Cuba, Nicaragua and Venezuela though nothing prevents it from doing so.

The 1936 Montreux Convention (1936) requires non-Black Sea states to rotate their ships every 21 days. Naval vessels with a tonnage exceeding 15,000 tons may pass through the Straits one by one and escorted by not more than two destroyers. Submarines are required to pass through the straits controlled by Turkey navigating on the surface and singly. The total tonnage of warships belonging to a country without a shore on the Black Sea (an aggregate tonnage of all non-Black Sea warships) must be no more than 30,000 tons (or 45,000 tons under special conditions). If a Black Sea state enters into a war with Turkey remaining neutral, the transit of warships belonging to the belligerent countries is banned. In case Turkey is a party to the conflict, the transit of warships belonging to foreign countries through the Straits is left entirely to the discretion of the Turkish Government.

The convention restricts the US naval presence, especially at a time the relations with Turkey leave much to be desired. In 2008, US ships were not allowed by Ankara to steam to Georgia through the Bosporus and the Dardanelles. The dependence on Turkey prompts the US to seek ways to dodge the international agreement.

Bulgarian, Romanian, Ukrainian and Georgian navies have rather limited capabilities. The idea to reflag some NATO naval assets under the Black Sea member states’ flags to boost permanent naval capabilities in the theater has been floated. That’s one of the ways to ensure disguised permanent US naval presence in the region. In practice, it would mean bringing together NATO and non-NATO ships under one operational control. No doubt, it’ll be seen as a provocation by Russia.

Another way to get around the Monteux Convention is to sign a port concession agreement with a Black Sea country. This will trigger legal procedures based in the law of the sea to give the US a chance to have some clauses reviewed regarding its naval operations. The US has held tentative talks with Bulgaria on Burgas concession. American Conti International has discussed with Georgian TBC Bank the possibility of joint venture to make Poti and Anaklia deep sea ports able to receive large tankers. The Georgian government offers to use Poti as a NATO naval base.

The US military eyes the Ukrainian Odessa, Ilyichevsk, Chernomorsk and Yuzhny seaports. The American Navy already uses the Ochakov facility in Ukraine. With the construction work over, US ships will be able to anchor there. Valentin Badrak, the head of Ukraine’s CACDS (the Center for Army, Conversion and Disarmament Studies) research organization believes that closer cooperation or “supermanship” is the way for Ukraine to actually become part of NATO. He told Ukrainian Apostrophe website that Ukraine should have US Patriot air defense systems, and missile defense site and “NATO units” deployed on its soil. In this case, the country will be even more “protected” than the Baltic States.

There is a strong desire of the US to have large permanent military presence in the Black Sea. There are also littoral states happy to make this idea come to fruition. Will they find a way to get around the hurdle (the Montreux Convention)? They say if there is a will, there is a way. The Sea Breeze-2018 is a demonstration of strong will. It also demonstrates that the region remains a dangerous flashpoint with tensions running high. The problem seldom hits headlines but it does not make it less pressing. Hopefully, the Trump-Putin summit on July16 will provide an impetus to start discussions between the West and Russia on the ways to ease the tensions and curb military activities in the region.

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A confidence man who defrauded victims of millions of dollars while posing as a Saudi Prince was exposed after a Miami hotelier witnessed the imposter royal – supposedly a devout Muslim – eating pork during their meetings, according to RT.

The man was, in fact, Anthony Gignac, a Colombian scam artist known for targeting wealthy real estate developers while working under the alias ‘Sultan Bin Khalid Al-Saud’ as he finagled gifts worth around $50,000 from Jeffrey Soffer, the owner of the iconic Fontainebleau resort hotel on Miami Beach.

Soffer was reportedly negotiating with the fictional prince and several co-conspirators about a deal in which the prince would purchase a 30% stake in his hotel in return for a $440 million investment. During their negotiations, which went on for months, the 47-year-old Gignac stayed in the hotel. He was known for driving expensive cars bearing diplomatic plates, which he had apparently purchased on eBay.

Gignac reportedly flew Soffer to Aspen on a private jet in August to discuss the deal. Once there, Soffer gave the fraudster a gift of a Cartier bracelet worth tens of thousands of dollars. But Soffer said he only handed over the gift because it had been demanded by one of Gignac’s associates because “the honor of the Sultan had been questioned.”

Gignac was found out after Gignac was spotted eating pork during a meal – which should be against the religion of a devout Muslim. Soffer reported Gignac to the FBI, which opened an investigation. Gignac was arrested in November after being caught traveling from London to New York using a passport under a different name.

It’s believed that the hotelier was one of 24 victims of Gignac’s scam, which he operated over 20 years. His scam even involved a fake instagram account, which featured photos of luxury goods and hotel rooms. 

 

 

Royal Suite lol George V

A post shared by Foxy (@princedubai_07) on Sep 14, 2017 at 5:46am PDT

 

Dom

A post shared by Foxy (@princedubai_07) on Oct 27, 2016 at 11:06pm PDT

 

Gettin that chicken

A post shared by Foxy (@princedubai_07) on Jul 11, 2016 at 9:40pm PDT

 

The accused con man is being held in Miami and facing charges of impersonating a foreign official, identity theft and fraud.

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Authored by Elliot Gabriel via MintPressNews.com,

While the White House’s frenzied anti-Iran campaign has entailed unprecedented attempts to twist the arms of the United States’ traditional European allies, the pressure may be backfiring – a reality made all the more clear by Russian Foreign Minister Sergei Lavrov’s claims that Europe’s three major powers plan to continue trade ties with Iran without the use of the U.S. dollar.

The move would be a clear sign that the foremost European hegemons – France, Germany, and the United Kingdom – plan to protect the interests of companies hoping to do business with Iran, a significant regional power with a market of around 80 million people.

Lavrov’s statement came as Trump insisted that European companies would “absolutely” face sanctions in the aftermath of Washington’s widely-derided sabotage of the six-party Joint Comprehensive Plan of Action (JCPOA).  On May 8, the former host of NBC’s “The Apprentice” blasted the agreement and said that the U.S. would reinstate nuclear sanctions on Iran and “the highest level” of economic bans on the Islamic Republic.

Speaking in Vienna at the ministerial meeting of the JCPOA, Lavrov blasted the U.S. move as “a major violation of the agreed-upon terms which actually made it possible to significantly alleviate tensions from the point of view of the military and political situation in the region and upholding the non-proliferation regime.”  He added that “Iran was meticulously fulfilling its obligations” at the time that Trump destroyed the U.S.’ end of the agreement.

Continuing, Lavrov explained:

The Joint Commission… will be constantly reviewing options which will make it possible, regardless of the US decision, to continue to adhere to all commitments undertaken within the JCPOA framework and provide methods for conducting trade and economic relations with Iran which will not depend on Washington’s whims.  

What they can do is to elaborate collectively and individually such forms of trade and settlements with Iran that will not depend on the dollar and will be accepted by those companies that see trade with Iran more profitable than with the US. Such companies certainly exist – small, medium and large.”

Lavrov noted that the move wasn’t so much meant to “stand up for Iran” but to ensure the economic interests and political credibility of the European signatories to the accord. The Russian top diplomat added that large firms such as Total, Peugeot and Renault have already departed the country, having analyzed the situation and decided that the U.S. market is of far more vital importance.

France, Germany and the U.K. have pleaded with the “America First” president to exempt EU companies, writing a letter to U.S. Secretary-Treasurer Steve Mnuchin and right-wing Secretary of State Mike Pompeo that the nuclear accord remains the “best means” to prevent Iran’s acquisition of a nuclear deterrent given the lack of any credible alternative. Given the hard-line stances of Pompeo and National Security Adviser John Bolton, the pleas were likely greeted with bemusement.

The opening salvo or “snap-back” of sanctions hitting Iran’s automotive sector, gold trade, and other industries will hit the country on August 4, while further sanctions will hit the country’s oil industry and central bank on November 6.

Signaling the likelihood of major clashes to come, Lavrov noted:

Everyone agrees that [stepped-up U.S. sanctions on Iran] is an absolutely illegitimate practice. It cannot be accepted as appropriate, but it is a policy that can hardly be changed. Severe clashes are expected in the trade, economic and political spheres.”

Patience reaches its limits on all sides

A blistering recent speech by German Foreign Minister Heiko Maas signaled the European exasperation with Trump’s go-it-alone policies, which have largely seen the U.S. break from its transatlantic partners while pursuing what he called an “egoistic policy of ‘America First’” in relation to the Paris Climate Agreements, Iran nuclear deal, and introduction of tariffs and other protectionist measures.

The May 12, 2018 cover of the German weekly, Der Spiegel.

Maas further questioned the continued viability of the transatlantic partnership:

Old pillars of reliability are crumbling under the weight of new crises and alliances dating back decades are being challenged in the time it takes to write a tweet … the Atlantic has become wider under President Trump and his policy of isolationism has left a giant vacuum around the world.”

He added:

The urgency with which we must pool Europe’s strength in the world is greater than ever before … our common response to ‘America First’ today must be ‘Europe United!’”

Highlighting how “the Trump administration’s conduct is posing completely new challenges to Europe,” the German foreign minister noted that the White House now “overtly calls [European] values and interests into question,” requiring a more robust and assertive stance – and “the first test of this approach will be the nuclear agreement with Iran.”

While such talk surely signals major tensions between the allies, Iran’s Atomic Energy Organization director Ali Akbar Salehi offered caustic words stressing Iran’s doubt in Europe’s ability to follow through with its independent foreign policy, stating:

Iran understands that Europe and the United States are strategic partners, but they are not lovers who share the same bed … European independence vis-a-vis the US is under threat. In the eyes of the whole world, Europe has become the U.S.’ lackey.

We are faced with an American administration whose decisions have left the world in shock.

Mr. Trump is punishing foreign companies that do business with us and threatening countries that buy our petrol. He’s after fast results. But the EU, Russia and China didn’t expect to be put under so much pressure.

The EU is still under shock. The bloc is like a boxer that has been hit with an uppercut. It needs time to pull itself together.”

Despite Trump’s self-reported success at the two-day summit of the North Atlantic Treaty Organization (NATO), Iranians and Europeans alike are hoping that EU leaders can finally put their money where their mouth is and unshackle themselves from the U.S.-imposed hegemonic bondage constraining them since the end of the Second World War.

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