The “World’s Most Bearish Hedge Fund Manager” Makes A Major Change To His Portfolio

Last March, after the worst year in Horseman Capital’s history when the fund lost -24% of its AUM, on par with its performance in 2009, fund CIO Russell Clark capitulated on what until then was the world’s most bearish portfolio, sending its net exposure from -100% to just -12%. Clark also revealed that instead of being outright short equities, as he mostly had been for years, he would split his bullish exposure by shifting long into Emerging Markets, while staying short Developed markets.

What I find interesting, is that US markets have moved up on the promise of reform, even though they look fully valued in my view. China and India we have already had reform take place, and the stocks are not priced for these benefits. Plainly the choice is obvious for me. Long emerging markets, short developed markets is the strategy for the fund.

The decision to rotate into EMs, which at the time was certainly contrarian, may have helped Horseman Global, – which back then was struggling with an avalanche of redemptions – survive, because while it failed to generate spectacular gains, it still managed to turn around the 2016 rout and return 2.3%. The fund’s winning ways continued in 2018, when after the first 4 months, the fund – which we previously dubbed “the world’s most bearish hedge fund” due to its chronic net short bias – was up just over 5%, even as Clark maintained his unprecedented net short book into its 6th year.

Fast forward to today, when after several bland monthly letters to investors in which as Russel Clark himself admitted he “refrained from talking about the market in detail”, the widely followed contrarian is out with a new missive which may presage another key inflection point in the market.

According to Clark, recent developments in China may have finally revealed the key that “unlocks” the QE trap, which would then permit the gradual rise in rates without catastrophic consequences, however this combination of slightly higher short-term interest rates and higher commodity prices “seems to be slowing growth.” This, combined with the general long equities and short bond position of the investing community, strikes Clark as dangerous.

So, one year after dramatically uprooting and overhauling his entire portfolio, Clark is making another major change to his book once again, and as he explains, in the past two months, he has “reduced shorts that work well with higher interest rates, such as staples, REITs, and telecom stocks.” Instead, Horseman has shifted bearishly into the economic cycle-sensitive short book, “namely semiconductor stocks and financials.”

So what about his net exposure? Here Clark says that while he is “tempted” to cut the long book, he has instead “maintained this exposure because, if growth heads south, the chance of central bank intervention in either China or the US rises.” Indeed it does as April 17 showed, when the PBOC unexpectedly cut RRR rates, launching the current surge in both the US Dollar and Treasury yields.

So with the threat of central bank intervention in minds, Clark writes that “Chinese intervention may well be to be cut more capacity and raise commodity prices higher” while the US may back away from further rate increases, with both moves “bullish for commodities.” As a result, the Horseman “long book is really a hedge against central bank policy supporting the economic and market cycle.“

Curiously, anticipating that LPs and investors in the fund may be “fickle” as Clark begins another major portfolio rotation, he writes that he is closing the fund to new investors from June 1, and says there are several reasons for the move: “I understand my style of investing better. I have a natural tendency to attack consensus positions. And, by definition, when I do well, everyone else does badly, and vice versa. The best investors for me are those who understand this, and therefore, by definition, these are the investors that are in the fund now after a period of average returns.”

Which brings us to the punchline: on the (roughly) one year anniversary of his last major portfolio rotation, this is what the Horseman Global CIO will be doing now:

For the last year or so I have characterised the fund as long emerging markets and short developed markets. This is not correct anymore. We are short three of the four largest emerging market stocks. We have also started to buy bonds again: 30-year Japanese Government Bonds a couple of months ago, and 10-year treasuries at the beginning of May.

Considering the recent plunge in EMs, Clark may have timed his rotation perfectly

And since this latest portfolio shift brings Horseman back to its original, bearish posture, Clark’s poetic conclusion is spot ont:

Markets are much like life, if you keep going long enough you end up back in the same spot. Coming back a full circle, your fund is once again long bonds (and commodities), short equities.

Clarke’s full letter to investors is below:

Your fund lost 2% last month, all from the currency book. Losses in the short book balanced gains in the long book.

The last two newsletters have largely refrained from talking about the market in detail. I believe quantitative easing (“QE”) is a disastrous policy, and the example from Japan of it being an extremely hard policy to escape still seems true to me. However, the Chinese policy of forcing capacity cuts and raising interest rates, seemed to offer a way out of the QE trap. Certainly, since China enacted its policy change, the Federal Reserve has managed to reverse far more of its QE policies than the Japanese ever managed. So, I have been conflicted. Maybe the Chinese,
with their unusual hybrid economy, can unlock us from the QE trap that we have fallen into?

Sadly, April saw Chinese government bond yields start to fall significantly. Even as interest rate increases have become more expected, 30-year bonds have stayed becalmed, and in some cases are starting to move lower. The combination of slightly higher short-term interest rates and higher commodity prices seems to be slowing growth. This, combined with the general long equities and short bond position of the investing community, strikes me as dangerous.

So, April and early May have seen me reduce shorts that work well with higher interest rates, such as staples, REITs, and telecom stocks. We have used the space created to increase our economic cycle sensitive short book, namely semiconductor stocks and financials. The gross short book has shrunk, but when beta adjusted it is probably flat. I am tempted to cut the long book, but have maintained this exposure because, if growth heads south, the chance of central bank intervention in either China or the US rises. Chinese intervention may well be to be cut more capacity and raise commodity prices higher. The US may back away from further rate increases. Both seem bullish for commodities. The long book is really a hedge against central bank policy supporting the economic and market cycle.

I have recommended to the fund Directors that they close the fund to new investors from June 1. From that point on, we will only accept investments from new investors that began their due diligence before June 1.

I suspect that many readers of the newsletter will wonder why I want to close the fund to new investors. Whilst returns have improved, and we have seen some inflows, neither has been extreme. There are several reasons. I understand my style of investing better. I have a natural tendency to attack consensus positions. And, by definition, when I do well, everyone else does badly, and vice versa.

The best investors for me are those who understand this, and therefore, by definition, these are the investors that are in the fund now after a period of average returns. I obviously struggle at inflection points, so by not having the distraction of new prospects I would hope to manage inflection points better.

For the last year or so I have characterized the fund as long emerging markets and short developed markets. This is not correct anymore. We are short three of the four largest emerging market stocks. We have also started to buy bonds again: 30-year Japanese Government Bonds a couple of months ago, and 10-year treasuries at the beginning of May. Markets are much like life, if you keep going long enough you end up back in the same spot. Coming back a full circle, your fund is once again long bonds (and commodities), short equities.

 

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The Regulations That Could Push Oil Up To $90

Authored by Nick Cunningham via OilPrice.com,

International regulations on the fuels used in shipping could tighten the oil market and push prices up to $90 per barrel in the next two years.

The International Maritime Organization (IMO) has new rules coming into effect at the start of 2020 requiring shipowners to dramatically lower the concentration of sulfur used in their fuels.

Ships plying the world’s oceans tend to use heavy fuel oil, a bottom-of-the-barrel fuel that is especially dirty. The IMO regulations are targeting this fuel because of its high sulfur content. Current rules allow sulfur concentrations of 3.5 percent, but by 2020 ships must slash that to just 0.5 percent. “Effectively, bunker fuel is the last refuge for sulphur, which has been driven out of most other oil products,” the IEA wrote earlier this year in its Oil 2018 report.

Shipowners have several options to achieve this goal, and there probably won’t be a single approach. They could install scrubbers to remove sulfur from the fuel, switch to low-sulfur fuels, or switch to LNG. Scrubbers are thought to be costly, although some shipowners see the payback period as worth it. LNG is also an expensive route.

But a lot of shipowners will switch over to lower-sulfur fuels such as gasoil, a distillate similar to diesel. The IEA says that by 2020, demand for gasoil will shoot up to 1.74 million barrels per day (mb/d), an increase of over 1 mb/d relative to 2018. That will displace the heavy fuel oil that is currently widespread. The IEA says that high-sulfur fuel oil demand will crater from 3.2 mb/d in 2019 to just 1.3 mb/d in 2020.

The switchover will have enormous ramifications for the oil market. The shipping industry represents about 5 percent of the global oil market, using about 5 million barrels of oil per day. Swapping out one form of oil for others will have ripple effects across the refining industry, awarding some and dealing losses to others.

Refiners processing middle distillates – diesel and gasoil – will see a windfall. Meanwhile, refiners that churn out heavy fuel oil will be left with surplus product on their hands.

More specifically, complex refineries can use different types of crude to produce gasoil, often without being stuck with heavy fuel oil as a byproduct. On the other hand, smaller more simple refineries are unable to do that with ease, and “some simple refineries may be forced to close or to upgrade,” according to the IEA.

“We foresee a scramble for middle distillates that will drive crack spreads higher and drag oil prices with it,” Morgan Stanley analysts said in a note.

The investment bank said that Brent crude prices could jump to $90 per barrel, aided by the IMO regulations and the rush to secure compliant fuel. “The last period of severe middle distillate tightness occurred in late-2007/early-2008 and arguably was the critical factor that drove up Brent prices in that period,” Morgan Stanley wrote.

Already, stocks of middle distillates have declined below the five-year average in Europe, the U.S. and Asia. “The additional gasoil needed in 2020 is likely to trigger a spike in diesel prices. In our forecast, we assume an increase of 20 percent to 30 percent in that year,” the IEA said.

The intriguing conclusion from this scenario is that U.S. shale can’t be the solution. The flood of oil coming from the Permian basin is light and sweet, which tends to be transformed into gasoline, and is not suited for the production of middle distillates. Medium and heavy blends are more preferable for the distillates needed for maritime fuels, but those barrels are being held off of the market right now by the OPEC cuts.

“We expect the crude oil market to remain under-supplied and inventories to continue to draw,” the bank said. “This will likely underpin prices.”

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Brazilian Real Rout Returns Despite Hawkish Central Bank ‘Hold’

Brazil’s central bank (BCB) surprised the market by foregoing a final rate cut overnight in what seemed like a hawkish effort to stem the tide of collapse in its currency. For a few brief minutes it worked… but the Real is no collapsing lower again to more than 3.70/usd.

 

As Goldman Sachs noted, the BCB decision went against a broad market consensus expecting a final 25bp rate cut: only 2 of the 39 analysts surveyed by Bloomberg expected the Copom to leave the policy rate unchanged at 6.50%. The forward guidance hardened, now indicating the end of the long easing cycle.

This was one of the few instances where a central bank surprises a heavy market consensus and, yet, is likely to be applauded for it and gain credibility. The reason analysts were expecting a rate cut was not because in their assessment of the macro fundamentals and overall evolution of the balance of domestic and external risks further easing would be warranted, but simply because the central bank guidance from the previous meeting, reiterated in the Quarterly Inflation Report, clearly suggested so, and in recent weeks, amidst already clear currency pressures, central bank officials did not publicly abandon such guidance.

Overall, while the Copom communication with the market may have been imperfect, the decision to hold is, in our assessment, perfectly justified by the recent developments in external financial markets and the ongoing depreciation pressure on the BRL. We expect the Copom to leave the policy rate unchanged at 6.50% for the foreseeable future and expect the next move to be a hike.

However, it didn’t and isn’t and the Real is now down almost 20% since the end of January…

And don’t forget, the Brazilian Real is what Bank of America called the best indicator of imminent emerging market turmoil…

And in fact, it is LatAm FX that is getting crushed – now at its weakest level ever relative to the broad EM FX…

And this weakness is continuing even as the region’s biggest exports – commodities – are rising.

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Did CNN, NYT, ABC, & C-SPAN ‘Lie By Omission’? Falsely Claiming Trump Called Immigrants “Animals”

Authored by Joseph Wulfsohn via Mediaite.com,

President Donald Trump held a meeting on illegal immigration at the White House on Wednesday and one particular moment went viral… but for all the wrong reasons.

Fresno County Sheriff Margaret Mims expressed her frustrations with the federal government to the president regarding the handling of criminal illegal immigrants and cited MS-13 gang members as an example. Responding directly to that, Trump said the following:

“You wouldn’t believe how bad these people are. These aren’t people, these are animals, and we’re taking them out of the country at a level and at a rate that’s never happened before.”

However, dozens of media outlets have only shared the response to Sheriff Mims, not including her question and comments that were directly about MS-13 and in the process purposefully mischaracterizing the president’s remarks to accuse him of referring to immigrants as “animals.”

CNN, ABC News, CBS News, NBC News, and C-SPAN shared the clip on Twitter leaving out the crucial context of Trump’s response.

The New York Times shared Trump’s quote and implied that he was referring to “undocumented immigrants” instead of violent gang members.

NBC News Chief Foreign Affairs Correspondent Andrea Mitchell tweeted that Trump’s “animal” jab was in reference to “people trying to get into the country.”

Washington Post reporter Robert Costa noted that the president had used the term “animal” before on the campaign trail in 2015, but what he neglected to mention was that Trump specifically used the word in reference to the illegal immigrant who shot and killed Kate Steinle.

The New York Daily News accused Trump of “hurling hate at immigrants” with its Thursday cover.

Among the headlines, The New York Times had “Trump Calls Some Unauthorized Immigrants ‘Animals in Rant,” USA Today had “Trump calls undocumented people ‘animals,’ rhetoric with a dark past,” Voxhad “Trump on deported immigrants: ‘They’re not people They’re animals,’” The Huffington Post had “Trump Refers to Immigrants As ‘Animals.’ Again,” Business Insider had “Trump says some unauthorized immigrants ‘aren’t people’ but ‘animals’ who will be rapidly kicked out of the US,” and The Washington Post had “Calling immigrants ‘animals,’ Trump evokes an ugly history of dehumanization.”

While the president’s attacks of the media by constantly dismissing them as “fake news” sets a dangerous precedent,  the media certainly doesn’t help its cause – giving him and his supporters ammunition – when it misleads viewers and readers by purposefully taking him out of context.

Watch the full clip below again (via CBS) and decide just how ‘fake’ the media has become.

As Scott Adams tweeted “Apologies are coming, right?” – we won’t hold our breath.

And finally, here is Mark Constantine to summarize the state of the world…

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Do You Hear “All Immigrants Are Animals” or “MS-13 Are Animals”?

Forget whether you hear Yanny or Laurel, the audio clip now dividing America with a ferocity not seen since the early days of Right Twix, Left Twix, “The Dress,” or Bush v. Gore.

This below is the viral clip that is dividing America. It comes from a White House gathering held yesterday to discuss illegal immigration, deportations, and sanctuary cities. Is President Trump calling out all immigrants or is he referring to members of the violent MS-13 gang when he declares “These aren’t people, these are animals“?

The popular viral news site Now This News tweeted that clip, which deletes the question Trump was answering. It was about MS-13, the gang that started in California with deep roots in El Salvador, Honduras, and other Central American countries. News sources presumed to be openly hostile to Donald Trump quickly posted headlines such as “Trump on deported immigrants: ‘They’re not people. They’re animals’“, “Trump on immigrants: ‘These aren’t people. These are animals,'” and “Trump says undocumented immigrants ‘aren’t people, they’re animals.‘”

After pro-Trump Twitter went bananas and charged obvious bias, a number of mainstream outlets have changed, altered, and revised their headlines to read “some immigrants” or add mentions of MS-13 in their accounts.

Here’s the full question and answer:

Fresno County Sheriff Margaret Mims: Thank you. There could be an MS-13 member I know about—if they don’t reach a certain threshold, I cannot tell ICE about it.

President Trump: We have people coming into the country, or trying to come in—and we’re stopping a lot of them—but we’re taking people out of the country. You wouldn’t believe how bad these people are. These aren’t people. These are animals. And we’re taking them out of the country at a level and at a rate that’s never happened before. And because of the weak laws, they come in fast, we get them, we release them, we get them again, we bring them out. It’s crazy.

The video below includes the full exchange, which begins around the two-minute mark.

But your immediate reaction to the story and the phrase “these aren’t people, these are animals” surely says something about our political hard-wiring just as hearing Yanny or Laurel or seeing a white-and-gold or a black-and-blue dress says something about our auditory and visual presets. Of course, how we feel about certain words, concepts, and people isn’t the same sort of thing as how our eyes see or our ears process audio. We have much more control over our mental reactions than we do over our physiological ones. That helps to explain why societies change attitudes towards all sorts of things, such as gay marriage, pot legalization, and interracial relationships over the years.

But that’s the long run, right? Is there any way that people who see or hear very different things when it comes to politics can reach some common ground rather than immediately act out the most-partisan scripts they can think of? Yes, at least when it comes to basic facts. In the immigrants/MS-13 case, the first step would be to actually double-check the context of the offending statement. Trump is himself a master of taking things out of context and it behooves his admirers and opponents alike to rise above his documented willingness to bend the truth if not lie.

In the current case, there is no question that he is specifically talking about MS-13, not even all illegal immigrants (whom he has previously referred to in starkly dehumanizing terms). Presenting the clip without that context is deliberately incendiary and it misrepresents Trump’s point. Outlets that decontextualized Trump’s quote might have gained a rush of traffic, but they do so at the cost of confidence in the media, which is already in the crapper. Gallup reports that over 80 percent of Americans believe the media are vital to a flourishing democracy and also believe the media are failing across a wide variety of measures:

Decontextualizing Trump also has the added effect of hardening his supporters in the position that the media traffics only in fake news and is deliberately out to get their man in the White House. On the other side, anti-Trumpers can bask in the glow that they are absolutely right about the racist ugliness of the pussygrabber-in-chief.

None of this is to say that because Trump was talking about violent gang members, there’s no issue with his figures of speech. There is a long and disgusting history of likening foreigners and racial and ethnic minorities to animals, and anyone invoking dehumanizing language in the context of immigration can (and should, in my opinion) be castigated for it (my Irish and Italian grandparents were routinely likened to apes and rats back in the early 1900s). This includes nativists such as Rep. Steve King (R-Iowa), who has likened immigrants to “livestock” while making the case for electrified border fences. But’s not difficult to engage and debate Trump or anyone else in good faith and with proper context. Indeed, it’s a necessary prerequisite if you want to persuade anyone who doesn’t already agree with you.

If many journalists are failing to report basic facts without proper context, news consumers are guilty of similar crimes against basic comprehension. As Michael Socolow, a journalism professor at the University of Maine, has told Reason, the social-media age requires a different form of literacy that all of us should keep in mind. To paraphrase: “Don’t share news that doesn’t have substantiating links, be wary of stories that perfectly confirm your pre-existing biases, and (for god’s sake!) always ask yourself why you’re talking in the first place.”

We know that Donald Trump is incapable of being the adult in the room, of speaking thoughtfully, carefully, and inclusively. That’s deeply regrettable in a president, but what can you do, really? The genius of America is that we are supposed to be our own adults and think for ourselves. A big part of Trump’s m.o. is to pull people around him down to his level. To each his own, I suppose, but as a journalist, reader, and citizen, I know that when you wrestle a pig in his pen, you both get dirty and the pig enjoys it. And, in the case of Trump, he seems to be winning too, at least based on approval ratings. Hey, anti-Trumpers, it’s time to try a different strategy.

Video clip produced by Austin Bragg.

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Kilauea Erupts “Explosively” From Summit, Sending Huge Plume Of Ash In The Sky

Hawaii’s Kilauea volcano has erupted from its summit, shooting a dusty plume of ash about 30,000 feet into the sky.

KTLA reports that people are being told to shelter in place…

As AP reports, Mike Poland, a geophysicist with the U.S. Geological Survey, confirmed the explosion on Thursday.

The volcano is sending “ballistic blocks” out hundreds of metres – and they could reach several tonnes in weight

It comes after more than a dozen fissures recently opened miles to the east of the crater and spewed lava into neighborhoods.

Those areas were evacuated as lava destroyed at least 26 homes and 10 other structures.

Officials have said they didn’t expect the explosion to be deadly as long as people remained out of park.

Perhaps luckily, as SHTFplan’s Mac Slavo noted before this latest eruption, the massive plume of ash rising from Hawaii’s Kilauea volcano prompted a warning yesterday to pilots planning to fly over the area. The eruption isn’t just dangerous to people on the ground anymore — it could also bring down planes. A code red warning has been issued, as the eruption continues to intensify.

Kilauea has been spurting lava, molten rock, and poisonous gases from multiple massive fissures on the island of Hawaii since May 3rd. On Tuesday morning, the Halema’uma’u crater on Kilauea’s summit also began continuously gushing ash — creating a plume that rose up to 10,000 feet in the air. Rocks falling into the vent may be responsible for more intense ash spurts. But that’s not even the worst of it, the US Geological Survey warned:

“At any time, activity may become more explosive, increasing the intensity of ash production and producing ballistic projectiles near the vent.”

In addition to dangers from the bubbling, scalding-hot lava from the Kilauea volcano, residents on the Big Island of Hawaii are enduring threats from both vog and volcanic ashfall. The U.S. Geological Survey issued a “code red” for ashfall late Tuesday, due to the hazard it poses for airplanes and jets. Vog, short for volcanic smog, is the haze formed by gas and fine particle emissions from volcanoes, according to the American Meteorological Society.

The Hawaiian Volcano Observatory warned pilots about the gigantic ash plume by changing the aviation color code to red — which means that an eruption hazardous to air travel is happening, or could happen soon. This morning, local time, the Hawaiian Volcano Observatory announced that the color code would stay red for the time being. “It sounds a little bit alarming,” USGS volcanologist Michelle Coombs said in a video statement. But the “code red” is just a warning to aviators flying by the island. “It doesn’t mean that a really big eruption is imminent,” she says. “It’s really just characterizing that aviation situation.”

Although Coombs says a big eruption is not imminent, the USGS’s Hawaii Volcano Observatory (HVO) said in a statement that a red alert means otherwise. A red alert, according to the agency, means a “major volcanic eruption is imminent, underway or suspected, with hazardous activity both on the ground and in the air.”

And now it has…

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Inspector General Report On Clinton Email Probe About To Drop, Now In Final Review

A long-awaited report by the Department of Justice’s internal watchdog has moved into its final phase – after the DOJ notified multiple subjects mentioned in the document that they can privately review it by week’s end, and will have a “few days” to craft any response to criticism contained within the report, according to the Wall Street Journal.

Those invited to review the report were told they would have to sign nondisclosure agreements in order to read it, people familiar with the matter said. They are expected to have a few days to craft a response to any criticism in the report, which will then be incorporated in the final version to be released in coming weeks. –WSJ

Inspector General Michael Horowitz told lawmakers in April that he expected to issue the report in May, however Tuesday’s notification indicates that he has largely completed his inquiry. 

Congressional investigators will get their hands on the report in coming weeks.

A related report was released in April detailing the DOJ’s case against former FBI Deputy Director Andrew McCabe, who was found to have lied four times to the DOJ and FBI, including twice while under oath. 

McCabe, who was fired a day before he was set to collect his full pension, authorized a self-serving leak to the Wall St. Journal claiming that the FBI had not put the brakes on the Clinton Foundation investigation, during a period in which he was coming under fire over a $467,500 campaign donation his wife Jill took from Clinton pal Terry McAuliffe. 

To be clear, this report will have nothing to do with the FBI’s alleged FISA abuse, high-level collusion against the Trump campaign, or the genesis of the counterintelligence investigation against then-candidate Donald Trump. The OIG will be covering those issues as part of a separate investigation announced in late March.

The report on the Clinton email investigation will, however, cover the conduct of FBI “lovebirds” Peter Strzok and Lisa Page. Strzok notably spearheaded the Clinton email investigation before also handling the early Trump-Russia investigation. 

Horowitz’s report will undoubtedly also cover significant edits made by the FBI’s top brass to Hillary Clinton’s exoneration statement – effectively decriminalizing her mishandling of classified information so that she wouldn’t be prosecuted by the DOJ.

Who is Michael Horowitz?

[insert: gettyimages-483008878 (2).jpg]

In January, we profiled Michael Horowitz based on thorough research assembled by independent investigators. For those who think the upcoming OIG report is just going to be “all part of the show” – take pause; there’s a good chance this is an actual happening, so you may want to read up on the man whose year-long investigation may lead to criminal charges against those involved. 

In short – Horowitz went to war with the Obama Administration to restore the OIG’s powers – and didn’t get them back until Trump took office.

Horowitz was appointed head of the Office of the Inspector General (OIG) in April, 2012 – after the Obama administration hobbled the OIG’s investigative powers in 2011 during the “Fast and Furious” scandal. The changes forced the various Inspectors General for all government agencies to request information while conducting investigations, as opposed to the authority to demand it. This allowed Holder (and other agency heads) to bog down OIG requests in bureaucratic red tape, and in some cases, deny them outright. 

What did Horowitz do? As one twitter commentators puts it, he went to war…

In March of 2015, Horowitz’s office prepared a report for Congress  titled Open and Unimplemented IG Recommendations. It laid the Obama Admin bare before Congress – illustrating among other things how the administration was wasting tens-of-billions of dollars by ignoring the recommendations made by the OIG.

After several attempts by congress to restore the OIG’s investigative powers, Rep. Jason Chaffetz successfully introduced H.R.6450 – the Inspector General Empowerment Act of 2016 – signed by a defeated lame duck President Obama into law on December 16th, 2016, cementing an alliance between Horrowitz and both houses of Congress. 

1) Due to the Inspector General Empowerment Act of 2016, the OIG has access to all of the information that the target agency possesses. This not only includes their internal documentation and data, but also that which the agency externally collected and documented.

TrumpSoldier (@DaveNYviii) January 3, 2018

See here for a complete overview of the OIG’s new and restored powers. And while the public won’t get to see classified details of the OIG report, Mr. Horowitz is also big on public disclosure: 

Horowitz’s efforts to roll back Eric Holder’s restrictions on the OIG sealed the working relationship between Congress and the Inspector General’s ofice, and they most certainly appear to be on the same page. Moreover, FBI Director Christopher Wray seems to be on the same page as well. Click here and keep scrolling for that and more insight into what’s going on behind the scenes. 

Here’s a preview: 

 

Which brings us back to the OIG report expected by Congress a week from Monday.

On January 12 of last year, Inspector Horowitz announced an OIG investigation based on “requests from numerous Chairmen and Ranking Members of Congressional oversight committees, various organizations (such as Judicial Watch?), and members of the public.” 

The initial focus ranged from the FBI’s handling of the Clinton email investigation, to whether or not Deputy FBI Director Andrew McCabe should have been recused from the investigation (ostensibly over $700,000 his wife’s campaign took from Clinton crony Terry McAuliffe around the time of the email investigation), to potential collusion with the Clinton campaign and the timing of various FOIA releases. 

On July 27, 2017 the House Judiciary Committee called on the DOJ to appoint a Special Counsel, detailing their concerns in 14 questions pertaining to “actions taken by previously public figures like Attorney General Loretta Lynch, FBI Director James Comey, and former Secretary of State Hillary Clinton.” 

The questions range from Loretta Lynch directing Mr. Comey to mislead the American people on the nature of the Clinton investigation, Secretary Clinton’s mishandling of classified information and the (mis)handling of her email investigation by the FBI, the DOJ’s failure to empanel a grand jury to investigate Clinton, and questions about the Clinton Foundation, Uranium One, and whether the FBI relied on the “Trump-Russia” dossier created by Fusion GPS. 

On September 26, 2017, The House Judiciary Committee repeated their call to the DOJ for a special counsel, pointing out that former FBI Director James Comey lied to Congress when he said that he decided not to recommend criminal charges against Hillary Clinton until after she was interviewed, when in fact Comey had drafted her exoneration before said interview. 

And now, the OIG report can tie all of this together – as it will solidify requests by Congressional committees, while also satisfying a legal requirement for the Department of Justice to impartially appoint a Special Counsel.

As illustrated below by TrumpSoldier, the report will go from the Office of the Inspector General to both investigative committees of Congress, along with Attorney General Jeff Sessions, and is expected within weeks.

[insert: oig flowchart (3).PNG ]

DOJ Flowchart, Courtesy @DaveNYviii

Once congress has reviewed the OIG report, the House and Senate Judiciary Committees will use it to supplement their investigations, which will result in hearings with the end goal of requesting or demanding a Special Counsel investigation. The DOJ can appoint a Special Counsel at any point, or wait for Congress to demand one. If a request for a Special Counsel is ignored, Congress can pass legislation to force an the appointment. 

And while the DOJ could act on the OIG report and investigate / prosecute themselves without a Special Counsel, it is highly unlikely that Congress would stand for that given the subjects of the investigation. 

After the report’s completion, the DOJ will weigh in on it. Their comments are key. As TrumpSoldier points out in his analysis, the DOJ can take various actions regarding “Policy, personnel, procedures, and re-opening of investigations. In short, just about everything (Immunity agreements can also be rescinded).” 

Meanwhile, recent events appear to correspond with bullet points in both the original OIG investigation letter and the 7/27/2017 letter forwarded to the Inspector General: 

With the wheels set in motion last week seemingly align with Congressional requests and the OIG mandate, and the upcoming OIG report likely to serve as a foundational opinion, the DOJ will finally be empowered to move forward with an impartially appointed Special Counsel.

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Canadian City Leaders Declare Anarchy Symbol to Be Hate Speech

AnarchyThe City of Hamilton in Ontario, Canada, seems to have a problem with a small cadre of black-clad anarchist radicals vandalizing storefronts and cars in their community. A group of them caused about $100,000 in damage in a protest in March.

In addition to condemning the violence and trying to track down the direct perpetrators, efforts to fight further violence have taken a weird and troubling turn. The city has ordered a local anarchist group to take the familiar anarchy symbol off its headquarters, designating it as “hate material.”

The Tower, a meeting space for anarchists in Hamilton, displayed the anarchist symbol—a capital A in a circle—alongside a paraphrase of a quote from Spanish anarchist Buenaventura Durruti—”We are not in the least afraid of ruins for we carry a new world here in our hearts”—on several pieces of plywood covering smashed windows on the building’s facade.

It was the symbol, not the quote, that drew city leaders’ ire, which is itself a little odd: The quote is what appears to support the vandalism. The city ordered The Tower to remove the offending symbol as hate speech. Canada, unlike the United States, does have laws that censor hate speech. The laws specifically require that the offending speech advocate genocide or incites hatred against an “identifiable group.” The groups that are recognized by Canada’s hate speech law are bound by “color, race, religion, ethnic origin, gender identity or expression, or mental or physical disability.”

You may be wondering which of these identifiable groups is targeted by the anarchy symbol. So are the police in Hamilton. City officials are pointing to the police as justification for their censorship demands, claiming it’s on a list of hate symbols the police have provided. But the police say they do not classify the anarchy symbol as hate speech. According to Canadian media outlet CBC, the police do provide a list of hate symbols and images to the city, but they don’t associate anarchists and displays of anarchism as “hate speech.”

There is one “identifiable group” anarchists have antipathy for, and that might explain the city’s odd behavior better. From the CBC‘s coverage:

Princewill Ogban, the head of Hamilton’s new anti-racism centre, told CBC News he’s never really heard of the anarchy symbol being classified as hate material. He did point to one instance in California where a specific anarchist group was linked to white nationalism, but said that group was essentially an outlier.

“Most anarchy groups in the past have been seen as anti-racist or anti-hate,” he said. “They are pro-people and anti-government.”

Ah, they’re anti-government! Subsequently Hamilton Mayor Fred Eisenberger defended classifying the anarchy symbol as hate speech Wednesday regardless of what Canada’s law actually says. From the Hamilton Spectator:

“Certainly the anarchists that have locally presented themselves have done things that would be considered to be inappropriate, so if you tie the two of them together, I would say that’s a symbol of destruction and mayhem and causing a crisis to a particular area,” Eisenberger said Wednesday. “Is that hateful? I think it is.”

And that quote is one of many reasons why laws against hate speech are so dangerous. The natural inclination of many government officials when given the power to decide what sort of speech and communication is out of the bounds of the law is to game the system to protect themselves from ideological opponents and critiques.

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Hong Kong Is Still Blowing Billions To Defend Its Currency Peg

It has now been 28 days since the Hong Kong Dollar tumbled to the lower limit of its currency peg band and HKMA is still blowing billions every day to defend the currency…

So far HKMA has spent over US$8 billion buying Hong Kong Dollars and achieved nothing…

Having briefly achieved some lift of the pressure in mid-April, HKMA’s intervention has begun again this week…

The Hong Kong Monetary Authority bought HK$1.963b to support the local currency overnight, according to the de facto central bank’s page on Bloomberg, decreasing its aggregate balance to HK$115.47 billion (US$14 billion).

As Bloomberg points out, the HKMA’s actions have the effect of tightening liquidity in a city that’s grown fat on ultra-low borrowing costs.

“The HKMA may need to mop up more liquidity and push the aggregate balance toward HK$100 billion this week,” said Carie Li, a Hong Kong-based economist at OCBC Wing Hang Bank Ltd.

“But the Hong Kong dollar will rebound starting next week, as funding needs to increase at month-end. Liquidity will tighten further in June due to an expected interest rate hike in the U.S. and potential funding demand fueled by Xiaomi and China Tower IPOs.”

Li said Hong Kong lenders will lift deposit rates as liquidity conditions tighten.

“Banks are likely to increase the prime rate around mid-year, which will hurt property market sentiment, especially for mortgage borrowers. The home market may see a correction and slower growth this year.”

And sure enough, as Bloomberg reports, rising short-term funding costs (3-month borrowing rate is 1.75% – near the highest since December 2008 – and up from 0.8% a year ago) have prompted banks to offer deposit rates of as much as 3%.

For now, the rising HKD Hibor is undoing some of the huge positive carry trade, but as the chart below shows, that carry advantage is still pressuring HKD…

In other words, rates will have to go higher and liquidity tighter before HKD really lifts off the lower peg band limit.

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America’s long-term challenge #2: the looming retirement crisis

Last week, the financial services giant Northwestern Mutual released new data showing that 1 in 3 Americans has less than $5,000 in retirement savings.

It’s an unfortunately familiar story. And Northwestern Mutual’s data is entirely aligned with other research we’ve seen in the past, including our own.

The Federal Reserve’s most recent Survey of Consumer Finances, for example, shows that the median bank balance among US consumers is just $2,900.

And Bank of America’s annual report from last year showed that the average balance per HOUSEHOLD (i.e. -not- per person) was $12,870… which was actually LESS than the average account balance that Bank of America reported in 1997!

On average, the typical US household has less savings today than they did 20 years ago… and almost nothing put away for retirement.

In fact 21% of Americans (based on Northwestern Mutual’s data) have absolutely nothing saved for retirement.

And 33% of Baby Boomers, the generation closest to retirement, have between $0 and $25,000 saved for retirement.

That’s hardly enough savings to last more than a few years… and a major reason why most retirees currently rely on Social Security to meet their monthly living expenses.

According to a Gallup poll from last May, 58% of US retirees said that they rely on Social Security as their major source of income. They simply don’t have enough of their own personal savings stashed away.

But as we’ve discussed many times before, Social Security is rapidly running out of money.

The most recent report from Social Security’s Board of Trustees (which includes the US Secretaries of the Treasury, Labor, and Health & Human Services) tells us that the program’s cost has exceeded its tax revenue since 2010.

Last year this shortfall was $59 billion, 11% worse than in 2016.

And in order to make up the difference and cover this deficit, Social Security has to dip into its trust fund, effectively burning through the program’s savings.

The problem with this approach is that, eventually, these annual deficits will burn through ALL of the program’s savings.

The government knows this; the Board of Trustees even state this in their annual report, projecting that the Social Security trust funds will become fully depleted in 2034.

Sixteen years may seem like a long way off. But we’re talking about retirement here. You’re supposed to think long-term about retirement. And the math simply doesn’t add up.

The Trustee Report states explicitly that, once the trust funds run out of cash, the program will have to, at a minimum, reduce the monthly benefit that’s paid to its recipients.

So if you’re planning on being retired at any point past 2034, the government is LITERALLY TELLING YOU that they won’t be able to pay the retirement benefit that’s been promised to you.

Longer term (pay attention to this if you’re under 40), the numbers get even worse.

The way Social Security works is that retiree benefits are essentially paid for by people who are currently in the work force.

If you have a job, a portion of your paycheck each month goes to Social Security and ends up in the pockets of people who are currently retired.

In order for Social Security to function, there has to be a certain number of workers paying into the program for each retiree.

Social Security tracks this worker-to-retiree ratio VERY closely. The higher the ratio, the better.

In 1995, for example, there were 4.9 workers paying into the program for every retiree receiving benefits.

By 2020, Social Security projects the ratio will be down to 3.7 workers per retiree. And by 2040, just 2.75.

That’s simply not enough workers.

Do the math– at 2.75 workers per retiree, you’d have to pay nearly 40% of your salary just in Social Security tax (i.e. NOT including Medicare, federal, or state income tax) to keep the program running.

It’s also noteworthy that, just this morning, the US government released data showing that the birthrate in the United States is at a 30-year low.

If you project this alarming trend forward by a few decades, you can see how the worker-to-retiree ratio could easily fall below Social Security’s already dismal forecast.

It’s not just Social Security either. State and local pension funds, and even a lot of union and corporate pension funds, are also terminally insolvent.

A report issued a few months ago by the American Legislative Exchange Council estimates that the total amount of unfunded liabilities for state and local government pensions now exceeds $6 TRILLION.

Bottom line, Social Security is broken. State and local pensions are broken. And the federal government is far too broke to be able to bail any of them out.

Even the Social Security trustees admit this– they’re practically giving us a date to circle on our calendars for when the program will run out of money.

Yet a disturbing number of Americans has little to nothing set aside for retirement… and they’re expecting to be able to rely on Social Security.

Something is obviously wrong with this picture, and it would be utterly ludicrous to expect this won’t have a substantial impact.

Either future workers and businesses are going to be hammered with all sorts of new taxes to bail out Social Security–

— or retirees who have no savings and rely exclusively on the program to survive are going to have their benefits drastically slashed.

Either way, retirement is a nuclear problem set to explode in the Land of the Free.

One way or another, tens of millions of people are going to have their lives turned upside down.

And it is beyond the powers of the government to do anything to stop it.

Source

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