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This morning one of Israel's largest international news broadcasters broke an explosive yet not entirely surprising story that Israel would take the unprecedented step of sharing intelligence with Saudi Arabia as both countries continue to ramp up efforts to curb what they perceive as Iranian expansion in the region. 

Left: Israeli PM Netanyahu, Right: Saudi Prince Mohammed bin Salman

Israel's i24NEWS cited statements by the head of the Israeli army given to a prominent Saudia Arabian newspaper on Thursday:

In an unprecedented interview with Saudi Arabia's Alaf newspaper on Thursday, Israel Defense Force (IDF) chief-of-staff Lt. Gen. Gadi Eizenkot said that Israel is ready to share intelligence with Riyadh on their shared arch-foe Iran.

 

Eizenkot, who is the first senior Israeli military officer to be interviewed by a Saudi media outlet, called Iran the "biggest threat to the region" and said that Israel and Riyadh – which he noted have never fought one another – are in complete agreement about Iran's intentions to dominate the Middle East.

The report continues, quoting the IDF chief: 

The interview is a major public step forward in warming ties between Israel and Saudi Arabia – which do not share any diplomatic relations.

 

Eizenkot said that Iran wants to take control of the Middle East by creating two Shi'ite crescent, "from Lebanon to Iran and then from the Gulf to the Red Sea."

 

"We must prevent this from happening," he implored.

 

He said that Israel has no intention of initiating a conflict with Iran's Lebanese proxy Hezbollah, saying that "we see Iranian attempts at bringing about an escalation, but I don't see a high chance for this at the moment."

The historic news, which is worrisome for the fact that it could bring the region closer to major war, follows last week's leak of an Israeli diplomatic cable sent to all Israeli embassies throughout the world which reveals Israeli and Saudi behind the scenes coordination. The cable gave instructions to Israeli diplomats to express support for the Saudi war against Shia forces in Yemen and also urged embassies to aggressively lobby their host governments to take steps toward pushing Hezbollah out of Lebanon.

We summarized the now confirmed leaked document as follows:

• On Sunday, just after Lebanese PM Hariri's shocking resignation, Israel sent a cable to all of its embassies with the request that its diplomats do everything possible to ramp up diplomatic pressure against Hezbollah and Iran.
• The cable urged support for Saudi Arabia's war against Iran-backed Houthis in Yemen.
• The cable stressed that Iran was engaged in "regional subversion". 
• Israeli diplomats were urged to appeal to the "highest officials" within their host countries to attempt to expel Hezbollah from Lebanese government and politics. 

1 \ I published on channel 10 a cable sent to Israeli diplomats asking to lobby for Saudis\Hariri &against Hezbollah https://t.co/AbeLPC35GP

— Barak Ravid (@BarakRavid) November 6, 2017

And this week, another leaked document emerged, first obtained by Lebanon's Al-Akhbar news, which reveals, according to regional media, "concessions to Israel that are certain to prove controversial in Palestine and the Arab world if true, including Saudi encouragement of the Palestinians to cede the right of return of their refugees, in return for a peace deal with Israel and closer cooperation with Tel Aviv against Iran and Hizballah."

The 'secret' document is reportedly from the Saudi foreign ministry and provides further proof that Israel and Saudi Arabia – who for decades have been long time public bitter enemies – are increasingly cementing and formalizing their relationship while talking war with Iran and Hezbollah. According to a translation provided by The New Arab, the leaked Saudi foreign ministry document reads in part as follows:

"I have the honour to submit to you a project for establishing relations between the kingdom and the State of Israel based on the strategic partnership agreement with the United States of America, discussed with the US Secretary of State based on the guidance of your noble guidance," opens the letter. 

 

"Saudi Arabia…. has immense influence and diplomatic power that can give credibility to peace efforts," the alleged letter continues. 

 

"The kingdom had pledged in the strategic partnership agreement with US President Donald Trump that only a US-Saudi effort (for peace) is the key to success as… no solution to the Palestinian issue can be legitimate without the support of Saudi Arabia.

 

"Rapprochement between Saudi Arabia and Israel carries risks… given the spiritual, historical, and religious status of the Palestinian issue. The kingdom cannot risk this move unless it feels the US is honest about its efforts against Iran, which destabilizes the region."

The more explosive passage of the secret Saudi document concerns Iran, and comes at the end of the memo, to wit: "Resolving this conflict will pave the way for security, commercial, and financial cooperation against Iran. Therefore, the Saudi and Israeli sides have the following (goals) in common:

• Confronting any activities that serve the aggressive policies of Iran in the Middle East.
• Increasing US and international sanctions over Iran's ballistic missile programme
• Increasing sanctions over Iran's sponsorship of terrorism around the world.
• Lobbying the 5+1 group over their position on the nuclear deal with Iran to ensure its strict implementation
• Limiting Iranian access to frozen assets, and capitalizing on Iran's economic problems to increase pressure on the regime
• Intelligence cooperation against organised crime and drug trafficking supported by Iran and Hizbollah"

All of the above is yet further confirmation of the already well-known Saudi and Israeli common cause against perceived Iranian influence and expansion in places like Syria, Lebanon and Iraq of late. This has led the historic bitter enemies down a pragmatic path of unspoken cooperation as both seem to have placed the break up of the so-called "Shia crescent" as their primary policy goal in the region. For Israel, Hezbollah has long been its greatest foe, which Israeli leaders see as an extension of Iran's territorial presence right up against the Jewish state's northern border. 

All of this this comes, perhaps not coincidentally, at the very moment ISIS is on the verge of complete annihilation (partly at the hands of Hezbollah), and as both Israel and Saudi Arabia have of late increasingly declared "red lines" concerning perceived Iranian influence across the region as well as broad Hezbollah acceptance and popularity within Lebanon.

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After August's shocking plunge in Industrial Production – assumed away as storm-related -September and now October rebounded notably MoM (+0.9% vs +0.5% exp)…

as Manufacturing resurged 1.3% MoM – the most since 2010.

However, excluding the effects of the hurricanes, the index for total output advanced about 0.3 percent in October, and the index for manufacturing advanced about 0.2 percent.

In other words, the hurricanes contributed 6% of the rebound in IP… so we're gonna need moar hurricanes!

And of course, the US equity market is well aware of this trend in Industrial Production…

Industrial Production remains 0.5% below 2014's peak, but the Industrial Average is up 31% since then.

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Activity in the art/collectible markets yesterday caught my attention.  A once-lost portrait of Christ by the iconic Renaissance man Leonardo da Vinci sold Wednesday at auction for $450 million, roughly triple its anticipated price and the most ever paid for a creative work of human genius.

Bloomberg reported that the largest known fancy intense pink diamond went unsold at Sotheby’s on Wednesday amid jitters in the final round of the Geneva fall auction season. Could this bipolar activity be sending an important message to stocks and the broad markets?

This activity in the art/collectibles markets got me curious to see what the stock pattern of Sotheby’s looked like. See BID below-

CLICK ON CHART TO ENLARGE

Sotheby’s peaked in 2007 at the $57 zone at (1). After falling hard during the financial crisis along with the majority of stocks, it has rallied off the 2009 lows to get back to 2007 highs again this past summer at (2). While testing 2007 highs in July, BID created a small bearish reversal pattern (bearish wick). Since creating this pattern, despite the broad market moving higher, BID has not.

While testing the 2007 highs, has BID been creating a head & shoulders topping pattern? It is too early to tell, possible though.

BID remains inside of 2-year rising channel and is testing rising support at (3) above. BID has an unfilled gap near the $30 zone, roughly 30% below current prices. What BID does at (3) could become very important to the intermediate term for this company and could send an important message to this sector and potentially the broad market overall.

 

Why you see chart pattern analysis with brief commentary:   

There is a ton of news and opinions about markets and stocks that make the decision-making process more difficult than it needs to be.   

I believe the Power of the chart Pattern provides all you need to see what is taking place in an asset and determine the action to take. 

This approach has worked well for me and our clients and I encourage you to test it for yourself.

 

 

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One of the world’s largest sovereign wealth funds, and one which ironically amassed the overwhelming majority of their wealth via rich oil reserves, is now looking to sell off some $35 billion worth of energy stocks.  According to central bank Deputy Governor Egil Matsen, the move is intended simply to “spread the risks for the state’s wealth,” but one has to wonder whether the owner of 1.5% of the world’s stocks has decided that oil has now moved into a period of secular decline.  Per Bloomberg:

Norway’s $1 trillion sovereign wealth fund proposed dumping about $35 billion in oil and gas stocks, including Royal Dutch Shell Plc andExxon Mobil Corp., to protect the economy of western Europe’s biggest petroleum producer.

 

The nation will be “less vulnerable” to a drop in oil by not being invested in stocks of companies in the industry, the Oslo-based fund said Thursday. The Finance Ministry said it would study the plan and decide at the earliest in “autumn 2018.”

 

“Our perspective here is to spread the risks for the state’s wealth,” Egil Matsen, the deputy governor at the central bank in charge of overseeing the fund, said in an interview in Oslo Thursday. “We can do that better by not adding oil price risk through the fund.”

 

While the fund says the plan isn’t based on any view on the future of oil prices or the industry, it will likely add pressure on oil producers, already struggling in a world where renewable energy is gaining sway.

In light of this news, here is a list of Norway’s 10 largest energy holdings (valuesin NOK) that you should probably look to lighten up on at some point before they do.

Of course, roughly a year ago we scoffed at the wealth fund’s decision to respond to sinking returns and withdrawals required to fund budget deficits, deficits created by tumbling oil prices, by allocating another $130 billion in assets to what appeared to be an already massively overpriced equity bubble in return for an extra 40bps of “expected average annual real returns.” (see: Norway Buying $130 Billion In Global Equities As Sovereign Wealth Fund Continues To Bleed Cash).  The extra equity purchases pushed the fund’s total equity allocation to a staggering 70% of their $860 billion in assets under management. 

After being forced to withdraw at least $15 billion to fund 2017 budget deficits, the $860 billion Norwegian sovereign wealth fund has announced that it will change it’s portfolio allocations to try to make up the difference.  The change will result in 75% of the fund’s capital being allocated to global equities, up from the current 60%.  Sure, because funneling another $130 billion to the global equity bubble is just the prudent thing to do for an extra 40bps of “expected average annual real returns.”

The central bank’s board, which oversees the fund, on Thursday recommended an increase in the equity share to 70 percent from 60 percent. That will raise the expected average annual real return to 2.5 percent over 10 years and to 3.5 percent over 30 years, compared with 2.1 percent and 2.6 percent, respectively, under the current setup.

 

The world’s largest sovereign wealth fund said that it expects an annual return of only 0.25 percent on bonds over the next decade and that the expected “equity risk premium,” or return on stocks over government bonds, will be just 3 percentage points in a cautious estimate.

 

“In our analyses, this is clearly evident in global data: internationally, growth in firms’ cash flows and equity returns are correlated with growth in the global economy,” Deputy Governor Egil Matsen said in a speech Thursday in Oslo. “Global economic growth in the coming years is expected to be below its historical level. This ‘pessimism’ is partly related to the driving forces behind the low level of the real interest rate.”

Alas, with global equity bubbles becoming ever more bubblier with each passing day, the bet on equities paid off ‘bigly’ for Norway and pushed their AUM to over $1 trillion for the first time ever back in September.  Per Bloomberg:

Norway’s sovereign wealth fund hit $1 trillion for the first time on Tuesday, driven higher by climbing stock markets and a weaker U.S. dollar.

 

The milestone valuation was reached for the first time on Sept. 19 at 2:01 a.m. in Oslo, Norges Bank Investment Management said in a statement on Tuesday.

 

“I don’t think anyone expected the fund to ever reach $1 trillion when the first transfer of oil revenue was made in May 1996,” Yngve Slyngstad, chief executive officer of the fund, said in the statement. “Reaching $1 trillion is a milestone, and the growth in the fund’s market value has been stunning.”

So, what say you?  Is this just a logical diversification play for a state that is already highly levered to oil or is Norway signaling that the end is near for their black gold.

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So much can change in ten days.

Having entered last week short, “world-renowned commodity guru”, Dennis Gartman, got spooked last Tuesday when faced with the relentless melt-up in global stocks, and admitted that he had “been wrong… badly… in taking even a modestly bearish view of the global equity market and effecting that bearish view via a position in out-of-the-money puts on the US equity market bought a week and one half ago.”  He then said he would immediately cover his short “and covered it shall be” because as he then explained, he was afraid  

“…we are about to enter that violent… and ending… rush to the upside that has ended so many great bull markets of the past. At this point, the buying becomes manic and prices head skyward. Speculation is the order of the day, not investment and when such periods have erupted in the past prices have gone parabolic until such time as the last bears have been brought to heel and the public has thrown investment caution to the wind. We’re there now; this may become wild.”

Fast forward to yesterday when, with nothing but price momentum changing in the interim, Gartman’s flipped 180 degrees, and boldly predicted that “the bear market is upon us we fear”:

Today’s “universal” weakness…only a week from the global market’s all-time high… is a harbinger of further material weakness we fear and sets the stage for the start of what we fear might well be a bear market of some serious vintage. There is concern… very real concern… on our part that one market after another has broken its upward sloping trend line that has heretofore been very well defined. A trend line drawn across the recent lows of the Dow has been broken; a trend line drawn across the recent lows of the S&P has also; trend lines of the Russel… of the Nikkei… of the DAX… of the EUR STOXX 50… of the Tadawul in Saudi Arabia… have all been broken, and we can go of if need be but our point here is made. Something material has happened to the global equity market and only the most fervent of stock market bulls shall not recognize that fact.

 

The equity market, by its very definition, anticipates the change in the economy, rising before the economy rises and falling before the economy falls. We are at the latter tipping point. It has been months in the coming, but it is here and adjustments in one’s investment policies must be made accordingly. The bear is upon is, we fear.

Fast forward to today when all those wondering why not only US equity futures, but markets around the globe have rebounded overnight, may find the answer:

As we said here yesterday, we are certain that we are at a turning point where economic activity is strong and shall likely grow stronger for several months into the future but where stock prices are weaker. Again as we said yesterday, it has always been thus and it shall always be thus. The equity market, by its very definition, anticipates changes in the economy, rising before the economy rises and falling before the economy falls. We are at the latter tipping point:

There was more in the rant, written just one week after Gartman predicted an imminent “violent, panic” rush in stocks, now anticipating a bear market, but it culminated with a new trade recommendation.

Short of One Unit of the US Equity Market: Yesterday… Wednesday, November 15th…we suggested that on any intra-day strength in the indices here in the US … and by strength we meant 8-12 “point” rallies in  the S&P we intended to “sell” the markets short, leaving the actual manner of being short to everyone’s individual preference. Given  that the S&P was 2568 as we wrote, a rally toward what had been support at 2572 would be a reasonable place to sell. It got there… barely… and we are now short a marginal sum.

For the bears out there the wisest thing to do may be to just step away for a bit, and certainly until Gartman’s already underwater position, is stopped out.

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Ignoring the storm-driven aberrations, this week's 10k jump in initial jobless claims to 249k signals a notable regime shift in the labor market. For the first time since 2016's growth scare, there are more Americans opening jobless claims than last year…

In fact there are over 4% more people on initial jobless claims than this time last year…

Did the jobs market just turn?

And when claims turn, a recession follows…

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Echoing yesterday's Empire Fed, the headline Philly Fed print was lower and disappointed expectations but the forward-looking hope-fueled outlook jumped higher.

This rise in hope comes as the number of employees and the average wo4rkweek tumble.

Prices Paid jumped once again – back near the year's highs – and new orders rebounded from October's slump.

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Hotter than expected Core PPI and CPI prints in the last two days suggested Import Prices may also come in hot but that was not the case as the MoM rise in import prices was just 0.2% (vs +0.4% exp).

Ex-Fuel, import prices rose just 0.1% in October (with Petroleum prices up 1.7% MoM and 14.9% YoY). However that rise in petroleum import prices is notably lower than then +6.3% in September

On the export side, food prices rose 2.2% MoM as Auto prices declined 0.2% MoM.

Year-over-year however, both import and export price growth declined modestly.

 

China Import prices contonue to slide as it exports deflation around the world…

This is now the lowest since 2007.

"Transitory"

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