Illinois Eyes 30 Cent Gas Tax Hike, Chicago Faces Yet Another Property Tax Hike

Authored by Mike Shedlock via http://ift.tt/2lfU0ag,

The Illinois legislature is in recess right now. Other than disbanding the body, that's the best place for them.

When they return, they are going after your pocketbook in the form a gas tax hike. Not to be outdone, Chicago Mayor Rahm Emanuel is pondering property tax hikes.

In July, the State legislature overrode Governor Rauner's veto and passed the largest tax hike in history. The hike raised the individual rate to 4.95 percent from 3.75 percent and the corporate rate to 7 percent from 5.25 percent.

With those hikes, households making about $100,000 will pay an additional $1,200 in taxes each year.

But that was not enough. It never will be.

Today, the Illinois Policy Institute CEO John Tillman emailed, "The Illinois General Assembly will be back in session next week. And guess what? They’re already talking about raising your taxes again. This time, they’re discussing increasing gas taxes. Lawmakers haven’t released specific numbers yet, but talks have ranged anywhere from an additional $0.05 to $0.30 a gallon."

Tax Hikes in Chicago

Chicago taxpayers face yet another property tax increase for police and fire pensions in 2020 — and another hike the following year in the tax tacked onto water and sewer bills to save the Municipal Employees pension fund, aldermen learned on the first day of City Council budget hearings.By the city’s own estimate, police and fire pension costs will rise by $297.3 million, or 36 percent, in 2020. The Municipal and Laborers plan costs will grow by $330.4 million, or 50 percent, in 2022.

 

“We’ve done the biggest [property tax] increases,” Chicago Chief Financial Officer Carole Brown said Monday.

 

“But there will be an increase in 2020 for police and fire. The increase for Muni and Laborers will happen a couple years later.“

 

When this Council passed the water and sewer tax last year, there were assumed increases in the tax from the first year to correspond to increases in the ramp. We would anticipate that if those were the revenue sources assigned on a going-forward basis after we got to actuarial funding, there would need to be increases in those revenues.”

Big Round of Thanks

Neighboring governors are offering their thanks to Illinois.

In a fundraiser for Rauner, three neighboring GOP governors, Scott Walker of Wisconsin, Eric Greitens of Missouri, and Eric Holcomb of Indiana each delivered a sarcastic “thank you” to Illinois House Speaker Mike Madigan for “raising Illinois taxes” and “helping create new jobs” in their states.

  • "For raising Illinois' taxes, our economy's on fire," Scott Walker stated.
  • Missouri Governor Eric Greitens chided Madigan, "We’re growing good jobs."
  • Indiana Gov. Eric Holcomb offered, "We’re growing union jobs faster than Illinois. So, we owe you."
  • Holcomb added, "Hoosiers love you, Mike Madigan."

 

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Bombshell NSA Memo: Saudi Arabia Ordered Attack On Damascus International Airport With US Knowledge

The Intercept has just released a new top-secret NSA document unearthed from leaked intelligence files provided by Edward Snowden which reveals in stunning clarity that the armed opposition in Syria was under the direct command of foreign governments from the early years of the war which has now claimed half a million lives.

The US intelligence memo – marked "Top Secret" – is arguably the most damning piece of evidence to date which gives internal US government confirmation of the direct role that both the Saudi and US governments played in fueling an armed insurgency which launched massive and well-coordinated attacks on civilians, civilian infrastructure, as well as military targets in pursuit of regime change. The NSA report is sourced to the intelligence agency's controversial PRISM program – which gives the NSA the ability to sweep up all communications and data exchanged through major US internet service providers like Google. The memo focuses on events that unfolded outside Damascus in March of 2013.

Damascus International Airport: a major civilian transport hub targeted by the Saudi government with knowledge of US intelligence. Image source: AFP/Getty

One of the videos that Saudi-backed FSA fighters uploaded to YouTube identified by The Intercept as showing rockets launched on civilian areas of Damascus on March 18, 2013. US intelligence knew of the secret operation three days in advance yet did not stop it.  

According to the document, the Free Syrian Army (FSA) was ordered to "light up Damascus" and "flatten" the Syrian capital's international airport by Prince Salman bin Sultan – a prominent member of the Saudi royal family tasked with overseeing operations in Syria as a top Saudi intelligence officer. The document further reveals that the "Saudis sent 120 tons of explosives/weapons to opposition forces" – presumably in the lead up to the operation.

The report not only confirms that the assault happened, but that the Saudi government was "very pleased" with the outcome: "Attacks against airport, Presidential palace and other locations occurred on 18 March," the memo reads. Also significant is that the memo confirms US intelligence foreknowledge of the attack on a major civilian airport: "Reports gave U.S. three days warning about 18 March 2013 attacks (2 year anniversary of revolution)."

Prince Salman bin Sultan, who is currently the Saudi Deputy Defense Minister. Image source: Wikimedia Commons

According to The Intercept, various news reports from the time confirmed significant attacks and damage from FSA-fired rockets upon civilian areas. Not only is Damascus International Airport Syria's main civilian transport hub – which was used by millions each year before the war – but it remained in daily operation for commercial flights in March 2013, when Saudi intelligence ordered the attacks with knowledge of US intelligence.

As The Intercept reports:

A number of videos posted by Syrian opposition media on the day of the attacks purport to show rebel fighters firing rockets at the same sites mentioned in the U.S. document. The March 2013 attacks in Damascus provide a concrete example of the role that foreign powers played in the day-to-day reality of the conflict. A number of videos posted by Syrian opposition media on the day of the attacks purport to show rebel fighters firing rockets at the same sites mentioned in the U.S. document. Local media reports from that day described an attack in which rockets struck within the areas of the presidential palace, a local government security branch, and the airport. A representative of the U.K.-based Syrian Observatory for Human Rights quoted in a story the next day reporting the attacks, stating that they were unable to confirm whether they resulted in casualties. 

However, The Intercept's commentary is inaccurate in claiming that the Syrian Observatory (SOHR) did not report casualties from the attack as one of the Arabic news sources it links to above (Middle East based Alwatan News), reports:

"The Free Syrian Army targeted Kafr Sousa [an area of Damascus near Mezzeh] and they fired 24 missiles on Damascus airport… 60 people died in yesterday's attacks, according to the Syrian Observatory." [as translated by Zero Hedge]

And intense attacks continued through April and into the summer of 2013 according to international media reports from the time, also confirmed by a photo circulated through the AFP showing civilian passengers waiting in airport lounges the month following the initial March 2013 rocket attacks. 

While the Saudi-US role in fueling the jihadist insurgency from the earliest days of the war in Syria has long been thoroughly documented, this latest leaked NSA bombshell report provides astoundingly clear proof that the relationship between the anti-Assad insurgents and foreign intelligence was even more direct, and existed earlier in time than most analyst and mainstream pundits led the public to believe. 

*****

Below is the leaked National Security Agency document published by The Intercept earlier today:

Leaked NSA document contents in text format: 

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Passive Should Never Laugh At Active

Authored by Kevin Muir via The Macro Tourist,

I have been meaning to write this post for quite some time. As an ex-ETF trader, I have watched with bemusement as investors have both embraced and shuddered at the wide adoption of ETFs. But most pundits are missing the larger picture. ETFs are just a symptom of the bigger phenomenon. The true battle lies in the passive versus active debate.

Let me get this out of the way right off the bat. I have no dog in this hunt. I see both the benefits and the negatives to each side. Yet as a trader, I definitely have a view on which end of the boat is leaning lopsided right now.

*  *  *

Lessons from triple witching

But first, let me tell you a story. I was lucky enough to have a ringside seat for the coming of age of equity index derivatives. Sure they existed before my time, but the true widespread global adoption occurred in the 1990’s. In Canada, when I first sat down on the institutional desk, clients had little interest in what the young kids with their fancy SUN workstations were doing. Yet as money flowed into the derivatives complex, what had first just been a strange little science experiment, suddenly started moving the underlying market. Our index arbitrage flows became significant, and regular plain vanilla clients began took notice.

Along with the increased index arbitrage flows came this bizarre triple witching expiry. When open interest was small, these expiries were minor. But as the usage of derivatives expanded, one morning we experienced an imbalance that was uncomfortably large. Being index traders, we instantly understood what had happened. Someone was letting a whole bunch of exposure expire into the open, and therefore there was a very large, and very real, index sell basket to execute at the open.

Many institutional clients were not used to trading on the open. Most often, they let retail orders and market makers set the price, and then after it settled down, they would give us their orders.

Given that institutional clients were not interested in trading at the open, there was little liquidity for the large expiring sell basket. Sensing an opportunity, we bid spec for a decent portion of the sell imbalance, hoping to get a good fill which we could then offset in the futures market. The trouble was, not nearly enough market participants joined us, and the market gapped down huge. It was a terrific trade as the opening settlement was many hundreds of basis points below the previous close.

There was no fundamental reason for the market dislocation. It was simply a matter that not enough participants understood what was happening.

Rest assured, immediately after the violent open, our phones were ringing off the hook with clients wanting to understand what the hell happened.

With some education, active managers learned how they could take advantage of this liquidity demand at expiry, and from then on, these fundamentals clients lined up to offset the morning imbalances.

And that’s how markets work. Opportunities are arbitraged away by market participants attempting to take advantage of mis-pricings.

*  *  *

End zone dances are a bad idea

When I see a passive manager making fun of a fundamental investor, I am perplexed. The passive manager’s very existence relies on fundamental investors keeping markets efficient. You can’t claim the market is too efficient to beat, therefore you shouldn’t try, and then laugh at everyone who does. The paradox is that your success as an indexer depends on everyone else continuing to try. The passive investor should be thanking the active guys, not mocking them.

Which brings me to a twitter exchange that I watched this weekend. I won’t name names because it isn’t important, but it was between two popular market pundits – an extremely well known money manager (and social media star), and the other, a semi-retired macro manager, revered within the hedge fund community. What struck me as odd was that the money manager, seemingly-out-of-the-blue, posted an article from last year where the macro manager had forecasted an increased chance of a recession in the coming year. The problem was that he had included a big LOL with the date on it to show how badly this macro guy had whiffed.

Now my immediate reaction was what a dick move. We all get it wrong sometimes. This macro manager is no perma-bear. He had a solid line of reasoning on why the economy might roll over. Shoving his nose in it like an ignorant dog owner might toilet train his puppy seemed mean spirited.

Now, both of these guys are way out of my league. I am pretty sure either could buy me over many, many multiple of times (at least I assume so given the out-of-reach-for-most-humans classic sports cars the regular money manager posts on his blog with little tidbits about which one he is buying.) And I am sure, the last thing the macro manager needs is me defending him. He runs with the big dogs and probably just had a good chuckle at the cheap shot slung from the social media star.

But I think their exchange represents the perfect analogy for what is happening in the market right now. It epitomizes the epic battle between passive and active, and clearly demonstrates which side is feeling smug and sure of themselves.

Climbing the ultimate wall of worry

The 2008 Great Financial Crisis scared a lot of people. I remember my old man telling me how his father’s generation was scarred by the Great Depression. They were constantly worried it would occur again, and to a large extent, they were always saving and preparing for its return. Well, our generation is not that different. In 2008, investors abandoned the stock market, and were extremely reluctant to return.

Have a look at this chart of the investment flows over the past decade:

Investors fled stocks faster than Lindsay Lohan leaving rehab, and rushed into bonds. This chart is a little bit dated, so it doesn’t show the recent surge into equities, but it gives a picture of the attitude that prevailed in the years following the Great Financial Crisis.

The important thing to realize is that most everyone was scared following the GFC. There were precious few equity bulls.

Armed with a stack of blue tickets, Central Banks were determined to not let the Great Depression repeat. So they bought, and they bought, and they bought. It started with the Fed. Then the Bank of Japan joined the party. The ECB tried to resist, but that just caused all the deflation to be exported to the EU, and eventually even the Germans acquiesced and allowed the ECB to expand their balance sheet. It has become an orgy of Central Bank buying. It’s so obscene I think even Caligula would blush.

I am not here to tell you how this will cause some end-of-the-world collapse. In fact, I think this will eventually cause a monster melt-up in all prices (including non-financial ones), as opposed to some deflationary crash. But what I would like to stress is that Central Banks have pushed financial asset prices higher. No doubt about it. Whether it was by the lowering of the risk free rate to mind boggling low levels (forcing investors out the risk curve), or by the actual purchase of risk assets (ala SNB and BoJ), financial assets have not been rising because of sound fundamentals, but instead because the economy has been so sluggish, causing even more Central Bank monetary stimulus.

Investors have been reluctant to embrace risk assets. They have reluctantly bought, not because they felt it was a compelling bargain, but because they had no choice. Faced with ever increasing life spans, combined with less and less government retirement plans, individuals realize they have not saved enough, and with the horrendous financial repression, they have no alternatives.

Markets always climb a wall of worry, but this was no wall. This was a mountain. And no regular mountain, but an Everest type imposing monolith.

The one type of manager who got it right

All of this uncertainty made passive-rule-based-long-term managers the stars of this cycle. Everyone else was reluctant to climb aboard the Central Bank fueled rally, but not this crew. Their rules forced them to be long, regardless of all the negativity surrounding markets. Managers that embraced this strategy are now geniuses and heroes melded into one.

These managers were unique in that they were a member of the elite few brave enough to be fully invested. Low bond yields didn’t scare them. Record equity valuations didn’t stopped their buying. They had a plan, and they stuck with it.

And hats off to them. Any level of cash or under-weighting of beta has been nothing but a drag on performance. Not only that, but since this group often advocates passive investing, they were concentrated in the highest market capitalization stocks. Which also happens to be the perfect vehicle for Central Bank risk asset buying.

Think back to the rally of the previous couple of years. Was anyone buying because stocks were outright cheap? Not a chance. Sure you could make the argument stocks were inexpensive when compared to the risk free rate, but for the past few years, buying stocks was somewhat a leap of faith.

I would argue the only group that fully caught this move were the disciples of “stocks/bonds in a diversified portfolio” for the long haul. Unless you were systematically executing a fully invested portfolio management strategy, this was an extremely difficult market to stay fully invested.

Nothing is new

Which brings me back to our money manager who is busy taking pot shots at macro managers who attempt to make fundamental calls about the economy’s prospects in the coming year. This money manager happened to have the perfect strategy for the past few years. Given his beliefs, I assume he was fully invested, concentrating on market capitalized stock index ETFs, with some low cost broad based bond ETFs for diversification. I don’t know this for sure, but given his comments, I would be surprised if this wasn’t his MO.

But the real dangerous part? Since this is the only strategy that seems to have worked over the past few years, investors are chasing this investing style with a zeal last seen in Phoenix real estate in 2006.

Active investing has become a punch line for a bad joke. Why bother picking stocks? Central Banks and the ETF buying public are just sending up the biggest ones as they make up the majority of the ETFs. And even when there is some “fundamental” analysis occurring, it mostly consists of some young data scientist putting the latest three years of data into a “factor” model and choosing more of the names that have been working for the previous three years.

Financial assets have been goosed higher through Central Bank balance sheet expansion, and at the very moment where fundamental analysis is most needed, investors have completely abandoned it. Active managers are being fired left and right. They are being replaced with passive ETF strategies. Hedge funds of all stripes are being stripped of assets, and in their place, more beta fueled indexing.

This story is as old as time. As much as everyone thinks they don’t chase the hot investing fad, the crowd always piles in at the end.

We have seen this play out each and every market cycle. Don’t forget that in 1999 Warren Buffett was some old codger who needed to be put out to pasture because he didn’t understand the new economy. Or how about GMO having a majority of their assets flow out the door in 2006 because they weren’t participating in the frothy market, only to see their performance crush most of their competitors in the next couple of years.

The fact that fully invested passive managers are doing over-the-top-victory-dances in the end zone should come as no surprise. This is the kind of behaviour we should expect at the top.

The Greatest Short Squeeze of all time

The Market Gods are not a lenient bunch. They have a way of knocking down the cockiest amongst us.

I find it ironic that investors are embracing the idea that Central Bank buying will keep propelling financial assets higher at the very moment that these flows are set to decline.

I am not some doomsdayer who thinks the world must implode in some deflationary collapse to cleanse the financial system of our over-indebted sins.

Yet I am a realist who understands that markets go too far one way, and when that happens, they inevitably correct, and right the ship.

There is no doubt in my mind that too many investors have abandoned fundamental analysis, and in one of the greatest short squeezes of all time, have piled into financial assets at the worst possible moment. They are not buying because assets are cheap, but instead because they are going up.

Markets are always changing – change with it.

Instead of complaining, true long term value investors should be welcoming this mad scramble. It is sowing the seeds for the next opportunity.

So yeah, fully invested passive index investors might be having laughs at our expense right now, but as Harry Hogge used to tell Cole Trickle, “he didn’t slam you, he didn’t bump you, he didn’t nudge you… he rubbed you. And rubbin, son, is racin’.”

No sense getting all sanctimonious about either side. For sure – ETFs and passive investing is way, way too popular right now. Just like my story of the triple witching expiry, there will be an event that catches market participants off guard. Then fundamental investors will step in and correct the mis-pricing.

Too much indexing will be self-defeating. Indexers should never, ever, laugh at fundamental investors as they are essential to their survival. But neither should fundamental investors treat ETFs like the scourge of the world.

The famous recluse trader Ed Seykota once said, “the markets are the same now as they were five or ten years ago because they keep changing – just like they did then.” Ed is spot on.

Markets are always changing. Debating about it is like arguing with the wind.

Rather than digging my heels in on some philosophical debate about the best direction for markets, I prefer to attempt to figure out where it is heading, irrespective of my opinion of where it should go. I have nothing against fully invested passive strategies – at the right time. But I beg to differ that fundamental analysis never works and that you should simply lap up whatever returns the market returns you regardless of valuations. I feel like there has never been a worse time to just blindly clasp this sort of strategy.

We are on a cusp of a major turning point, and active managers are about to have their day in the sun. Here is my prediction. Within the next year the hedge fund manager will be able to return the favour to the over-confident passive money manager.

And I will leave you with some immortal words from legendary strategist Bob Farell:

  • Markets tend to return to the mean over time.
  • Excesses in one direction will lead to an opposite excess in the other direction.
  • There are no new eras – excesses are never permanent.
  • Exponential rapidly rising or falling market usually go further than you think, but they do not correct by going sideways.
  • The public buys the most at the top and the least at the bottom.

I wonder what Bob would say about the current group of exultant passive money managers?

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BofA: “The Market Implies There Is No Way A Shock Can Happen”

For today’s moment of volatility zen, we go to BofA’s Nikolay Angeloff who drew the short straw to be the (un)lucky pundit whose comments on record complacency, low volatility, etc publicized.

Angeloff starts with pointing out what we noted over the weekend , namely that we have now recorded 334 days without a 5% or more pullback (and 335 after today’s close), the fourth longest period on record since 1928.

In another market distortion, whether due to ETFs or central banks, equity vol has fallen so far in October, historically the most volatile month of the year, and if it continues at this pace, it will be the least volatile October in history…

and third least volatile month ever.

Looking at the above two charts, it is no surprise that at this 30yr anniversary of the ’87 crash, the BofA analyst concludes that “the market seems to currently imply there is no way a shock can happen. However, in part due to today’s low realized volatility creating a steep implied term-structure, along with higher fragility driving steeper skew across tenors, the entry point for “S&P fragility hedges” in the form of put ratio calendars has never been more attractive.”

We’ll have more to say on his (costless) hedge recommendation tomorrow, but first here is some more on what the ongoing market distortions mean in practical terms:

Markets mark the 30Y anniversary of Black Monday midst chatter of fragility. On 19-Oct-1987, the S&P 500 experienced its worst day in history (since 1928) when the index plummeted 20.5% in a single trading session. The total loss over the month leading to and including the market crash amounted to 27.6%, a 6.6-sigma event.

 

 

Counter to many peoples’ common belief, a shock of this magnitude would be unprecedented today. Our previous work has shown that there is historically a limit of how large shocks can be based on the prevailing realized volatility. With today’s much lower levels of realized vol, a 6.6 sigma event would correspond to a lesser monthly selloff of only 11.5%

Well, as long as it is “only” 11.5%, one can probably count the number of central banker suicides on “only” one hand as these central-planning mandarins watch the fruit of their centrally-planned labor go up in smoke.

Angeloff’s conclusion:

“generally, the longer time passes without an abrupt market correction, the higher the likelihood of it happening. Markets pricing very little potential for a shock seems at odds with still elevated geopolitical and policy risk globally. Additionally, some have increasingly refocused on quant fund positioning risks, and as we have argued previously CTA and risk parity flows (and the fear of them) can add fuel to (but not cause) a potential sell-off. Notably we see their equity allocations likely at a high (for CTAs this is due to the coincidental occurrence of a strong trend in performance and record-low vol). Thus, an equity sell-off or an uptick in volatility could cause these portfolios to de-lever their equity allocations and so could exacerbate an equity market correction (Charts 14 & 15). However, we still do not believe they would be the sole drivers of an ’87 style crash.

* * *

Two final observations:

For Oct-17, the VIX settled at 10.53, which is 10.6 points below the 2004-2016 October average of 21.2 (less than half). This is the greatest difference between a monthly settlement and monthly average so far in 2017. For comparison, Sep-17’s settlement of 9.87 was 9.82 points below the September average, the second largest discrepancy so far this year. What’s more, on an absolute level October has the second highest monthly settlement on average (21.2), second only to November (22.0). Regardless, Oct-17’s 10.53 was the second lowest monthly settlement realized thus far in 2017.

In stark contrast with historical trends, realized volatility on SPX has dropped in the month of September and if volatility does not pick up materially from here, the month of October will mark the second monthly drop in a row. Indeed, realized volatility in the month of October thus far is 3.5 vol pts. If realized volatility remains flat for the remainder of the month, this would be the third lowest monthly volatility in the history of the index, which realized less volatility only in Feb-64 and Aug-65. Historically SPX realized volatility tends to drop in the month of November. However, this year may witness a break of that pattern given the likely low level for the month of October. In addition the real battle over tax reform will likely start in early November and that the process from here will neither be pretty or smooth…

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These Five Cognitive Biases Hurt Investors The Most

There is no shortage of cognitive biases out there that can trip up our brains.

By the last count, Visual Capitalist's Jeff Desjardins notes there are 188 types of these fallible mental shortcuts in existence, and they constantly impede our ability to make the best decisions about our careers, our relationships, and for building wealth over time.

BIASES THAT PLAGUE INVESTORS

In today’s infographic from StocksToTrade, we dive deeper into five of these cognitive biases – specifically the ones that really seem to throw investors and traders for a loop.

Next time you are about to make a major investing decision, make sure you double-check this list!

Courtesy of: Visual Capitalist

The moves that may seem instinctual for the average investor may actually be pre-loaded with cognitive biases.

These problems can even plague the most prominent investors in the world – just look at JPMorgan’s Jamie Dimon!

BIASES TO AVOID

Here are descriptions and examples of the five cognitive biases that can impact investors the most:

Anchoring Bias
The first piece of information you see or hear often ends up being an “anchor” for others that follow.

As an example, if you heard that a new stock was trading at $5.00 – that is the piece of information you may reference whenever thinking about that stock in the future. To avoid this mental mistake: analyze historical data, but don’t hold historical conclusions.

Recency Bias
Recency bias is a tendency to overvalue the latest information available.

If you heard that a CEO is resigning from a company you own shares of, your impulse may be to overvalue this recent news and sell the stock. However, you should be careful, and instead focus on long-term trends and experience to come up with a more measured course of action.

Loss Aversion Bias
No one wants to lose money, but small losses happen all the time even for the best investors – especially on paper.

Loss aversion bias is a tendency to feel the effects of these losses more than wins of equal magnitude, and it can often result in a sub-optimal shift in investing strategy. Investors that are focused only on avoiding losses will miss out on big opportunities for gains.

Confirmation Bias
Taking in information only that confirms your beliefs can be disastrous. It’s tempting, because it is satisfying to see your previous conviction in a positive light – however, it also makes it possible to miss important findings that may help to change your conviction.

Bandwagon Bias
No one wants to get left out, but being the last one to pile onto an opportunity can also be cataclysmic. If you’re going to be a bandwagon jumper, make sure you’re doing it for the right reasons.

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Manhattan US Attorneys Join Federal & State Probes Into Possible Manafort Money-Laundering

In what some might call a desperate last minute distraction from WaPo’s real news about Clinton’s lies, WSJ reports that the Manhattan U.S. attorney’s office is pursuing an investigation into possible money laundering by Paul Manafort (the same as the state’s probe). In case you are confused, yes, WSJ admits this is in collaboration with the same federal money-laundering probe by special counsel Robert Mueller which has so far produced nothing.

While The Wall Street Journal manages to repeat the salacious headlines in its first two brief paragraphs, the rest of the story is padding, history, and filler about Mr. Kushner’s various investigations (of which there is no new news).

The Manhattan U.S. attorney’s office is pursuing an investigation into possible money laundering by Paul Manafort, said three people familiar with the matter, adding to the federal and state probes concerning the former Trump campaign chairman.

 

The investigation by the U.S. attorney for the Southern District of New York is being conducted in collaboration with a probe by special counsel Robert Mueller into Mr. Manafort and possible money laundering, according to two of these people.

 

A spokesman for Mr. Manafort declined to comment. Mr. Manafort has previously said he did nothing wrong.

So in an effort to clarify…

New York Attorney General Eric Schneiderman’s office is undertaking the state’s own money-laundering probe concerning Mr. Manafort.

 

Special Counsel Robert Mueller is communicating with Schneiderman and investigating possible federal money-laundering by Mr. Manafort (acording to two sources).

 

Mr. Manafort has previously said he did nothing wrong.

 

And now, according to three people familiar with the matter, the Manhattan U.S. attorney’s office is pursuing an investigation into possible money laundering by Mr. Manafort.

All we can say is – that’s a lot of probes and a lot of lawyers and will be a lot of embarassment if they are unable to get anything to stick to Mr.Manafort.

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Hungary Launches Anti-Soros Political Campaign

Three decades ago, billionaire financier George Soros paid for a young Viktor Orbán to study in Britain. And as recently as 2010, Soros donated $1 million to Orbán’s government to help the cleanup effort following the infamous “red sludge” disaster.

But the once-warm relationship between the two men has deteriorated substantially over the past seven years, as Orban has drifted further to the right. In 2014, the leader of Hungary’s Fidesz party declared he would seek to model Hungary’s government after “illiberal” democracies like the government of Russian President Vladimir Putin.

Since then, Orban has elicited horrified condemnations from his peers in the European Union and NATO over his purported drift to the far right. His government constructed a border fence in defiance of the European Commission’s plan to evenly distribute migrants across Europe. His opposition to accepting refugees and Muslim immigrants has drawn accusations of Islamophobia. And his crackdown on domestic political opponents has also raised hackles with the Amnesty International set.

And now, some of his domestic critics are levying accusations of anti-Semitism, as his political battle of wills with his former mentor has morphed into an all-out propaganda campaign playing out on billboards across Hungary.

As Bloomberg points out, Orban’s Fidesz party has targeted Soros, whose “Open Society” organizations work to spread democracy and globalist values across Eastern Europe, in a nationwide, taxpayer-funded billboard campaign that’s been criticized as anti-Semitic. Soros’s image has been splashed across billboards, where he stands accused of being a political puppet master. 

The campaign is just the latest salvo in the feud between the two men, which spilled into public view earlier this year. Back in June, Soros famously accused Orban of transforming Hungary into a “mafia state” and of using Soros’s visage to scare Hungarians into supporting his party.

“He [Orbán] sought to frame his policies as a personal conflict between the two of us and has made me the target of his unrelenting propaganda campaign,” Soros said.

As Bloomberg adds if Orban’s call for Europeans to “take back control of their nations” from Brussels resonates, it could be a sign that ties are rapidly eroding in the former communist east.

Of course, Hungary isn’t alone in its rejection of western values: Poland is undergoing a historic fallout in political relations with the EU, of which it is a member. In Austria, a 31-year-old anti-immigration candidate led his party to victory in Parliamentary elections earlier this month. In the Czech Republic, a populist tycoon named Andrej Babis who’s been described as the “Czech Donald Trump.” Babis led his party to a landslide victory, making him the frontrunner to become the republic’s next prime minister. Italy's two richest regions overwhelmingly voted for autonomy over the weekend, and so on.

That said, with his unlimited financial resources, Soros is more than capable of striking back against Orban. The billionaire financier donated $18 billion in assets from his family office to his “Open Society” foundation, which oversees a network of dozens of nonprofits that seek to promote Soros’s political values. Incidentally, the final showdown – financial or otherwise – may be not between Soros and Orban but Soros and Putin whose wealth, according to some estimates as much as $200 billion, is orders of magnitude higher than that of Soros.

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Hillary Clinton Lied, Paid For “Trump Dossier”

What was previously widely suspected has now been confirmed. In its latest bombshell report that – for once – doesn’t include some nefarious allegations of wrongdoing or incompetence involving President Donald Trump or members of his administration, the Washington Post reported Tuesday that the Democratic National Committee and the Clinton campaign jointly financed the creation of the infamous “Trump dossier,” which helped inspire the launch of the floundering investigations into whether the Trump campaign colluded with the Russians.

Though neither the DNC nor the Clinton campaign worked directly with former British spy Christopher Steele as he compiled the document, the fact that Democrats funded the dossier – which includes information primarily gleaned from sources in Russia – ironically suggests the Democrats indirectly leveraged Russian sources to try and spread information of dubious veracity about a political opponent to try and sway an election.

Sound familiar?  

Even though the scandalous accusations contained within the dossier weren’t made public until after the vote, presumably waiting to see what foot the shoe would end up on, this would’ve provided serious grist for the collusion narrative, which we imagine would’ve been stretched to include the entire Republican establishment as accomplices.

While it’s impossible to determine exactly how much money was spent on the dossier, the Clinton campaign paid Perkins Coie – the law firm of Clinton superattorney Marc Elias – $5.6 million in legal fees from June 2015 to December 2016, according to campaign finance records, and the DNC paid the firm $3.6 million in “legal and compliance consulting’’ since Nov. 2015. Some of that money was presumably used to pay for the dossier.

Fusion GPS’s work researching Trump began during the Republican presidential primaries when an unidentified GOP donor reportedly hired the firm to dig into Trump’s background. The Republicans who were involved in the early stages of Fusion’s efforts have not yet been identified. Fusion GPS did not start off looking at Trump’s Russia ties, but quickly realized that those relationships would be a fruitful place to start, WaPo reported.

Steele previously worked in Russia for British intelligence. The dossier, which was primarily compiled in Moscow, is a compilation of reports Steele prepared for Fusion. Allegations contained in the dossier included claims the Russian government collected compromising information about Trump and the Kremlin was engaged in an active effort to assist his campaign for president.

Fusion turned over Steele’s reports and other research documents to Elias, and it’s unclear how much of it he shared with the campaign.

The revelation about who funded the dossier comes just days after Trump tweeted that the FBI and DOJ should publicly reveal who hired Fusion GPS. And lo and behold, that information has now been made public.

House Intelligence Committee Chairman Devin Dunes has tried to compel Fusion’s founders to disclose who paid for the dossier, but all three of them pled the fifth during public testimony last week. Nunes has also tried subpoenaing the firm’s bank records.

The most salacious accusations contained in the dossier have not been verified, and may never be. Still, after the election, the FBI agreed to pay Steele to continue gathering intelligence about Trump and Russia, but the bureau pulled out of the arrangement after Steele was publicly identified in news reports. Officials also decided to withhold information from the dossier in an intelligence community report published in January alleging that Russian entities had tried to sway the US election on behalf of the Russian government.

Of course, we still don’t know who leaked the dossier to Buzzfeed and CNN back in January. John McCain – one of the primary suspects – has repeatedly denied it, and Fusion GPS has said in court documents that it didn’t share the document with Buzzfeed. However, we do known that in early January, then-FBI Director James B. Comey presented a two-page summary of Steele’s dossier to President Barack Obama and President-elect Trump.

It therefore strongly suggests that it was the FBI that was instrumental in spreading the dossier to the media, most of which was too embarrassed to publish it until Buzzfeed came along and did it… for the clicks.

So to summarize:

  • Hillary Clinton and the DNC paid to package the dirt contained in the Trump dossier
  • In doing so, the Clintons and the DNC were effectively collaborating with “deep” sources, both among the UK spy apparatus and inside Russia
  • Once Trump won, the FBI was instrumental in disseminating the dossier to the mainstream media.
  • The former head of the FBI who was supposed to probe Clinton’s State Department – and the Clinton Foundation – for a bribery and kickback scheme involving Russia’s U.S. nuclear business, is now investigating Trump for Russia collusion instead

But wait, it gets better: as the NY Times’ Ken Vogel just reported, “When I tried to report this story, Clinton campaign lawyer @marceelias pushed back vigorously, saying “You (or your sources) are wrong.”

Which in light of the latest news suggests that Clinton was lying, which is not surprising, especially not in light of the recent revelations that the Clintons may themselves have been involved in collusion with Russia over the infamous Uraniuam deal.

Which brings us to the questionable role played by the FBI in all of this, and ultimately, the role still being played by Robert Mueller. Here is the WSJ,

Let’s give plausible accounts of the known facts, then explain why demands that Robert Mueller recuse himself from the Russia investigation may not be the fanciful partisan grandstanding you imagine.

 

Here’s a story consistent with what has been reported in the press—how reliably reported is uncertain. Democratic political opponents of Donald Trump financed a British former spook who spread money among contacts in Russia, who in turn over drinks solicited stories from their supposedly “connected” sources in Moscow. If these people were really connected in any meaningful sense, then they made sure the stories they spun were consistent with the interests of the regime, if not actually scripted by the regime. The resulting Trump dossier then became a factor in Obama administration decisions to launch an FBI counterintelligence investigation of the Trump campaign, and after the election to trumpet suspicions of Trump collusion with Russia.

 

We know of a second, possibly even more consequential way the FBI was effectively a vehicle for Russian meddling in U.S. politics. Authoritative news reports say FBI chief James Comey’s intervention in the Hillary Clinton email matter was prompted by a Russian intelligence document that his colleagues suspected was a Russian plant.

 

OK, Mr. Mueller was a former close colleague and leader but no longer part of the FBI when these events occurred. This may or may not make him a questionable person to lead a Russia-meddling investigation in which the FBI’s own actions are necessarily a concern.  But now we come to the Rosatom disclosures last week in The Hill, a newspaper that covers Congress.

 

Here’s another story as plausible as we can make it based on credible reporting. After the Cold War, in its own interest, the U.S. wanted to build bridges to the Russian nuclear establishment. The Putin government, for national or commercial purposes, agreed and sought to expand its nuclear business in the U.S.

Ah yes, the Clinton’s own Russia collusion narrative which recently emerged to the surface:

The purchase and consolidation of certain assets were facilitated by Canadian entrepreneurs who gave large sums to the Clinton Foundation, and perhaps arranged a Bill Clinton speech in Moscow for $500,000. A key transaction had to be approved by Hillary Clinton’s State Department.

 

Now we learn that, before and during these transactions, the FBI had uncovered a bribery and kickback scheme involving Russia’s U.S. nuclear business, and also received reports of Russian officials seeking to curry favor through donations to the Clinton Foundation

 

This criminal activity was apparently not disclosed to agencies vetting the 2010 transfer of U.S. commercial nuclear assets to Russia. The FBI made no move to break up the scheme until long after the transaction closed. Only five years later, the Justice Department, in 2015, disclosed a plea deal with the Russian perpetrator so quietly that its significance was missed until The Hill reported on the FBI investigation last week.

As the WSJ correctly notes, “for anyone who cares to look, the real problem here is that the FBI itself is so thoroughly implicated in the Russia meddling story.”

Which then shifts the focus to the person who was, and again is, in charge of it all: former FBI director, and current special prosecutor Robert Mueller:

The agency, when Mr. Mueller headed it, soft-pedaled an investigation highly embarrassing to Mrs. Clinton as well as the Obama Russia reset policy. More recently, if just one of two things is true—Russia sponsored the Trump Dossier, or Russian fake intelligence prompted Mr. Comey’s email intervention—then Russian operations, via their impact on the FBI, influenced and continue to influence our politics in a way far more consequential than any Facebook ad, the preoccupation of John McCain, who apparently cannot behold a mountain if there’s a molehill anywhere nearby.

 

Which means that Mr. Mueller has the means, motive and opportunity to obfuscate and distract from matters embarrassing to the FBI, while pleasing a large part of the political spectrum. He need only confine his focus to the flimsy, disingenuous but popular (with the media) accusation that the shambolic Trump campaign colluded with the Kremlin.

 

Mr. Mueller’s tenure may not have bridged the two investigations, but James Comey’s, Rod Rosenstein’s , Andrew Weissmann’s , and Andrew McCabe’s did. Mr. Rosenstein appointed Mr. Mueller as special counsel. Mr. Weissmann now serves on Mr. Mueller’s team. Mr. McCabe remains deputy FBI director. All were involved in the nuclear racketeering matter and the Russia meddling matter.

The punchline: it’s not the Clintons that should be looked at, at least not at first – their time will come. It’s the FBI:

By any normal evidentiary, probative or journalistic measure, the big story here is the FBI—its politicized handling of Russian matters, and not competently so. To put it bluntly, whatever its hip-pocket rationales along the way, the FBI would not have so much to cover up now if it had not helped give us Mrs. Clinton as Democratic nominee and then, in all likelihood, inadvertently helped Mr. Trump to the presidency.

We eagerly look forward to Trump’s furious tweetstorm once he learns of all of this… and how long before he fires Mueller, in this case with cause.

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China Regulator Instructs Companies To Delay Bad Results Until After Congress

In the U.S., equity markets have officially reached the phase in the bubble where fundamentals are almost entirely irrelevant and stocks trade up irrespective of whether company earnings are positive or negative…in technical terms you could say we’re in the later stages of the BTFD phase of the economic cycle. 

That said, as Bloomberg points out today, regulators in China still have to be a bit more ‘creative’ to quell market volatility during important national events.  As such, the China Securities Regulatory Commission has sent out a notice to public companies kindly requesting that they delay their earnings report during China’s Communist Party Congress…but only if they’re going to be bad.

China’s securities watchdog has asked some loss-making companies to avoid publishing quarterly results this week as authorities seek to ensure stock-market stability during the Communist Party Congress, according to people familiar with the matter.

 

The China Securities Regulatory Commission made its requests via the country’s stock exchanges, the people said, asking not to be named as they’re not authorized to talk to the media. At least 17 Shenzhen-listed companies announced delays to their earnings reports from Oct. 20 to Oct. 24, up from three during the same period last year, exchange filings show. The CSRC declined to comment, while China’s bourses didn’t respond to faxed questions.

 

Chinese regulators have stepped up efforts to quell market volatility during the twice-a-decade congress, a highly-choreographed reshuffling of the country’s top leadership that’s expected to shape President Xi Jinping’s influence into the next decade. While the smallest equity swings in 25 years suggest government interference has worked, critics argue that China’s leaders have backpedaled on a pledge to give market forces a more central role in the world’s second-largest economy.

And, to our great shock, the strategy seems to be effective:

Of course, you can’t be too blatant in your attempts to control markets so a lot of companies have suddenly decided they need to “finish checking earnings reports” while others simply said they “have a lot on our plate to deal with” and can’t be bothered by silly regulatory filings at this point in time.

Shandong Minhe Animal Husbandry Co., which farms chickens, and Shenzhen Hifuture Electric Co., an electrical equipment maker, were among the Shenzhen-listed companies asked to withhold their results this week, the people said.

 

Shandong Minhe, which estimated a loss for the Jan.-Sept. period in an Oct. 13 filing, said on Sunday that it hasn’t finished checking the content of its earnings report and will postpone its release, previously scheduled for Tuesday, to Oct. 30. Shenzhen Hifuture, which also projected a Jan.-Sept. loss on Oct. 13, gave this explanation for a similar delay in a Sunday filing: “We have a lot on our plate to deal with.”

 

Shandong Minhe declined to comment further when contacted by Bloomberg News. The stock dropped 1.1 percent on Tuesday and is down 35 percent this year. Shenzhen Hifuture, whose shares have been suspended since January, didn’t immediately reply to an email.

 

Most of the 17 Shenzhen-traded companies that announced delays to their results had previously predicted losses or steep earnings declines, filings reviewed by Bloomberg show. Ten of the companies declined on Tuesday, while one was little changed and one rose. Trading in five of the stocks was suspended.

Of course, now that the cat’s out of the bag, we’re going to go out on a limb and suggest it might be a safe bet to go ahead and unload any company that delays earnings reports over the next week or so…just a hunch.

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Washington Is “The New Rome”

Authored by James Rickards via The Daily Reckoning,

I just got back from a trip to Washington, or what I call “New Rome” because Washington’s relationship to the rest of America is the same as Rome’s relations with the agrarian and plebeian citizens of its vast domains in late antiquity.

Washington is a parasite that sucks the rest of the country dry. The counties surrounding Washington, D.C., have the highest per capita income of any metropolitan area in the country including New York, Hollywood and Silicon Valley. The unemployment rate is also the lowest of any large region in the country.

At least New York, Silicon Valley and Hollywood all produce something we need or enjoy. Washington produces red tape, taxes and new ways to handicap innovation on a daily basis.

While America staggers after its first lost decade (2007–17) and with a new lost decade set to begin (Japan, anyone?), Washington grows fat and rich. Trust me, the hotels and restaurants in town are jammed. No depression here.

This is an important observation because it has to do with how great powers decline and fall.

The conventional view of the fall of the Roman Empire is that they succumbed to barbarian invaders. That’s only half the story. In fact, barbarians had invaded for centuries and been repeatedly repulsed by Roman citizens who valued their citizenship and were loyal to the emperor and senate in Rome.

Yet as Rome grew corrupt and decadent, it increased taxes and offered less safety in return. There came a time when barbarian rule looked better to frontier agrarians than rule from the corrupt cosmopolitan center.

When the barbarians invaded for the last time, citizens welcomed them. The barbarian policy was 10% taxes in exchange for order. Rome offered 20% taxation and disorder. Citizens went with the barbarians, and the rest is history.

Rome was not destroyed from the outside; it collapsed from the center. I see something similar happening today.

So why was I in Washington?

Well, for better or worse, this is where critical decisions are made that affect war and peace, decline or prosperity and the success or failure of enterprise. If you want to provide forward-leaning analysis to readers, it’s important to interact both with decision makers and the policy experts who advise them.

I’m always happy to share what I learn with my readers, unless it’s highly sensitive material I can’t divulge for national security reasons.

Here’s the latest readout:

There won’t be any tax cut this year. As we say in New York, “fuggedaboudit.” Maybe next year, but even that’s not clear. The stock market has “priced in” a tax cut four or five times since last November. Wall Street loves a good story. So a tax cut policy failure, similar to the failure to repeal Obamacare, could be catalyst for a 10% stock market correction in coming months.

We’ve had four stock market corrections of 10–15% in each of the past eight years, or one every two years on average. The last one was January 2016, almost two years ago. So we’re due.

A 10% stock market correction is not the end of the world. Still, a quick 2,300-point drop in the Dow Jones industrial average might get some attention. This looks like a good time to decrease your equity exposure and allocate more to cash.

Another potential catalyst to watch for is a possible government shutdown on Dec. 8. That’s the day the congressional authorization to keep the government open expires. Unlike the tax bill and some other issues, you need 60 Senate votes to keep the government running. That means Democrats have to go along.

The issues on which Democrats and Republicans disagree include funding for Trump’s border wall, Planned Parenthood, Obamacare insurance bailouts, sanctuary cities and “Dreamer” immigration status. You get the point. There’s no middle ground.

We’ve had several government shutdowns in the past seven years. Again, this is not the end of the world. But it does not inspire confidence in U.S. governance at a time when China is taking center stage and war drums are beating in North Korea. There’s nothing the stock market likes less than uncertainty. This could be a catalyst for the overdue stock market correction.

Finally, I met with President Trump’s national security adviser, Gen. H. R. McMaster, and CIA director Mike Pompeo Thursday afternoon.

It was a small group, invitation-only gathering. Most of my colleagues wanted to drill down on the Iranian portfolio, but my personal brief was all about North Korea. I’ll let my readers know what I learned in the coming days.

My rule on visits to Washington is not to stay more than two days. I don’t want to be captured by any swamp creatures.

So I’ve addressed some of the potentially negative catalysts coming out of Washington. But of course there are other catalysts from the purely market side…

Bull markets in stocks seem unstoppable right up until the moment they stop. Then comes a rapid crash and burn phase.

Is there any warning besides those I mentioned that a collapse is about to happen?

Of course there is. Analysts warn about it all the time and provide mountains of data and historical evidence to back up their analysis. The problem is that everyone ignores them!

You can talk about the dangers represented by CAPE ratios, margin levels, computerized trading, persistent low volatility, and complacency all you want — which I’ve done — but nothing seems to slow down this bull market.

Yet, there is one thing that can stop a bull market in its tracks, and that’s corporate earnings. The simplest form of stock market valuation is to project earnings, apply a multiple, and voilà, you have a valuation.

Multiples are already near record highs, so there’s not much room for expansion there. The only variable left is projected earnings and that’s where Wall Street analysts are having a field day ramping up stock prices.

Earnings did grow significantly in 2017 on a year-over-year basis, but that’s mainly because earnings were weak in 2016 so the year-over-year growth was relatively easy. Now comes the hard part.

How do you expand earnings again in 2018 when 2017 was such a strong year?

Wall Street just uses a simple extrapolation and says next year will be like this year only better. But there is every reason to doubt that extrapolation. Earnings are likely to fall short of expectations, which can lead to a correction. Once that happens, multiples can shrink as well.

Soon you’re in a full-scale bear market with stock prices down 20% or more. That’s without even considering a war with North Korea and all the dangers others I’ve already mentioned.

This may be your last clear chance to lighten up on listed equity exposure before the bubble bursts.

If you haven’t already, I recommend you move a portion of your portfolio into cash, physical gold and select gold mining stocks, plus other hard assets like real estate and fine art.

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