Even after an expedited IMF bailout finally helped stabilize the Argentinian peso after a historic plunge, Argentina’s bonds have continued to languish as investors continue to brace for an inflationary tidal wave, while political instability has remained a factor as embattled former socialist leader Cristina Fernández de Kirchner (i.e. CFK) could return to power after next year’s election, dealing a major blow to international investors who predicated their bullish case on the business-friendly rule of President Mauricio Macri.
Mauricio Macri
But all of this instability hasn’t stopped some of the world’s largest bond funds from hanging on to the country’s debt, which is paying the highest interest in the world (assuming the buyer hedged out that currency risk).
Case in point, Bloomberg reports that PIMCO and its parent company, Allianz, are holding an Argentinian note that pays a floating coupon equal to the country’s benchmark interest rate, which remains just below 60% after briefly climbing above 70% during the turmoil seen in Q3 and Q4.
While that payout is huge, in nominal terms, after shedding some 50% of its value earlier this year (it has since rebounded 7%), and adjusting for inflation, the peso’s decline would have eroded most of the return. Furthermore, consumer prices are on track to climb 50% in 2018, more than triple the Argentine Central Bank’s forecast for a 15% rise. The future remains just as bleak, with Argentina’s economy, which entered a recession this year, likely won’t pull out of it until the second half of 2019 according to analysts.
Fortunately for PIMCO, it’s EM desk had the good sense to hedge out at least some of that currency exposure.
Pimco hedged some of its currency exposure to the Argentine notes, according to a person with direct knowledge of the matter, who asked not to be identified because the information is private.
Because of this volatility, betting on Argentina takes “discipline”, and that buying these bonds should be a “long term play,” said PIMCO’s head of EM, which of course is what any PM says who is currently underwater on their investment.
“Emerging markets remain subject to both internal and external sources of volatility,” Mike Gomez, Pimco’s head of emerging market portfolio management, said in an email. “A disciplined and highly differentiating approach to the asset class provides opportunities for patient investors to benefit from dislocations that create compelling value.”
PIMCO owns roughly half of the notes in circulation. But it’s not the only major US-based investor with a significant stake. AllianceBernstein is the second-largest holder of the bonds, with 6.5% outstanding, and Goldman Sachs is No. 3 with 4.4%.
Slightly lower on the list is Franklin Templeton, with a 2.1% stake. Michael Hasenstab, who has been repeatedly bailed out by central banks on his hail mary bond investments in Europe during the financial crisis, and whose $35 billion Templeton Global Bond Fund eked out a market-beating 2.1% gain this year, said he’s bullish on Argentina. “The peso already had its big selloff in late summer and early fall,” he said.
“We increased our exposure to capture the depreciated currency and significant increase in interest rates. The necessary adjustment measures were underway to stabilize the economy. The worst is behind us.”
Whether these bets pan out over the next year will ultimately depend – as all global markets do – on what happens in the US. If stocks continue to sell off and Treasury yields continue their move off the highs from October, the world could see the “carry is king” theme reemerge.
If that happens, lagging Argentine bonds could finally get their moment in the sun, and PIMCO may be looking at the world’s highest (inflation-adjusted) return too.
While on the surface the latest Q3 GDP print of 3.4% was impressive, one quick look at its components revealed that the bulk of GDP growth came from inventories, which at 2.33% of the total number – the highest since Q4 2011, accounted for 69% of the annualized growth rate; in fact, stripping away the inventory contribution resulted in a concerningly low 1.1% GDP print th lowest since Q4 2016.
As a result of this unprecedented buildup, the WSJ reports that U.S. companies are so flooded with excess inventory that some are renting truck trailers to use for storage space, parking them on warehouse lots or behind storefronts to hold goods until a surge in imports is cleared from crowded distribution hubs.
And in order to accommodate more customers seeking trailers to hold goods, many of them pulled in from China during 2018 to get ahead of impending tariffs, transportation equipment lessor Milestone Equipment Holdings has launched a “mobile warehousing and storage” business year, with companies such as Home Depot and several other major retailers and manufacturers reportedly using the service.
“It’s like a warehouse on wheels,” said Sarah Johnson, who heads the new mobile storage business at Milestone. “We now think about our trailers as more of a real-estate alternative than just a trailer.”
While the inventory surge in the last few months of the year is nothing new, as that’s when warehouse space is often eaten up as retailers stock up for the holiday season, the strains emerged this year as many companies boosted their reserves of imports to get ahead of a rise in tariffs, originally expected on Jan. 1 but later postponed to April.
Meanwhile, as virtually every US retailer is scrambling to compete with Amazon on delivery, warehouses have become a hot commodity, and across the U.S., warehouse vacancy currently stands at 4.3%, the lowest rate that real-estate firm CBRE has recorded since it started tracking the figure in 1980.
“Warehouses are running as full as they ever have,” said David Egan, head of industrial and logistics research for CBRE. Many companies build in flex space to their operations, in order to have room to expand during busier months, Mr. Egan said. “Now you’re seeing that excess space—and then some—is all being used,” he said.
Meanwhile, as noted above, while inventory accumulation was the biggest contributor to GDP growth in Q3, so far in the fourth quarter, intermodal rail-truck cargo has remained strong, with volumes surpassing 2017 levels, indicating a similar frenzied pace of inventory build-up. A large share of intermodal business is shipping containers moving inland from ports, and the continued strong growth in that business through the days before Christmas suggests companies were still clearing backlogs at seaports late in the year.
The warehousing shortage is so acute that a handful of Airbnb-like companies have sprung up to help major retailers get through busy periods. One of them, Flexe, offers warehouse tenants and owners the ability to sublease empty portions of their facilities to short-term tenants, which have included Walmart, Ace Hardware and others.
Truck trailers parked at the Port of Long Beach, California
Meanwhile, another problem was cropped up this year, making the shortage even worse as the onslaught of returned items, which started well before Christmas this year, had added to the challenge. In a recent study, CBRE found the supply chain for reverse logistics can require as much as 20% more space than what is required for outbound shipments.
According to the WSJ, Milestone said one national retailer has used as many as 1,000 of the company’s trailers to store returned goods. It’s a less expensive way to deal with what’s usually a temporary, postholiday challenge, rather than building a new warehouse or signing a longer-term lease for more space, Milestone’s Ms. Johnson said (although it begs the question if this year’s surge in returned goods is an indication of a bigger and more troubling theme, one where Americans purchase goods, hold on to them briefly, and then return them as they are unable to pay).
In any case, as the WSJ concludes, saving on storage costs will be critical in the coming months as U.S. businesses work through the stockpiled goods. And if economic headwinds accelerate and if the scramble to frontrun Chinese tariffs fades sharply as most retailers have already planned for a Jan 1 tariff hike which won’t take place until March 1 at the earlier, Q1 earnings for retailers could take a hit if companies discount prices to draw down inventory, and additional storage costs will only hammer margins further.
The US presidential plane landed in the darkness of the Iraqi military base of Ayn al-Assad in west Anbar with Donald Trump onboard. But by the time his plane took off three hours later, Trump left behind a protocol-political-parliamentary storm in Mesopotamia as Iraqi members of parliament requested the departure of the 5200 US forces from the country.
None of the three Iraqi leaders (Prime Minister Adel Abdel Mahdi, Speaker Mohammad al-Halbusi, President Barham Salih) came to receive Trump as all three rejected US conditions for such a meeting. Trump seems determined to leave Syria without interfering with who will control the territory behind him: on Friday morning the Syrian Army entered the outskirt of the city of Manbij following a deal between Kurdish leaders and the government of Damascus. Will he also end up leaving Iraq before the end of his term in January 2021?
President Trump, accompanied by National Security Adviser John Bolton, first lady Melania Trump, US Ambassador to Iraq Doug Silliman, and senior military leadership, speaks to members of the media at Al Asad Air Base, Iraq. via the AP
In preparation for Trump’s visit, Iraqi prime minister Adel Abdel Mahdi was asked to meet the US president. He agreed to meet Trump either in Baghdad, on Iraqi soil, or at the Ayn al-Assad military base, on the Iraqi side of the base; Iraqi national security forces and army units are present at the same base where US forces are deployed, in a separate part of the base. To have met on the US-controlled part of the Iraqi-US base would have made Abdel Mahdi appear as an invited guest in his own country.
A few hours before Trump’s arrival, US Ambassador Douglas Silliman told Abdel Mahdi that Trump would receive him in the US part of the base. Trump refused to visit Baghdad for a quick reception; neither would he even cross over to the Iraqi side of Ayn al-Assad, for security reasons. Abdel Mahdi refused the US invitation, as did the Iraqi president and speaker. All three politicians have risen in public esteem for having refused the US invitation.
Trump’s disregard for protocol when landing in a sovereign foreign country has infuriated local politicians, heads of organizations and members of parliament. They felt insulted and have called for the withdrawal of US forces from the country. Others threatened to force US troops out of the country.
Qais al-Khaz’ali, the head of a parliamentary coalition and leader of “Asaeb Ahl al-haq” (responsible for killing US soldiers during their occupation of Iraq between 2003 and 2011), said “Iraq will respond (to the Trump insult) through a parliamentary demand that you pull out your troops and if you don’t leave, we have the (military) experience to force you out”.
Tension was increased by Trump’s announcement that he plans to keep his forces in Iraq and may return troops from Syria to the Iraqi base. “Hezbollah Iraq” responded immediately by pledging to “cut the hand that will hit Syria from Iraqi bases”.
The US president seems prepared to keep his promise to withdraw from Syria, at least in the case of Manbij. The US announced an “organized exit”, meaning withdrawal in coordination with Turkey so that Ankara’s forces could replace withdrawing US troops. Turkey has been preparing to enter Manbij and Tal Abiad by gathering thousands of forces and proxies standing at the borders of the Syrian province. Nevertheless, the deal reached on Thursday night between the Syrian government and the YPG Kurds gave the green light to the 1stand 5thdivisions of the Syrian army to take back Manbij, and raise Russian and Syrian flags over the city. This development is blocking the road for Turkey and its proxies to move into the province. The decision was communicated to Turkey via Russia.
Moscow is standing in the way of any change of power on the ground, refusing Turkey control of more Syrian territory not already included in the “Astana deal”, which conceded Turkey’s temporary jurisdiction in the region of Idlib. Russia believes there should be a natural handover of the Kurdish-controlled areas to the Syrian Army following US withdrawal. Damascus and Tehran are adamant in this case: only Syrian forces should replace US troops in al-Hasaka province.
Moreover, Damascus forces are still based in Qamishli and can easily take over control of all positions when the US withdraw its occupation forces from northeastern Syria. Already there are observation points (villages) under the control of the Syrian Army, some with Russian observers, in different villages around Manbij. These represent a clear message to Ankara that no troops can cross without Russian agreement, otherwise they will be bombed and attacked. The control of Manbij is a game changer and a clear indication that the government of Damascus will take control of al-Hasaka province to concentrate later on Idlib, after the US withdrawal, with the help of Moscow.
Russia called for an important meeting between presidential envoys, Foreign and Defense ministers and heads of intelligence services of both Russia and Turkey on Saturday in Moscow to talk about the US withdrawal and the role of each side. Another meeting (not yet final) is scheduled between Turkey, Russia and Iran in Moscow in a few weeks. The aim is to prevent any split between these leaders that could be triggered by the US withdrawal from occupied Syria. Damascus rejected the presence of the local Kurdish administration on its side and agreed to disarm the Kurds, a Turkish and Syrian request, after defeating ISIS. Indeed, the Kurds will help the Syrian army fight ISIS along the Euphrates river where a battle is expected to begin soon to end ISIS control of the area. As ISIS no longer enjoys US protection, the end of its occupation of a part of Syrian territory is near.
During negotiations with Russia, Turkey argued that the US might not allow the Syrian forces to move in. Turkey claimed that any changes to the deal established between Trump and Erdogan might alter the US decision to withdraw. Damascus and Tehran are indeed eager to see US troops gone from Syria, but not to deliver the area to Turkey. Russia supported Damascus on this position.
Ankara was indeed afraid that its unilateral decision to move into the Kurdish controlled area might trigger Russian intervention against its proxies (Euphrates Sheild, Jaish al-Islam, al-Hamza brigade, Ahrar al-Sharqiya and others), and might also lead Iranians to arm the Kurds and the Arab tribes in the province to prevent any further annexation of Syrian territory. The Turkish forces and their proxies currently occupying Jarablus, al-Bab, Afrin and Idlib, are unwilling to engage in a doomed war against the Syrian army, supported by Russia and Iran.
Turkey seems willing to accommodate Russia and Iran – the Turkish army and its Syrian proxies will never be able to cross the 500 kilometers from Manbij to Deir-ezzour where the richest area of oil and gas is. This area is only tens of kilometers distant from the closest Syrian Army position on the other side of the Euphrates river.
Russia asked Damascus and Tehran to lay down a strategy and coordinate with the Russian military to put forward a plan of action and a road map after US withdrawal, with the first priority of eliminating ISIS and avoiding any clash with Turkey if possible. The situation was very sensitive and complicated between these allies. With the return of Manbij, the situation seems to favor Syrian unity, marking the end of its partition or of any possible buffer zone.
#Iraq NSA Faleh al-Fayyad met with #Syria president Bashar al-Assad & delivered a message from PM Adel Abdel Mahdi regarding the readiness of Iraq to cooperate with Syria on defeating #ISIS – as the #US protection to the group is lifted – and the reopening of al-Tanf crossing. pic.twitter.com/pdXXfEvHll
Tehran believes the US won’t permanently leave the Levant and Mesopotamia without leaving unrest behind. This gives its officials an additional motivation to lobby the Iraqi parliament for a US withdrawal from Iraq.
There is no doubt that Iraq is a close ally of Iran and not a fanatic supporter of the US. The Iraqi parliament can exert pressure over the government of Prime Minister Adel Abdel Mahdi to ask President Trump to pull out US troops before the end of his mandate in 2020.
The US establishment and the “Axis of the Resistance” can both connive and plan, but the last word will belong to the people of Iraq and to those who reject US hegemony in the Middle East, those who can accept losses and nurse their wounds in hopes of a better future.
The Chinese scientist who shocked the world by announcing he created the first genetically-edited babies, He Jiankui, and who had been missing since his accomplishment spawned widespread outrage around the globe, has been “kept” in a small university guest house, apparently under lock and key while guarded by “a dozen unidentified men”, according to the New York Times.
The men didn’t identify who they were so it’s not clear if they’re with the government or university. My bet is police/psb/mss. We were then followed around the university by its security. Guards are also posted permanently at his former office, which is blocked by a red belt. pic.twitter.com/OFYn7mTc8d
He was spotted for the last time in public in late November at a conference in Hong Kong, where he defended his actions. Over the past couple of weeks, rumors and speculation spread whether or not he was under house arrest. There has been no word from the Chinese government or his university, which placed him under investigation, about his whereabouts (or future).
For now, he appears to live in a fourth floor apartment in a university guesthouse on the campus of the Southern University of Science and Technology.
He achieved instant global fame (and notoriety) in November, when he claimed that he used genetically edited embryos implanted in a woman who gave birth to twin girls. At the conference, he presented data backing up his claims. However, his work was quickly denounced – not only in China, but also across the world – as a step too far. Chinese scientists said that the project focused too much on scientific achievement and not enough on ethical standards.
This past Wednesday, the doctor was seen on the balcony of his guest house, pacing back-and-forth. He could also be seen at one point talking to a woman who appeared to be his wife. It was observed that balconies attached to his apartment were fenced off by metal wiring. That same evening, four plainclothes guards stood outside of his apartment and when prompted, one said “How did you know that Professor He is here?”
It wasn’t clear whether the guards were from the University, the government, the police or some type of other organization. Police in Shenzhen did not respond to the New York Times’ request for comment.
When we visited the Southern University of Science and Technology was hosting a conference and visiting experts were checking in unaware Dr. He was being held a few floors above. At least 12 plainclothes guards live on the floor with him and prevented us from getting close. pic.twitter.com/EgqPrH99dg
A colleague who helped co-found He’s gene-testing company, Liu Chaoyu, confirmed his identity after seeing him on video. According to another co-founder, Chen Peng, Dr. He is allowed to make phone calls and send emails. Chen stated: “He is safe. But I don’t know his exact whereabouts or what state he is in.”
Earlier, a local newspaper reported that He had been placed under house arrest, which prompted much of the speculation as to his whereabouts. However, the University has claimed that this was not the case, stating: “Right now nobody’s information is accurate, only the official channels are.”
The media in China has been surprisingly quiet about Dr. He’s situation after he published his findings a months ago, suggesting a censorship order had come from the very top. He was spotted watching television on Thursday and guards were observed on the floor of his apartment on Friday. There were also guards placed in the hallway leading to his former offices at the school’s biology department. In late December, the University issued a notice to his staff telling employees they were prohibited from taking interviews about anything regarding the genetically edited babies.
The notice, dated November 29, stated: “Do not discuss the contents or progress of the investigation, do not comment on the matter.”
Dr. He’s colleagues didn’t seem to know that he was working on genetically edited babies. Dr. He was reported to have said “There will be big news,” while smiling, leading up to the conference where he made his announcement. His business partners have had to deal with the aftershock of his decisions.
Co-founder Liu stated: “He was extremely irresponsible to the employees, partners and investors. He did not discuss anything with us before he made his announcement and we had to deal with all of it unexpectedly.”
Whiteman Air Force Base, home to the 509th Bomb Wing, assigned to the Eighth Air Force of the Air Force Global Strike Command, operates a fleet of Northrop Grumman B-2 Spirit stealth bombers, recently released a video showing one of its bombers dropping two 14 ton GBU-57 Massive Ordnance Penetrators (MOP) in a test flight.
According to The Aviationist, the MOP is capable of penetrating up to 200 feet into the ground or 60 feet of reinforced concrete to strike enemy targets deep underground.
“The B-2 Spirit stealth bomber is the only aircraft in the U.S. Air Force inventory currently capable to operationally drop the massive 30,000-lb (14,000 kg) GBU-57 Massive Ordnance Penetrator (even though the testing of the MOP involved a B-52 back in 2009, the weapon’s intended platform is only the B-2).
The 14-ton GBU-57 is a 20-foot long GPS-guided bomb said to be able to penetrate 200 feet of concrete before exploding: for this reason it is considered the weapon of choice in case of attack on buried targets (such as the North Korean bunkers),” The Aviationist blog said.
The short video, uploaded to YouTube by The Aviationist blog, shows the stealth bomber with the tail number 82-1066. The video first starts with the bomber in a hanger, being prepped for flight, then takes off from Whiteman Air Force Base under cover of night. About a third into the clip, the bomber is over an unidentifiable mountain range receiving fuel from an aerial refueling tanker. Moments later, the plane releases two MOPs. Land-based cameras capture the incredible moment when the bombs slam into an unidentifiable missile test range producing a massive explosion.
The MOP was used in combat by the Air Force in Afghanistan, where it was dropped in the Nangarhar province in 2017, killing about 100 terrorists, hiding in an elaborate underground tunnel.
The clip is short, so prepare yourself for an exhilarating 55 seconds of American firepower, weapon bays open at 00:37:
Russia’s successful test of its Avangard hypersonic glide missile will almost certainly ignite a full-on arms race panic in the US, according to German newspaper Die Welt. As we noted earlier this week, the missile was launched from a base in the southern Ural Mountains on Wednesday and successfully hit a practice target on Kamchatka 3,700 miles away.
The test launch will likely alarm US intelligence analysts and “provoke a panic” among Pentagon officials because the US has nothing to defend against the missile, the newspaper said, despite the fact that Russia has been working on the weapon since 2002 when the US withdrew from the 1972 Anti-Ballistic Missile Treaty and began developing anti-ballistic defenses. Earlier this year, Russian President Vladimir Putin teased that the weapon would be ready to deploy within “months”.
The test, according to the paper, is proof of “saber rattling” between the US and Russia as tensions between the two super powers climb to their most intense level since the fall of the Soviet Union.
Although the glider, able to carry megaton-class nuclear weapon, was presented along with SARMAT missile system tests, super-fast drone torpedoes, cruise missiles with nuclear power plants, the air missile system “Kinzhal” as well as laser and hyper-sonic weapons as one of the newest additions to the Russian arms complex in March, the newspaper claims it to be proof of sabre-rattling by the great powers in the wake of US President Donald Trump announcing his country’s withdrawal from the 1987 INF Treaty in October.
What makes Avangard unique is its manoeuverability as the vehicle constantly changes its course and altitude while it flies through the atmosphere, zigzagging on its path to its target, making it impossible to predict the weapon’s location, as former Russian Defence Minister Sergei Ivanov revealed. This characteristic ensures that the target this hypersonic missile is actually heading to remains virtually secret, according to the US think tank Rand Corporation.
As Die Welt explained, US radar and NATO ABM cannot detect or stop the Avangard, which could be a problem considering the US’s decision to withdraw from the INF.
“You have to cover thousands of miles, not hundreds”, chief engineer of the Pentagon and ex-chief of NASA Michael Griffin told an expert panel shortly before the test launch, pointing out at the curvature of the globe, limiting the coverage of radars, taking the vastness of the western Pacific Ocean and the lack of islands for radar.
“There are not many places where radars can be parked. And if you find them, they’ll probably become targets,” Griffin said.
To detect the missile’s launch, the US would probably have to install a network of reconnaissance sensors in space. And as if Russia’s latest test wasn’t troubling enough, Russian engineers noted that China has carried out similar tests.
“China tested more hypersonic weapons last year than we did in a decade. We have to change that,” he stated.
Still, though it has lagged behind in hypersonic weapons development, the Pentagon is struggling to catch up. The Defense Advanced Research Projects Agency revealed this week that it is seeking new designs for cooling super-hot leading edges of hypersonic vehicles as they rip through the atmosphere as it works to develop its own hypersonic missile. Considering that the New START arms control treaty between the US and Russia will likely expire without an agreement to renew by 2021, that task is probably taking on a renewed urgency.
As is usually the case after the holidays, inquiring minds turn their attention to how various assets will fare in the coming new year.
To answer this question, Bloomberg recently published a sample of opinions from top portfolio managers and strategists who shared their views on all asset classes heading into the new year. The common theme: stocks will be risky, volatility is back and returns across all asset classes could be “muted” in the new year.
There were some outliers: Jurrien Timmer of Fidelity Investments was the most bullish on stocks. He believes that earnings growth in the United States will slow to 5% to 7% in 2019. He also thinks that the Fed could raise rates once or twice more and that bonds look “alright” in this environment. Starting the year at what he calls a “reasonable” price to earnings ratio, he predicts that stocks may do better than they did in 2018.
“If you add it all up, it’s not a bad story for stocks — maybe not double-digits, but better,” he said, although Timmer’s optimism was certainly in the minority among his peers.
Rob Lovelace of Capital Group has tapped into the recent weakness at Apple as a microcosm of what to watch going into the new year. He believes that device companies that lack product diversity, like Samsung, could be dangerous to own in the new year. He also believes that it is time to be a stock picker instead of buying indices.
Kristina Hooper, the chief global market strategist at Invesco recommends emerging market equities in addition to tech stocks and global dividend paying stocks. She also likes commodities – “especially gold“. She believes investors should “sell or decrease” US equities.
Hooper told Bloomberg that her “base case is decelerating but solid growth globally, with the U.S. decelerating as well. I also expect tepid but positive global stock market returns. However, the ‘tails’ are getting fatter as risks, both positive and negative, increase. For example, a quick resolution of the trade war with China could push global growth higher and also push stock market returns higher – especially if the Fed become significantly more dovish. Conversely, an escalation of the trade war with China could put downward pressure on global economic growth and likely push stock markets lower as well – particularly if the Fed is less dovish.”
Meanwhile, PIMCO’s Dan Ivascyn believes that volatility will rise and credit spreads will widen – all while the yield curve flattens in the coming year. He believes these are indications of an economic downturn that’s coming within the next two years. He also believes that increasing cash to have powder for new opportunities – like UK financials after they were crushed on Brexit fears – is a good idea.
“We are beginning to see a few select opportunities around credit, but we remain concerned about credit in general,” he said.
PIMCO’s nemesis, bond king Jeff Gundlach, suggested simply avoiding United States stocks and corporate debt altogether, as well as steering clear of long term treasuries (just in case there is any wonder he is feuding with Jim Cramer). Gundlach believes that the best bets for 2019 are in high-quality, low duration, low volatility bond funds.
During his December 17 interview on CNBC he stated: “This is a capital preservation environment. Unsexy as this sounds, a short-term, high-quality bond portfolio is probably the best way to go as you head into 2019.”
So sad that appearances on CNBC are now a thing of the past. It was great while it lasted. Blame it on Cramer. We’ll be on Fox Business.
Richard Turnill who works for the world’s biggest asset manager BlackRock, said that quality should be the focus in equities: look for companies with good cash flow, sustainable growth and clean balance sheets. He also conceded that a slowdown was inevitable, stating: “We see a slowdown in global growth and corporate earnings in 2019 with the U.S. economy entering a late-cycle phase”.
Meanwhile, Bill Stromberg of T. Rowe Price believes that emerging markets could be the ticket for 2019. “Emerging market stocks are starting out a lot cheaper and have a higher dividend yield. You could get 8 percent to 10 percent returns over the next 10 years. If the U.S. dollar weakens you could get more as a U.S. investor,” he stated.
Joseph Davis of Vanguard Group also says to “expect an economic slowdown”. He believes growth in the U.S. will slow to about 2% and he puts his outlook for equities over the next decade in the 3% to 5% range.
The dour sentiment was shared by the CIO of equities and multi-asset strategies at Schwab, Omar Aguilar. He says to sell small cap equities and securities with high debt ratios. Instead, he also suggests emerging markets due to their relative valuations.
“Decelerating global economic growth, increased attention to trade-related development — particularly with China — tighter monetary policies, reduced liquidity, and a mean reversion toward historically average volatility levels are likely to set the tone for equity markets in 2019,” Aguilar said.
The one underlying theme here is that these picks are far less bullish across all asset classes heading into the new year than they were not only at the beginning of the year, but headed into most years during the past decade, which is to be expected at the tail end of the longest bull market on record. While many of these asset managers can sometimes “miss the boat” and their analysis can occasionally be backward looking in nature, the ubiquity of their widespread concern seems to mark a significant sentiment shift heading into the new year.
In the usual fashion of Egypt’s Sisi-led military junta, security forces have gone into “terror hideouts” guns a blazing after Friday’s bus bombing which left 4 dead and a dozen injured, mostly Vietnamese tourists visiting the Giza Pyramids outside of Cairo, in a casualty toll that climbed from two to four later in the day. The raids killed 40 terrorists according to Egyptian security officials, and authorities announced further the successful counter-terror operation thwarted a planned “series of attacks on tourist sites, churches and military personnel,” according to the BBC.
The scene of the roadside bomb attack on a tourist bus in Giza province south of the Egyptian capital Cairo, via Getty Images
Reports identified that 30 of the militants were killed during early morning raids by police and military personnel in Giza while a further 10 were ambushed by security forces in Northern Sinai, according to the interior ministry.
“A group of terrorists were planning to carry out a series of aggressive attacks targeting state institutions, particularly economic ones, as well as tourism… and Christian places of worship,” the ministry statement said. And further the raids were ordered “as a continuation of the ministry’s efforts in chasing terrorist elements involved in the implementation of hostile operations seeking to destabilize the country’s security,” the statement said.
The interior ministry also said police had seized large quantities of bomb-making materials, ammunition and a caches of weapons during the raids, touting these as proof that terror cells were effectively taken out.
Local media circulated government-released images of what are purported to be dead terrorists responsible for planting the roadside bomb in Giza as well as guns and ammunition.
Yet itremains that no particular group has claimed credit for the attack, leaving questions over whether authorities actually killed the suspects responsible.
Friday’s attack was the first to target foreign tourists in almost two years, but given that it was carried out near the pyramids of Giza — the most visible and protected ancient site in the country— a massive response by police was expected, and indeed played out rapidly.
In recent years Egypt has sought to clamp down on Islamic militants, especially those operating in the Sinai Peninsula, as not only have there been an uptick in attacks targeting the country’s sizable Coptic Christian minority, but to protect Egypt’s multi-billion dollar tourism industry— the country’s main economic lifeline that’s been historically threatened following any large-scale terror attack. Terrorists often conduct attacks on tourists knowing it could cripple the economy for years.
Political instability following the “Arab Spring” protests in 2011 has also wreaked havoc on the tourism industry. For example, annual tourism revenue reachedan all-time high of 12.50 USD Billion in 2010 just prior to mass anti-Hosni Mubarak protests, and a record low of 3.80 USD Billion in 2016 following tumultuous period of brief Muslim Brotherhood rule under Mohamed Morsi and a military coup which restored the power of the generals.
The country’s roughly 10%-15% Christian minority has been routinely targeted by Islamists as well. Egypt’s ancient Orthodox Christian community has often been subject of church burnings and bomb attacks during the Christmas season as worshipers attend services.
Following Friday’s tour bus bombing, the US State Department condemned the attack, saying, “We stand with all Egyptians in the fight against terrorism and support the Egyptian government in bringing the perpetrators of this attack to justice.”
Likely, Egyptian security forces will remain trigger happy, ready to respond to terror threats with overwhelming force, given the economic survival of both the regime and the entire country is on the line.
Among the more notable geopolitical events that took place last week, and which was swept away by the chaos in the capital markets, was Thursday’s surprising announcement of a Saudi cabinet reshuffle that moved around some of the key players in the Khashoggi murder scandal (most notably the chief Saudi diplomat, Adel al-Jubeir) and removed Prince Mohammed bin Nawaf al Saud as the Kingdom’s ambassador to the UK.
As a result of the reshuffle, more liberals and progressives will move into positions of power, suggesting that it could be part of the Kingdom’s plan to move ahead with its ‘liberalizing’ reforms to try and rehabilitate MbS’s tarnished reputation as a reformer. Amid the reshuffle, the king also ordered the creation of a new political and security council (presumably to help protect his chosen successor’s flank) and – in a move that is reminiscent of a controversial decision made by President Trump this year – establishes a new Saudi space agency.
The biggest change was the apparent demotion of al-Jubeir to the lesser position of minister of state for foreign affairs and moving Ibrahim al-Assaf, formerly the kingdom’s finance minister, to the foreign affairs role. Al-Jubeir who was one of the kingdom’s key liaisons with western media during its response to Khashoggi’s killing and played an important role in the Saudis PR response to the Khashoggi killing, in addition to being a stalwart supporter of the Crown Prince.
But perhaps an even more prominent event took place just ahead of the reshuffle, when on Wednesday the London-based Al-Quds Al-Arabi reported that Saudi authorities have re-arrested the brother of billionaire Prince Al-Waleed bin Talal just days following the death of their “reformist” father, after Crown Prince Mohammed bin Salman ordered the arrest of Khalid bin Talal.
“The arrest took place on Tuesday night and until Wednesday evening Khaled was not released despite some promises,” the report said according to The New Arab.
Like his brother, Prince Khalid was freed in November after being detained for 11 months for criticising a crackdown on the kingdom’s elite that saw dozens of princes, officials and tycoons imprisoned at Riyadh’s Ritz-Carlton hotel. Prince Khalid’s brother Al-Waleed, sometimes called the Warren Buffett of Saudi Arabia (despite his wealth plummeting 60% from its 2014 peak) was among those rounded up and was released in early January after an undisclosed financial agreement with the government.
The arrest came just days after their father Prince Talal bin Abdul Aziz, a half-brother of King Salman, died. Defiantly liberal and dubbed the “Red Prince”, Talal bin Abdul Aziz was known as a tireless advocate of reform, sometimes in defiance of the royal family. He was a long-standing advocate of allowing Saudi women to drive, a right that was finally granted to female citizens this year.
And so the bifurcated power moves orchestrated by Crown Prince Mohamed bin Salman continue, when on one hand he is eager to demonstrate to the world just how more open and liberal the Kingdom is becoming – especially in the aftermath of the bother Khashoggi assassination – yet on the other MbS continues to quietly sequester and dispose of any potential threats to the throne as he prepares to replace his increasingly senile father.
Hundreds of Yellow Vest protesters gathered outside France’s BFM TV station for week seven of nationwide protests.
The protesters chanted various versions of “Fake news journalists come down,” and “Macron out!” at the TV station which one protester told RT France spreads false information about the movement, while purposefully understating the size of its demonstrations.
Saturday’s protesters were met with tear gas and a heavy police presence, which has become part and parcel to the violent demonstrations of weeks past.
Police fired tear gas at “yellow vest” demonstrators in Paris on Saturday but the turnout for round seven of the popular protests that have rocked France appeared low.
Several hundred people wearing the symbolic hi-visibility vests had gathered near the offices of France Televisions and the BFM TV channel in the centre of the capital shouting “Fake news” and calling for the resignation of President Emmanuel Macron. –France24
French police deployed tear gas in the city of Rouen in Normandy during a tense stand-off with demonstrators.
Police scuffle with protesters in Toulouse, southern FranceProtester kicks officer in downtown Nantes, western France
La rue Jean-Lecanuet progressivement elle aussi sous les nuages de lacrymo, le cortège des #Giletsjaunes se replie vers l’hôtel de ville pic.twitter.com/mcvzUZffcm
On Thursday a group of Yellow Vest demonstrators attempted to storm French President Emmanuel Macron’s summer retreat, though it is unclear if he was present at the time. Macron came under fire for a $39,000 swimming pool he had installed at the coastal fort.
The Yellow Vest protests began over a planned fuel-price hikes linked to climate change measures, however they soon evolved into a general protest against the Macron government. While the fuel hikes were temporarily postponed for six months, protesters continue to call for Macron’s resignation.
