Tag: finance

Submitted by MN Gordon via Acting Man

Investment Grade Junk

All is now bustle and hubbub in the late months of the year.  This goes for the stock market too. If you recall, on September 22nd the S&P 500 hit an all-time high of 2,940.  This was nearly 100 points above the prior high of 2,847, which was notched on January 26th.  For a brief moment, it appeared the stock market had resumed its near decade long upward trend.

We actually did not believe in the validity of the September breakout attempt: the extremely large divergence between the broad market and the narrow big cap leadership was one of many signs that an internal breakdown in the stock market was well underway. It is probably legitimate to refer to the January 2018 high as the “orthodox” stock market peak – the point at which most stocks topped out.

Chartists witnessed the take out of the January high and affirmed all was clear for the S&P 500 to continue its ascent.  They called it a text book confirmation that the bull market was still intact.  Now, just two months later, a great breakdown may be transpiring.

Obviously, this certain fate will be revealed in good time.  Still, as we wait for confirmation, one very important fact is clear.  The Federal Reserve is currently executing the rug yank phase of its monetary policy.  As the Fed simultaneously raises the federal funds rate and reduces its balance sheet, credit markets are slipping and tripping all over themselves.

This week, for example, seven-year investment grade bonds issued by GE Capital International traded with a spread of 2.47 percent.  For perspective, this is equivalent to the spread of BB rated junk bonds.  In other words, the credit market doesn’t consider GE bonds to be investment grade, regardless of whether compromised credit rating agencies say they are.

Spread of 7-year GE bond over mid-swaps – this bond retains an investment grade rating for now. We have discussed the problem posed by the proliferation of bonds rated in the lowest investment grade category in detail previously – see: “Corporate Credit – A Chasm Between Risk Perceptions and Actual Risk” [PT]

* * *

But it’s not just GE debt that’s in question.  Per a tweet by Scott Minerd, Global Chief Investment Officer at Guggenheim Partners:

“The selloff in GE is not an isolated event.  More investment grade credits to follow.  The slide and collapse in investment grade debt has begun.”

The fact is, there’s now around $3 trillion of bonds rated BBB, the lowest rating bracket above junk.  How much of this debt – like General Electric bonds – should be rated junk that isn’t?  We suspect the next liquidity event will clarify the answer to this question.

The real question, however, is how did $3 trillion of questionable debt pile up to such a perilous level to begin with?  What follows is an attempt at an answer…

How Fake Capitalism Works

One popular delusion is that America operates under an economic framework of capitalism.  One where businesses, and their finances, are free to succeed and fail based on their economic merits.  In reality, America hasn’t had a truly capitalist economy since the 19th century.

Moreover, the encroachment of government into the economy has increased over the last several decades. The ratio of federal government spending to GDP increased from 33 percent in 1973 to about 40 percent today. How can an economy that is composed of 40 percent federal government spending and extreme central bank intervention into credit markets be an economy of private enterprise?  Naturally, it can’t.

In modern times government activity is taking up an ever larger share of the economy – but where will it end? Full-fledged communism? Note that the above does not count the indirect costs of federal regulations, which are estimated to amount to around $2.5 trillion per year.

* * *

The fake capitalism of the 21st century is, in essence, a destructive form of self-cannibalism.  The economic model depends on three factors: big deficits, monetary policies of extreme intervention, and a central authority with a highly visible hand to direct the supply and demand of goods and services. Taken in concert, these factors consume tomorrow’s productivity with the gluttonous appetite of pigs devouring slop.

The results are an endless collection of gross distortions, misallocations, debt pileups and vulnerabilities.  Stocks, corporate bonds, residential real estate, General Electric, Washington lobbyists, student loan debt, defense contractors, digital gizmo producers, Ford Motor Company,  per capita healthcare costs, Anheuser-Busch, Bryce Harper’s imminent $400 million contract, unfunded state pension liabilities, federal debt, and on and on…

This is how fake capitalism works.  And what you may not know is that under fake capitalism someone, most likely you, will be left holding the bag for these liabilities – and many more.  You may not want to pay for them.  You may not be prepared to pay for them.  But you will pay for them, nonetheless.  In fact, you already are…

The Intolerable Scourge of Fake Capitalism

You see, if you own residential property in America today you really don’t own it.  You are merely leasing it from your local governments. Try skipping your property tax payment, if you don’t believe us.

One implication is that your city holds an option on your house.  And when push comes to shove, they’ll exercise it.  The city government will raise your property taxes to cover its pension obligations.  Then it will raise it some more.  Many cities already are.

And if your kids are in public schools, it is likely their classrooms are more crowded than they were when you were a kid.  Why?  Is there a shortage of teachers?  On the contrary, there is a glut of retired teachers – some of whom haven’t taught a class for over 20 years – who have a claim on today’s taxes.

On top of that, your state wants to stick you with a progressive wealth exit tax if you try to sell your house and leave the state.  After a lifetime of paying down your mortgage you can no longer flee to a tax friendlier state without being taken to the cleaners.  Remember, you no longer own your property. Your local and state government owns your property.

A little Illinois data and cartoon collage: this is the quasi-bankrupt state in which the political class now ponders restricting the basic human right of free movement by blackmail in the form of an “exit tax”. Your property does not belong to you. You and all you own belong to them.

* * *

So, too, under a fiat money system, you don’t own your own money.  You may think you do.  You can see the balance in your savings account.  But at all hours of the day, including holidays, the value is being extracted from your savings through deficit spending and policies of mass money debasement. This is why working and saving money has become an unending run on a treadmill.  You can never get ahead.  But you can run faster and faster.

Of course, the taxpayer – that’s you – will also be responsible for picking up the tab on the next round of too big to fail corporate bailouts.  You can count on it.  The Treasury Secretary, through smiling teeth, will even tell you it’s for your own good… that they must destroy capitalism to save it.

Yet capitalism was destroyed long ago.  And we find the fake capitalism that remains to be an intolerable scourge to a just society.

via RSS https://ift.tt/2zehEbI Tyler Durden

As California fire officials continue to battle the state’s deadliest blaze, a new crisis has emerged; tens of thousands of evacuees are now homeless and struggling to survive in freezing conditions with a storm expected to roll in on Wednesday. California officials estimated earlier in the week that 50,000 people had been evacuated from the fire-ravaged Paradise region, and over 1,000 are currently in sanctioned shelters. 

Making things worse, norovirus has broken out in at least three evacuation shelters, requiring isolation tents to try and contain its spread. 

As the Sacramento Bee notes – “the situation is growing worse with each passing day.” 

“This is on an order of magnitude beyond what we thought was one of the worst disaster recoveries we would be faced with,” said Kelly Huston, deputy director of governor Jerry Brown’s Office of Emergency Services. 

After the Camp Fire erased most of the town of Paradise, destroying more than 9,800 residences, emergency services officials are dealing with what some say is an escalating humanitarian crisis with no quick solutions. Some evacuees will be able to return to unburned homes. Most, now hunkered in hotels, staying with family and friends, or stuck in evacuation centers or unauthorized camps, have no home to return to, and are left wondering where their future lies. –Sacramento Bee

26,000 are homeless in #Paradise, CA. 9,700 homes, 290 buildings destroyed, 15,500 structures still threatened. 63 have died, 631 still missing. The #CampFire is the largest/deadliest wildfire in CA history. The tragedy has no end. @weatherchannel is reporting from Paradise. pic.twitter.com/hlvZUrdk7e

— Justin Michaels (@JMichaelsNews) November 16, 2018

“Wallywood”

Many residents have turned to makeshift communities where sanitation and safety are top concerns. In particular, hundreds of evacuees have been squatting at a camp in a Walmart parking lot, “a ramshackle village some inhabitants call Wallywood, a sardonic mash-up of their location and reduced circumstances,” reports the Bee. 

“I just want to be safe and happy and in a home,” says 57-year-old Wallywood resident DeAnn Miller, who was homeless for a year before moving into a Paradise mobile home three months ago. 

“I need my home back,” said Miller, disheveled and standing next to someone else’s bucket of urine. 

The wait for Paradise: From young to old, evacuees displaced by the #campfire endure another restless & cold night in their cars, container trucks & tents, at the Walmart parking lot in Chico, Calif. https://t.co/P6eEtrVfaJ pic.twitter.com/elSxRnwea4

— Marcus Yam 火 (@yamphoto) November 16, 2018

Officials pull together

On Friday afternoon, the Butte County Board of Supervisors held an emergency meeting, voting to open large shelters in order to consolidate Camp Fire evacuees who are currently spread throughout six shelters – mostly in churches. The problem, reports the Bee, is that the shelters are up to 30 miles apart, making it more difficult for the county to provide medical, law enforcement, food, clothing and other services.

“Because they’re scattered all over, it’s so much more difficult to provide those services to them,” said Butte County Supervisor Bill Connelly. “We need to be able to house them, clothe them, give them sanitation, medical care, help them with paperwork. We have rain coming so our immediate need is to consolidate our evacuees in to areas we can provide that.” 

State lawmakers in Sacramento said on Friday that they will look for money to help rebuild, as well as find ways to build cheap and fast housing – such as mobile homes. 

Federal Emergency Management Agency (FEMA) crews working out of Cal OES headquarters in Sacramento say they have registered 10,000 people in need of help, and have an office open in the former Sears building in the town of Chico to register evacuees. Those who had to flee the fire are being given rental housing vouchers, grants for rebuilding their homes, low-interest loans and other charity-based aid programs, said spokesman Michael Hart. 

The first step, Huston said, is to “at least get you into something where you can settle and then you can make some good decisions about what your future looks like.” The massive scope of the problem is forcing government to look farther away to find space to house people. That includes turning to private industry, such as the short-term rental company Airbnb.

County officials said they face a problem that could have ramifications in communities beyond the immediate area.

“Big picture, we have 6,000, possibly 7,000 households who have been displaced and who realistically don’t stand a chance of finding housing again in Butte County,” county housing official Mayer said. “I don’t even know if these households can be absorbed in California.” –Sacramento Bee

The county can place 800 – 1000 households in permanent residences, said Mayer, as Butte County housing was already in a crunch before the deadly Camp Fire – with a vacancy rate less than 2% which “is considered a crisis state,” added Mayer. 

As of Saturday morning, the death toll in the Camp Fire stood at 71, making it the deadliest fire in California state history. Meanwhile, over 1,000 people remain unaccounted for. The blaze is currently 55% contained and has scorched 148,000 acres. 

California Senator Dianne Feinstein on Friday said that she will help to ensure that “all necessary resources are available,” for the rehousing of now-homeless evacuees. “As we move into the recovery phase, it’s important to know that federal funds are available now to help wildfire victims with their immediate needs. Those affected should register with FEMA as soon as possible to begin receiving aid,” Feinstein said in a statement. 

“Our housing dollars are scarce, but clearly our hearts go out to the fire victims,” said California Assemblyman David Chiu, a San Francisco Democrat who chairs the Assembly housing committee. “I think there would be significant support for assisting with the development of housing and particularly affordable housing in those areas.” 

Lawmakers are discussing using modular housing, which can facilitate cheaper and faster construction, to rebuild fire-torn areas, he said. He also thinks they should consider streamlining housing production in those areas by reducing regulations that can slow building. And he said it’s possible the Legislature will allocate money to help rebuild. –Sacramento Bee

Evacuees, meanwhile, say they don’t want to move for the sake of moving if there isn’t a long-term housing solution in place. Officials made their way through Wallywood Friday, passing out gas cards, offering transportation to people, and letting residents know of the new shelter options. 

Walmart spokeswoman Tiffany Wilson said the company is concerned for public welfare in a statement to The Bee. “While we are happy to have been able to provide an immediate place of escape from the wildfire, we understand that our parking lots are not a viable long-term housing solution and are working closely with the American Red Cross, the county and local organizations to best preserve the health and safety of those impacted by the Camp Fire.“

Tammy Mezera, 49, moved to Paradise just a few months ago to be close to her son, who lives in Magalia. She said the initial shock of of the fire has warn off, and now she wants to now whether officials will help her get a permanent place to live.

Mezera was sitting in a canvas camping chair near a donated tent. Her 6-month-old pit bull Nel chewed on a bone. A small white New Testament was on a table in front of her. A case of Spam and bags of pretzels were on the ground next to her. –Sacramento Bee

“This is not a viable option, but they’re not giving us another option besides another temporary situation,” she said. “We’ve created a community from a community destroyed. Now you’re going to displace people again.”  

via RSS https://ift.tt/2OOpb6c Tyler Durden

Submitted by Ryan McMaken of The Mises Institute

Amazon isn’t the first big corporation to manipulate policymakers by shopping around the idea of relocating its headquarter to the “right” city. The “right” city, of course, is the one that provides the company with enough tax breaks and other political favors so as to make the move worth it.

Back in 2001, for example, Aerospace company Boeing did exactly the same thing, with Illinois and Chicago governments winning that contest:

State and local officials lobbied aggressively to lure Boeing, offering generous financial incentives, pushing the city’s business and cultural advantages and creating a blue-ribbon commission.

In the end, the State of Illinois offered Boeing up to $41 million in tax and other incentives over the next 20 years, and Mayor Richard M. Daley said the city offered millions more in property tax abatement and other benefits over that period.

Amazon has done something very similar with its own recent search to find the city and state that will provide the political favors necessary to lure the company to set up a second or third headquarters.

The problem with these schemes, however, is not that they involve tax cuts. Contrary to what some leftwing outlets might claim, a tax “incentive” (i.e., tax cut) is not a “subsidy.” Only people thoroughly indoctrinated into government doublespeak think that a decline in government revenue is a type of “spending” and is thus the same thing as a subsidy.

But, while deals like those made with Boeing and Amazon are primarily based on tax incentives, they do represent a type of public policy in which certain firms are granted political favors. The ultimate effect is one in which a government agency has decided to impose high costs on Firm A while imposing relatively lower costs for Firm B. In other words, it’s a way for the government to pick winners and losers.

For a sense of the political implications of this, imagine if this were done on an individual level. Suppose that, in order to attract more “talent” to a region, the state government of Indiana declared that all new immigrants would not be required to pay income taxes. Everyone who already lived in Indiana, though, would pay the usual full tax. Or, imagine if as part of a reparations scheme, Black Americans were not longer required to pay payroll taxes. But everyone else was.

It’s true that none of these schemes are subsidies, rightly defined. Moreover, there may be certain economic benefits that could result. Those who were no longer required to pay payrolls taxes or sales taxes would be able to spend and invest more in the local economy. But few would argue that these are neutral policies, or policies that lessen the political power of the policymaking authorities. In fact, policies like these could easily end up being significant political boons for the powers that be.

Tax Incentives as Government Planning

Looking at this strictly through the lens of economics, there’s clearly nothing wrong with a tax break.

Moreover, the fact that state and local politicians are so eager to give tax breaks to certain companies shows that they admit that a low-tax environment is better for business, employment, and prosperity.

Once deals like the Amazon deal go down, though, we’re left wondering: why do only billionaires get a tax cut, while ordinary small business owners have to keep paying the usual tax rate?

Of course it would be better for the economy overall if all businesses got a tax break. In that case, business owners across all industries and sectors would have more money to hire workers, pay dividends, pay down debts, raise wages, or expand operations.

So why not do that?

Basically, politicians prefer to hand out tax cuts for only select favored groups because they think they know how to manipulate and plan the economy. Certainly, these policymakers could create an environment that was generally good for businesses and business owners, by lowering taxes and regulations overall.

But, that strategy would allow consumers and business owners to decide what businesses get built, and where, and what is produced.

But, as far as politicians are concerned, that’s allowing entirely too much freedom. Moreover, incentive deals provide a way for politicians to rationalize not providing tax relief for the economy overall. “See?” they’ll say. “Companies want to come here even with our high tax rates!”

Favoring Large Firms Over Small or Indigenous Firms

Another problem with these schemes is that they favor established, large businesses over small firms that are just getting started.

The main fault in this idea is immediately obvious if we consider the fact that Amazon was itself once a small startup. Indeed, most big firms today once began as small firms which had to build themselves up by catering to consumer tastes in the marketplace. But, it’s impossible for politicians — or anybody else — to predict ahead of time what new startups today will be the future’s big multinational firms.

Schemes like the Amazon and Boeing “incentive” plans however, are based on the idea that it is more important to cater to large firms than to foster an environment in which local businesses thrive and grow.

This is often done for political reasons. Once a large firm is enticed to move to a new city, politicians and “economic development” bureaucrats can claim they have given the local economy a shot in the arm. They will have bragging rights when socializing with their peers at conferences and at meetings with other mayors or state governors. It helps politicians feel important.

In other words, bringing  in a company like Amazon is “sexy.” It gets headlines. It may even get votes.

Incentive programs may also require that the new company keep track of how many jobs it creates or how much tax revenue it creates. And then report those metrics to the government. That makes it easy for politicians to then claim they “created jobs.”

A general pro-business environment would create jobs too, of course. But it’s harder to calculate the job creation and wealth creation that takes place when a thousand small- or medium-sized firms grow and hire more people. It’s especially hard for a politician to then connect that economic growth to a specific policy that the politicians favored.

So, in a classic case of the “seen vs. unseen” problem, large corporations are often favored simply because they are more visible. They offer better opportunities for politicians to get attention.

Making Life Harder for Smaller Business

And additional problem with bringing in certain favored firms with tax incentives is that it can increase costs for smaller and indigenous firms. While the presence of the new big firm may help some vendors who will provide goods and services to the large firm — such as a local janitorial company which provides building maintenance for the new large firm — many other firms will have to pay higher prices as a result. For example, the new firm may drive up construction costs or energy costs for everyone in the region. It may drive up local costs for catering services or accountant services. Office space may become more expensive. This will then drive up the cost of doing business for many other local businesses. Those firms may then have to eliminate jobs as a result.

And then, of course, there are the intangible costs in terms of time and the quality of life. The presence of the new firm may lead to overcrowding on highways or in local schools, or at local parks.

These schemes may also serve to make a local economy less diverse or more dependent on a single firm or single industry. When politicians decide that a local economy ought to be a “tech hub” or some other type of industry-specific “hub,” they are using public policy to tie that local economy to a specific industry. If that industry or business fails or goes into decline, the local economy will go down with it. Had politicians refrained from favoring certain firms, however, this fate might have been avoided.

Supporters of incentives schemes may claim “well, it will all even out because the new big firm will bring more tax revenue. And the rising prices will benefit local firms as much as they will hurt local firms. Some win, some lose, but the net benefit is surely positive!”

Or they might point out that even without incentive schemes, certain economies can become dependent on certain industries or companies.

That’s all possible. But, frankly, defenders of these schemes don’t have enough data to know for sure.

In the end, incentives schemes and other forms of government planned “economic development” are based on conjecture and speculation. They’re based on politicians thinking themselves qualified to re-shape and re-direct a region’s economy to suit what is — in their minds — trendy, exciting, or politically advantageous. In the long run, more firms, more wealth, and more growth could be achieved by simply cutting taxes and regulatory requirements. And this strategy would have the added benefit of not inserting government preferences for certain firms and industries over others.

After all, supporters of special favors for certain powerful firms can’t know if their incentive plans will lead to a net benefit in terms of tax revenues or employment growth — if compared to a plan in which taxes and regulations were scaled back.

And it’s not likely that they care.

via RSS https://ift.tt/2K9zKzT Tyler Durden

America’s favorite “Creepy porn lawyer” is having a rough few weeks.

Last month, a judge ordered Los Angeles attorney Michael Avenatti to pay a former employee nearly $5 million in unpaid wages. The next day, the Daily Beast pasted Avenatti, detailing his irresponsible spending habits that included rides on private jets and stays in five-star hotels. But perhaps worst of all, Avenatti was arrested earlier this week on a felony domestic violence charge following an alleged altercation with an unknown woman.

The woman, initially identified as Avenatti’s wife, though that was later determined not to be true, has yet to be identified. But Avenatti, who says he’s still considering a run for the Democratic nomination in 2020, has vehemently denied the charges. Meanwhile, porn actress Stormy Daniels, Avenatti’s star client, has said she would “seek new representation” if Avenatti is proven guilty.

And to that list of woes, we can now add one more: According to the Los Angeles Times, Avenatti lost an appeal on Friday to stop his former law firm from being evicted from its Newport Beach offices. Avenatti’s (soon-to-be former) landlord sued for eviction after his firm, Eagan Avenatti, missed $213,254 in rent payments over four months. The firm now has until 6 am on Nov. 1 to vacate the building. However, Avenatti skipped the hearing, just like he had skipped an October hearing where the eviction order was initially handed down.

When approached by the media, Avenatti tried to spin the eviction as a “non event”, even as he argued in court that he had an oral agreement with his landlord to retain the space for his new firm, Avenatti & Associates.

Asked about the eviction order in an email, Avenatti responded, “It does not matter as Eagan Avenatti, my former firm, was already in the process of moving. A non-event.”

On Oct. 31, Avenatti asked the court to stop the eviction, saying Avenatti & Associates, another entity that he owns, had an “oral rental agreement with the landlord” that must be honored.

The landlord denied there was any such agreement.

Avenatti says the two businesses are distinct firms, but they function as the same law practice with the same lawyers and support staff in the same Newport Beach office suite.

Avenatti’s former firm petitioned for federal bankruptcy protection last year. More recently, Avenatti has claimed in court documents that his new firm, Avenatti & Associates, owns 75% of Eagan Avenatti, and that the two firms share resources like offices and staff.

But while the eviction is just the latest blow to Avenatti’s reputation, we imagine the lawyer will quickly occupy himself by bigger concerns – like suing TMZ.

Whomever wrote and approved that TMZ article better get their checkbook ready because it was purposely malicious and false. It was designed to harm Lisa, me and my family and we are going expose TMZ for what they did. No journalist should rely on or defend garbage like that.

— Michael Avenatti (@MichaelAvenatti) November 16, 2018

via RSS https://ift.tt/2FsF0jw Tyler Durden

Hours after the publication of a bombshell CIA report claiming that Saudi Crown Prince Mohammad bin Salman had almost certainly ordered the killing of Saudi dissident and former US resident Jamal Khashoggi, responses from lawmakers and senior US government officials – including the president himself – are rolling in.

One of the first to respond was none other than Bob Corker, the outgoing chairman of the Senate Foreign Relations Committee, who said he believed the CIA’s conclusion that MbS ordered the killing, and demanded that the administration “do something” to hold MbS accountable and stop the kingdom from executing the five suspects who had been set up to take the fall for the murder.

“Everything points to the Crown Prince of Saudi Arabia, MbS, ordering @washingtonpost journalist Jamal #Khashoggi’s killing,” Corker said. “The Trump administration should make a credible determination of responsibility before MbS executes the men who apparently carried out his orders.”

Everything points to the Crown Prince of Saudi Arabia, MbS, ordering @washingtonpost journalist Jamal #Khashoggi‘s killing. The Trump administration should make a credible determination of responsibility before MbS executes the men who apparently carried out his orders.

— Senator Bob Corker (@SenBobCorker) November 17, 2018

Corker also tweeted a statement about the possibility of imposing Magnitsky Act sanctions on senior Saudi officials believed to be involved with the killing. In the statement, he said the Treasury Department sanctions against 17 Saudis, including a top aide to the Crown Prince who is suspected of having organized the 15-man hit squad that carried it out, was a “significant step.”

I have a lot of concerns about the trajectory that Saudi Arabia is on right now, and I think a price needs to be paid. My full statement on the Global Magnitsky sanctions against Saudi officials for the murder of #JamalKhashoggi: pic.twitter.com/EEM0HzGgwg

— Senator Bob Corker (@SenBobCorker) November 15, 2018

President Trump, who has notably toned down his rhetoric about the killing and MbS’s potential complicity, doubled down on Saturday when he defended the US’s “spectacular” relationship with the Saudis and once again pointed to the massive number of jobs and investments he said Saudi Arabia brings to the US.

“We’re taking a look at it. You know, we also have a great ally in Saudi Arabia,” Trump said. “They give us a lot of jobs, they give us a lot of business, a lot of economic development. They have been a truly spectacular ally in terms of jobs and economic development.”

Trump continued: “And I also think that you know, I’m president, I have to take a lot of things into consideration so we will be talking to the CIA later and lots of others. I’ll be doing that while I’m on the plane. I’ll be speaking also with Secretary of State Mike Pompeo.”

Trump added that he had not yet been briefed about the CIA’s report, he also said that he’d be speaking with Secretary of State Mike Pompeo.

President Trump said he will be briefed today on the CIA report that Saudi Crown Prince Mohammed bin Salman ordered the killing of journalist Jamal Khashoggi while also calling Saudi Arabia “a truly spectacular ally.” https://t.co/nBN7c0XUnK pic.twitter.com/RxNtSXEZ8k

— NBC Nightly News with Lester Holt (@NBCNightlyNews) November 17, 2018

Playing the bad cop to Trump’s good cop, Vice President Mike Pence delivered a decidedly more aggressive statement about the CIA report, telling a group of pool reporters on Saturday that “couldn’t comment on classified information” but assured them that Khashoggi’s death was an “atrocity” that would be punished by the US, per the Hill.

“It was also an affront to a free and independent press and the United States is determined to hold all of those accountable who are responsible for that murder,” he said, according to pool reports.

But Pence carefully hedged his remarks, clarifying that the US would “follow the facts” on Khashoggi’s death while arguing that the Trump administration wanted to find a way to preserve a “strong and historic partnership” with the kingdom.

Aside from the purported recording of Khashoggi’s agonizing final moments, US intelligence agencies reportedly based their conclusion on a transcript of a phone call between Khalid bin Salman, Mohammad’s brother and the kingdom’s ambassador to the US. During the call with Khashoggi, the CIA says, KbS assured the journalist that he wouldn’t be harmed if he visited the Istanbul consulate, where he would be able to retrieve paperwork needed to marry his Turkish fiance.

For what it’s worth, Khalid bin Salman denies that he ever instructed Khashoggi to visit the Saudi embassy in Istanbul.

As we told the Washington Post the last contact I had with Mr. Khashoggi was via text on Oct 26 2017. I never talked to him by phone and certainly never suggested he go to Turkey for any reason. I ask the US government to release any information regarding this claim.

— Khalid bin Salman خالد بن سلمان (@kbsalsaud) November 16, 2018

Looking ahead, we wait to see if Saudi Arabia will reward Trump with another 7% drop in the price of oil by coming out against another OPEC+ production cut.

via RSS https://ift.tt/2QQxWhV Tyler Durden

International media attention, an expansive search involving 18 nations and even the prayers of Argentine native Pope Francis weren’t enough to save the crew of the TR-1700 model submarine that disappeared off the coast of Patagonia almost exactly one year ago.

After seven desperate distress signals sent by the submarine’s doomed crew of 44 sailors failed to lead rescuers to its resting place, the Argentine government conceded that the crew had probably perished. But the search for their remains, and the investigation into what exactly went wrong, rattled the Argentine military, eventually leading to the dismissal of the head of the country’s navy and raids on federal offices.

But just two days after Argentine President Mauricio Macri held a ceremony honoring the families of the disappeared sailors, the Argentine has revealed that the sub has been located.

Hours before the Argentine government announced that the remains of the sub had been found, it tweeted a map of the suspected location.

#ARASanJuan #LaBúsquedaContinúa Actualización: La empresa informó nuevo punto de interés en el Sitio 1 área 15A-4, a 800 mts de profundidad. El punto de interés tiene una dimensión de 60 mts de longitud. Hora de arribo al área para iniciar investigación 19:00 hs aproximadamente. pic.twitter.com/l5k8p8Zjye

— Armada Argentina (@Armada_Arg) November 16, 2018

According to Reuters, the vessel was founded “imploded” 907 meters deep in waters off the Valdes Peninsula in Argentine Patagonia. There were no survivors. The navy said a “positive identification” had been made by a remote-operated submersible from the American ship Ocean Infinity, which was hired for the latest search for the missing vessel.

On Thursday, on the anniversary of the disappearance, President Mauricio Macri said the families of the submariners should not feel alone and delivered an “absolute and non-negotiable commitment” to find “the truth.”

Macri promised a full investigation after the submarine was lost. Federal police raided naval bases and other buildings last January as part of the probe, soon after the government dismissed the head of the navy.

The ARA San Juan was on its way back to its base in the coastal city of Mar del Plata when the Argentine Navy lost contact. In the year since its disappearance, investigators have determined that a mechanical failure likely led to an explosion that sunk the sub. The German-made vessel had been retrofitted a year before its disappearance, a meticulous process that could create serious vulnerabilities if safety precautions aren’t taken in meticulous detail.

Argentina gave up hope of finding survivors after an intense search aided by 18 countries, but the navy has continued searching for the vessel.

The German-built diesel-electric TR-1700 class submarine was commissioned in the mid-1980s and was most recently refitted between 2008 and 2014. During the $12 million retrofitting, the vessel was cut in half and had its engines and batteries replaced. Experts said refits can be difficult because they involve integrating systems produced by different manufacturers, and even the tiniest mistake during the cutting phase can put the safety of the ship and crew at risk.

The navy said previously the captain reported on Nov. 15 that water entered the snorkel and caused one of the sub’s batteries to short-circuit. The captain later communicated that it had been contained.

Some hours later, an explosion was detected near the time and place where the San Juan was last heard from. The navy said the blast could have been caused by a “concentration of hydrogen” triggered by the battery problem reported by the captain.

The discovery closes what has been a traumatic chapter in Argentina’s military history. But the investigations into who should bear responsibility are ongoing. Whether anybody is brought to justice for the errors that led to the deaths of so many sailors remains to be seen.

via RSS https://ift.tt/2Q2jaav Tyler Durden

Two days after NBC reported that in what would amount to a stunning foreign policy concession by the White House, the Trump Administration was contemplating extraditing Turkish president Erdogan’s nemesis, cleric Fethulah Gulen who has been living for decades in rural Pennsylvania, in order to placate Turkey over the murder of journalist Jamal Khashoggi, on Saturday Trump denied the report, rejecting that he is considering handing over Erdoğan’s foe.

Trump told reporters at the White House before leaving for a trip to California that extraditing exiled Turkish cleric Fethullah Gülen was “not under consideration.” Trump also said that “we’re having a very good moment with Turkey,” referring Erdogan’s release of American pastor Andrew Brunson last month, and said the U.S. is always looking for “whatever we can do for Turkey.”

On Thursday, NBC reported that the White House had directed the DOJ and FBI to find ways to extradite Gulen and that cooperation over the extradition was an attempt quell tensions between key US allies, Saudi Arabia and Turkey, over the killing of journalist Jamal Khashoggi inside the Saudi consulate in Istanbul last month.

Trump’s comment echoed that of DOJ spokeswoman Nicole Navas Oxman, who on Friday told Reuters that the DOJ “has not been involved in nor aware of any discussions” regarding Gülen’s extradition in an attempt to appease Turkey. State Department spokeswoman Heather Nauert also rejected the NBC News report on Thursday, saying, “The White House has not been involved in any discussions related to the extradition of Fethullah Gulen.”

Predictably, US national security and foreign policy experts had been stunned by the original report: “This is the Trump administration seeking to barter away a US resident who has lived here legally for years,” the former National Security Council senior director Ned Price told Business Insider, adding that such a move would be “seeking to skirt the rule of law.”

Then again, even if the NBC report wasn’t fake news, any extradition meant to ease tensions would have proven futile, because on Friday Turkey said any US attempt to suppress its investigation into the journalist Jamal Khashoggi’s death wouldn’t work.

Ankara, which has provided the news media with a steady drip of leaks from the Turkish investigation implicating Saudi leadership in Khashoggi’s death, has ruled out any sort of cooperation with the US to wind down its investigation.

“At no point did Turkey offer to hold back on the Khashoggi investigation in return for Fethullah Gulen’s extradition,” an unnamed senior Turkish official told Reuters on Friday. “We have no intention to intervene in the Khashoggi investigation in return for any political or legal favour.”

An unnamed Turkish official also told NBC News on Thursday that the government did not link its investigation into Khashoggi’s death with Gulen’s extradition case.

“We definitely see no connection between the two,” the official said. “We want to see action on the end of the United States in terms of the extradition of Gulen. And we’re going to continue our investigation on behalf of the Khashoggi case.”

And perhaps to confirm that there will be no silencing Turkey’s “probe” of the dissident journalist’s murder, on Friday a Turkish daily reported that the planning of Khashoggi’s execution was caught on audio.

The audio tape, allegedly in the possession of Turkish investigators, features a 15-minute conversation, in which “the Saudi team discusses how to execute Khashoggi,” the Turkish Hurriyet Daily wrote on Friday, citing its columnist Abdulkadir Selvi. In a recording that was allegedly made even before the journalist entered the Saudi consulate, “they are reviewing their plan, which was previously prepared, and reminding themselves of the duties of each member,” he said.

The Hurriyet report contradicted the statement made by the Saudi deputy public prosecutor, Shaalan al-Shaalan, who said that the team was actually sent to Istanbul to retrieve the journalist and bring him back to Saudi Arabia. A decision to murder the reporter –and outspoken critic of Riyadh– was allegedly taken by the head of the team after its ‘persuasion’ failed.

via RSS https://ift.tt/2FpEF0Z Tyler Durden

Theresa May managed to get the draft Brexit agreement approved by her cabinet after five hours of discussion Wednesday night.

As Statista’s Martin Armstrong notes in the chart below, there is still an awfully long way to go though…

You will find more infographics at Statista

And there is still plenty of room for pessimism among Brexit experts.

You will find more infographics at Statista

Only 11 percent of the leading experts surveyed by The UK in a Changing Europe said they thought a withdrawal agreement would be signed by the end of November and 16 percent doubt that there will be a trade deal in place with the EU by the end of 2020.

While a majority still think a no deal Brexit is not likely, a nevertheless large share (42 percent) think it is a strong possibility.

Regardless of the kind of deal the UK ends up with, 70 percent foresee a fall in foreign investment from outside the EU due to Brexit.

via RSS https://ift.tt/2qOvNb2 Tyler Durden

Pretty soon Baltic banks might find themselves effectively cut off from the global dollar system, regardless of how stringent their  money laundering controls or how spotless their compliance records.

Even banks with no exposure or involvement to Danske Bank’s Estonian branch – the nexus of an unprecedented global money-laundering scheme that went uninterrupted for years – could face collateral damage from the broadening scandal as international regulators look past Danske’s blatant disregard for European anti-money laundering controls and toward the international financial institutions that helped enable them by clearing their transactions: such as US and European megabanks.

International banks like JP Morgan and Deutsche Bank already got burned during the catastrophic banking scandal in Latvia that almost brought down the country’s financial system (the correspondent banks embarked on a wave of “de-risking” after staring down threats from regulators). Now, that scenario is playing out again, but on a much larger scale.

According to Bloomberg, the DOJ has contacted Deutsche Bank AG and Bank of America Corp. to request information about transactions they cleared for the Danish lender’s Estonia branch – the epicenter of what’s believed to be the largest money laundering scandal in European history.

In an internal audit, Danske said that nearly all of $230 billion in non-resident transactions processed by the bank between 2007 and 2015 are suspicious. Amazingly, Russian President Vladimir Putin has appeared in prosecutors’ documents, as investigators in the US and Europe believe that some of the money moved through the branch belonged to the Russian leader and members of his inner circle. Danske’s CEO and its chairman have been forced out over the scandal. And some investors worry that the fallout could cost Denmark its ‘AAA’ credit rating. 

The investigation is still in its infancy, and there are no signs yet as to whether the banks themselves are targets. But the SEC and DOJ are raising questions about whether the banks applied appropriate AML scrutiny to their correspondent businesses.

JPMorgan stopped providing correspondent services to the Danske Bank branch in 2013. Deutsche Bank and Bank of America continued for another two years, according to the reports and the people familiar with the matter. Deutsche Bank handled the bulk of these transactions during the period under scrutiny, one of the people said.

In the past, correspondent banks have been treated by US authorities as “unwitting dupes.” But setting aside the fact that the vast majority of Danske’s Estonian clients weren’t actually Estonian (the branch catered almost exclusively to non-residents from the CIS), it’s difficult to imagine how the massive sums flowing through the tiny branch, which dwarfed the GDP of Estonia, didn’t warrant a second look by the banks’ compliance staff. The only sensible explanation is that a degree of magical thinking – or willfull ignorance – was involved.

Also, JPM, BofA and Deutsche each decided to terminate their correspondent banking relationship with Danske – but at different times.

In June 2013, according to the Danske Bank internal investigation, a JPMorgan executive told a Danske Bank board member that it planned to terminate services for the Estonia branch because of its high percentage of nonresident clients, a potential sign of money laundering. When it did so two months later, another of Danske Bank’s correspondent banks – Bank of America – agreed to expand its dollar-clearing business with the branch, according to the internal report. It’s unclear whether Bank of America was aware of JPMorgan’s concerns.

Danske Bank conducted an “internal review” after Estonian investigators started investigating the Estonian branch in 2014. But while they noted certain irregularities (like the fact that a staggering 90% of the branch’s profits came from non-resident clients) they didn’t take any meaningful action to step up their AML controls.

Why? We’ll give you one guess:

via RSS https://ift.tt/2K9vv7l Tyler Durden

For two consecutive days US stocks surged on renewed hopes that trade tensions between the US and China may be thawing ahead of the upcoming G-20 meeting between presidents Trump and Xi, when first an FT suggested that USTR Lighthizer had said no further tariff raises would be forthcoming (the report has since been denied), and subsequently when Trump himself told reporters on Friday he may not impose more tariffs after China sent the United States a list of measures it was willing to take to resolve trade tensions.

Unfortunately for markets, and bulls such as JPM’s Marko Kolanovic who saw last week’s traces of trade de-escalation as a reason to quadruple-down on his recommendation to buy stocks, any hopes of an imminent trade war end or even ceasefire came crashing down overnight when Vice President Mike Pence traded sharp barbs with Chinese leader Xi Jinping in back-to-back speeches at the Asia Pacific Economic Co-operation (APEC) summit in Papua New Guinea, which confirmed yet again that neither country is willing to compromise in the escalating trade war.

Xi received applause Saturday when he told the Asia-Pacific Economic Cooperation summit in Papua New Guinea that implementing tariffs and breaking up supply chains was “short-sighted” and “doomed to failure.” According to Bloomberg, Xi called for a stronger World Trade Organization and defended his signature Belt-and-Road Initiative, saying it’s “not a trap as some people have labeled it.”

Speaking moments later, vice president Pence – who in recent weeks has been pushing an aggressive anti-China agenda – threw down the gauntlet to China on trade and security in the region, saying the US will not back down from its trade dispute with China, and might even double its tariffs, unless Beijing bows to U.S. demands: “we have taken decisive action to address our imbalance with China,” adding that “we put tariffs on $250 billion in Chinese goods, and we could more than double that number.”

“We’re in a very strong position,’’ Pence said when asked whether there was a deadline to end the trade war. “The American people know that we have to do something to reset this relationship with China economically. So, I don’t think there’s a timetable.”

Pence told delegates the U.S. offers countries in the region “a better option’’ for economic and diplomatic relations than Beijing’s heavy-handed approach.

In a pun on words on China’s “One Belt, One Road” initiative, Pence warned against taking Chinese loans, saying the U.S. “doesn’t drown our partners in a sea of debt” nor offer “a constricting belt or a one-way road.”

The United States deals openly and fairly – and we don’t offer a constricting belt or a one-way road. When you partner with us, we partner with you, and we all prosper. #APEC2018 pic.twitter.com/pjL9XM9Sz2

— Vice President Mike Pence (@VP) November 17, 2018

Technically he is right: the World Bank does that, and then the US-led IMF comes in to “bail them out” at terms that are preferential only to the creditors (see Greece, or any other nation “saved” by the IMF).

Do not accept foreign debt that could compromise your sovereignty. Protect your interests. Preserve your independence. And just like America, always put your country first. #APEC2018 pic.twitter.com/HUQjU7OQgY

— Vice President Mike Pence (@VP) November 17, 2018

“China has taken advantage of the United States for many years. Those days are over,” he told delegates gathered on a cruise liner docked in Port Moresby’s Fairfax Harbour.

He also took aim at China’s territorial ambitions in the Pacific and, particularly, Xi’s Belt and Road Initiative to expand land and sea links between Asia, Africa and Europe with billions of dollars in infrastructure investment. “We don’t offer constricting belts or a one-way road,” said Pence.

And then came the punchline: “The United States, though, will not change course until China changes its ways.” Later, Pence told reporters he was “very hopeful” the U.S. and China could reach a deal, but “things have to change” for that to happen.

Tensions between the two nations are likely to deteriorate even more after the US took aim at China’s territorial ambitions. While not referring directly to Chinese claims over various disputed waters in the region, Pence said the United States would work to help protect maritime rights and said that the US seeks to establish a military base in Papua New Guinea, aka China’s back yard.

“We will continue to fly and sail where ever international law allows and our interests demand. Harassment will only strengthen our resolve.”

Meanwhile, Xi gave no indication of giving in on any U.S. demands, including an end to technology transfer, support for state-run enterprises, and giving up on its Made in China 2025 plan to lead the world in key industries. He said intellectual property rights are important to protect innovation but they shouldn’t widen the digital gap between countries.

In a further provocation to the Trump Admin, Xi also made a veiled reference to a new grouping known as “the Quad” that aims to counter China’s influence in the Asia-Pacific. Consisting of the U.S., Japan, India and Australia, the group met in Singapore for the third time this week to discuss ways to cooperate. “Attempts to form exclusive blocs or impose one’s will on others should be rejected,” Xi said. “History has shown that confrontation, whether in the form of a cold war, a hot war or a trade war, will produce no winners.”

Finally, Xi said talks would only work if both sides treated each other with respect: “If countries can only treat each other equally and understand each other,” he said, “there will be no issues that can’t be settled by negotiation.”

The only problem is that there has been virtually no mutual response, no compromises and no true negotiation.

Pence’s Saturday warning contrasted with remarks made by Trump on Friday, which were interpreted by the market as a tentative olive branch to China and a step to defuse tensions.  Trump, who did not attend the APEC meeting and is due to meet Chinese President Xi Jinping at a G-20 summit in Argentina – told reporters Friday that the Chinese response to U.S. trade demands was largely complete but was missing four or five big issues. Those comments helped U.S. stocks erase losses, and sent the Dow Jones surging 200 points higher.

The bottom line: since there was no hint of a compromise from either Pence or Xi – in fact, quite the opposite as both sides retrench – any hopes for a thaw in relations were summarily crushed. And, as Reuters warns, Pence’s stark warnings will “be unwelcome news to financial markets which had hoped for a thaw in the Sino-U.S. dispute and perhaps even some sort of deal at a G20 meeting later this month in Argentina.”

via RSS https://ift.tt/2qTpMKh Tyler Durden