Police in Sweden have launched a manhunt after an assailant drove a car through a large crowd of approximately 100 children and 10 teachers, according to the Daily Express.
A spokesman for Sweden’s police service said that children “threw themselves” out of the way of the car, which “accelerated into the group of students and teachers,” injuring two.
“He drove into two of the students. One was injured on the wrist and possibly the other student was also injured,” said the spokesman.
Police are searching for any information on the incident, which occurred at approximately 1pm local time as the group from Mjallby secondary school was walking from Hinnedalsvagen to Grundsjon for a reported social event.
The vehicle is described as a “black or dark blue Saab” which was traveling at around 25 miles per hour when it drove into the crowd. The driver immediately fled the scene, and witnesses were unable to say if it was a man or a women.
Last April, three people were killed and eight injured when a truck ran into a crowd on a Stockholm street in what authorities described as an act of terrorism.
JUST IN: Video shows people fleeing after truck drives into crowd on street in Stockholm; police say there are several people injured. pic.twitter.com/2O6CUzngEP
Yesterday, the market sold off modestly over continuing concerns of “tariffs” and trade wars. At least that was the headline reason. The real reason was simply that the market is overbought in the short-term and traders were taking profits in a light-volume session. As shown in the chart below, the sell-off yesterday is now turning previous resistance, when the market broke out to new highs, into support. As long as the market holds here over the next few days, we continue to expect a further, albeit bumpy, advance to 3000 by year-end.
“However, between now and then, the markets will likely continue to try and push higher as investor confidence continues to swell, pushing investors to take on ever increasing levels of risk, particularly as it appears as if the economy is firing on all cylinders…
With the move in portfolios back to full target allocations, there is not much for us to do right now except to remain on the lookout for the risks which could rapidly take away our performance…At the moment, we are in good shape just to sit back and ‘watch the show.’”
Interestingly, that statement triggered an interesting email:
“Can you feel the complacency in your weekly newsletter? Just sayin’…kinda eerie. I know you know the risks, but to say at this point we need to sit back and ‘just watch the show’ as the S&P plows on to 3000 and beyond. It sort of puts you on the same side of the crowded ship with everyone else. How many times have you ingrained when everyone agrees something is going to happen, something else likely will.”
No, I haven’t abandoned all reason.
In the short-term, we have to participate with the “running of the bull” as long as possible. This isn’t the first time, that I have discussed being long-biased in portfolios. Here is what I recommended previously:
“Risk taken when valuations are rich and market action is poor can produce losses that entirely cancel the successful investment actions of other periods. Though periods of unfavorable valuation and market action can occasionally produce positive returns as well, they don’t produce positive returns reliably enough to justify the risk.
We continue to believe that bonds will continue to outperform stocks as they have most of the time over the last seven years and that stock market speculators will pay the price for overpaying for stocks.
However, for now, you need to be invested in the market and take advantage of this oversold rally. It will look and feel like we are entering a new bull market leg. The media will cheer it, they will ‘poo-poo’ the bears, and they will ensure you that the worst is behind you. It won’t be.”
By the way, that was on December 1st, 2007.
There are a lot of similarities between today and 2007.
Bullish trends were solidly in place.
And, just as in 2007, there was a clear preference of equities over bonds as well.
Of course, speculative fervor should not be surprising given the economy is of the LEAST concern since 2007 according to a recent Gallup survey.
Individuals are not only overly confident in the economy, but they are even MORE confident of “forward returns over the next 12-months” than they were in 2007, and only slightly shy of 1999.
And overall consumer confidence was only higher in 1969 and 1999. (The confidence composite is the average of both the University of Michigan and Census Bureau surveys.)
Of course, all of these indicators, when at similar previous levels, preceded some of the largest mean reverting events in the history of the financial markets.
Will this time be different.
Not likely.
But that doesn’t mean it all falls apart today. Tomorrow. Or even next month.
The one thing about bullish sentiment is that it begets more bullish sentiment. The more the market rises, the more ingrained the belief comes that it can only go higher. In a “Pavlovian” manner, as each “dip” is bought, the “fear” of loss is eliminated repeatedly teaching investors they should “only buy” and “never sell.”
This cycle can, does, and will last longer, and go farther, than logic would dictate.
This is why, as I noted over the weekend, we remain bullishly biased in portfolios for now.
“We are well aware of the present risk. Stop loss levels have been moved up to recent lows and we continue to monitor developments on a daily basis. With the trend of the market positive, we want to continue to participate to book in performance now for a ‘rainy day’ later.”
That “rainy day” is coming.
Just as it was in 2007. While market participants were all “giddy” about the prospects for the markets and a “Goldilocks economy,” there was a laundry list of things that had begun to issue warnings signals.
Currently, we have a growing list of warnings which are being quickly dismissed, and “priced in,” by the markets such as:
Political instability and a crucial midterm election.
The failure of fiscal policy to ‘trickle down.’
An important pivot towards restraint in global monetary policy.
An unprecedented lack of coordination between super-powers.
Short-term note yields now eclipse the S&P dividend yield.
A record levels of private and public debt.
Near $3 trillion of covenant light and/or sub-prime corporate debt. (eerily reminiscent of the size of the subprime mortgages outstanding in 2007)
Narrowing leadership in the market.
But, for now, this “wall of worry” has yielded little concern.
The more the market rises, the more reinforced the belief “this time is different” becomes.
As I wrote previously:
“This is why we have been saying for the last two weeks – the market is rising and you need to be invested…FOR NOW. However, this is not the next great leg of a bull market so this will be a good rally to liquidate positions into and begin setting your portfolio up for more protectionary investments going into [next year].”
Verizon Wireless, the largest mobile telecommunications provider in the US, has been experiencing massive outages, with the East Coast and Southern US reportedly hit the hardest, according to RT.
“We are currently experiencing an intermittent voice, text and data services interruption for customers in some markets in the south. Our engineers are aware of the issue and are working diligently to resolve it,” the telecom giant’s Support Service posted on Twitter.
We are currently experiencing an intermittent voice, text, and data service interruption for customers in some markets in the south. Our engineers are aware of the issue and are working diligently to resolve it. Please check with @VZWSupport for updates.
Verizon Customer Service was busy answering customer complaints on twitter:
I’m sorry to hear that you are having trouble making calls, Sarena! Verizon is currently experiencing a wireless network issue. Our technicians are aware of this issue and are working to resolve it quickly. ^MH
Having won last year’s fantasy stock picking competition on CNBC, Kevin O’Leary (aka Mr.Wonderful) appears on the show today to explain why he is in last place.
Amid some frivolity, he admitted his big holding was Blue Apron and joked that in a worst case he would buy the company, to get the share price up in his fantasy game…
This happened!!!
O’Leary was quick to say “just kidding” but by then it was too later and 3.5 million shares had traded, sending the stock price up over 10%.
In what sounded like a last-ditch plea for the US to reconsider its abandonment of the JCPOA, Iranian President Hassan Rouhani urged the US during his speech before the United Nations General Assembly not to abandon its commitments to international institutions and asked it to return to the negotiating table.
Without using Trump’s name, Rouhani warned of rulers who have “xenophobic tendencies resembling a Nazi disposition”, and claimed that “those seeking dominance and hegemony are enemies of peace and perpetrators of war.” He added that the US government “seems determined to render all international institutions ineffectual”. Its decision to abandon the Security Council-sanctioned JCPOA while inviting Iran to engage in bilateral talks is one such example of this.
Rouhani continued, saying that while he’s glad that the rest of the international community has stuck to the agreement, the US’s decision to abandon the agreement is exemplary of a pattern propagated by the US to defy international norms when it doesn’t suit the US’s interests.
“According to this resolution, all countries and regional organizations were called upon to support the JCPOA and refrain from actions that undermine implementation of commitments. Based on 12 consecutive reports from the IAEA Iran has complied with its commitments. However, the US never remained faithful to its obligations, and accused Trump of making “flimsy excuses” in violation of its commitments.”
He added that while Iran seeks nothing but peace, the US is an authoritarian regime that believes in “might makes right” over the rule of law. However, Iran believes that there is no better way but dialogue.
“The US understanding of international relations is authoritarian. Its understanding is might makes right..it’s understanding of power, not of legal authority, is reflected in bullying, not in legal imposition. No state and nation can be brought to the negotiating table by force. And if so, what follows is an accumulation of the grapes of wrath to be reaped later by the oppressors.
Rouhani exhorted the US to drop its sanctions threats and “return to the negotiating table”, adding that if the administration dislikes the Iran deal because of its association to Obama, that it could remake that legacy by returning to the table.
“We invite you to come back to the negotiating table you left. If you dislike the JCPOA because it is the legacy of your domestic political rivals then we invite you to come back to the Security Council resolution. Do not engage in imposing sanctions…sanctions and extremism are two sides of the same coin.”
Here are some of the key headlines from Rouhani’s 25-minute address (via Bloomberg):
*ROUHANI: PLEASED INTL COMMUNITY DIDN’T ACQUIESCE TO U.S.
*ROUHANI: THOSE SEEKING DOMINANCE ARE PERPETRATORS OF WAR
*ROUHANI: U.S. LEADERS SEEK TO UNDERMINE INTERNATIONAL LAW
*ROUHANI: UN SHOULDN’T BOW TO SOME MEMBER STATE PROPAGANDA
*ROUHANI: UNLAWFUL UNILATERAL SANCTIONS ARE ECONOMIC TERRORISM
*ROUHANI: PLEASED INTL COMMUNITY DIDN’T ACQUIESCE TO U.S.
*ROUHANI: U.S. TARGETS IRANIAN PEOPLE WITH UNLAWFUL SANCTIONS
*ROUHANI: U.S. POLICY TOWARD IRAN HAS BEEN WRONG FROM BEGINNING
*ROUHANI: U.S. UNDERSTANDING OF INTL RELATIONS IS AUTHORITARIAN
*ROUHANI: U.S. INTL RELATIONS IS REFLECTED IN POWER AND BULLYING
*ROUHANI: IRAN WILL CONTINUE TO CONFRONT `GENUINE TERRORISM’
*ROUHANI: IRAN SUPPORTS PEACE AND DEMOCRACY IN ENTIRE MID EAST
*ROUHANI URGES U.S. TO STAY IN INTL INSTITUTIONS, NOT SANCTIONS
*ROUHANI: SANCTIONS AND EXTREMISM TWO SIDES OF SAME COIN
*ROUHANI: IRAN HAS WARNED AGAINST FOREIGN INTERVENTION IN SYRIA
*ROUHANI: SYRIA ISSUE CAN ONLY BE RESOLVED INTERNALLY
*ROUHANI: CATASTROPHE IN YEMEN ARE CRIMES AGAINST HUMANITY
*ROUHANI: MOST PRESSING QUESTION IN MIDDLE EAST IS ON PALESTINE
*ROUHANI SAYS U.S. EMBASSY MOVE TO JERUSALEM `ABHORRENT’
*ROUHANI: ISRAEL BLATANTLY THREATENS OTHERS W/ NUCLEAR WEAPONS
*ROUHANI: IRAN DOES NOT SEEK WAR WITH ANY COUNTRY
*ROUHANI: IRAN DOES NOT NEED AN EMPIRE, IRAN IS AN EMPIRE
*ROUHANI: IRAN HAS WARNED AGAINST FOREIGN INTERVENTION IN SYRIA
*ROUHANI: SYRIA ISSUE CAN ONLY BE RESOLVED INTERNALLY
*ROUHANI: QUIT IMPOSING SANCTIONS AND END EXTREMISM
* * *
Watch Rouhani’s speech below:
Rouhani also gave an interview to NBC’s Lester Holt on Monday. Watch that below:
The White House has prepared an intelligence blueprint for regime change in Venezuela, according to a bombshell Monday evening report in Axios.
According to the report, which follows a New York Times story from early this month that confirmed the administration had previously established a “clandestine channel” involving covert meetings with Venezuelan military coup plotters targeting President Nicolás Maduro, the White House has prepared for multiple scenarios involving dramatic military escalation that could trigger US invasion of the small Latin American country.
The White House National Security Council drafted a step-by-step “program of escalation” for Venezuela after President Trump took office, including the grounds for military intervention, a former senior official said today.
The plans were revealed by Fernando Cutz, who was a top adviser to former National Security Adviser H.R. McMaster and the top National Security Council official on South America, while speaking at an event at the Wilson Center.
Cutz said he was part of a working group to lay out potential scenarios of escalating crises in Venezuela and corresponding options detailing the US reaction to events.
Among the scenarios Cutz outlined included the potential for a Venezuelan military assault and takeover of the US embassy in Caracas, or a massacre of 1,000 civilians which could trigger an America military response on humanitarian grounds.
However Cutz voiced skepticism over the success of many of the plans, questioning what would come the day after if a coup d’état or even complete regime collapse were to occur.
He said other steps the White House “had ready”included a full oil embargo, which would severely restrict Venezuela’s cashflow but presented the question: “If we destroy Venezuela, and we make the situation worse for the people of Venezuela, what comes next?” They didn’t have a satisfactory answer.
Concerning prior reports that Trump White House officials had previously met with Venezuelan military coup plotters to discuss potential support for fomenting regime change:
Cutz was asked about the meetings and said the White House “never debated supporting a coup” or offered support or tacit approval to coup plotters, but was “open to listening” to “any significant players.” He also said he had “no idea” why Trump had mentioned military action, adding that it “wasn’t in the script.”
Several secret meetings between the Trump administration and Venezuelan military officers reportedly took place to talk about potential coup plans, but according to administrationsources “the coup plans stalled”. The meetings were said to have been spearheaded by someone simply described as a “career diplomat”.
According to the New York Timesreporting in early September, “American officials did not provide material support, and the plans unraveled after a recent crackdown that led to the arrest of dozens of the plotters.” The secret talks were reportedly dropped and the mutinous officers on their own.
Meanwhile Cutz suggested that if things got bad enough in Venezuela, citing a refugee crisis that could possibly swell to 5 million displaced, or a coup scenario or mass uprising, Trump could take steps to intervene: “the least bloody of those is probably going to be a foreign military intervention,”he said, echoing the usual pro-regime change Washington calculus.
…what made February so scary is that the very medium of the markets… the water… the liquidity… vanished. Every fish was on dry land. Look at the charts below from NANEX showing tick-by-tick liquidity of S&P 500 index E-minis for visual evidence of the stark deterioration. The average number of S&P 500 e-mini contracts to be bought and sold at the best price collapsed 95% from late-2017 to February-March 2018. From our trading desk we observed that moving just 200 E-minis, representing just $26mm of S&P 500 index delta exposure, could have caused a $22 trillion market to move multiple handles, up or down. YIKES!
The liquidity crisis in February extended beyond derivatives. The SPDR S&P 500 ETF Trust (“SPY”) is one of the most liquid exchange traded funds in the world with a capitalization of over $260 billion. Normally this ETF trades very tightly with an average bid-ask spread of only 1 cent. On February 5-6th the average spread blew out to historical highs of over 2 cents wide, representing a 28 standard deviation move.
SPX options had no bids or offers and option spreads that previously traded 5 cents the previous week went as much as $3.00+ wide. In a throwback to the 2008 financial crisis, the derivatives desks at major banks refused to provide quotes on liquidity over-the-counter derivatives like variance swaps. At a recent conference, one veteran hedge fund manager said that it was one of the worst liquidity environments he had seen in 26 years of trading.
The bull-market in the S&P 500 index is now the second longest and second greatest percentage gain in history, but it is the ONLY bull-market in history that has occurred on lower and lower trading volume.
Market trading volume and free float shares are now at levels last seen in the late-1990s (as evidenced by the chart below).
In the U.S. stock market more than half of the 8,500 listed companies now trade less than 100,000 shares per day.
The volatility revolution will not be televised… the volatility revolution will be live.
The liquidity in February was horrible, but what is even more alarming is the fact that it happened outside a true fundamentally driven market crash. Now a -4.10% loss is a bad day, but any student of market history knows things can get much much worse. For example, in October and December 2008, there were 15 days with declines greater than -4% including 2 days down more than -9%! In 2011 the market dropped nearly -7% in one day, and famously the market was down -9% and -21% on consecutive days in October 1987. The question we need to ask ourselves, what if a liquidity evaporation similar to February 2018 occurs during a period of actual systemic stress?
In the short term the liquidity fluctuations have made it very difficult for the entire volatility trading edifice. For the first time in history all actively managed volatility hedge fund strategies are down on the year. The CBOE Long Volatility Hedge Fund Index (-4.92%), Relative Value Volatility Index (-0.59%), Short Volatility Index (-8.87%), and Tail Risk Index (-4.03%) all lost money through the first half of 2018. This has never happened before.
Volatility this year has been like the Incredible Hulk… a well-tempered scientist one minute, then without warning transforming into a giant rage monster the next, only to shrink back down to human size soon thereafter. Volatility moving violently up and down without a defined trend is really difficult for everyone. For evidence, notice that volatility-of-VIX as a ratio to spot-VIX reached all-time highs in 2018.
If your mandate is to hold exposure to vol (long or short) you’ve been hurt either on the upswing or the reversal. Despite media attention, although the VIX has risen from all-time low levels in 2017, it is still trending well below historic averages in the midteens.
As repeated in our mid-February update, Artemis Vega does not monetize into volatility spikes. If we took a +15% gain in February when the market drew down -10%, we would not be able to achieve our objectives of portfolio changing 50-100%+ gains in the event a true crash emerged (SPX down -20% or more with an extended period of volatility).
* * *
Part 4 (Final): Flows Over Fundamentals – How This Ends, coming soon…
President Trump was highly dismissive of a second woman who has accused Supreme Court nominee Brett Kavanaugh of waving his penis in her face at a drunken Yale party while she was heavily inebriated.
Trump made the comments during press Q&A after meeting with Colombian President Ivan Duque Marquez at the United Nations.
When asked about the allegations by the woman, Deborah Ramirez – an official with a women’s rights group, Trump dismissed her account as a “con game” by Democrats, and pointed out her admitted lapses in memory and inebriated state.
Reporter: “Should the second accuser be allowed to testify on Thursday?”
Trump: I look at the second accuser, the second accuser has nothing. The second accuser doesn’t even know – se thinks maybe it could have been him, maybe not. She admits that she was drunk. She admits time lapses. This is a person and this is a series of statements that would take one of the most talented – one of the greatest intellects, from a judicial standpoint, in our country – going to keep him off the United States Supreme Court?
Turning to Kavanaugh and his family’s reaction, Trump said “These are legitimate people. They’re not in the world of “con” and the world of “obstruct” and the world of “resist.””
You know, I said something this morning – he has a chance to be one of the greatest justices ever in the United States Supreme Court. What a shame. And what a shame it is for so many other people whose world that isn’t. That’s not his world, and it’s not their world. These are legitimate people. They’re not in the world of “con” and the world of “obstruct” and the world of “resist.”
He never thought this was even a possibility. He’s startled. He can’t believe this is happening. His wife is devastated. His children are devastated. I don’t mean they’re like “oh gee, I’m a little unhappy.” They’re devastated.
Trump then pivoted to the Democrats behind the anti-Kavanaugh push, singling out Senate Minority leader Chuck Schumer (NY) in particular for one of his famous impressions:
And it’s because these Democrats and they know, they know. When I see Schumer who never even saw this woman “I believe her 100 percent” and I see these other Senators that I deal with on a daily basis. I know them better than they know themselves. It’s just a game to them. But it’s a very dangerous game for our country.
Thursday is shaping up to be the Trump presidency’s “Gunfight at O.K. Corral.”
That day, the fates of Supreme Court nominee Brett Kavanaugh and Deputy Attorney General Rod Rosenstein, and much else, may be decided.
The New York Times report that Rosenstein, sarcastically or seriously in May 2017, talked of wearing a wire into the Oval Office to entrap the president, suggests that his survival into the new year is improbable.
Whether Thursday is the day President Donald Trump drops the hammer is unknown.
But if he does, the recapture by Trump of a Justice Department he believes he lost as his term began may be at hand. Comparisons to President Nixon’s Saturday Night Massacre may not be overdone.
The Times report that Rosenstein also talked of invoking the 25th Amendment to remove Trump suggests that Sen. Lindsey Graham had more than a small point on “Fox News Sunday”:
“There’s a bureaucratic coup going on at the Department of Justice and the FBI, and somebody needs to look at it.”
Indeed, they do. And it is inexplicable that a special prosecutor has not been named. For while the matter assigned to special counsel Robert Mueller, to investigate any Trump collusion with Russia in hacking the emails of the Clinton campaign and DNC, is serious, a far graver matter has gotten far less attention.
To wit, did an anti-Trump cabal inside the Department of Justice and the FBI conspire to block Trump’s election, and having failed, plot to bring down his presidency in a “deep state” coup d’etat?
Rosenstein’s discussion of wearing a wire into the Oval Office lends credence to that charge, but there is much more to it.
The story begins with the hiring by the Clinton campaign, though its law firm cutout, in June 2016, of the dirt-divers of Fusion GPS.
Fusion swiftly hired retired British spy and Trump hater Christopher Steele, who contacted his old sources in the Russian intel community for dirt to help sink a U.S. presidential candidate.
What his Russian friends provided was passed on by Steele to his paymaster at GPS, his contact in the Justice Department, No. 3 man Bruce Ohr, and to the FBI, which was also paying the British spy.
The FBI then used the dirt Steele unearthed, much of it false, to persuade a FISA court to issue a warrant to wiretap Trump aide Carter Page. The warrant was renewed three times, the last with the approval of Trump’s own deputy attorney general, Rosenstein.
Regrettably, Trump, at the request of two allies — the Brits almost surely one of them — has put a hold on his recent decision to declassify all relevant documents inside the Justice Department and FBI.
Yet, as The Wall Street Journal wrote Monday, “As for the allies, sometimes U.S. democratic accountability has to take precedence over the potential embarrassment of British intelligence.”
Thursday’s meeting between Trump and Rosenstein will coincide with the Judiciary Committee’s hearing into the charge by Dr. Christine Blasey Ford that, as a 15-year-old, she was sexually assaulted by 17-year-old Brett Kavanaugh, Trump’s nominee to the Supreme Court.
This weekend brought fresh charges, from a Yale classmate of Kavanaugh, Deborah Ramirez, that at a drunken party in their freshman year, Kavanaugh exposed himself.
Kavanaugh has fired off a letter to Sens. Chuck Grassley and Dianne Feinstein, chairman and ranking member of the Judiciary Committee, calling the accusations “smears, pure and simple.”
Kavanaugh continued:
“I will not be intimidated into withdrawing from this process. The coordinated effort to destroy my good name will not drive me out. The vile threats of violence against my family will not drive me out. The last-minute character assassination will not succeed.”
What is at stake in Thursday’s appearance by Kavanaugh and Ford is huge. A successful defense of his good name could mean Kavanaugh’s swift elevation to the high court, a historic victory for the GOP’s judicial philosophy, and the culmination of a decades-long campaign dating back to the Earl Warren era of the Supreme Court.
As for the judge himself, the issue is not just his behavior as a teenager and university student, but his credibility and honor as a man.
He has asked friends and allies to trust and believe him when he says that he is a victim of a character assassination steeped that is rooted in ideology and lies.
Thus far, no credible individual has come forward to corroborate the charges against him when he was at Georgetown Prep or at Yale. And almost all who knew him testify to his character.
* * *
We are often told that the moment we are in has historic significance and will be long remembered. Yet, how many can still recall what the “resister” in the Trump White House or Cabinet wrote in his or her anonymous op-ed in The New York Times?
How Kavanaugh conducts himself Thursday, however, and whether he is elevated to the court, could decide the fate of constitutional conservatism and the Republican Congress in 2018.
In a stunning vote of “no confidence” in the US monopoly over global payment infrastructure, one month ago Germany’s foreign minister Heiko Maas called for the creation of a new payments system independent of the US that would allow Brussels to be independent in its financial operations from Washington and as a means of rescuing the nuclear deal between Iran and the west.
Writing in the German daily Handelsblatt, Maas said “Europe should not allow the US to act over our heads and at our expense. For that reason it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent Swift system,” he wrote.
Maas said it was vital for Europe to stick with the Iran deal. “Every day the agreement continues to exist is better than the highly explosive crisis that otherwise threatens the Middle East,” he said, with the unspoken message was even clearer: Europe no longer wants to be a vassal state to US monopoly over global payments, and will now aggressively pursue its own “SWIFT” network that is not subservient to Washington’s every whim.
Many discounted the proposal as being far too aggressive: after all, a direct assault on SWIFT, and Washington, would be seen by the rest of the world as clear mutiny against a US-dominated global regime, and could potentially spark a crisis of confidence in the reserve status of the dollar, resulting in unpredictable, and dire, consequences.
However, despite the diplomatic consequences, Europe was intent on creating some loophole to the US ability to weaponize the global currency of account at will, something observed most recently as part of Trump’s latest sanctions on Iran, and as a result, late on Monday, the European Union said that it would establish a special payment channel to allow European and other companies to legally continue financial transactions with Iran while avoiding exposure to U.S. sanctions.
The move, as the WSJ notes, “is a direct rebuke of President Trump’s policy on Iran and his decision to withdraw from the nuclear deal in May,” and sets the stage for a confrontation between the U.S. and Europe over the treatment of Iran, the payment for Iran oil, and potentially, jeopardizing the reserve currency status of the dollar itself.
While keeping SWIFT as is, for now, the EU’s foreign-policy head Federica Mogherini side by side with Iran’s Foreign Minister Javad Zarif announced a “special purpose vehicle” jointly, in English and Farsi, after a meeting at the U.N. of the parties still committed to the deal—Iran, EU, U.K., France, Germany, Russia and China. In fact, everyone but the US.
EU foreign policy chief Federica Mogherini (r), speaking alongside Iranian Foreign Minister Mohammad Javad Zarif
According to Mogherini, the plan to create the SPV “will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran, and this will allow European companies to continue trade with Iran” despite Trump’s opposition.
As Bloomberg’s Leonid Bershidsky explains, with Iran sanctions back, it is clear to the Europeans (as well as the Chinese and Russians) that any future transactions with Iran must go through entities insulated from the American financial system.
In a July 2018 report, Axel Hellman of the European Leadership Network think tank and Esfandyar Batmanghelidj of the Iranian company Bourse & Bazaar proposed “a new banking architecture” in response to the U.S. sanctions, relying on the existing system of “gateway banks,” such as the Hamburg-based Europaeisch-Iranische Handelsbank, and the European branches of private Iranian bank. “A further third category of gateway banks can be envisioned,” they wrote, “which would comprise of special purpose vehicles established by European governments, or as part of public-private partnerships in order to facilitate Iran trade and investment.”
The new plan focuses on this third option.
Mogherini further indicated that Germany, France and the U.K. would set up a multinational state-backed financial intermediary that would deal with companies interested in Iran transactions and with Iranian counter-parties. Such transactions, presumably in euros and pounds sterling, would not be transparent to American authorities. European companies dealing with the state-owned intermediary technically might not even be in violation of the U.S. sanctions as currently written.
And, in a potentially massive development, the system would be likely be open to Russia and China as well as it would enable the world’s economies to trade with each other, fully independent of SWIFT.
Europe would thus provide an infrastructure for legal, secure sanctions-busting — and a guarantee that the transactions would not be reported to American regulators.
That said, Washington would not be without recourse, although at that point, all the U.S. could do is sanction the participating countries’ central banks or SWIFT for facilitating the transactions (if the special purpose vehicle uses SWIFT, rather than ad hoc messaging).
That, Hellman and Batmanghelidj wrote, would be self-defeating: “There are two possible outcomes if these institutions proceed to work with Iran despite U.S. secondary sanctions. Either U.S. authorities fail to take enforcement action given the massive consequences for the operations and integrity of the American financial system, serving to “defang” the enforcement threats and reduce the risk of European self-sanctioning on the basis of fear, or U.S. authorities take such an enforcement action, a step that would only serve to accelerate European efforts to create a defensible banking architecture that goes beyond the Iran issue alone.”
Europe, naturally, needs a “neutral” pretext to implement this SPV, and that would be Brussels’ desire to continue transacting with Iran:
“We are not backing down [on the Iran nuclear agreement],” said a European diplomat. He said the speeches of European leaders at a Security Council meeting Mr. Trump is hosting on Wednesday on nonproliferation, including Iran, will reflect the Monday night statement.
Additionally, as basis for the potentially revolutionary development, the participants of the 2015 nuclear deal, formally known as the Joint Comprehensive Plan of Action or JCPOA, “underlined their determination to protect the freedom of their economic operators to pursue legitimate business with Iran.”
While the details of the SPV mechanism — which would be set up in future meetings with technical experts — were still to be determined, with the United States and the dollar dominating so much of global trade the statement said the new mechanism would “facilitate payments related to Iran’s exports (including oil) and imports, which will assist and reassure economic operators pursuing legitimate business with Iran.”
“In practical terms, this will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue to trade with Iran in accordance with European Union law and could be open to other partners in the world,” she told reporters.
As a result of Trump’s aggressive new sanctions on Iran, and potentially more sanctions after November as Trump hinted during his UN speech, European companies have been flocking out of Iran’s market and ending contracts to avoid risking U.S. sanctions. Meanwhile, Iran – which has argued that the 2015 deal entitled the Islamic Republic to benefit from lifting of sanctions and to enter the world market – has seen its economy stumble, with the currency collapsing almost daily against the U.S. dollar since the U.S. exited the deal.
Telegraphing that Europe will continue cooperation with Iran despite US sanctions, Mogherini said Iran has remained fully committed to its obligations under the nuclear deal, as certified by a dozen reports from U.N.’s nuclear watchdog, the International Atomic Energy Agency. She also hailed the 2015 agreement as a major achievement for diplomacy and nonproliferation and “deeply regrets” what she called the unilateral withdrawal of the U.S. from the deal.
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In any case, creating “a defensible banking architecture” may well be the end goal for the Europeans, China and Russia, anyway because, as noted above, Iran is merely a convenient pretext: after all, the nuclear agreement is one of the few things that unite the EU, China and Russia against the U.S.
But, as Bershidsky notes, “working to undermine the dollar’s global dominance isn’t ultimately about Iran at all. In his recent State of the European Union speech, European Commission President Jean-Claude Juncker called for strengthening the euro’s international role and moving away from traditional dollar invoicing in foreign trade.”
China and Russia have long sought the same thing, but it’s only with Europe, home of the world’s second biggest reserve currency, that they stand a chance of challenging American dominance.
While it remains to be seen if the “special purpose vehicle” would entice European companies such as France’s Total or Germany’s Daimler to get back into business with Iran remains to be seen, the optics of the move by the European Union together with China and Russia to defy the U.S. signaled continued criticism of the Trump administration for its decisions on Iran.
More importantly, it strikes at the heart of the current economic and financial system which is held together by the dollar. By providing an alternative, the global #resistance sets the stage for what potentially could be the ascendancy of other global reserve currencies, and/or a world of bilateral trade agreements which bypass both the US Dollar and Swift entirely, eliminating Washington’s “veto powers” on global trade.
Given U.S. law enforcement’s wide reach, there would still be a risk involved, and European governments may not be able to protect the companies from it. Some firms will be tempted to try the new infrastructure, however, and the public isn’t likely to find out if they do. In any case, in response to Trump’s aggressive foreign policies and “weaponization” of the dollar, it is worthwhile for Europe, Russia and China to experiment with dollar-free business.
But this brings up the bigger point: no currency’s international dominance has lasted forever, and there’s no reason for the U.S. dollar to be the exception to this rule.
Meanwhile, as Bershidsky concludes, “Trump’s confidence in his ability to weaponize the dollar against adversaries and stubborn allies alike could eventually backfire for the U.S. as efforts to push the dollar off its pedestal grow ever more serious.”
