Tag: finance

While there were some tentative signs of a diplomatic detente and mending of relations between North and South Korea after today’s summit between the two nations, the first in more than two years, it appears any attempts to ameliorate tensions hit a sudden hurdle when the United States is brought into the equation. Case in point, as Reuters reports, North Korea said that it would not discuss its nuclear weapons with Seoul because they were aimed only at the United States, not its “brethren” in South Korea.

Head of the North Korean delegation, Ri Son Gwon shakes hands with his
South Korean counterpart Cho Myoung-gyon

Officials from the two nations sides said they agreed to meet again to resolve problems and avert accidental conflict, amid high tension over North Korea’s programme to develop nuclear missiles capable of hitting the United States, but Pyongyang said disarmament would not be part of the discussions.

“All our weapons including atomic bombs, hydrogen bombs and ballistic missiles are only aimed at the United States, not our brethren, nor China and Russia,” Pyongyang’s chief negotiator, Ri Son Gwon, said.

While disarmament was not on the agenda, more diplomacy was: in a joint statement after 11 hours of talks North Korea pledged to send a large delegation to next month’s Pyeongchang Winter Olympics in South Korea but made a “strong complaint” after Seoul proposed talks to denuclearise the Korean peninsula

Meanwhile, North Korea was clear that its beef is not with South Korea, but with just one person: Donald Trump.

“This is not a matter between North and South Korea, and to bring up this issue would cause negative consequences and risks turning all of today’s good achievement into nothing,” Ri, chairman of the North’s Committee for the Peaceful Reunification of the Fatherland, warned in closing remarks.

* * *

Today’s meeting between the Korean neighbors comes just hours after the WSJ strategically leaked that the Trump administration, and especially the generals in it, were advocating a “bloody nose” approach to a military conflict with North Korea, effectively a surgical strike which would most likely take out Kim himself.

Desperate to stay relevant, and part of the process, a spokesperson for the White House’s national Security Council said North Korean participation in the Olympics would be “an opportunity for the regime to see the value of ending its international isolation by denuclearising.” Not surprisingly, the US initially responded coolly to the idea of inter-Korean meetings, but Trump later called them “a good thing” and said he would be willing to speak to Kim.

“At the appropriate time, we’ll get involved,” Trump said on Saturday, although U.S.-North Korean talks appear unlikely, given entrenched positions on both sides. Also, in keeping with the party line, the US insists that any future talks must have the aim of denuclearization, and the North-South thaw has not altered the U.S. intelligence assessment of North Korea’s weapons programs.

From a game theoretical standpoint, the Nash (dys)equilibrium between the US and N.Korea looks roughly as follows (via Reuters):

The consensus, according to five U.S. officials familiar with the classified analysis, is that Kim remains convinced the United States is determined to overthrow him and that only a nuclear arsenal that threatens America can deter that.

One of the officials said the North-South talks were likely to follow the pattern of past diplomatic efforts, in which the North has benefited from additional food and other aid without making any concessions on the weapons front.

The additional danger now, said a second official, was that Kim would seek to use the talks to take advantage of Trump’s sometimes bellicose rhetoric to try to drive a wedge between Washington and Seoul.

For now, South Korea is much more receptive to the North’s overtures. Still, in spite of the North Korean negotiator’s remarks, South Korea’s Unification Ministry said it believed Tuesday’s talks could lead to discussion of a “fundamental resolution” of the nuclear issue.

“We will closely coordinate with the United States, China, Japan and other neighbours in this process,” it said, adding that Seoul had asked North Korea to halt acts that stoke tension.

Tuesday’s meeting followed a year of ramped-up North Korean missile launches and its sixth and most powerful nuclear test, which have prompted a stepped-up U.S.-led campaign to toughen U.N. sanctions, which Pyongyang has called an act of war.

* * *

As we reported this morning, in an act of concession, Seoul said it was prepared to lift some unilateral sanctions temporarily so North Koreans could visit for the Winter Olympics. North Korea said its delegation would include athletes, high-ranking officials, a cheering squad, art performers, reporters and spectators. Talks to work out details would be held soon, the South’s unification ministry said.

“We came to this meeting with the thought of giving our brethren, who have high hopes for this dialogue, invaluable results as the first present of the year,” Ri said at the start of the meeting.

The talks were the first between the two Koreas since 2015 and were held at the Peace House on the South Korean side of Panmunjom truce village. North Korea cut communications in February 2016, following South Korea’s decision to shut down a jointly run industrial park.

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A calm complacency never before seen has fallen blanket-like over US equity markets.

“The behavior of volatility has entirely changed since 2014,” noted BAML in a a recent note thanks to major central banks keeping interest rates near historic lows (and printed more money than ever before).

As The Wall Street Journal points out, One sign of that: VIX closed below 10 more times last year than any others year in its history, and until today, closed below 10 for the first 5 days of 2018…

 

And while correlation is not causation, there is a clear causal link between the conditioning now deeply embedded within investors’ minds and the endless expansion of central bank balance sheets…

 

As JPMorgan’s infamous quant guru Marko Kolanovic wrote, “the first four Fed hikes in a decade have failed to generate the revival of volatilities that many had expected at the end of last year,” and a wave of political uncertainty linked to U.S. tensions with North Korea and the new presidential administration also raised the prospect that market tumults could occur with greater frequency… but no…

In fact worse still for The Fed, financial conditions eased as they tightened and vol collapsed to levels never seen before…

All of which has led, as The Wall Street Journal reports, to a number of investors abandoning defensive positions taken to protect against a market downturn, in the latest sign that many doubters are shedding caution as the long rally rolls on.

“I haven’t seen hedging activity this light since the end of the financial crisis,” said Peter Cecchini, a New York-based chief market strategist at Cantor Fitzgerald.

“It started in late 2016 and accelerated in the second half of the year.”

But as Morgan Stanley warns in a recent note, what goes up (this fast) typically comes down…

“Our team has observed a dramatic shift in sentiment since we initiated coverage in April. In April, it felt as if people were looking for a reason for the market to fail.

Now, we have seen a total reversal with people having a hard time even imagining how the market could decline.“

The rapid rise in sentiment indicators and speculative behavior we have seen gives MS more conviction that we are due for a minor correction in the short term.

According to the American Association of Individual Investors (AAII) survey, which asks individual investors what direction they think the stock market will be in the next 6 months, nearly 60% of investors are bullish. This is the highest percentage of bullish responses recorded by the survey since 2010…

 

The ratio of the percent of investors who respond as bullish to those who respond as bearish has also been rising to near record high levels – there are now 3.8 times as many bulls as there are bears…

 

And as we noted previously, the monthly relative strength index (RSI) for the S&P 500 indicates that the market is the most overbought it has been in over 20 years. The RSI is currently at the second highest level it has reached since 1928, a whopping 93.

 

In the past, when the RSI has peaked above 80 an average correction of -3.5% has followed one month later. The corrections have ranged from -0.8% to -7.7%.

Morgan Stanley concludes, a pull back feels close and it is now just a matter of time…

And there’s plenty of ammunition to fuel the downside.

Managers are increasingly positioning themselves to capture more potential upside not wanting to miss out in market that keeps rising. At the same time, gross leverage has also declined modestly – managers are removing shorts but not putting that money into more long positions.

However, gross leverage remains close to a 12 year high. An increase in volatility will likely lead to a forced reduction.

 

Of course, by letting their hedges expire as we noted above, investors would feel the full brunt of a market selloff. While that would intensify the pain for any individual trader, some analysts and brokers worry that the cumulative effect of more investors giving up their protective positions could itself become a source of volatility.

Many investors could rush to sell their positions and limit their losses during the next period of market weakness, exacerbating any plunge in prices.

“When the ultimate disruption occurs, the market is less prepared for it,” Dean Curnutt, chief executive at New York brokerage Macro Risk Advisors, said.

“That becomes an amplifier of the risk.”

But that won’t be allowed to happen, right? Because “it’s different this time.”

Though, as a reminder, TINA’s dead…

 

Bonds are now an ‘alternative’

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Another Republican state legislator has killed himself following allegations of sexual misconduct or sexual assault.

According to the Idaho Statesman, Former Caldwell Rep. Brandon Hixon has died, according to the Canyon County Coroner’s Office.

Hixon’s suicide follows the suicide of Kentucky state lawmaker Dan Johnson, who shot himself in the head after pulling off the side to the side of the highway. Johnson left an emotional social media post blaming the media for his suicide, and denying allegations that he had molested children.

A family member found Hixon, 36, in his Caldwell home early Tuesday. The former lawmaker resigned from the state legislature last fall after reports that he was the focus of a criminal investigation by Caldwell police. That inquiry is apparently related to sexual abuse, according to a document through which the Idaho Attorney General’s Office took over the investigation. The AG’s office didn’t have a statement about the investigation into Hixon’s death. The Statesman reported that Hixon’s death was the result of a self-inflicted gunshot wound. Hixon, who was in his third term, was facing a re-election bid dogged by the sexual abuse allegations.

 

Idaho Governor Butch Otter in November selected Caldwell city planner Jarom Wagoner to take Hixon’s seat in the legislature.

House Speaker Scott Bedke announced Hixon’s death to lawmakers during Tuesday morning’s House session.

“Our thoughts go first to family and friends who are suffering from this loss,” Bedke said, according to the Spokesman-Review. “We should … support those who are close to us when they are struggling. Please remember Brandon’s family in your prayers.”
Lawmakers are spending part of their afternoon at mandated anti-harassment training; Senate Pro Tem Brent Hill opened the session with his own condolences. “There’s a special sorrow in our world today,” Hill said.

 

Hard to describe the mood in the #idleg halls right now. Somber. Sad. Shocked.

— Melissa Davlin (@davlinnews) January 9, 2018

 

Bedke added that the state assembly would organize some sort of financial relief for Hixon’s family. He said it was too early to say what exactly was planned.

After resigning, Hixon was arrested for DUI in December. In his mugshot, he looks noticeably more disheveled.

 

Records obtained by The Associated Press show that Hixon was the focus of a separate police investigation in 2014 after he was accused of inappropriate touching while babysitting, though all the other names were redacted. Hixon had resigned in October – two weeks before the AP report – after news of the investigation became public.

Other than Hixon, all other names and ages — including the accuser — were redacted in the police documents.

Police records show that Hixon denied the accusations and was worried how the allegations would affect his political career.

Caldwell police launched the investigation on Dec. 9 and closed it on Dec. 24. No charges or arrests were made, but the report notes that the case could be reopened at any time if the victim “was able to communicate to us later that something has happened.”

It’s unknown if the new investigation — which has been ongoing since Oct. 5 — is connected to the prior case.

Hixon joined the legislature after being elected state representative in 2012. He served on the House Business, Health and Welfare, Transportation and Defense panels.

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Authored by Mike Krieger via Liberty Blitzkrieg blog,

In 2017, I wrote a lot about how dangerously centralized our political system in the U.S. has become, and how we need to decentralize governance in order to restore power, liberty and policy experimentation to the local level. This notion that a sprawling and culturally diverse nation of 325 million individuals should constantly battle to the death over the ring of political power in Washington D.C. so as to impose their view on the other half of the country which completely disagrees is patently ludicrous. States, and even metro areas themselves, should be making most of the important decisions that impact their citizens’ lives on a day to day basis.

 

This isn’t complicated. People who live in Boulder, Colorado such as myself have a very distinct worldview on most things from the average resident of let’s say Houston, Texas. This isn’t to say one is superior to the other, we’re just talking generally different mindsets and cultures. The residents of these distinct places should be able to express themselves via policy in a way that most fits the desires and values reflective of these particular regions. While this does happen to some degree, all U.S. citizens are still beholden to the whims of centralized political power in Washington D.C. to a very unhealthy and dysfunctional degree.

One of the worst side effects of centralized power in Washington D.C. is most Americans waste all their political energy speculating on, or rooting for, who will be elected the next supreme ruler (President) every four years. This is such a gigantic waste of time and energy, but one reason it happens is because the U.S. has an imperial Presidency these days. The executive simply acts in a manner that the founders had never intended, and the other branches of government (legislative and judiciary) permit it.

Congress deserves a huge part of the blame, as its members intentionally refuse to exercise their Constitutional duty to handle war. Our so-called “representatives” consistently just allow the President to do whatever they want when it comes to the exercise of state violence abroad, whether that President is George W. Bush, Barrack Obama, or Donald Trump.

It’s absolutely pathetic that less than two weeks into the new year, all I heard about yesterday was how Oprah might run for President two years from now. Think about how insane a society has to be (in light of all of our enormous current problems), to start already manically obsessing about who could be our savior if we just vote properly in 2020. Didn’t the Presidency of Barrack Obama, who said all the right things but coddled the plutocracy for 8 years straight teach you anything?

It’s not just Oprah though. Last summer we learned Hamptons oligarchs had already decided Kamala Harris (more than three years before the next Presidential election) would be their pick for the Democratic nominee in 2020. Primary voters need not apply.

Naturally, Mark Cuban chatter never goes away either, as I pointed out the other day.

 

Meanwhile, what do Oprah and Cuban have in common? Both billionaires, just like Trump. Is that the future the plutocrats have planned for us? Groveling for a new billionaire dear leader every four years? Sorry, but I have too much respect for myself to ever do that. I’m done playing this childish game.

The spark that inspired this post was actually a tweet I sent out this past weekend. Its reception was very encouraging and told me that a lot of people around the world are coming to a very similar conclusion. This is really important because we can’t change things until we realize how completely ridiculous our current paradigm is.

People who crave power are always trying to convince you we need a leader.

We don’t need a leader. We need billions of leaders. We need decentralized networks, not hierarchies.

— Michael Krieger (@LibertyBlitz) January 6, 2018

Here’s the big secret. Human beings create the world we live in. Nothing about our governments or economy are provided to us by nature or the divine. The insufferable centralized hierarchies we live under were created by other humans that came before us, and are aggressively propagated by those currently in power. There’s absolutely no reason we need to accept these systems as permanent or perfect.

Looking for a savior in a President is a slave mentality. We need to stop being slaves. Oprah, Trump, Mark Cuban, it doesn’t matter. Nobody is coming to save you. It’s time to grow up. The real power resides in ourselves.

The world of the future will be the world we create. If we want that world to be vastly better we need to stop looking outside of ourselves for the answer. We need to look inward, find our strength and get to work. If you expect someone else to come in and fix things you’ve already lost.

*  *  *

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A bombshell Reuters report details a major policy change set to be put in place by the Trump administration as early as February, and could result in a massive uptick in arms proliferation and conflict escalation around the world. What’s being described as a new “Buy American” plan will involve US diplomats and military attaches stationed across the globe essentially playing the role of middle men for American arms contractors and US defense sales, while also encouraging embassy staff to aggressively promote weapons purchases abroad and allowing for much greater leeway in terms of which foreign entities the US does business with.

Though it sounds like the plot from the movie War Dogs – itself based on true events involving Pentagon contractors’ black market East European private gun running scheme – this plan could involve the mainstreaming of just the type of weapons trade previously considered sketchy and illegal, existing at the peripheries legally ambiguous covert ops and off the books contract deals. The plan would take the seedy underbelly of the international arms trade into the light of day as official US policy, and would further deputize American diplomats as at the forefront of arms deals.

 

The 2016 movie War Dogs. Image source: Warner Bros. Pictures via The Daily Mail

 

As crazy as this scenario sounds, Reuters has some jaw dropping selections in its report:

A key policy change would call for embassy staffers around the world to act essentially as a sales force for defense contractors, actively advocating on their behalf. It was unclear, however, what specific guidelines would be established…

“We want to see those guys, the commercial and military attaches, unfettered to be salesmen for this stuff, to be promoters,” said the senior administration official, who is close to the internal deliberations and spoke on condition of anonymity…

Trump, a Republican, has the legal authority to direct government embassy “security assistance officers,” both military personnel and civilians, to do more to help drive arms sales. …embassy staffers would engage more aggressively with foreign counterparts to push for U.S. arms sales and brief visiting senior U.S. officials so they can help advance pending deals, according to a person familiar with the matter.

“Unfettered” is an interesting word in relation to arms proliferation, especially considering the plan is to encompass not only small arms sales but fighter jets, drones, warships, tanks, troop carriers, artillery and every conceivable weapons system produced by major defense contractors like Lockheed Martin, Boeing, or Raytheon – all of which who are no doubt ecstatic over the loosening of policy in what is a weapons lobbyist’s dream. 

Reuters notes that shares of the big five US defense companies are trading at or near all-time highs as clearly the “strategy of having the Pentagon and the U.S. State Department take a more active role in securing foreign arms deals could especially benefit” precisely these major contractors.

The big 5 defense stocks from Obama’s 2nd term into Trump’s first months. 

 

U.S. defense stocks easily outperformed the broader market from the beginning of Obama’s second term and through the start of the Trump presidency. Both have greatly loosened restrictions of arms sales abroad. Source: Market Watch (above), Statista (below)

 

 

This “whole of government” approach to promoting defense deals will also ease rules and regulations on the export of US military hardware under the DoD, and in the private sector will seek to give manufacturers greater independent decision making over with whom they do business. Of course, current regulations focus heavily on human rights and mitigating the potential for US systems falling into the hands of war criminals and sanctioned regimes. Though it’s unclear precisely how the new initiative would preserve the balance of increasing sales abroad while avoiding deals with unsavory actors, it would expand sales with non-NATO allies and partners (like Pakistan, Egypt, The Philippines, etc…) with less restrictions related to human rights issues. 

Reuters describes the Trump policy as relegating human rights to the back seat; however, the report also traces the trend of profit over human rights back to the Obama administration, citing that “Foreign weapons sales soared during his [Obama’s] tenure, with the United States retaining its position as the world’s top arms supplier.” The report continues:

Foreign military sales in fiscal 2017, comprising much of Trump’s first year in office and the final months of Obama’s term, climbed to $42 billion, compared to $31 billion in the prior year, according to the U.S. Defense Security Cooperation Agency.

The Trump administration has already moved forward on several controversial sales. Those include a push for $7 billion in precision-guided munitions to Saudi Arabia despite concerns they have contributed to civilian deaths in the Saudi campaign in Yemen’s civil war and the unblocking of $3 billion in arms to Bahrain, which was also held up by human rights concerns under Obama.

We might add that the “oil for weapons” US relationship with Saudi Arabia and the other oil and gas gulf monarchies has been an unfortunate hallmark of US-Mideast policy spanning many decades and across administrations all the way back to Eisenhower. But it appears the weapons spigot will only now flow freer – especially in competition with other major advanced weapons manufacturers like Russia, China, and Israel – and as Trump seeks to create jobs at home by tapping new markets abroad while also reigning in the the US trade deficit from a six-year high of $50 billion.

Before the plan is fully enacted it must clear a process that includes the written policy draft – which was coordinated among State, Pentagon, Commerce, and NSC officials – being approved by senior cabinet members after which the president is expected to sign off. From there a 60-day review period will remain during which changes may occur, after which the plan could be finalized in the form of a presidential “National Security Decision Directive,” according to sources cited in the report. 

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Authored by Pepe Escobar via The Asia Times,

The art of the non-deal might be the only way out of the stand-off between the US and North Korea…

High-level inter-Korean talks at the border village of Panmunjeom not only represent a vital step in Winter Olympics’ diplomacy but also offer a tantalizing chance of a breakthrough in stalled six-party discussions. 

In stark contrast with the usual tweet barrage, United States President Donald Trump even told South Korean President Moon Jae-in that the meeting could yield a positive outcome.

Among the possibilities are that Seoul and Pyongyang could resume civilian exchanges. The hotline between South and North Korea could reopen along with the joint Kaesong Industrial Region, which was closed in 2016.

The potential of reinvigorating the sidelined six-party talks, involving China, Russia, Japan, South Korea, the US and North Korea, is another possibility.

Beyond the Winter Olympics, the fierce divide between North and South, of course, will not be breached, even though North Korean leader Kim Jong-un has stressed that his country will not go nuclear unless “hostile forces” attack his regime.

He appears confident that there will not be a preemptive US nuclear strike because of the North’s deterrent. So, the question now is where will China position itself after the Panmunjeon talks? 

Rumors that Beijing was resigned to an imminent war between Washington and Pyongyang were never credible. Certainly, one view that came out of the 19th National Congress of the Communist Party of China last October was that President Xi Jinping would protect Beijing’s complex relationship with Washington in parallel with relationships with major trade partners across Asia.

But that does not necessarily mean abandoning North Korea. The number one strategic imperative for Beijing is to keep the country as a cushion against the US presence in Northeast Asia. A reunited Korean peninsula, with American soldiers stationed at China’s northwest border, has to be prevented at all costs.

Direct confrontation

Yet that also means averting any escalation that could lead to a direct confrontation with the US. So, it is fair to argue that Xi has concluded that business with the US far outweighs unconditional support for the North, which does not advance Beijing’s interests.

Leading Chinese adviser, Professor Shi Yinhong, has famously described North Korea as a “time bomb,” so contingencies plans have been put in place. The building of a six-lane highway between Shuangliao, a city in western Jilin, through to Ji’an, a prefecture-level city in the central region of Jiangxi, and on to the Korean border is significant.

It can be interpreted as a roadmap to secure the North’s nuclear arsenal in an extreme case. This would involve the Kim dynasty crumbling or a move by Beijing to change the Pyongyang regime – something that has been discussed by Chinese think tanks for years.

Indeed, that scenario ties up with suggestions that China’s People’s Liberation Army would not interfere even if the US launched a preemptive attack. Officially, though, Beijing’s position is in favor of the denuclearization of the Korean peninsula.

This would start with a “double freeze” mechanism, allowing for dialogue between Washington and Pyongyang. Beijing is acutely aware that containing the North’s nuclear program will have a direct effect on the military upgrading of  Japan and South Korea. China is also keen to improve relations with Seoul. 

Since 1953, only a flimsy armistice exists on the Korean peninsula. And no geopolitical actor has attempted to alter the status quo. After all, any wobble would generate a tectonic shift in the Asia-Pacific geopolitical chessboard, with unforeseen consequences.

Now, though, a nuclear North Korea is changing the dynamics as competition between the US and China in the region intensifies along with Russia’s eastward tilt. Then, of course, there is Japan and South Korea, two major economic powers. 

As much as the North may fear the impact in its own internal market of Beijing’s trademark geoeconomic onslaught, it is not far-fetched to imagine Kim looking toward Washington to throw a wrench into China’s New Silk Roads, known as the Belt and Road Initiative.

Just like Trump, Kim may not be a stellar reader. But he is certainly aware, as the Pentagon sees it, that the Western Pacific, coupled with the Indian Ocean, is absolutely strategic for the containment of China.

Studies such as Michael Green’s By More Than Providence: Grand Strategy and American Power in the Asia Pacific Since 1783 make it clear that the US will not tolerate another power establishing “exclusive hegemony.”

Still, Washington is at a loss when dealing with North Korea. Russia and China oppose any military solution which would interfere with their geopolitical aims. At the same time, Pyongyang wants to be accepted as a nuclear power and a key actor on the Asia-Pacific chessboard.

Devastating strike

Therefore, there are only three options on the table.

The first is a devastating preemptive strike, nuclear as well as air and sea forces. This would lead to an immense loss of life not only in the North but also in Seoul, which would be within range of Kim’s artillery.

The talks in Panmunjeon are yet more evidence that President Moon is doing everything in his power to prevent a march toward war.

The second option is to accept North Korea as a nuclear power under stringent international controls from the US, China, Russia, Japan and South Korea. The de-escalation would have to include a deal to freeze the North’s nuclear program.

There are signs that secret channels used by the US Secretary of State Rex Tillerson are still open. This improbable redemption of a nuclear rogue state, though, would mean a slight alteration of the status quo. It would also hand China a huge advantage in the region.  

Finally, the third option is to admit this is an insoluble problem, and turn Kim into a rational actor and let the North keep its bomb. Kim’s regime would then be warned that any attempt to use it would result in  “fire and fury”.

Call it the art of the non-deal. 

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In newly revealed court documents, federal prosecutors say indicted democratic Sen. Nathaniel T. Oaks admitted to taking cash payments and trips to Vegas in exchange for official business.

The Baltimore Sun reported on Friday that the new revelations emerged in a recently filed court document in the ongoing criminal case against Sen. Oaks. A trial for Sen. Oaks is set for mid-April, where he faces charges of bribery and obstruction of justice. So far, Sen. Oaks has pleaded not guilty to the charges.

Sen. Oaks, a Baltimore Democrat, has a long history of corruption in Maryland politics. He was a member of the House of Delegates from 1983 to 1989 when he forfeited his seat after being convicted of stealing from his campaign. In 1994, Sen. Oaks was reelected, as fraud and politicians in Baltimore are one of the same. Recently, Maryland Governor Larry Hogan appointed Sen. Oaks to the State Senate when Lisa Gladden fell ill.

Recent court documents show Sen. Oaks was accused of taking $15,300 in cash from a “wealthy Texas businessman,” who actually was working for the Federal Bureau of Investigation (FBI). After agreeing to cooperate with investigators, Sen. Oaks recorded his interactions with an unidentified person in a pay-to-play scheme.

According to the court filings, “Person #1” told the FBI, he was paying Sen. Oaks for his political power to support pro-bail bonds legislation. Maryland ranks number three in the United States for bail bonds companies contributing to political campaigns. It was revealed this “Person #1” paid for lavish parties and Vegas trips for the Senator.

Glancing at the bail bonds industry in Baltimore. One finds it is a highly lucrative industry profiting from the war-torn streets. Data below (2011-2015):

Court filings also showed Sen. Oaks spoke with Del. Curt Anderson, chairman of the Baltimore House delegation, at Person #1’s request. There was no mention of what Sen. Oaks and Anderson might have discussed.

Anderson said it is likely that both of them spoke at some point, but said he did not recall Sen. Oaks “trying to persuade” him on favorable bail bonds legislation.

Federal prosecutors have been carefully watching the senator since 2014, “based on historical reporting that Oaks was associated with individuals who were involved in illegal activities, and that Oaks had inappropriately accepted money and other things of value from businesspersons and lobbyists in his capacity as a state delegate.”

The Baltimore Sun concludes,

Has the swamp draining started in Baltimore? If so, it’s badly needed…

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Somewhat out of the norm for the founder and leader of the world’s largest hedge fund, Bridgewater’s Ray Dalio has penned a brief but worthwhile note exclaiming his disgust at the new normal “trials by gossip” that has become America’s new normal.

 

Via LinkedIn,

We now have trials by gossip and that’s threatening to our well-being.

The legal system passes judgement on people and hands out punishments based on definitions of unacceptable behaviors, it specifies the punishments that fit the crime, it does so by having both sides present evidence about what happened and how that fits with the law, and it reaches judgements using unbiased parties (or at least it does these things so that most of us believe that the legal system is by and large just).

Trials by gossip do none of these things.

While gossiping might be entertaining like watching soap operas, it leaves us judging and sentencing people without truth and justice. It is also a time-consuming waste of time that hurts productivity.

Because this preoccupation with gossip that determines peoples’ fates rewards the purveyors of it, the process is self-reinforcing.

News is rarely news rather than hyped gossip about high profile people in government and on other big stages. They’re our soap opera stars whose stories unfold like a Netflix series. We can’t distinguish which books are fiction and which are non-fiction, and we seem not to care.

While there are of course important instances in which the media shines light on bad behaviors, which can be a force for good, if we as consumers don’t hold ourselves and the purveyors of gossip to higher standards of truth and justice, I fear for where we are headed.

I wonder, do you share my concerns?

Of course, we suspect accusations of fraud and sexual harrassment settlements may have something to do with Dalio’s sudden realization of the guilt-by-accusation reality in the world today.

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Authored by Patrick Buchanan via Buchanan.org,

Informing Iran, “The U.S. is watching what you do,” Amb. Nikki Haley called an emergency meeting Friday of the Security Council regarding the riots in Iran. The session left her and us looking ridiculous.

 

France’s ambassador tutored Haley that how nations deal with internal disorders is not the council’s concern. Russia’s ambassador suggested the United Nations should have looked into our Occupy Wall Street clashes and how the Missouri cops handled Ferguson.

Fifty years ago, 100 U.S. cities erupted in flames after Martin Luther King’s assassination. Federal troops were called in. In 1992, Los Angeles suffered the worst U.S. riot of the 20th century, after the LA cops who pummeled Rodney King were acquitted in Simi Valley.

Was our handling of these riots any business of the U.N.?

Conservatives have demanded that the U.N. keep its nose out of our sovereign affairs since its birth in 1946. Do we now accept that the U.N. has authority to oversee internal disturbances inside member countries?

Friday’s session fizzled out after Iran’s ambassador suggested the Security Council might take up the Israeli-Palestinian question or the humanitarian crisis produced by the U.S.-backed Saudi war on Yemen.

The episode exposes a malady of American foreign policy. It lacks consistency, coherence and moral clarity, treats friends and adversaries by separate standards, and is reflexively interventionist.

Thus has America lost much of the near-universal admiration and respect she enjoyed at the close of the Cold War.

This hubristic generation has kicked it all away.

Consider. Is Iran’s handling of these disorders more damnable than the thousands of extrajudicial killings of drug dealers attributed to our Filipino ally Rodrigo Duterte, whom the president says is doing an “unbelievable job”?

And how does it compare with Gen. Abdel el-Sissi’s 2012 violent overthrow of the elected president of Egypt, Mohammed Morsi, and Sissi’s imprisonment of scores of thousands of followers of the Muslim Brotherhood?

Is Iran really the worst situation in the Middle East today?

Hassan Rouhani is president after winning an election with 57 percent of the vote. Who elected Mohammed bin Salman crown prince and future king of Saudi Arabia?

Vladimir Putin, too, is denounced for crimes against democracy for which our allies get a pass.

In Russia, Christianity is flourishing and candidates are declaring against Putin. Some in the Russian press regularly criticize him.

How is Christianity faring in Saudi Arabia and Afghanistan?

It is alleged that Putin’s regime is responsible for the death of several journalists. But there are more journalists behind bars in the jails of our NATO ally Turkey than in any other country in the world.

When does the Magnitsky Act get applied to Turkey?

What the world too often sees is an America that berates its adversaries for sins against our “values,” while giving allies a general absolution if they follow our lead.

A day has not gone by in 18 months that we have not read or heard of elite outrage over the Kremlin attack on “our democracy,” with the hacking of the DNC and John Podesta emails.

How many even recall the revelation in 2015 that China hacked the personnel files of millions of U.S. government employees, past, present and prospective?

While China persecutes Christians, Russia supports a restoration of Christianity after 70 years of Leninist rule.

In Putin’s Russia, the Communist Party is running a candidate against him. In China, the Communist Party exercises an absolute monopoly of political power and nobody runs against Xi Jinping.

China’s annexation of the Paracel and Spratly Islands and the entire South China Sea is meekly protested, while Russia is endlessly castigated for its bloodless retrieval of a Crimean peninsula that was recognized as Russian territory under the Romanovs.

China, with several times Russia’s economy and 10 times her population, is far the greater challenger to America’s standing as lone superpower. Why, then, this tilt toward China?

Among the reasons U.S. foreign policy lacks consistency and moral clarity is that we Americans no longer agree on what our vital interests are, who our real adversaries are, what our values are, or what a good and Godly country looks like.

Was JFK’s America a better country than Obama’s America?

World War II and the Cold War gave us moral clarity. If you stood against Hitler, even if you were a moral monster like Joseph Stalin, we partnered with you.

From Winston Churchill’s “Iron Curtain” speech in 1946 to the end of the Cold War, if you stood with us against the “Evil Empire” of Reagan’s depiction, even if you were a dictator like Gen. Pinochet or the Shah, you were welcome in the camp of the saints.

But now that a worldwide conversion to democracy is no longer America’s mission in the world, what exactly is our mission?

“Great Britain has lost an empire,” said Dean Acheson in 1962, “but not yet found a role.”

Something of the same may fairly be said of us today.

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On Tuesday afternoon, Jeff Gundlach held one of his more exhaustive “Just Markets” calls with investors.

 

 

Among the numerous discussion points touched upon, the “bond king” who alone predicted Donald Trump’s victory one year before the election, had several more bold contrarian calls, key among which was his observation that while stocks are now in an “accelerating phase”, his 2018 prediction is that the S&P would post a negative rate of return, which arguably is a more complex way of saying the S&P would be red for the year.

A main catalyst for Gundlach’s bearishness – for both bonds and stocks – is that we are now entering an era of quantitative tightening, i.e., accelerating balance sheet unwind from all the major central banks, which will lead to eventual derisking as yields first rise and stocks ultimately sell on the news.

 

Another reason why Gundlach is very bearish on the rates complex is that as BofA and JPM calculated last year, in 2018 there could be a $1 trillion bond supply deficit, a number which rises to $1.9 trillion in 2019 according to Gundlach.

Additionally, Gundlach is confident that a “more hawkish ECB” is not priced into the market. To be sure, last night’s quasi-tapering by the suddenly hawkish BOJ certainly lit a flame under long-dated yields today, sending the 10Y surging to 2.55%, breaking out above 2.5% for the first time since Marh 2017.

Going back to quantitative tightening, Gundlach also says that shrinking balance sheets are also not priced by the market, and in this context his bogey is June of 2018, at which point the net liquidity injection by central banks turns negative, or as he calls it, the point of “shrinkage.”

Which is not to say that Gundlach predicts a recession: far from it. Observing some of the main economic indicators that DoubleLine follows, Gundlach finds no recession risk in either the Leading Economic Indicators…

 

… nor in his favorite recession indicator, the US unemployment rate vs its 12 month simple moving average (a metric which looks at upward inflection points in the unemployment rate)…

 

… PMIs looks troubling, and would repeat prior recession behavior “only if they start falling next month“…

 

… meanwhile small business confidence, which today printed just shy of a record print, remains pristine, and indicates “no recessionary caution signal at all.”

 

… and the same can be observed with both consumer and CEO confidence, which – like the market – are surging higher.

 

 

But most importantly, Gundlach finds no wobbles in the junk bond market, where spreads, for now at least, appear unfazed by anything, or as he put it, “we’re not looking for little rocks here, we’re looking for big rocks. And a big rock is something like a 200 basis point widening so if a recession is going to be six months from today, junk spreads better start widening this week or else this is not a useful indicator.” For now, the coast is clear.

 

Yet while Gundlach does not expect a recession, he is far less sanguine about the stock market, where – echoing what we warned some time ago – he noted that “every indicator is at all-time cycle highs.” And, as a result, Gundlach said that he’s “gonna put it out there right now”, and state that despite stocks being in an “accelerating phase” and that it is “very unlikely for a market in its present condition to go down, my prediction for 2018 is the S&P 500 will have a negative rate of return.“

“All recession indicators are flashing no recession, which means it’s priced in,” Gundlach said. “This is why I say S&P 500 down after a pretty decent run early in 2018.”

And, as the chart below shows, after 9 up years it’s finally time…

To further make his point, Gundlach also noted the unprecedented calm in the market now, confirmed by the near-record number of days without a 5% correction…

… and the nosebleeding Shiller PE ratio of the S&P.

 

Meanwhile, Gundlach also touched on the market “melt-up” point brought up last week by Jeremy Grantham, which he showed in the following divergence between junk bond prices and stocks. Still, Gundlach countered to Grantham’s point saying that it doesn’t seem likely that the only thing that can surprise us are positives. In fact, Gundlach goes so far as to predict that “a downside surprise is more likely than an upside surprise.”

Gundlach also highlighted a “stunning” Citi chart  we first showed back in November, which shows the unprecedented number of VIX days with a sub-10 close in a rolling 6 month window.

Gundlach couldn’t resist and briefly addressed bitcoin, joining so many others in predicting that “he’ll go out on a limb and predict that the high for bitcoin is in” and then took a swipe at the “people who go on TV and say they are bitcoin experts, and I don’t know what what means.” Gundlach went out on an even bigger limb predicting that “if you short bitcoin today, you’ll make money.” Of course, you may lose a lot of money in the process too…

 

In short, he is not a buyer of bitcoin. So what does his like? Well, he made his choice for the best asset of 2018 very clear when he said that “one of the best investments for 2018 will be commodities”…

 

… which he believes are poised for a breakout.

… and he certainly does not see commodities implying a recession any time soon.

 

And while he likes commodities, he is certainly not a fan of European stocks, which he said “remain a value trap.”

But the one asset class he hates the most is anything rates-related. Here he did not mince his words and said “it is a horrible time to buy corporate bonds” adding that “I don’t like corporate vonds at all.” In light of the recent Steinhoff fiasco and the ECB, he may be on to something.

Gundlach also does not like Treaurys, noting that a 2.50% 2-Year Treasury could be in the offing, and predicting that the 10-year would hit 6% by 2021. And before everyone complains loudly, he also said that he does not not think “a 6% yield on the 10-year would cause everyone to die.“

Gundlach also commented on the flattening curve,where he said that it appears that “the 2s10s relationship has stopped flattening. And right now, it doesn’t look like anything near what we’d need to see for a recession.” And “so we’ve run the table: no recession indicators are flashing yellow, which means it’s priced in.”

 

 

Then, focusing on just the benchmark TSY, Gundlach said that a 3.25% on the 10Y is “plausible sometime in 2018.”

Reminding his audience of the rivalry between himself and Bill Gross, Gundlach disagreed with the former bond king, who made headlines today with his statement that the bond bull market is over, and said that “Gross is too early with his TSY bear market call.” What is the catalyst for Gundlach? As he explained, one “needs to see the 30Y at 2.99% or above for the trendline to break.“

 

 

Then, during the Q&A Gundlach was asked an interesting question, regarding what yield on the 10Y would be high enough to finally pressure stocks into selling off. For Gundlach the answer came with two significant digits of precision: “if the 10Year goes to 2.63% stocks will be negative impacted.” However, he also added that if the 10Y TSY passes 2.63%, it will head well higher, likely pushing toward 3%, and since he expects a 3.25% print on the 10Y in 2018, it is clear why Gundlach is not too keen on stocks.

Finally, Gundlach said that while not imminent he expects a recession in the next 2 years. Here, he made another interesting observation: he said that in the next recession we won’t see a bid for safety out of stocks and into bonds. In other words “we won’t see a bond market rally.”

Of course, if that is indeed the case, then US capital markets in particular, and classical economics and fractional reserve banking in general will have some very substantial problems in the coming 24 months…

 

 

 

 

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