Tag: finance

In sum, the U.S. government has received about 16,000 requests for exemptions from the $200 billion in tariffs it has levied on Chinese goods. And according to the Wall Street Journal, over 10,000 of those have come from just one company: Arrowhead Engineered Products of Blaine, Minnesota.

The company imports thousands of aftermarket repair parts for cars, lawnmowers, ATVs and other items from China – all of which are currently being taxed with a 25% tariff that is due to jump to 30% on October 15. 

The tariffs have had a profoundly negative effect on Arrowhead’s business model, which is based on selling cheaper alternatives to manufacturers parts. This has made appealing the tariffs the company’s main focus. 

John Mosunic, Arrowhead’s chief operating officer said: “We basically put everything else on the back burner to appeal the tariffs.”

Arrowhead also contacted its local congressman, Rep. Tom Emmer, to see if he could help streamline the appeals process. The company was told to be as specific as they could in seeking exemptions, so they wound up filing appeals for every gasket, air filter, spark plug and other part it imports. The company of 1,000 even hired a crew of temporary workers to submit the requests manually. 

Trade attorneys are unsure as to whether filing more appeals will be a more effective process. Some companies choose to file for only key items, or to bunch products under the same 10-digit code in the tariff schedule.

Ted Murphy, a partner in the international trade practice at Sidley Austin LLP said: “If I had figured out the secret recipe that explains approvals, I’d be speaking from the beach.”

He has said that companies are overwhelmed by the complexities of the process: “We’re taking clients through the stages of grief. They’re in denial; they’re angry. Eventually you get to acceptance that this is U.S. trade policy.”

The Office of the U.S. Trade Representative, meanwhile, says it is evaluating appeals individually and weighing factors like if a product is only available from China and whether the tariffs would harm the company significantly. 

Clark Packard, the trade policy counsel at the free market think tank R Street Institute said: “Small businesses wouldn’t have that kind of money to hire one of the well-connected firms. For an administration that claims to be ‘draining the swamp,’ it’s certainly been a bonanza for trade lawyers and lobbyists.”

A website that is maintained by the USTR and shows filings for exemptions shows hundreds of new filings per day. 

While President Trump claims that the tariffs are being paid for by China, they are mostly shouldered by U.S. importers. Companies have been claiming in exemption requests that the higher costs threaten their survival and that there’s no alternative to Chinese products. 

XCAD USA, an Idaho-based maker of sprinklers and other irrigation components wrote: “It is not economically feasible for this irrigation-grade component to be manufactured in the U.S.”

Becky Oja, the company’s controller and the lone employee filing requests, said: “We only have 15 employees—we’re very small potatoes over here in Idaho. Every little fitting and tube for the plumbing of [a product] has to be input into the exclusion request.”

American Scientific, which supplies science products for educational purposes, has submitted more than 100 requests for products like litmus paper and beakers. 

“The school-system budgets are remaining the same and will have to buy 25% less equipment in an environment where education materials are already scarce and [the] level of education is suffering,” the company wrote in its filing. 

John Hoge of Sea Eagle Boats, a company that imports inflatable sea kayaks from China, said: “These are not products that can lead to strategic dominance of the world. The tariffs were an existential threat to our business. We’ve been in business for 62 years, but we’ve never experienced anything like this and it was vital to get ahead of it.”

The company has seen 7 of its requests granted and 11 others denied. 

Meanwhile, about 35% of the exemption requests filed by Arrowhead on the $34 billion in tariffs from July 2018 were granted. 

Mosunic concluded: “The whole idea with aftermarket parts is to find a lower-cost source. And for a lot of these components there’s no U.S. source, period. You can’t do it anymore—it’s gone. Alternators, starters haven’t been manufactured in the U.S. for 20 years.”

Authored by Sean Stein Smith via The American Institute for Economic Research,

This failed IPO proves the market efficiently digests information.

Creative destruction is a part of the life cycle of a commercial society. That’s a good thing. 

Bad ideas, or even good ideas with bad implementation should be held to account by investors and the marketplace. 

WeWork is one of the most high profile examples of a once high-flying organization that was first humbled, and then dragged back to earth due to internal issues that eventually came to light. The saga of WeWork has been discussed and documented constantly since the organization filed its S-1 and had planned to go public with a valuation of $47 billion. Following the disclosure of details related to how the company was operating, including governance issues connected to its CEO, the sheer volume of long-term debt on its balance sheet, and the details of its revenue and obligations, the valuation of the organization plummeted. 

From $47 billion the valuation dropped to approximately $20 billion, only slightly more than it had raised in the private markets.  

From $20 billion the conflagration continued, the IPO was shelved for the time being, and it looks like there is a management shakeup in the making. 

Even more importantly, it’s always worth pointing out that even though retail investors want to invest in IPOs, most of the wealth has usually been captured by earlier investors, and the dynastic wealth creation possibilities are far lower. 

Source: https://www.ft.com/content/87c43322-755e-11e8-b6ad-3823e4384287 

Investors, including large financial institutions and the $100 billion Vision Fund, are underwater on investments, and stand poised to continue suffering millions (if not billions) in paper losses while the roiling continues. 

Why is this a good thing? 

It’s a good thing because this is what should happen to ideas that are over-hyped, have valuations that do not make sense, or that otherwise seem to be operating by their own sets of rules. No matter how much money is available, or how cheaply organizations can be financed, i.e. how easily they can borrow, the rules of profit and loss inevitably reassert themselves. Every organization, even those that provide customers with chic spaces, cold brew coffee, and beer on tap need to adhere to the rules of the marketplace. 

To succeed, any company must create more resources than it consumes, and WeWork simply has not met that requirement. There are areas that this failure, no matter how temporarily painful for investors, will improve and serve as an example for future organizations. 

Governance matters, and the connection between how the organization is managed, and the financial ramifications of questionable self-dealing need to be accurately assessed. Whether the company is public or private, transparency and accountability need to be a priority. Stripping value from an organization by leasing intellectual rights or physical assets back to the entity should not, and is not, being tolerated. 

There is not an infinite supply of money. With unicorns becoming commonplace since the Great Recession, the allure of staying private and being subsidized by venture capital can be difficult to resist. Recent stumbles by organizations such as Lyft and Uber, and the postponement of the WeWork IPO shows that the market will not wait forever for organizations to establish a path to profitability. 

Business models and profitability are a must. Customers will always choose a low-cost or free option versus a more expensive one. If the service is flexible, on-demand, it will attract more customers. Neither higher volume nor customer acquisition matter if the company loses money on each one.

Source: https://www.ft.com/content/87c43322-755e-11e8-b6ad-3823e4384287

In other words, the business actually has to function as a business creating value for both customers and the organization. 

The laws of the market are unyielding. While policies and politics may temporarily suppress these laws, they always reassert themselves when valuation or business models run amok.

The WeWork IPO will assuredly be analyzed, discussed, featured in case studies for years to come, and will likely be categorized as a failed IPO that destroyed value for nearly every party involved. Even though this proposed IPO did destroy value, and will most likely be classified as a failure, in hindsight it may be celebrated as a reality check and acknowledgment that financial market rules apply to every organization. 

Celebrating the free market, and the expectations it sets for organization, is a good thing. 

Just three of the world’s 10 biggest banks agreed to join a coalition of 130 global financial firms which have agreed to reshape their business to align with international efforts to address climate change and other environmental issues according to Bloomberg. 

Citigroup, Mitsubishi UFJ Financial Group and Industrial and Commercial Bank of China joined the United Nations’ Principles for Responsible Banking pledge, which now represents $47 trillion in assets – or 1/3 of the global banking industry according to UN Secretary-General Antonio Guterres during a Sunday launch event. 

Other signers include “European banks BNP Paribas SA, Barclays Plc and UBS Group AG,” which have agreed to map out and publish plans by 2023 governing their targets for sustainability. 

Guterres implored banks to increase financing for green-growth businesses, and to “Invest in climate action and divest from fossil fuels and pollution in general.” 

There’s a wide range of stronger actions that banks could take, for example, banning thermal coal financing or setting a time line to phase out funding of the fossil-fuel industry. One of the signers, ING Groep NV, said last week it would boost lending to automakers producing more electric vehicles than those that produce vehicles with internal combustible engines.

The principles follow another set of voluntary standards for the asset-management industry– the Principles for Responsible Investment — that were adopted by money managers 13 years ago to encourage firms to incorporate environmental, social and governance factors into their investments. The industry has since grown to more than $30 trillion. –Bloomberg

Several of the banks which declined to sign the agreement – such as Goldman Sachs, say they have their own sustainability programs, while others are still reviewing the pledge. 

According to Goldman, they already have several target-related efforts similar to the PRB and will continue to engage with the UN’s initiative as it continues to develop. 

Wells Fargo pointed to their 2016 goal to address social, economic and environmental challenges over five-years. 

JP Morgan, Morgan Stanley and Bank of America declined to comment. 

UN Assistant Secretary General Satya Tripathi said the reluctance of some banks to commit is a signal the principles have teeth. “Some are not ready to be held to account for their lending,” he said during a Sept. 19 panel discussion.

The PRB was launched at the start of the UN’s Climate Action Summit in New York. Transitioning to low-carbon and climate-resilient economies that are aligned with the Paris Agreement requires additional investment of at least $60 trillion from now until 2050, Christiana Figueres, executive secretary of the UN’s Framework Convention on Climate Change, said in a statement.

The PRB “offers a ladder to climb for every bank, though some banks start very low and have a particularly big ladder to climb,” said Peter Blom, chief executive officer at Triodos Bank, a Dutch lender that finances renewable energy and organic agriculture, and a signatory to the agreement. –Bloomberg

“It’s no longer enough to buy a few green bonds or make a few renewables investments and say that you are green,” said Eric Usher, head of the finance initiative at UNEP, which led the organization of the principles for the last two years. “The progress going forward will be about a fuller scale institutional realignment for sustainable development — scaling up the green, but also turning down the brown.” 

Authored by Michael Krieger via Liberty Blitzkrieg blog,

All wars require casus belli, ostensible justifications. After all, despite humanity’s long history of vicious warfare, interstate combat often requires a government distant from its working class to motivate its people to kill and die for distant institutions and esoteric ideologies. That said, Washington doesn’t exactly have a strong track record of honesty regarding its rationales for war. Few Americans know or care much for their own history…

– Maj. Danny Sjursen, USA (ret.)

One of the most horrible features of war is that all the war-propaganda, all the screaming and lies and hatred, comes invariably from people who are not fighting…It is the same in all wars; the soldiers do the fighting, the journalists do the shouting.

– George Orwell, Homage to Catalonia

It’s fall 2019, and nearly twenty years into a series of disastrous and murderous forever wars sold to the public as a necessary response to 9/11, we’re being instructed to prepare for another one. Replace the Q with an N at the end of IRA and you know what I’m talking about. Of course, this shouldn’t surprise anyone considering much of the U.S. foreign policy establishment has been actively scheming for some invented justification to take out Iran (and many others) for decades.

Our latest hate-week spectacle is being inflamed by a recent attack against key Saudi oil production and processing facilities, which is as ridiculous as you can get given the well-documented history of Saudi Arabia funding and supporting terrorism, including the attacks of September 11, 2001.

To summarize, the American public’s being primed for war because a country which played a meaningful role in 9/11 was supposedly attacked by a country that had nothing to do with 9/11. It’s as stupid, evil and intentional as it sounds.

U.S. foreign policy since 9/11.
Let’s invade all the countries in the Middle East that had nothing to do with 9/11.

— Michael Krieger (@LibertyBlitz) September 16, 2019

While most people know 15 of the 19 hijackers on 9/11 were Saudis, not many realize just how involved elements of the Saudi state were in planning and financing the operation, or the extraordinary lengths the U.S. government (under Bush, Obama and Trump) has gone to cover up this inconvenient truth from the American public.

For some key facts on the matter, I highly recommend the following article: U.S. Attorney General Barr Invokes “State Secrets” to Cover up Saudi Involvement in 9/11.

Here are a few excerpts:

On Thursday, September 12, one day after the 18th anniversary of the attacks on New York and Washington that killed nearly 3,000 people, a federal court filing revealed that Attorney General William Barr has asserted the “state secrets” privilege to block the release of an FBI report detailing extensive relations between some of the 19 hijackers and Saudi government officials. Victims of the attacks and their families are pushing for access to the 2007 report as part of a lawsuit against the Saudi government launched in 2003 charging the despotic monarchy with coordinating the mass killings.

Barr declared there was a “reasonable danger” that releasing the report would “risk significant harm to national security.”

Learning more about Saudi involvement in 9/11 would damage national security? What Barr is really saying is if the American public learned the truth about those attacks, then the sociopaths who actually run the country and repeatedly lie us into endless wars for empire and profit would be exposed.

But there’s a lot more…

In fact, the extraordinary measures taken to conceal the role of the Saudi regime in the 9/11 attacks are driven by the need of US imperialism to maintain its reactionary alliance with the Saudi sheiks and continue the false cover story on 9/11 that has served as an ideological pillar for aggression in the Middle East and the buildup of a police-state infrastructure within the US, carried out in the name of fighting a “war on terror.”

Its intelligence agencies have long worked in the closest collaboration with the CIA and the FBI. The exposure of Saudi complicity in 9/11 immediately implicates sections of the US intelligence establishment in facilitating, it not actively aiding, the terror attacks, and sheds light on the multiple unanswered questions about how 19 men, 15 of whom were Saudi nationals, could carry out such a complex operation.

Awkward.

The cover-up of Saudi involvement has been carried out over three administrations, Democratic and Republican alike. It began within hours of the attacks themselves. Eight days after the attacks, at least 13 relatives of Osama bin Laden, accompanied by bodyguards and associates, were allowed to secretly leave the US on a chartered flight. One of the passengers, a nephew of the supposed number one on Washington’s “most wanted” list, had been linked by the FBI to a suspected terrorist organization.

This is the key point. Empire is deeply bipartisan, partly since war can be very profitable, but also because constant war and fear-mongering makes it easier to advance centralized state power and chip away at civil liberties.

There’s no way mass media moguls aren’t aware of Saudi Arabia’s role in 9/11, but they almost never talk about it. In contrast, they spent two years yelling 24/7 about an invented Russiagate theory. This is no accident.

Mass media creates superficial narratives and pushes them to the forefront, while burying or glossing over issues of genuine substance.

Mass media increasingly has the feel of a surreptitious intelligence agency operation.

— Michael Krieger (@LibertyBlitz) September 23, 2019

U.S. foreign policy in 2019 is more tied to the hip of Saudi Arabia than ever before, but the good news is it’s mainly loudmouthed elites and other associated scoundrels who promote this. The bad news is it’s always loudmouthed elites and scoundrels who take the country to war.

Via Business Insider:

Only 13 percent of Americans would support the US military joining Saudi Arabia in a conflict as part of a response to a recent attack on two major Saudi oil fields, a new Insider poll of US adults shows.

Meanwhile..

“134 people have been executed this year alone in Saudi Arabia, with six of those killed being children at the time of their arrest, according to a shocking report.”

Who else is excited to go to war to protect the Saudis?https://t.co/bQCiSkl5Uk

— Michael Krieger (@LibertyBlitz) September 23, 2019

The public has the truth on its side, while the war-promoters and profiteers have money and power. As hopeless as it may seem, it’s imperative we never stop exposing the countless lies told in our name. Lies that kill children, destroy countries and make everyone less safe and less free. Both at home and abroad.

*  *  *

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Authored by Michael Snyder via The End of The American Dream blog,

The folks at Union Theological Seminary are taking the concept of “talking to your plants” to a frightening new level.  Each year, students at the seminary pay a ridiculous amount of money to go to the school, and they are there to be trained to be the Christian leaders of tomorrow.  But instead, they are being taught to confess their “climate sins” to potted plants, and eventually these impressionable young minds will be leading churches and Christian institutions all over America.  I realize that this story is so bizarre that it sounds like somebody made it up, but it is actually true. 

The following was posted by the official Twitter account of Union Theological Seminary last week…

Today in chapel, we confessed to plants. Together, we held our grief, joy, regret, hope, guilt and sorrow in prayer; offering them to the beings who sustain us but whose gift we too often fail to honor.

What do you confess to the plants in your life?

Today in chapel, we confessed to plants. Together, we held our grief, joy, regret, hope, guilt and sorrow in prayer; offering them to the beings who sustain us but whose gift we too often fail to honor.

What do you confess to the plants in your life? pic.twitter.com/tEs3Vm8oU4

— Union Seminary (@UnionSeminary) September 17, 2019

Needless to say, this tweet got a tremendous amount of attention, and the following are some of the more interesting responses…

–That “you’d probably taste good simmering in butter.”

–Those plants think you’re all morons.

–“They exchanged the truth about God for a lie, and worshiped and served created things rather than the Creator …” – Romans 1:25

–How every day, there’s a match and lighter fluid within 5 steps of them

–My confession: I am judgmental toward Larry the cucumber for exercising green privilege over Bob the tomato.

Of course a lot of very confused parents probably contacted the school as well, because this was definitely not what most of them had in mind when they heard that their child was going to attend “seminary”.

But instead of backing down, Union Theological Seminary posted a ten part response on Twitter in which they defended this new practice.  The following are the first five parts of their response…

We’ve had many questions about yesterday’s chapel, conducted as part of @ccarvalhaes’ class, “Extractivism: A Ritual/Liturgical Response.” In worship, our community confessed the harm we’ve done to plants, speaking directly in repentance.

This is a beautiful ritual. /1

We are in the throes of a climate emergency, a crisis created by humanity’s arrogance, our disregard for Creation.

Far too often, we see the natural world only as resources to be extracted for our use, not divinely created in their own right—worthy of honor, thanks and care. /2

We need to unlearn habits of sin and death. And part of that work must be building new bridges to the natural world.

And that means creating new spiritual and intellectual frameworks by which we understand and relate to the plants and animals with whom we share the planet. /3

Churches have a huge role to play in this endeavor. Theologies that encourage humans to dominate and master the Earth have played a deplorable role in degrading God’s creation.

We must birth new theology, new liturgy to heal and sow, replacing ones that reap and destroy. /4

When Robin Wall Kimmerer spoke at Union last year, she concluded her lecture by tasking us—and all faith communities—to develop new liturgies by which to mourn, grieve, heal and change in response to our climate emergency.

We couldn’t be prouder to participate in this work. /5

Without a doubt, humanity is destroying the planet.  In fact, I just wrote an entire article in which I discussed the fact that nearly 30 percent of all birds in North America have been wiped out since 1970.  But the theory that if we just pull enough carbon dioxide out of the air that everything is going to be okay again is absolutely ludicrous.

Plants need carbon dioxide, and scientists tell us that there have been times in the history of the planet when the levels of carbon dioxide in our atmosphere were far, far higher than they are today.  During those times, life on our planet greatly thrived.

So instead of “confessing their climate sins”, what those students at Union Theological Seminary should really be doing is apologizing to those poor wilting plants for trying to take their carbon dioxide away.

And Union Theological Seminary is not the only one promoting this sort of wackiness.  In fact, NBC News recently put up an entire page where people are being encouraged to confess their climate sins…

Even those who care deeply about the planet’s future can slip up now and then. Tell us: Where do you fall short in preventing climate change? Do you blast the A/C? Throw out half your lunch? Grill a steak every week? Share your anonymous confession with NBC News.

So what exactly does a “climate sin” look like?

The following are some of the “anonymous confessions” that NBC has posted so far…

-I’ve been using plastic golf tees from time to time. I will never use plastic golf tees again.

-As ‘green’ as I try to be, I print all my documents at work because I’m better able to edit that way vs. on a computer screen.

-I work less than two miles from where I live. I drive to work nearly every single day.

-Normal people can’t afford electric cars so until the cost come back to earth I’ll keep driving my combustion engine car.

-I can live without many things to help our planet, but I must draw the line at air conditioning. I would wilt!

-I have a mobile boarding pass, still I get to the airport and run to a printing machine… paper makes me feel safe, and I’m sorry

-I use a lot of Q-tips, I can’t find a better alternative.

Oh the humanity!

At a time when our nation is facing historic crisis after historic crisis, they want us to be obsessed about how many Q-tips we are using?

Sadly, our world is getting stranger with each passing day.  The people running things appear to be completely losing it, and meanwhile those that offer common sense solutions to our problems are being completely shunned.

I know that a group of theology students “confessing their climate sins” to a bunch of potted plants is not one of the biggest issues that we are facing, but it is emblematic of a larger trend.

At this point our entire education system from top to bottom is swirling down the tubes, and things just get worse with each passing year.

 A bipartisan group of lawmakers introduced the American Security Drone Act of 2019, would ban federal agencies from purchasing Chinese-manufactured drones due to cybersecurity concerns, reported The Wall Street Journal. 

The legislation, led by Sen. Rick Scott (R., Fla.), would limit state and local police forces and other government agencies from using federal funds to buy Chinese drones. It also states that federal agencies would have 180 days to dispose of all Chinese drone and come up with new solutions. 

The bill comes as nationalism and protectionism are running wild across the country, government officials and corporations are trying to cut their reliance on Chinese products, especially drones that could put high-value assets at risk. Many officials and top corporate management teams are worried that these drones are sending sensitive images and videos back to the China government and or state-sponsored hackers.

“Relying on drones made by our adversaries is a clear risk to our national security,” Sen. Tom Cotton (R., Ark.), another sponsor, said in a statement. He added that Chinese manufacturers have “stolen sensitive drone technology from America’s businesses and military for years and now sells it back to us.”

Sen. Scott, and other co-sponsors, which include Sens. Chris Murphy (D., Conn.), Josh Hawley (R., Mo.), Marco Rubio (R., Fla.) and Richard Blumenthal (D., Conn.), appear to be explicitly targeting DJI, the world’s largest maker of consumer drones based in Shenzhen, Guangdong, China. 

In a statement reacting to Scott’s bill, DJI officials said: “banning or restricting the use of drone technology based on where it is made is a fear-driven policy not grounded in facts or reality.”

The bill would paralyze local police departments, prevent them from combating crime. It would also ground over 600 DJI drones used by the Interior Department to inspect critical infrastructure. 

Mark Bathrick, director of the Interior Department’s Office of Aviation Services, told The Journal that the use of Chinese drones saved taxpayers $14 million in 2018. 

“Our drone program would be shut down,” he said in response to the bill.

About 520 state and local police, sheriff, fire and emergency services agencies in the U.S. are currently using DJI products because of its cutting edge technology, far superior to any U.S. firm that is a maker of consumer drones. 

The bill doesn’t cover the armed forces, but the Pentagon banned DJI last year.

However, the Navy still bought $190,000 worth of DJI drones, and the Air Force spent nearly $50,000 on them not too long ago. Both services used special exemptions granted by the Pentagon’s acquisition and sustainment office “on a case by case basis, to support urgent needs,” Pentagon spokesman Lt. Col. Mike Andrews told VOA.

And it seems that DJI is getting the Huawei treatment, where the government is conveniently identifying any Chinese company it doesn’t like a national security risk.

US equity futures rallied after the close following comments from Treasury Secretary Mnuchin that China’s Vice Premier will visit next week for talks, but at 1902ET, futures suddenly spiked for no apparent reason…

Looks like the move was pure algos, pushing to fill the gap from Friday’s trade plunge…

Looks like a replay of last night’s action once again…

…and this is the most liquid global stock index futures contract??!

Authored by Tom Luongo via Gold, Goats, ‘n’ Guns blog,

Now that I’ve had a week to process it, the attack on the Saudi Abqaiq oil processing facility was more than a brilliant operation, it was a trap.

And, unfortunately, President Trump just fell in it.

My initial reaction to this was that it could have easily been a false flag to gin up a war with Iran on the eve of Israeli elections. The initial spate of questions hadn’t been answered adequately.

As the week went along, however, it became clear that the responses from all concerned to this attack that the those that took responsibility for it, the Houthis in North Yemen backed by Iranian technology, were the ones that did it.

And it all comes down to the same thing, the Saudi Aramco IPO.

This is a $400 billion deal that is vitally necessary for Crown Prince Mohammed bin Salman to pull off. His plans to modernize the Saudi economy rest completely on this deal and keeping the price of oil from collapsing into the $50’s or even $40’s worldwide.

So while Saudi Arabia and Israel had incentives to stage a ‘false flag,’ Iran and its allies had even more incentive to cripple Saudi oil infrastructure to try and scuttle the Aramco IPO by bringing into question the kingdom’s ability to control not only its borders but also its future production.

The threat to Saudi Arabia goes far beyond the Aramco IPO, however. The future of the country is at stake. Iran knows this, that’s why it happened.

And every reaction so far to this story supports the latter theory than the former. So, as much as some would like to blame Israel in this life for everything bad that happens, I don’t see it this time.

Look at it this way:

• Iran has been smirking behind their beards at the U.S. and Saudi Arabia.

• The Saudis have provided accusations with zero proof.

• Saudi Oil Minister Abdulazziz bin Salman has been running around assuring the markets everything is fine. (Read this puff piece from CNN).

• Trump refused to go to war over this incident.

• Trump instead added sanctions on Iran.

• The Fed cut interest rates and opened up a daily $75 billion repo facility due to dollar illiquidity.

• The Israelis hit the Al-Bukamai border crossing between Iraq and Syria on Sept. 17th and 18th.

Because if the Aramco IPO fails this time around the Saudis have a very limited time frame for solvency without drastically overhauling their financial system and monetary policy.

That’s why there was the mad scramble to send Secretary of State Mike Pompeo over to Jeddah.

What do I mean by President Trump walking into a trap? He announced he’s moving troops into Saudi Arabia, specifically citing economic concerns.

Saudi Arabia requested what the secretary described as “extra defensive support,” he said, and it will “send a clear message that the United States supports our partners in the region.” The move was also made with commerce in mind, as the attack included as a target the world’s largest oil processing facility.

The extra troops would help “ensure the support free flow or resources necessary to support the global economy,” Esper explained.

This is a clear move to shore up the Saudis against Iran-backed aggression and assure investors that Aramco has friends and your returns are guaranteed.

I’m sure Tulsi Gabbard is overjoyed at her ‘brothers and sisters’ being sold to the highest bidder.

This is a $400 billion deal that Wall St. punters have choked on for three years trying to drum up support for. Now that they finally have it lined up, after Trump subordinating U.S. foreign policy to it and Israel for his entire term in office, a few well-placed drones threatens to bring the entire thing crumbling down.

But this is a trap. Iran had to see this as a potential outcome of the attack and committing U.S. troops looks like a ‘check’ move to Iran’s pushing the pawn.

But it’s not. Because the U.S. can’t actually engage here without enmeshing Trump in a quagmire that is deeply unpopular back home and likely more damaging to the markets than if Trump didn’t move troops in.

Because now, with troops on the peninsula, there’s greater potential for conflict.

Moreover, the Houthis have made their point, they can hit the Saudis anywhere. And on the heels of my last article, we have reports now that they have made an incursion north into the province of Jizan.

First, attack far to the east with drones. Second, get the U.S. to commit troops to protect the oil fields and then pressure the Saudis on the ground where they aren’t looking and where American troops can’t be lest some of them come home in body bags.

As Patton would say, “This is where we hold ’em by the nose and kick ’em in the ass.”

What are the U.S. troops going to do, actually? In the end, we’re now using them as human shields to protect a country which invaded their neighbor, is on the brink of financial breakdown, and can’t effectively fight the chaos it’s unleashed.

Let’s take this one step further.

With Benjamin Netanyahu losing the election on Tuesday and likely on the outside of Israeli policy, if not civil society, the Trump administration’s plans for a deal between Israel and the Palestinians is in jeopardy.

A year ago Trump told the Saudis they would have to fend for themselves. Today he’s sending troops to protect Aramco.

What was the point of producing all this oil domestically if we’re going to spend what little money it produces in free cash flow to shore up the Saudi government?

The Kushner deal between Israel and the Palestinians been on hold for most of this year since Egpyt’s President al-Sisi rejected Trump’s overture to join Trump’s Arab NATO alliance to secure Israel’s southern border.

Events since then have conspired to keep its proposal delayed officially.

So, imagine my shock that this weekend I woke up to a headline that there are street level protests against al-Sisi’s government that sprang up ‘suddenly’ and without warning.

Say no to Mafia Don’s foreign policy goals? Be regime changed.

How much further is Trump going to go to stitch together this deal? So far he hasn’t been willing to engage in direct confrontation but that’s where this response heads him towards. It leaves U.S. troops vulnerable not only to an actual attack but also to a false flag involving the deaths of American soldiers.

The President had a choice and he chose poorly.

*  *  *

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Just one month after the San Fran Fed remarkably flipflopped on the topic of negative rates, and after praising NIRP as recently as February published a letter, titled “Negative Interest Rates and Inflation Expectations in Japan” which reached the diametrically opposite conclusion: that contrary to economist expectations – and we highlight “economist”, because this conclusion would have been obvious to anyone with a semi-functioning frontal cortex – Japan’s negative rate experience “resulted in decreased, rather than increased, immediate and medium-term expected inflation.“

In other words, NIRP actually compounded the problem it was meant to address, and hardly the panacea that the San Fran Fed said back in February is what would have helped quicken the recovery.

Here is the summary from the paper:

After Japan introduced a negative policy interest rate in 2016, market expectations for inflation over the medium term fell immediately. This can be seen by assessing how prices for Japanese bonds with embedded deflation protection responded to the policy announcement. The reaction stresses the uncertainty surrounding the effectiveness of negative policy rates as expansionary tools when inflation expectations are anchored at low levels. Japan’s experience also illustrates the desirability of taking preemptive steps to avoid the zero interest rate bound.

But… but… the San Francisco Fed in February said precisely the opposite.

Things indeed move fast when one is a modern day voodoo charlatan, also known as “economist.”

Why do we bring it up? Because earlier today, the same San Francisco Fed, which now occupies at least 3 honorary squares in the Hall of “Researchers” who “Research” the Patently Obvious To Anyone Who Is Not An Idiot, published a note in which it was shocked to find that the market is not only openly mocking the Fed’s own trivial – and traditionally worthless – exercise in forecasting, sometimes known as the “dot plot”, but expects the Fed’s rosy outlook on the economy over the next two years to be dead wrong.

Interest rate derivatives—financial investments whose value depends on interest rates—provide useful information about the risk of short-term rates falling again to the zero lower bound. According to new market-based estimates, the probability of a return to the lower bound by the end of 2021 is about 24%. This is roughly in line with other survey-based and model-based estimates of zero lower bound risk. In recent months, the market-based measure of lower bound risk has increased markedly.

As a reminder, when it comes to the future of the Fed Funds rate, rarely has the market disagreed as profoundly with the Fed as it does now. To wit, as shown in the chart below, when it comes to 2021, whereas the average Fed “dot” expect a rate of 2.125%, or one hike from the current level, the market implied rate is about 100bps lower, or 1.16 according to Fed Fund Futures.

What is fascinating about the above chart, is not what it shows – it has been long known that the divergence between the Fed’s and the market’s forecasts has never been greater- but that the Fed only now appears to be figuring this out.

As San Fran Fed economists Michael D. Bauer and Thomas M. Mertens write in “Zero Lower Bound Risk according to Option Prices“, “accurately assessing and quantifying downside risks are of paramount importance to investors, policymakers, and professional forecasters” and go on to note that “this Economic Letter introduces and evaluates a new risk measure based on option prices in financial markets. Specifically, we use prices of Eurodollar options to estimate the probability that future short-term interest rates will return to levels near the zero lower bound (ZLB). The market’s view of this probability provides a useful model-free measure to assess both the current level of ZLB risk across different future horizons and the changes in risk perceptions over the past year.”

Yes, the career economists at the San Fran Fed which a year ahead of the biggest housing crisis (under Janet Yellen) failed to spot even a trace of the upcoming 2007/2008 housing bubble bursting – and we now know why – have finally discovered Eurodollar futures.

Bravo.

But it’s what they discover once they start digging into the details of the ED future that leaves them shocked: according to the market, there is now a 24% probability that the Fed Funds rate will hit the dreaded zero bound by 2021, to wit:

Figure 2 shows our current estimates of ZLB risk. Since Eurodollar options are available for a range of different expiration dates, we can calculate our risk measure for various future horizons. The resulting probabilities across horizons are what we call the term structure of ZLB risk, which Figure 2 plots for quarterly horizons from December 2019 to December 2021. The downside risk is small for the December 2019 horizon; this is not surprising, since LIBOR is currently around 2% and a drop to below 0.75% over the next few months is highly unlikely. The risk then increases significantly, reaching 16% by the end of 2020 and rising further to 24% by the end of 2021.

Another way to show the above is in the chart below, which plots daily estimates of ZLB probabilities for a constant three-year future horizon, from January 2, 2018, to September 17, 2019 (blue line). It also shows the 3M10Y spread, a widely accepted indicator of imminent recession.

Of course, if the San Fran Fed had been reading Zerohedge, it would know that not only is the 0% odds rising by the day, but that – as we reported on Sept 4 – the probability of dreaded negative rates by 2021 is now a solid 4% and rising.

The San Fran Fed will eventually get there: we can’t expect too much from its employees – after all they are economists. So going back to the paper, which appears to have discovered interest rate derivatives as a source of “useful information about the economic outlook” (no really, they say that), here is the conclusion:

Current estimates suggest about a one-in-four chance of short-term rates dropping back to the ZLB within three years. While this implies the more likely outcome by a solid margin is that short-term rates will not return to the ZLB, the market’s view of this risk has increased substantially over the past year. Recent increases in our estimated ZLB probabilities have coincided with negative macroeconomic data and escalating international trade tensions. They also are in line with another prominent warning signal about the economic outlook: the yield curve has flattened and ultimately inverted.

What is the take home message from this amazing “discovery”? That the surging ZLB probability (according to market if not Fed estimates) and the inverted Treasury yield curve “suggest some growing concerns about the sustainability of the expansion, the possibility of a future recession, and a resulting easing of monetary policy that could push short-term rates back to their lower bound.“

While it is difficult to disentangle the exact drivers of the changes in ZLB risk, data indicating weakening economic conditions and increasing macroeconomic uncertainty appear to have played a major role. For example, the first peak in ZLB probability on January 3, 2019, coincided with a lower-than-expected Institute for Supply Management manufacturing data. The second significant spike occurred in March when the term spread turned negative for the first time since the Great Recession. And the most recent spikes this summer coincided with further deteriorating macroeconomic data, increased trade tensions, and rising global uncertainties.

In short, the market is saying the odds that the Fed is wrong are soaring by the day, and not only that, it is warning that whereas the Fed’s dot plot sees a rate of 2.15% by 2021, the probability of 0%, as calculated by the market, is now 24% and rising.

With that in mind, and in light of the San Fran Fed’s recent “discovery” that negative rates are actually, gasp, bad, the authors’ unspoken conclusion is simple: the Fed is shocked that the market is increasingly saying that it is not only trapped, but about to lose control. With that said, we eagerly look forward to what “research” papers the brain trust of San Fran Fed economists will be writing in 1 year when the Fed has not only launched NIRP but also QE.

Authored by Bruce Wilds via Advancing Time blog,

House Arrest An Odd Twist Of Orwellian Oversight

Over the years technology has greatly expanded the ability of government to watch the movements and control individuals. During this time I have encountered several people that have run afoul of the law in some way or other the way the legal system deals with people is also changing. While many of us see house arrest as a great option to throwing minor offenders into a prison system filled with hardcore criminals it does have shades of totalitarianism. A recent article on this site explored the difficulty society is having in getting people to obey its rules and laws. Without a doubt, the failure to enforce laws to deter minor acts of stealing and such impacts our culture over time. Sadly, this is not a problem just in America but across the world. as the cost of enforcement has soared and the system struggles to dole out justice.

House Arrest Turns Your Home Into A Jail

The focus of this article is to explore how sophisticated the state has become and its ability to turn your home into an Orwellian prison. Crumbling justice systems have forced courts to prioritize crimes by seriousness and explore new ways of getting people to behave. This translates into petty criminals being allowed to walk free for crimes such as shoplifting, minor assault, vandalism, fraud, and DUIs. A rapidly growing alternative to throwing a person convicted of a crime in jail is some form of house arrest. This is a term most of us heard but do not understand the full scope of what it may encompass.

House arrest typically isn’t a judge’s first choice for punishment but it is becoming more common as the cost of incarceration rises. This is considered a privilege normally requested by the defendant’s attorney, who would then have to establish to the court’s satisfaction that it’s a good idea and why. Sometimes, house arrest is issued as a condition of bail. Bernie Madoff, charged with defrauding investors of billions of dollars, was released on $10 million bail and house arrest pending his trial. House arrest rules and regulations tend to vary widely from state to state and county to county but one common factor is the Orwellian nature of near-total control.

Make no mistake, the abilities and options available to the government to enforce turning your home into a jail can boggle the mind. House arrest is only one of the alternatives to jail including a suspended sentence, probation, fines, and community service. Most offenders eligible for house arrest are confined to their home instead of spending time  in jail. Depending on their situation and the ruling of the court a person on house arrest is usually electronically monitored through an ankle monitor with a GPS tracking system. It can’t be removed and is electronically connected to local police headquarters giving off signals when it goes out of its allowed area. The word arrest is somewhat misleading in that it is really house sentencing and many variations of it exist.

One thing is clear when looking into this issue and that is Orwellian control is almost complete. The extent of control depends on the sophistication of the technology employed. Some electronic transmission systems worn in addition to the ankle monitor are equipped with breathalyzers which the prisoners are required to breathe into.periodically. The data is transmitted back to the agency. Some monitors measure alcohol concentration in the blood 24/7. Also, court representatives can do surprise visits for random testing. Drug and alcohol use is not permitted during house arrest, even if the underlying crime did not involve substance abuse. The frequency of such testing is generally increased when issues of abuse do exist.

Ankle Monitor With A GPS Required

Not only can the electronic monitoring prove a person’s location within his residence but it can tell the agency exactly where the convict is and whether he’s done anything to the ankle monitor. Some of these systems are even equipped with photographic capabilities so if the agency calls the convict, the system will snap a picture of him answering the telephone.GPS can also be included which allows the agency to track the convict and locate him on a map if the person is granted permission to leave their residence. People under house arrest are sometimes permitted to leave home to take care of certain family responsibilities or to attend religious services.

One disadvantage to house arrest for the offender is the person won’t be able to take advantage of good time credits. This is the incentive system that allows them to serve less of a jail sentence as a reward for good behavior. Below are a few of the options or things people on house arrest face. Many people think that house arrest is like being in jail and they will have to be there all day, every day. This is not always the case. Depending on your circumstances, the severity of the crime, and a person’s criminal record, the judge may allow “breaks” from house arrest. This means a person may be able to go to work, school, doctors appointments, counseling sessions, community service, and other court-approved activities. The court may also order a curfew requiring you return directly from the allowed activity.

Another twist is a person under house arrest should expect to pay some of the costs. House arrest is cheaper for the court system than putting you in jail. Incarcerating a person in prison can cost over $20,000 a year. Confining a person at home can be as cheap as $6,000 a year. Most of the time, you will be required to pay a weekly or monthly amount towards the cost of an ankle monitor, or electronic monitoring transmitter 24/7. Other costs are also involved. The price of house arrest varies from probation department to probation department. Some have a set price for everybody. Some determine the price on a sliding scale based on an offenders ability to pay.

Just like parole, if an offender violates any condition of house arrest they can be immediately arrested and sent to jail to serve out their sentence in captivity. Leaving the house, if allowed, is restricted for a person on house arrest. Some offenders are allowed to be employed, this can go either way with some states and courts allowing it while others do not. Some allow regular visits such as the doctor’s office but these must be scheduled and approved in advance. Other times they may be permitted to attend counseling in cases where drug or alcohol abuse are involved or to perform community service as part of their sentences. Exceptions are also made in order to attend court-mandated appearances or activities such as meeting with a probation or parole officer.

Programs might also allow for some offenders to do laundry, attend religious services and go food shopping. Offenders generally have a curfew and whenever they are allowed to leave their home the person is required to report in upon return. People under house arrest also have access to television and the Internet but in many cases, they do not have access to a telephone and if they do the conversations are monitored. Visits from close family members or friends may be permitted, but this depends on the convicted individual’s specific situation and factors like his state’s laws.

The court has the discretion to set restrictions on visitors, meaning a friend or loved might need to get permission from the convicted individual’s assigned officer. Minors on house arrest are more or less subject to the same rules as adults but generally allowed to go to school and sometimes allowed to leave home when they’re in the company of a parent or legal guardian. Some states require that the parent check with the probation officer first, and if the child breaks the rules they must report it to the authorities. Typically minors can’t have friends stop by to visit but are sometimes allowed to engage in phone communications with an approved list of people.

This is a glimpse of government’s ability to totally control our lives. This picture of your home as a prison may eventually be extended to include your city or country if the government continues to expand its reach. Signs of this happening can now be seen in China where a surge in facial recognition and social point system has begun to reshape society. It is interesting how few people have commented on the way passport requirements and higher cost have reduced the ability of many people to travel. If this continues there may come the day when only the elite and wealthy are allowed to cross borders.