Tag: finance

US equities suffered their worst weekly drop in two months…

Shock horror…how did that happen?

Fauci Fearmongering started the ball rolling down-hill:

“The reality is [Fauci] is scared the crap out of Americans,” House Freedom Caucus Chairman Andy Biggs, R-AZ, said. “That’s what he’s done. And with his co-folks in the left wing media, they’ve scared people. You’ve got businesses that are afraid to open. They’re scared to death to open because someone is going to get sick or they get sick. He has scared people who have children and he is gone back and forth. I mean now you don’t wear a mask, people look at you. But it was just a month ago, when they were saying don’t wear a mask because that’s the perfect way to get sick, if you wear a mask. You don’t wear a mask if you are sick. So now this is gone to everybody supposed to wear a mask. Fauci has relied on bad models.”

He added, “He himself says we can’t rely on the models, Fauci said in his testimony two days ago, he’s responding to Rand Paul, ‘I don’t look at all this other stuff that you that you’re talking about. I’m just a scientist. I’m just looking at this data and this science.’ That means he’s not looking at the public health consequences of poverty, of stress, of people not getting treatments they need to get, who are afraid to go in and get screened for cancer or whoever had heart attacks and strokes. He doesn’t care about that. I shouldn’t say that. I don’t know if he cares or doesn’t care. But he doesn’t look at it.”

The truth is hard to swallow for a 79-year-old career fearmonger – as BofA details COVID-19 has a low case fatality rate (<0.3%) for the median age (38) US citizen, meaning return to work may be worth the risk…

 The US is making the calculation that people need to get back to work for obvious economic reasons; they will live with the risk of COVID infection. Consider some data, using Italy as benchmark and noting that median age of US population is 38 years old. Italy has a relatively high aggregate case fatality rate (CFR) of 13.8%, but the CFRs for the 30-39 and 40-49 age cohorts are just 0.3% and 0.4%, respectively. Given this, the US CFR for 38 year olds is likely less than 0.3%, perhaps even in the 0.1%-0.2% range; to be (hopefully) conservative, we’ll assume range upside of 1.0%. Assuming a 99.0%- 99.9% chance of survival given infection (1-CFR) for the median-aged US worker, we believe US workers will overwhelmingly opt to return to work given the opportunity. Against the backdrop of record policy stimulus, this creates upside risk to the economic recovery scenario as reopening expands.

But don’t worry – The Fed’s got your back…

This is amazing. pic.twitter.com/fIXy0F39K4

— Robin Wigglesworth (@RobinWigg) May 15, 2020

Overnight ugliness after Washington and Beijing traded threats. An utter shitshow in Retail Sales, Industrial Production, JOLTS, and Sentiment but because some of those data items “beat” expectations, we ramped at the cash market open. Then another “rumor” lifted stocks a little more.

Source: Bloomberg

After Fox News sparked a buying panic yesterday with bullshit WFC/GS rumors; today saw Sorrento (and the market) shoot notably higher in early trading after a report from Fox News that the company said it had discovered an antibody that could protect against COVID-19. Trump came on later and commented on being ready for a vaccine… and stocks lifted some more.

So, US restarts trade war with China, US retail spending and manufacturing collapse most on record, and Nasdaq closes green (despite a weak close seemingly sparked by some honest words on Huawei by Kyle Bass)…

You had to laugh at it really… retail ran tech stocks higher all day (once cash markets opened) as yuan kept fading…

Source: Bloomberg

Semis slammed on the Huawei headlines (worst week in 2 months)…

Source: Bloomberg

But FANG Stocks ended higher on the week – why not!? (7th weekly gain in last 8)

Source: Bloomberg

Nasdaq has not closed this high relative to Small Caps since the peak of the dotcom bubble in 2000…

Source: Bloomberg

Virus-Impacted Sectors were slammed with Airlines worst (but bounced Thursday)…

Source: Bloomberg

Another ugly week for banks – despite the bullshit WFC/GS rumors…

Source: Bloomberg

And banks are at a record low against the market…

Source: Bloomberg

VIX was up 4 vols on the week, the most since mid-March…

The Fed was in da house this week… but that didn’t save HY bonds which fell as IG rallied…

Source: Bloomberg

And even as stocks have rallied recently, the broader bond market has refused to play along…

Source: Bloomberg

Treasury yields were down on the week as the curve bull-flattened…

Source: Bloomberg

For the 6th day in a row, the dollar was suddenly bid during the US day session (across the European close)

Source: Bloomberg

Bitcoin rallied notably after the halving…

Source: Bloomberg

But all crypto is down from last Friday’s “close”…

Source: Bloomberg

WTI (June) tested up towards $30 today…

Quite a week for June (but all contracts bid)…

WTI’s front-month is back into backwardation after being in contango since March…

Source: Bloomberg

Silver surged back above $17 today…

Gold broke out of its recent triangle…

Gold hit a record high in yuan…

Source: Bloomberg

Silver notably outperformed gold for the second week in a row… (biggest daily outperformance of silver over gold since July 2016 today)…

Source: Bloomberg

Finally, we are sure many can sympathize with a bearish Hitler as he checks his trading account this month…“my wife will not be happy with me…”

h/t r/wallstreetbets

“You can’t just bribe small businesses to keep people employed forever…” Or can you?

But, if only Addie had been long gold from the start?

Scores on the Doors: gold 13.1%, US dollar 4.0%, government bonds 2.9%, cash 0.5%, IG bonds -2.3%, HY bonds -9.7%, global equities -14.9%, commodities -40.6% YTD.

Authored by Paul Joseph Watson via Summit News,

A top UN official says that coronavirus lockdowns should not be lifted “too hastily” in order to protect “vulnerable” people, despite the fact that some 36 million Americans have now been made vulnerable as a result of losing their jobs because of the lockdown.

“If an affected country comes out of lock-down too hastily, there is a danger that a second wave, costing many more lives, will be triggered sooner and more destructively than would otherwise be the case,” said the UN’s Human Rights High Commissioner Michelle Bachelet.

“If the re-opening of societies is mishandled, all the huge sacrifices made during the initial #lockdown will have been for nothing,” she added. “Letting politics or economics drive the #COVID19 response at the expense of health and #HumanRights will cost lives.”

If the re-opening of societies is mishandled, all the huge sacrifices made during the initial #lockdown will have been for nothing. Letting politics or economics drive the #COVID19 response at the expense of health and #HumanRights will cost lives.

— Michelle Bachelet (@mbachelet) May 14, 2020

Many would argue that the opposition to President Trump’s desire to re-open society is driven purely by politics in that Democrats want to see Trump lose re-election off the back of a devastated economy.

Bachelet suggested that the drive to lift lockdown is motivated by “the interests of a particular elite” which is putting “vulnerable” people at risk, despite the fact that globalist health bodies, dominant cultural institutions, Democrat-controlled states and the corporate media are all in favor of keeping the lockdown for as long as possible.

In reality, the backlash against the lockdown comprises of the very “vulnerable” people Bachelet claims to speak for, many of whom are amongst the 36 million Americans who have lost their jobs.

As numerous prominent experts have warned, the lockdowns will also end up causing more deaths than the coronavirus due to a horrific spike in poverty and people with other serious illnesses being unable to get treatment.

*  *  *

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Several days after Tesla CEO Elon Musk threatened to move out of California after a highly publicized spat with Alameda County over Musk’s push to reopen Tesla’s Fremont Plant and force workers to return despite questions about safety. Many longtime Tesla fans turned against the company as many accused Musk of placing Tesla’s share price – not to mention his own personal gain – above the safety of his workers.

After President Trump spoke out in Musk’s defense, Alameda County folded and Musk mostly got his way.

But apparently, the bad taste that the incident left in Musk’s mouth has prompted him to leak a story about Tesla picking Austin, Texas as the site of its next Gigafactory. Tesla has three “gigafactories” – one in Nevada, one under construction in Berlin, and one in Shanghai.

The news was reported by Elektrek, a blog and frequent recipient of Tesla-related leaks, which it often reports uncritically, leading many to suspect that the blog’s “extremely reliable source” is none other than Musk himself.

As Elektrek notes, while Musk has been leaning toward Texas for months, the timing of the announcement is “surprising” and the timelines is “surprisingly aggressive” (just like all of Musk’s “timelines”).

Giga Texas is expected to produce the new Tesla Cybertruck.

According to a reliable source familiar with the matter, Tesla CEO Elon Musk is set on bringing the next Tesla Gigafactory, or now Terafactory, to Austin, Texas, or at least close to the city.

The people familiar with the project said that Musk has tasked the engineering team working at Gigafactory Nevada to start the process for the new factory, which is expected to make the Tesla Cybertruck electric pickup truck and the Model Y.

Tesla’s CEO also reportedly wants to move extremely fast.

We are told that the decision for the site is not set in stone since Tesla was apparently given a few options in the greater Austin area, but Musk is said to want to start construction extremely soon and aims to have Model Y vehicles coming out of the plant by the end of the year.

It would be an even more aggressive timeline than Gigafactory Shanghai.

Tesla already has a small office in Austin, adding to the convenience of opening the factory in or near the city.

When Tesla started building a team of chip engineers for its Autopilot hardware 3.0, it hired several engineers from AMD’s corporate offices in Austin and Tesla decided to open an office there for its Autopilot hardware engineers.

Recently, Musk has been talking about moving Tesla’s California operations to Nevada and/or Texas due to the automaker’s difficulties working with the local government to reopen the Fremont factory, where it currently produces most of its vehicles.

This project is not directly related to that announcement.

We are talking here about Tesla’s previously announced plans to build a ‘Cybertruck Gigafactory’ in “central US”.

Musk infamously accused California of “fascism” in a now-infamous Q1 earnings call where Musk bashed the Golden State for its restrictive stay at home order. The big question now: If Tesla puts down more roots in Texas, will Musk soon follow by moving his personal residence to the Lone Star State as well?

On Wednesday, the Illinois Department of Public Health reported 192 COVID-19-linked deaths for the prior day, a record total for the state since the beginning of the outbreak. The next day, the number dropped to 138, but the state remains on track for a shocking spike in deaths as reopenings continue and many southern states see much more promising results.

As we noted earlier this week, ~50% of deaths in Illinois have involved residents of nursing homes and other long-term care facilities, problems that Spain and the UK have also struggled with. And the spike in deaths in the state seen this week has largely been attributed to a surge in managed-care-home deaths as the state’s utter failure to protect those patients becomes more shockingly apparent.

Nursing home deaths clearly constitute an outsize chunk of the state’s fatalities: the percentage has jumped from 48%, from just 35% last month.

As Breitbart News reported earlier this week, governors in at least three states – NY, NJ, PA – all adopted policies requiring nursing homes to accept patients who had tested positive for the virus. Gov Cuomo defended his decision, saying it was intended to ensure the patients wouldn’t be left ‘stranded’ at hospitals.

So, instead of hospitalizing the most vulnerable patients, Cuomo knowingly sent them back to nursing homes around New York state, where they infected dozens of staff and other residents. This has led to an explosion of nursing-home crises as the (mostly Democrat-controlled) states with the largest numbers of nursing home deaths wonder how they failed so badly at keeping the most vulnerable safe from the virus.

To be clear, Cuomo has essentially admitted that he sent COVID-19 positive patients back to nursing homes, and defended his decision to do so, all while blaming President Trump and the ‘failures’ of the federal government to provide tests for everyone who wants one – a ludicrous standard that hasn’t even been met in South Korea or China – or anywhere, really.

In Illinois, Gov Pritzker, didn’t issue any guidance, turning his back as some facilities allowed COVID-19 positive patients to return to the home, and others – probably the better-run facilities – were wise enough to insist that the patients be hospitalized, or tended to elsewhere.

Many of the Republican-controlled states that issued specific directives prohibiting COVID-19 positive patients from returning to nursing homes are now reopening, and experiencing mostly positive results. Yet, the ‘stay home, save lives’ crowd in NY, NJ and elsewhere probably don’t realize how badly at fault their own “champions” are for the massive death tolls in their states. As Breitbart calculated, in Illinois and most of these other states, the average age of dead COVID-19 patients was higher than the rest of the country, showing how more of the deaths came from nursing homes.

Authored by MN Gordon via EconomicPrism.com,

Has anyone given credit to the coronavirus for exposing the general folly of our time?  We’ve yet to find mention of it.  Not even on the web.  Here we shall do our part to give proper credit where credit is due…

Numerous stimulus proposals are currently being cooked up in Congress.  In an election year, with unemployment going vertical, now’s the time to cash in on populist sentiments.  The three leading bills, for example, are the Automatic Boost to Communities (ABC) Act, the Emergency Money for the People Act, and the Monthly Economic Crisis Support Act.

With names like that, what’s not to like?  The main ingredient for each proposal is a $2,000 monthly stimulus check.  The variance between the three is in duration and eligibility.

The ABC Act, which was introduced by Congresswomen Rashida Tlaib and Pramila Jayapal, is the most ambitious.  This act is centered on $2,000 monthly payments to all taxpayers – and their dependents – for a payment period that extends one year after the termination of the declared coronavirus emergency… whenever that may be.

So, if we follow, a family of four stands to receive $8,000 per month for well over a year.  Incredible!  But that’s not all…

There are no eligibility criteria…save the requirement that nonresident aliens have been in the U.S. since December 19, 2019.  Plus, an additional $1,000 monthly payment would continue for 12 months after the end of the initial payment period.

The price tag: Upwards of $10 trillion.

Where to begin…

State Sponsored Destruction

The recline and flail of western civilization can be characterized as a series of interim downward steps.  Taken together, these downward steps compose the greater decline and fall of western civilization.  Day after day.  Year after year.  More recline.  More flail.

By our estimation, these downward steps have been underway since Neil Armstrong first stepped foot on the moon.  However, the assassination of Archduke Franz Ferdinand at the hands of Gavrilo Princip may be a more accurate turning point.

By now it’s obvious to any honest observer that western civilization is circling the toilet bowl.  The ABC Act of Tlaib and Jayapal, as an answer to state sponsored destruction of the economy, offers a case in point.  The solution, you see, is more of the problem.

By and large, the challenges facing the economy have everything to do with central government.  Over the last 40 years, as the Fed and the Treasury colluded to rig the financial system in totality, wealth has become ever more concentrated in fewer and fewer insider hands.  The effect over the last decade has been a disparity that’s so magnified few can ignore it.

This trend has been further intensified by our current economic depression.  Bitterness and contempt for wealthy insiders is much higher than it was during prior business cycles.  Without question, this bitterness and contempt will amp up to a fever pitch over the hot summer months.

Discontent throughout the broad population will take a financial crash and an economic collapse, and transform it into a complete societal breakdown.  The effect will be helter-skelter.  And the central planners have already failed a test of their making.

When the coronavirus panic attacked financial markets in March the central planners at the Fed made a grave error.  Rather than employing small government and sound money solutions – that is, rather than letting over indebted corporate dinosaurs go extinct – the Fed flooded financial markets with liquidity.

These bailouts saved the dinosaurs.  But they also transmuted them into zombies.  Now, with an economy full of zombies, the 18 month depression will extend for a decade.

Tasting the Forbidden Fruit of Free Money

Yet what the Fed wasn’t banking on was that the plebs were on to their mischief.  The 2008-09 bailout of Wall Street via AIG had opened their eyes and minds to what’s possible.  So as the Fed went into full big business bailout mode, the plebs started asking…where’s the people’s bailout?

What’s more, the people had a moral case to make.  Through no fault of their own, state sponsored destruction, in response to the coronavirus, had eradicated their jobs.  Hence, it’s only fair that the people get a bailout too, right?

The CARES Act, which included a $1,200 stimulus check and an additional $600 weekly payment for the unemployed, offered many people their first taste of the forbidden fruit of free money.  They took a bite and – wow! – they liked it.  And now they want more…

A $1,200 stimulus check was nice, and all.  But a $2,000 monthly payment is way better.  So why stop there?

When money’s free, the supply’s infinite…ain’t it?

There’s something irresistibly magical and intoxicating about the promise of free money.  For it promises life without labor… and life without limits.  Moreover, once a nation has taken a bite there’s no going back.  Free money, you see, is so delicious that too much is never enough.

Who knows if the ABC Act will pass.  But some stimulus bill with monthly checks will.  And after that another will follow.  And another.

Alas, free money is fake money.  The Fed’s balance sheet will swell past $10 trillion, as it supplies credits to the Treasury.  The national debt will swell past $40 trillion as it sends out monthly payments of fake money.

“There is a great deal of ruin in a nation,” once remarked Adam Smith.

The coronavirus, to its credit, has clarified the source of the ruin.

From an initial $75 billion per day when the Fed announced the launch of Unlimited QE in mid-March, the US central bank first reduced its daily buying to $60 billion per day, then  announced another ‘taper’ in its bond-buying program to $50 billion per day, which was followed by a reduction to 30 billion per day, which one month ago was again cut in half to $15 billion per day. Then, three weeks ago the Fed again slashed its daily POMO by another 33%, to $10BN per day, before cutting it to $8 billion two weeks ago, and again to $7 billion just last week. Fast forward to today when, in its latest just published schedule, the Fed unveiled that in the coming week it would purchase “only” $6BN per day, or a total of $30BN for the week.

And again, contrary to prior expectations that the Fed would only announce a monthly POMO total, the Fed is continuing the practice of incremental tapering, and providing a weekly preview of its purchasing operations, which in the coming week will amount to just $30BN in TSYs, down $5BN from the current week.

Here is the full schedule of Treasury purchases for the week ahead.

Note the growing variance between some days of the week, such as the $3.5BN in POMO on Monday vs the $9.5BN on Tuesday. In fact, looking at both historical and projected schedules, a curious pattern is observed, as Tuesday has emerged as the Fed’s preferred day to do the week’s largest POMO, which we are confident  will soon be noticed by the market, which will then frontrun the outsized liquidity injection on “Turbo Tuesdays”, creating a pattern where the S&P500 outperforms on the second day of the week.

Additionally, the Fed will also taper its MBS buying from $5 billion to $4.5 billion on average in MBS per day next week:

• Mon: $4.545BN from $5,083BN last Monday
• Tue: $4.433BN from $4.875BN last Tuesday
• Wed: $4.545BN from $5.083BN last Wednesday
• Thur: $4.433BN from $4.875BN last Thursday
• Fri: $4.545BN from $5.0833BN last Friday

The chart below summarizes all the Fed Treasury and MBS buying completed and scheduled since the relaunch of QE on March 13:

So, in aggregate, the Fed will buy a total of $52.5 billion of MBS/TSYs next week, down from $60 billion but still more on a weekly basis than the largest QE programs monthly totals before this crisis, if well below the $625 billion in purchases conducted in the week starting March 23, when the financial system was once again on the verge of collapse due to a decade of ruinous Fed policies… and only the Fed could bail it out.

Notably, unlike last week when the news of the latest POMO taper pushed yields to session highs, this time there was no similar reaction, with the 10Y trading at 0.64%, 3bps below where it was trading at exactly this time one week ago.

In any case, bonds are clearly not yet getting anxious about the pace of Fed QE tapering, which may be a mistake because as Goldman warns, the increase in sovereign bond supply is rapidly outpacing global QE (more on this shortly). Then again, if and when Powell cuts a few billion more, we may finally see a bond market tantrum as traders realize they have no choice but to force the Fed to keep buying bonds at the current pace, especially with some $3 trillion set to be sold this quarter, to fund 2020’s total issuance which according to Guggenheim will be an absolutely insane $5+ trillion.

Fox Business Network has confirmed a Reuters report from earlier this morning claiming the Trump Administration blocked a shipment of semiconductors to Huawei on Friday, prompting threats from Beijing.

Earlier, the news set off the anxieties about the deteriorating US-China bilateral relationship that sent markets lower at the open.

•    LARGE U.S SHIPMENT OF SEMICONDUCTOR CHIPS GOING TO HUAWEI BLOCKED BY TRUMP ADMIN THIS MORNING – FBN

According to Reuters, a new policy unveiled by the Commerce Department has expanded US authority to require licenses for sales to Huawei of semiconductors made abroad with US tech, which will vastly expand the US’s power to stop exports and cut off vital supplies of semiconductors that Huawei will have difficulty sourcing elsewhere.

“This action puts America first, American companies first, and American national security first,” a senior Commerce Department official told reporters in a telephone briefing on Friday.

Unsurprisingly, the reaction from China was swift: China’s Global Times warned that Beijing was ready to put US companies – including Qulacomm and Apple – on an “unreliable entity list” as part of its countermeasures.

In addition to these restrictions, later Friday morning, the Trump administration dispatched Commerce Secretary Wilbur Ross for an interview on Fox Business. Ross (likely the source of the anonymously sourced comment above) explained that the department is changing its policies to block Huawei’s use of American software in overseas manufacturing, closing a loophole that the Chinese manufacturer had relied on to circumvent US sanctions.

The Commerce Department’s Bureau of Industry and Security is revising its foreign-produced direct product rule and the “Entity List” – the US blacklist that Huawei was supposedly added to more than a year ago, though the US has been reluctant to bring the hammer down so far – to “narrowly and strategically: target Huawei’s acquisition of semiconductors that are the direct product of U.S. software.

“There has been a very highly technical loophole through which Huawei has been able to use U.S. technology with foreign fabrication producers,” Ross said. “This first rule about foreign direct product is a very highly tailored thing to try to correct that loophole. That will have a very powerful impact. We never intended that loophole to be there.”

Watch below:

Threatening the viability of a company like Huawei is a major escalation on behalf of the US. At this point, we’re starting to wonder if Trump plans to distract from his handling of the virus response by starting WWIII.

A quarter of US restaurants will go out of business due to the COVID-19 pandemic, according to a forecast by OpenTable, which reported that total restaurant reservations and walk-in customers have fallen 95% over the previous year ending May 13.

The company tracks over 54,000 restaurants on its reservation site, which offers the ability to make online, walk-in, and phone reservations – but does not track data for take-out and deliveries, according to Bloomberg.

The company’s data shows that there are growing signs that patrons are willing to dine out again in states like Arizona and Texas where it’s allowed, though the numbers are still far below where they were last year.

Scottsdale showed the greatest improvement. It had zero reservations almost every day since March 21, but on May 13 this eased to a down 72% from reservations on the same day in 2019. The next most significant recoveries were in Houston and Phoenix. –Bloomberg

At the state-level, Florida showed the greatest statewide gain, with foot traffic only down 83% y/y after launching a phased reopening May 4 during which restaurants were allowed to operate at one-quarter capacity.

Indiana, which is now in phase two – allowing restaurants to operate at 50% of capacity – has come in second. The state is planning on a full reopening by the Fourth of July.

“Restaurants are complicated beasts,” said Steve Hafner, CEO of OpenTable parent company, Booking Holdings. “You have to order food and supplies. You have to make sure you’ve prepped the kitchen and service areas to be easily disinfected.”

According to Hafner, state unemployment benefits with the federal booster is one reason why restaurants have struggled to hire help. “A lot of people are making $1,200 a week doing nothing. That’s good pay.”

Meanwhile, restaurateur Danny Meyer – who shut down all of his 19 New York restaurants on March 13, says his dining rooms will stay closed for the foreseeable future, according to Bloomberg.

“We won’t be welcoming guests into our full-service restaurants for a very long time—probably not until there’s a vaccine,” he said, adding “There is no interest or excitement on my part to having a half-full dining room while everyone is getting their temperature taken and wearing masks, for not much money.”

“It’s very frustrating, but it’s the only safe way to go,” he added.

It’s a caution shared by fellow restaurateur Daniel Humm, who said he may not re-open Eleven Madison Park at all, and by David Chang who just announced the closing of his Chelsea restaurant Nishi and his Washington, DC, Momofuku location.

Meyer, in the meantime, is taking the first steps back into business by opening his café Daily Provisions for take out service as early as next week. The storefront, which is next to Union Square Café on East 19th St., was designed for grab-and-go coffee, breakfast sandwiches, and signature crullers. Initially, it will open for curbside pickup of breakfast items, with an expanded menu expected to follow. –Bloomberg

Meyer will likely open his Flatiron District pizza restaurant, Marta, for takeout – saying “We had been on the cusp of takeout at Daily Provisions, Marta, and Blue Smoke [the company’s barbecue spot] when we closed. It makes sense now.”

“I would think about anything that is safe and profitable. If it’s not safe, we won’t do it, we all lose,” he said, adding “Profitable matters, as well. The only way we can responsibly get back in the business of employing people is to not go out of business. It’s already incredibly hard to survive.“

Authored by Aaron Maté via RealClearInvestigations.com,

CrowdStrike, the private cyber-security firm that first accused Russia of hacking Democratic Party emails and served as a critical source for U.S. intelligence officials in the years-long Trump-Russia probe, acknowledged to Congress more than two years ago that it had no concrete evidence that Russian hackers stole emails from the Democratic National Committee’s server.

Crowdstrike President Shawn Henry: “We just don’t have the evidence…”

CrowdStrike President Shawn Henry’s admission under oath,  in a recently declassified December 2017 interview before the House Intelligence Committee, raises new questions about whether Special Counsel Robert Mueller, intelligence officials and Democrats misled the public. The allegation that Russia stole Democratic Party emails from Hillary Clinton, John Podesta and others and then passed them to WikiLeaks helped trigger the FBI’s probe into now debunked claims of a conspiracy between the Trump campaign and Russia to steal the 2016 election. The CrowdStrike admissions were released just two months after the Justice Department retreated from its its other central claim that Russia meddled in the 2016 election when it dropped charges against Russian troll farms it said had been trying to get Trump elected.

Henry personally led the remediation and forensics analysis of the DNC server after being warned of a breach in late April 2016; his work was paid for by the DNC, which refused to turn over its server to the FBI. Asked for the date when alleged Russian hackers stole data from the DNC server, Henry testified that CrowdStrike did not in fact know if such a theft occurred at all: “We did not have concrete evidence that the data was exfiltrated [moved electronically] from the DNC, but we have indicators that it was exfiltrated,” Henry said.

Henry reiterated his claim on multiple occasions: 

• “There are times when we can see data exfiltrated, and we can say conclusively. But in this case it appears it was set up to be exfiltrated, but we just don’t have the evidence that says it actually left.”

• “There’s not evidence that they were actually exfiltrated. There’s circumstantial evidence but no evidence that they were actually exfiltrated.”

• “There is circumstantial evidence that that data was exfiltrated off the network… We didn’t have a sensor in place that saw data leave. We said that the data left based on the circumstantial evidence. That was the conclusion that we made.”

• “Sir, I was just trying to be factually accurate, that we didn’t see the data leave, but we believe it left, based on what we saw.”

• Asked directly if he could “unequivocally say” whether “it was or was not exfiltrated out of DNC,” Henry told the committee: “I can’t say based on that.” 

Rep. Adam Schiff: Democrat held up interview transcripts, but finally relented after acting intel director Richard Grenell suggested he would release them himself. (Senate Television via AP)

In a later exchange with Republican Rep. Chris Stewart of Utah, Henry offered an explanation of how Russian agents could have obtained the emails without any digital trace of them leaving the server. The CrowdStrike president speculated that Russian agents might have taken “screenshots” in real time. “[If] somebody was monitoring an email server, they could read all the email,” Henry said. “And there might not be evidence of it being exfiltrated, but they would have knowledge of what was in the email. … There would be ways to copy it. You could take screenshots.” 

Henry’s 2017 testimony that there was no “concrete evidence” that the emails were stolen electronically suggests that Mueller was at best misleading in his 2019 final report, in which he stated that Russian intelligence “appears to have compressed and exfiltrated over 70 gigabytes of data from the file server.”

It is unlikely that Mueller had another source to make his more confident claim about Russian hacking. 

The stolen emails, which were published by Wikileaks – whose founder, Julian Assange has long denied they came from Russia – were embarrassing to the party because, among other things, they showed the DNC had favored Clinton during her 2016 primary battles against Sen. Bernie Sanders for the presidential nomination. The DNC eventually issued an apology to Sanders and his supporters “for the inexcusable remarks made over email.” The DNC hack was separate from the FBI’s investigation of Clinton’s use of a private server while serving as President Obama’s Secretary of State. 

The disclosure that CrowdStrike found no evidence that alleged Russian hackers exfiltrated any data from the DNC server raises a critical question: On what basis, then, did it accuse them of stealing the emails? Further, on what basis did Obama administration officials make far more forceful claims about Russian hacking?

Michael Sussmann: This lawyer at Perkins Coie hired CrowdStrike to investigate the DNC breach. He was also involved with  Fusion GPS and Christopher Steele in producing the discredited Steele dossier.

The January 2017 Intelligence Community Assessment (ICA), which formally accused Russia of a sweeping influence campaign involving the theft of Democratic emails, claimed the Russian intelligence service GRU “exfiltrated large volumes of data from the DNC.” A July 2018 indictment claimed that GRU officers “stole thousands of emails from the work accounts of DNC employees.”

According to everyone concerned, the cyber-firm played a critical role in the FBI’s investigation of the DNC data theft. Henry told the panel that CrowdStrike “shared intelligence with the FBI” on a regular basis, making “contact with them over a hundred times in the course of many months.” In congressional testimony that same year, former FBI Director James Comey acknowledged that the FBI “never got direct access to the machines themselves,” and instead relied on CrowdStrike, which “shared with us their forensics from their review of the system.” According to Comey, the FBI would have preferred direct access to the server, and made “multiple requests at different levels,” to obtain it. But after being rebuffed, “ultimately it was agreed to… [CrowdStrike] would share with us what they saw.”

Henry’s testimony seems at variance with Comey’s suggestion of complete information sharing. He told Congress that CrowdStrike provided “a couple of actual digital images” of DNC hard drives, out of a total number of “in excess of 10, I think.” In other cases, Henry said, CrowdStrike provided its own assessment of them. The firm, he said, provided “the results of our analysis based on what our technology went out and collected.” This disclosure follows revelations from the case of Trump operative Roger Stone that CrowdStrike provided three reports to the FBI in redacted and draft form. According to federal prosecutors, the government never obtained CrowdStrike’s unredacted reports.

CrowdStrike’s newy disclosed admissions raise new questions about whether Special Counsel Robert Mueller (above), intelligence officials and Democrats misled the public.

There are no indications that the Mueller team accessed any additional information beyond what CrowdStrike provided. According to the Mueller report, “the FBI later received images of DNC servers and copies of relevant traffic logs.” But if the FBI obtained only “copies” of data traffic – and not any new evidence — those copies would have shown the same absence of “concrete evidence” that Henry admitted to.

Adding to the tenuous evidence is CrowdStrike’s own lack of certainty that the hackers it identified inside the DNC server were indeed Russian government actors. Henry’s explanation for his firm’s attribution of the DNC hack to Russia is replete with inferences and assumptions that lead to “beliefs,” not unequivocal conclusions.  “There are other nation-states that collect this type of intelligence for sure,” Henry said, “but what we would call the tactics and techniques were consistent with what we’d seen associated with the Russian state.” In its investigation, Henry said, CrowdStrike “saw activity that we believed was consistent with activity we’d seen previously and had associated with the Russian Government. …  We said that we had a high degree of confidence it was the Russian Government.”

But CrowdStrike was forced to retract a similar accusation months after it accused Russia in December 2016 of hacking the Ukrainian military, with the same software that the firm had claimed to identify inside the DNC server. 

The firm’s work with the DNC and FBI is also colored by partisan affiliations. Before joining CrowdStrike, Henry served as executive assistant director at the FBI under Mueller. Co-founder Dmitri Alperovitch is a vocal critic of Vladimir Putin and a senior fellow at the Atlantic Council, the pro-NATO think tank that has consistently promoted an aggressive policy toward Russia. And the newly released testimony confirms that CrowdStrike was hired to investigate the DNC breach by Michael Sussmann of Perkins Coie – the same Democratic-tied law firm that hired Fusion GPS to produce the discredited Steele dossier, which was also treated as central evidence in the investigation. Sussmann played a critical role in generating the Trump-Russia collusion allegation. Ex-British spy and dossier compiler Christopher Steele has testified in British court that Sussmann shared with him the now-debunked Alfa Bank server theory, alleging a clandestine communication channel between the bank and the Trump Organization.

Henry’s recently released testimony does not mean that Russia did not hack the DNC. What it does make clear is that Obama administration officials, the DNC and others have misled the public by presenting as fact information that they knew was uncertain.  The fact that the Democratic Party employed the two private firms that generated the core allegations at the heart of Russiagate — Russian email hacking and Trump-Russia collusion – suggests that the federal investigation was compromised from the start.

The 2017 Henry transcript was one of dozens just released after a lengthy dispute. In September 2018, the Republican-controlled House Intelligence Committee unanimously voted to release witness interview transcripts and sent them to the U.S. intelligence community for declassification review. In March 2019, months after Democrats won House control, Rep. Adam Schiff ordered the Office of the Director of National Intelligence (ODNI) to withhold the transcripts from White House lawyers seeking to review them for executive privilege. Schiff also refused to release vetted transcripts, but finally relented after acting ODNI Director Richard Grenell suggested this month that he would release them himself.

Several transcripts, including the interviews of former CIA Director John Brennan and Comey, remain unreleased. And in light of the newly disclosed Crowdstrike testimony, another secret document from the House proceedings takes on urgency for public viewing. According to Henry, Crowdstrike also provided the House Intelligence Committee with a copy of its report on the DNC email theft. 

Earlier today, Rabobank’s Micheal Every lamented that “One Day The Main Story Will Not Be US-China Relations… But Today Is Not That Day.” And with the US now commencing a lockout of Chinese telecom giant Huawei, with Beijing vowing to retaliate against Boeing, Qualcomm and Apple, tomorrow isn’t looking good either, nor the next day, or the day after. In fact, it is safe to say that the increasingly belligerent rhetoric – and deeds – between the US and China will continue to escalate until the Nov 3 election, and potentially beyond it.

There is a very simple reason for that: in a nation that seems impossibly divided on most issues and is ideologically polarized more than ever in history, China is the one thing that more than two-thirds of Americans can agree on, and they agree that they simply do not like China.

Commenting on the chart above, Goldman says that the bank sees risk of “further bilateral disputes ahead, especially as the coronavirus pandemic and low energy prices may make it more difficult for China to meet the trade deal’s $200bn purchase agreement.”

At the same time, Goldman also believes the upcoming US presidential election, “coupled with deteriorating sentiment towards China among Americans, will make it harder for US policymakers to strike a conciliatory tone on China.”

Indeed, as the chart above shows, Americans’ views toward China have worsened significantly in recent years, with the percent holding an “unfavorable” view of China reaching an all-time high in the latest Gallup survey. In fact, if there is one thing that still unites both Republicans and Democrats, it is their shared hatred of China, which of course is music to Trump’s ears as he keeps escalating tensions with Beijing into November.

Taken together, Goldman thinks that “the risk of tariff concerns re-escalating cannot be ruled out, and the risk of
non-tariff action has risen.”

And while the bank estimates that potential trade tensions have not been a significant driver of China-related assets, and coronavirus developments will likely continue to be the more meaningful determinant of risk appetite, Goldman expects “US-China tensions to increasingly come into focus as we head towards US elections in November, presenting downside market risk and the potential for an abrupt shift in near-term valuations.”

As such, the former central bank incubator (and current subprime lender) recommends that investors consider adding hedges for this risk through USD longs versus CNH, especially as we find that the CNY has tended to depreciate against the Dollar when new tariffs are announced, which may be because the currency acts as a direct offset to tariffs.