Tag: news

MSM Is Getting Weirder, More Frantic, And More Desperate By The Day

Authored by Caitlin Johnstone via Medium.com,

When even the Washington Post is saying your Russiagate article is bad journalism, your Russiagate article is really, really bad journalism.

In an article titled “The Guardian offered a bombshell story about Paul Manafort. It still hasn’t detonated.”, WaPo writer Pul Farhi draws attention to the fact that it has been a week since the Guardian published a claim that former Trump campaign manager Paul Manafort met repeatedly with WikiLeaks founder Julian Assange, without any evidence backing up the claim, using solely anonymous sources, and despite the claims contradicting known records of Assange’s guests at the Ecuadorian embassy. Criticism and demands for answers have been growing louder and louder from both friends and enemies of WikiLeaks, with new plot holes opening up in the Guardian’s narrative daily, and the scandal is now moving into mainstream awareness.

And the Guardian remains silent, with its editor-in-chief Katharine Viner refusing to utter so much as a peep of defense this entire time. The only comment the publication has issued has been repeated day after day verbatim to every news outlet which writes about this bizarre occurrence: “This story relied on a number of sources. We put these allegations to both Paul Manafort and Julian Assange’s representatives prior to publication. Neither responded to deny the visits taking place. We have since updated the story to reflect their denials.” Which is basically just implying that they can print any libelous nonsense they want about anyone if their denials aren’t sent to the proper email address on time.

This, clearly, is bananas.

The Huffington Post has just published yet another brazen hit piece on University of Sheffield professor Piers Robinson. And when I say brazen, I mean really goddamn brazen. The entire article consists of nothing but senior HuffPo editor Chris York meticulously documenting the fact that a university professor is “heavily critical of western governments and media” who expresses skepticism of establishment narratives around 9/11, Syria, and Russia, and suggesting that it is bad and wrong for a university to employ anyone with dissenting views.

Even for a hit piece the article feels incredibly forced, ham-fisted and desperate. Reading it gives you the feeling as if York is leaning way into your personal space, pressing his face against your ear, and saying “You are not to believe the things that horrible man says about what is happening in your world. I will tell you what you are to believe about those controversial events. Big Brother is your friend. You love Big Brother.”

Which would be weird enough even without the fact that York has been personally targeting Robinson and other anti-imperialist voices with identical hit pieces over and over and over again this year. A senior HuffPo editor has published hit piece after hit piece after hit piece against a small group of academics and reporters who have very little influence compared to a mass media outlet, but still far too much for a virulent empire sentry like York.

And this is just what’s happening today. For the last two years the mass media machine has been behaving very, very strangely, and it isn’t getting better, it’s getting worse. Not since the lead-up to the invasion of Iraq have we seen mainstream media outlets trying to shove narratives down our throats so desperately and aggressively, and even then they were doing it for one very specific purpose.

This time around things are less clear-cut. I do not subscribe to the belief that the shift in behavior of the media is due to an establishment hatred of Trump; despite the rhetoric and the narratives, Trump has been protecting establishment interests just as reliably as his predecessors, and everyone who knows anything about Russiagate knows that it will never lead to the removal of Trump from office. A much more logical explanation is the need to manufacture support for the geopolitical agenda of isolating Russia and shoving it off the world stage to stop it from protecting China’s rise to superpower status, and in cold war the use of propaganda becomes even more important than in hot war. But I also think there’s more to it than that. I think a large part of the frantic urgency that we are seeing from the establishment propaganda machine is nothing other than an attempt to regain control of the narrative.

In 2016, for the first time ever, some things didn’t go as scripted for the propagandists and manipulators who pace the public into going along with plans laid that they never voted for by people they did not elect. Widespread internet access, alternative media, WikiLeaks, and discontent with the status quo converged and danced in such a way with one another in 2016 that a large number of people realized that the talking heads on their TV screens are lying to them all the time. An unacceptably large number of people.

Whoever controls the narrative controls the world. The unelected power establishment which rules over us depends on narrative control in order to rule, and if people do not trust the plutocrat-owned talking heads who are telling them what narratives to believe, there can be no control. In France we’ve been seeing uncontrollable protesters from across the political spectrumwriting “We’ve chopped off heads for less than this” in graffiti on the Arc de Triomphe, which you may be certain has widened plutocratic eyes all around the world.

And that, I believe, is why the mass media have been behaving so strangely. For two years they have been reaching and leaning all over the place trying to regain control of the narrative like a novice ice skater trying to regain balance, and they are only getting closer to falling. Which probably makes the present moment the perfect time to give them a good shove. Spread truth about the mass media’s deceptions like the Guardian’s psyop against WikiLeaks, wake people up to what they’re trying to accomplish by herding people into partisan echo chambers, arresting Assange, censoring the internet, and marginalizing alternative media which provides dissident narratives.

The only thing keeping the many from rising like lions against the few to create a new world which benefits everyone is the establishment propaganda machine, and right now it is wildly off balance. Shove hard, and don’t stop shoving until it falls.

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Trump Reportedly Unaware Of Huawei Extradition Request Before Xi Dinner While Trudeau Knew

As questions swirl over who knew what, when before, during and after the historic Trump-Xi dinner, we previously learned that National Security Advisor John Bolton revealed that he knew in advance that Canadian police were preparing to arrest Huawei CFO Wanzhou Meng, meaning that Bolton knew that Meng was being taken into custody when he sat down alongside President Trump for Saturday’s dinner trade talks with Chinese President Xi Jinping.

Wanzhou Meng

The timing is important of course, because if the US knew in ahead of the dinner of an imminent “material adverse event” that could spoil the trade ceasefire, it would be seen as very politically embarrassing to Xi, and as Deutsche Bank explained earlier, would be considered a major escalation.

Huawei has been widely recognized as one of the most successful technology companies in China. This news pushed policy makers in Beijing into an awkward position. Public opinion in China will likely become more negative in respect to the trade war, and potentially against US companies. The government may find it difficult to tell the public that they have offered significant concessions to the US. The trade talk has just been resumed at the G20 meeting; now its outlook has darkened.

Now, according to Reuters, and rather inexplicably, even as Bolton knew about Meng’s imminent arrest, President Donald Trump was reportedly unaware the U.S. had requested Meng’s extradition from Canada before he joined Chinese President Xi Jinping for dinner on Saturday, a White House official said.

The news, which emerged shortly before the close, was seen by traders as bullish – facilitating the dramatic surge in the last hour of trading  – as it would imply that the U.S. administration wasn’t intending to use the arrest of Huawei CFO as part of a “hostage” negotiation strategy in trade talks with China.

Maybe, maybe not. Because as we also learned earlier, while Trump reportedly did not know about the DOJ’s extradition request, Canada’s PM Trudeau did, something he revealed during a meeting with reported in which he distanced himself from Meng’s arrest:

“We are a country of an independent judiciary and the appropriate authorities took the decisions in this case without any political involvement or interference,” he told reporters during a press conference in Montreal. “We were advised by them with a few days’ notice that this was in the works.”

So Trudeau knew a few days in advance, yet Trump somehow had no idea what was going on?

Indeed, it is rather impossible to believe that the leader of Canada knew of such a major operation, while the US president did not.

Separately, CNN reports – so take it with a ton of salt – and implicitly denies what the White House said this afternoon, that US official see Meng as possible leverage in trade talks. She would be literally a “hostage” to the Trump administration, to ensure that the US gets what it wants out of the ongoing discussion.

While plausible, it would be difficult to get confirmation of this scenario as it would be immediately damaging to market sentiment and send stocks – so very precious to Donald Trump – sharply lower again.

Indeed, in a tweet after the close, Marco Rubio said that the arrest of the Huawei CFO “has nothing to do with a trade war with #China” and instead is an “action by federal prosecutors for alleged violations of law,not leverage in a trade dispute. And unlike China,she will have the presumption of innocence until proven otherwise.”

Finally, the last missing piece we also learned today is that Meng’s arrest is part of an ongoing investigation by U.S. prosecutors into whether Huawei violated banking laws as it sought to evade sanctions against Iran by routing a series of transactions through the world’s money laundering bank of choice: HSBC Holdings.

A federally appointed monitor of HSBC flagged the transactions involving Huawei as suspicious to U.S. prosecutors, the Wall Street Journal reported on Thursday. HSBC was among several banks that have done business with Huawei and isn’t a target of the probe, the newspaper said.

And while despite these various affirmation and denials, there still remains speculation what Trump knew and when; the answer will almost certainly be forthcoming in the next 24 hours, and from Trump’s own Twitter feed: after all the president will hardly be able to restrain himself too long from commenting on this ongoing diplomatic scandal.

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Are You Ready for the ‘Inevitable’ Clampdown on Tech and the Media?

One of the most remarkable statements ever made by the CEO of a major corporation generated relatively little notice or pushback. But just a couple of weeks ago, there was Tim Cook, the head of Apple, spitting in the eye of the very economy that made his company the highest valued corporation on the planet.

“I am not a big fan of regulation,” Cook told Axios in an interview. “I’m a big believer in the free market. But we have to admit when the free market is not working. And it hasn’t worked here. I think it’s inevitable that there will be some level of regulation… I think the Congress and the administration at some point will pass something.”

Holy hell! Regulation of the tech industry and the larger economy (both of which are already pretty heavily regulated, if we’re being honest) is inevitable? The free market isn’t working? Well, maybe not quite as well as it used to for Apple, which been a little droopy over the past several years in terms of killer new devices and mega-hits. Right around the time Cook was prophesying, Microsoft and Amazon both could lay at least temporary claims to be more valuable. Maybe in that sense the free market isn’t working so great anymore…for Apple. But come on already. Factor in the housing bust from a decade ago, the Great Recession, mall closings, the opioid epidemic, and whatever else you want to, and any semi-serious analysis is going to conclude that over the last few decades, “The living standards of Americans have vastly improved during the past 50 years, with the quality of available consumer products steadily rising even as their prices have steeply fallen.”

And it’s not just Americans, of course. Just a week before it ran its dour interview with Tim Cook, Axios reportedly cheerily that “half the world is now middle class.” The world is becoming more equal, not less. So two cheers for capitalism (for more on how income mobility and broad-based economic gains are the rule and not the exception in America too, go here for starters).

But the facts on the ground—however disputed they might be—are irrelevant when titans of industry, such as Cook, declare that “the free market is not working” and that regulation is “inevitable.” His opinion carries more weight than yours or mine. And he’s not alone. Earlier this year, Facebook’s Mark Zuckerberg embraced increased government control in anticipation of sitting down before Congress. “The question is more what is the right regulation rather than ‘yes or no should we be regulated?'” he told Wired.

When actually talking to Congress, Zuck even volunteered to help write the regulations, while noting that the more Facebook and social media are regulated, the less likely it is that a rival will emerge. But hey, that’s an outcome he and Congress were willing to live with. Conservative Republicans want Facebook to do more to spread content they like (Ted Cruz does love him some Diamond and Silk!) and Democrats want to make sure that the next time Hillary Clinton runs for president she loses simply because she ran the worst campaign of all time, not because of whatever Facebook did to screw her over. In more recent hearings (which came on the heels of yet more revelations of Facebook’s weak record of protecting user data and whatnot) Zuckerberg’s colleague Sheryl Sandberg and Twitter’s Jack Dorsey reiterated their willingness to jump on various bipartisan regulatory bandwagons.

The same consensus is visible in elite opinion, too. The Columbia Law professor Tim Wu, who popularized the concept that eventually became a short-lived law known as “Net Neutrality,” has a new book out called The Curse of Bigness: Antitrust in the New Gilded Age. In it, he calls for the breakup of what are known as the FAANG companies, tech giants such as Facebook, Apple, Amazon, Netflix, and Google, who he says wield too much market power. Like Cook, he sees regulation as inevitable but actually worries the government won’t do enough to really bust up the companies. In an interview with Publishers Weekly, he said:

[I] think that companies like Google and Facebook have come to hold too much power. There’s a growing sense that they have too much control over information, news, advertising, even who we are and what’s going on. I’m actually most concerned that we’ll cut some kind of deal that effectively nationalizes or weakly regulates Facebook. and that that deal will endure for a long time. That’s the trajectory we’re on, and I would resist that.

Some of Wu’s support comes from a surprising place, and it suggests just how widespread the belief is that we need to heavily regulate tech and social media. Glenn Reynolds, the University of Tennessee law school professor better known as the proprietor of the libertarian-leaning aggregator website Instapundit, endorses Wu’s analysis, writing, “These new tech monsters have a one-two punch that Standard Oil lacked: Not only do they control immense wealth and important industries, but their fields of operation—which give them enormous control over communications, including communications about politics—also give them direct political power that in many ways exceeds that of previous monopolies.” Reynolds muses,

Facing a similar situation [of major trusts and monopolies], [Teddy] Roosevelt declared, “When aggregated wealth demands what is unfair, its immense power can be met only by the still greater power of the people as a whole.”

With today’s economy dominated by the FA[A]NG companies, will Donald Trump — another brash New Yorker who found himself in the White House — follow TR’s lead? Perhaps a better question is, why wouldn’t he?

When you have people such as Wu and Reynolds, representing the progressive left and the libertarian right, agreeing on both the problem and the solution, something bad is definitely afoot. (For a quick look at how antitrust law typically yields bad results, go here).

Then there’s the legacy media, which is also doing its damnedest to characterize tech and social media companies as not simply all-powerful, but unprecedentedly dangerous in their actual effects on our lives, dreams, and politics.

A recent story in the Washington Post, for instance, tracked how a satire site, America’s Last Line of Defense, that literally tells its readers “nothing on this page is real,” is nonetheless believed by any number of dumb people. “The more extreme we become, the more people believe it,” the creator of the site tells the Post, which notes that the “page had become one of the most popular on Facebook among Trump-supporting conservatives over 55.” The New York Times recently released a breathless, three-part video series called Operation Infektion about “Russian disinformation from the Cold War to Kanye.” Neither of these products (and others like them) do a particular good job of explaining why new modes of media are particularly dangerous or even effective. How much does it matter that retirees are willing to believe just about anything that anyone says about a particular politician? Operation Infektion‘s big example of how brilliant the KGB was deals with it spreading the lie that the U.S. government created AIDS back in the 1980s, a conspiracy theory that never reached mass acceptance or affected world events.

The overall impact of these sorts of journalistic pieces is to add to the idea that we are in a bold new world that needs bold new solutions. Ironically, of course, those solutions are themselves older than the mummies on the Senate Judiciary Committee: breaking up businesses or heavily regulating them, typically with rules written by the very people who run them. This is what the railroads managed to do back in the day, as socialist historian Gabriel Kolko reminds us. Contrary to received progressive mythologizing, railroad tycoons worked with would-be regulators to fix the markets in their favor. It’s a predictable evolution from what Burton Folsom called a “market entrepreneur” (one who makes a fortune by producing a superior product or service at a price people want) to a “political entrepreneur” (who uses government power to lock in a superior position in the market). Tim Cook, in other words, knows what he’s doing.

I worry less about the market power of the FAANG companies than I do about the rise of a new industrial state in which powerful companies and powerful politicians team up to decide how best to run the world in which you and I live. As bad and stupid as Facebook’s, Twitter’s, and YouTube’s attempts at policing themselves have been, I don’t see things getting better if Sens. Dianne Feinstein (D–Calif.) or Charles Grassley (R–Iowa) get involved, do you?

Maybe instead of freaking out all the time about how stupid media consumers are, we can start focusing on how to become more critical readers and listeners. Maybe instead of listening to CEOs of trillion-dollar companies, who insist that the free market has crapped out, we can establish basic, common-sense fiscal, monetary, trade, and labor policies that enable innovation and growth. And maybe instead of trying to figure out how to keep old zombie businesses such as GM afloat with more government money and regulation, we let that failed free market kick things around a little bit.

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Former Attorney General And Ex-CIA Employee Top Trump Pick To Replace Sessions

Former US Attorney General William Barr is President Trump’s leading candidate to replace former AG Jeff Sessions as head of the Justice Department – a choice which may come within days according to the Washington Post. 

If nominated, Barr would take over the Mueller Russia investigation for acting Attorney General Matthew Whitaker, who has been in the position since Sessions’ ouster on November 7. 

Barr was noted as “an outstanding choice” by Senator Lindsey Graham (R-SC), who is likely to lead the Judiciary Committee next year where he would oversee Barr’s confirmation. “I think he could get confirmed very easily,” Graham added. 

Senator John Cornyn of Texas – the #2 Republican in the Senate, agreed. “He’s the kind of person who could get confirmed. I think it’s going to be challenging in any event.”

Barr, who served as AG from 1991 to 1993 under President George H.W. Bush, directed the investigation of the Pan Am Lockerbie bombing, and led counter-terrorism efforts under the first Gulf War according to his biography at law firm Kirkland Ellis, reports Bloomberg. He also served as general counsel and executive Vice President at Verizon from 2000 to 2008, and was with the CIA from 1973 to 1977. 

From 1989 to 1991 he was a political appointee at the Justice Department before assuming the top position within the agency. 

George Terwilliger, who served as the No. 2 official in the Justice Department when Barr was attorney general, said Barr would bring “40 years of high level experience, both in government and in business, which gives him a perspective that fits many of this administration’s priorities.”

“I have no way of knowing if the report that he’s a leading candidate is accurate, but if he was, because of both his government and corporate background, he would enjoy widespread support — both in and outside the legal community,” Terwilliger said. –WaPo

While Barr won’t suffer the same criticisms Democrats have levied at Whitaker – who has openly criticized the legitimacy of the Mueller probe, Barr has dinged the special counsel’s office for hiring attorneys who have contributed to Hillary Clinton. 

“In my view, prosecutors who make political contributions are identifying fairly strongly with a political party,” Barr said in a July statement to the Washington Post. “I would have liked to see him have more balance on this group.”

That said, Democrats may be waiting a while before Whitaker is no longer in charge of the Mueller investigation.

Even if Barr were announced as the president’s choice this week, it could take months for a confirmation vote, given the congressional schedule. In the meantime, acting attorney general Matthew G. Whitaker would still serve as head of the Justice Department — a decision that has angered Democrats who question both his résumé and the legal justification for his ascension to that job, given that he was not serving in a Senate-confirmed position when Trump selected him as the temporary successor to Jeff Sessions, whom Trump forced out in early November after the midterm elections. –WaPo

And while Barr defended former FBI Director James Comey’s decision to publicly announce the re-opening of the Hillary Clinton email investigation right before the 2016 election, he has also said that Trump was right to fire Comey and former Acting Attorney General Sally Yates.  

Barr’s daughter, Mary Daly, is a senior official within the Justice Department and oversees the agency’s efforts to combat opioid abuse and addiction. 

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Rickards: The Makings Of A Global Debt Crisis Are Now In Place

Authored by James Rickards via The Daily Reckoning,

In 2017, the financial world was filled with talk of synchronized sustainable growth in major economies for the first time since before the 2008 global financial crisis. This was being proclaimed by global financial elites including Christine Lagarde, head of the IMF.

Now that vision is in ashes. Synchronized global growth has turned into a synchronized global slowdown. Growth has already turned negative in two of the world’s largest economies, Japan and Germany, and is slowing rapidly in the world’s biggest economies, China and the U.S.

China may report something like 6.8% GDP growth, but when all the waste in its economy is stripped out the actual growth is probably closer to 4.5%. That’s still growth, but not nearly enough to sustain China’s massive debt overload. Its debt is growing faster than the economy and its debt-to-GDP ratio is even worse than the U.S.

For a sense of perspective, China had about $2 trillion total debt in 2000. Today, it’s about $40 trillion. That’s an unbelievable 2,000% increase in under 20 years.

Growth is also slowing in the U.S. The 2009–2018 recovery has already been the weakest recovery in U.S. history despite a few good quarters here and there. And there’s little reason to expect it to pick up from here.

GDP expanded 3.5% last quarter, which looks good on paper. But the trend is pointing down. Since this April, we’ve seen growth of 4.2% (Q2), and 3.5% (Q3). This trend tends to confirm the view that 2018 growth was a “Trump bump” from the tax cuts that will not be repeated. And Q4 GDP will probably be lower than Q3.

Goldman Sachs, for example, projects fourth-quarter GDP to expand at 2.5%. It further expects growth to drop to 2.2% by the second quarter of 2019, and to 1.6% by the end of the year.

Global slowdowns of the type we’re seeing now are exacerbated by the escalating trade wars and a new Cold War between the U.S. and China. But while global growth may be slowing down, debt creation is not.

I mentioned China. But it goes far beyond China. According to the Institute of International Finance (IIF), total debt held by economies it tracks (both mature and emerging) rose to a record $247 trillion in the first quarter of 2018. That’s up 11% over the same period in 2017.

But the IIF reports it required a record $8 trillion of freshly created debt to create just $1.3 trillion of global GDP. The trend is clear. The massive debts intended to achieve growth are piling on every day. But growth is slowing. Meanwhile, many of the debts taken on since 2009 are still on the books.

This is a crisis waiting to happen. The combination of slow or negative growth and unprecedented debt is a recipe for a new debt crisis, which could easily slide into another global financial crisis.

In some areas of China, home prices are being slashed 30%. And The Wall Street Journal reports that October auto sales fell 12% year over year. The Chinese stock market has also fallen 25% year to date, which places it squarely in a bear market.

There’s no reason to believe these problems will stay confined to China. As we learned in 2008, this shift from positive to negative conditions can happen seemingly overnight and spread rapidly.

But the problem is made worse by the Fed’s monetary tightening policies.

The Fed is trying to “normalize” interest rates. It’s determined to stay on its course of raising rates until the official policy rate reaches 4% in early 2020. And it’s ready to raise rates again on Dec. 19. It continues to see strong growth and expects inflation, based on the lowest unemployment rate in almost 50 years. But these views are highly misleading.

The real reason for Fed rate hikes is to prepare for a new recession. Research shows that it takes about 4% in rate cuts to pull the U.S. out of a recession. How do you cut 4% when rates are only 2.25% (the current level)?

The answer is you can’t. If a recession started today and the Fed cut rates to zero, it wouldn’t be enough to stop the recession.

The Fed is also drawing down its balance sheet with “quantitative tightening” (QT) by ceasing to roll over maturing positions in U.S. Treasuries.

It printed $3.7 trillion of new money from 2008–2014 under the banner of “quantitative easing,” or QE. But, behind the curtain, the Fed is also reducing the base money supply with QT to get their balance sheet down from $4 trillion to $2.5 trillion by the end of 2020.

Evidence suggests the impact of QT is roughly equivalent to another 1% per year of rate hikes. This means that the combination of nominal rate hikes and QT is equal to 2% of rate hikes per year off an extremely low base. In other words, the Fed is tightening more than it realizes and will probably cause a recession or worse by the time it realizes its mistake.

The trouble is that the Fed doesn’t set policy in a vacuum since it’s the most influential central bank in the world. Its tightening has created the need for other central banks to tighten or pause their easing in order to match it.

The global phenomenon is neatly illustrated in the chart below.

This chart combines the QE and QT of the BoE, BoJ, Fed and ECB using colors to show the individual contributions of each central bank.

The Fed’s QE1 (2008), QE2 (2010) and QE3 (2012) stand out clearly in the three blue spikes. The BoE also had three waves of smaller magnitude shown as green waves from 2010–2016. The BoJ started late (in 2011) but has never stopped since, as shown in the red wave. Finally, the gray wave is the ECB. They were also late to the party but made it up in volume.

What’s important about this chart is not where we’ve been but where we’re going. The Fed is already in negative territory (the blue wave below the “0” line starting in 2018). The BoE is neutral but is also ready to go negative. The ECB and BoJ are still positive but trending down sharply; the ECB will go negative in 2019, according to current plans.

The black trend line shows the aggregate of all four central banks. It crashed in 2018 (mostly because of the Fed) and will go negative globally in 2019. Before long, the cartoon of Jay Powell shoveling cash into a furnace will have to be updated to include Mark Carney, Mario Draghi and Haruhiko Kuroda.

If another crisis happens, the Fed will cut rates back to zero. But it won’t be enough. Then they’ll have to abandon QT and go back to QE4. Other central banks will follow the Fed’s lead.

The market sees this coming, but the Fed does not. As usual, the Fed will be the last to know. Investors should prepare now for the inevitable crackup.

Having cash and gold are two places to start.

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Plunge Protection Team Saves Stocks But Credit, Crude, Cryptos Collapse

800 Dow points – !!!! Remain calm! No wonder The PPT was called in…

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But, but, but… the US economy is extremely strong (ignore the 4.4% crash in durable goods orders and collapse in housing), this weakness in stocks (remember the stock market is not the economy – when the former goes down) is all exogenous – blame them!:

Blame China – Huawei exec arrested at a particularly inopportune time for the trade truce

Blame Russia – Not acquiescing to OPEC’s or Trump’s demands to cut crude production

Blame Britain – Just get it done Theresa!! Forget what the people want!

Blame Italy – Why don’t the democratically-elected leaders just fold, slash their deficits, and maintain their nation’s march into oblivion?

But definitely don’t blame The Fed for tightening financial conditions into a slowdown (as they desperately tried to keep the delusional shell game of “well they wouldn’t be hiking rates if everything wasn’t awesome”).

 

China stocks did not like US arrest of Huawei exec…

 

And while initially slow on the uptake, Offshore yuan tumbled too…

 

Europe was a bloodbath…

DAX tumbled back below 11,000 – its lowest in two years (erasing the post-Trump gains)…

And Italian bond yields surged…

 

US Equities crashed at the re-open (after the Bush funeral holiday) last night and saw no bid at the cash market open… but once Europe closed, algos went vertical… and reaccelerated into the close… (from Tuesday’s cash close)

 

Stocks ended well “Off The Lows” thanks to a well-placed WSJ article suggesting The Fed could hold in December.

 

Nasdaq was the only index which manage to get green however…

Did not hear many people screaming about the algos panic-buying stocks into the close?

And the moment Europe closed a short-squeeze was engineered…”Most Shorted” stocks surged…

 

Be careful getting to excited – relative volume slumped as stocks soared – not the kind of ramp to support follow-through.

 

FANG Stocks opened down large but were bid aggressively into the green…

 

S&P Financials plunged to its lowest since Sept 2017…

 

The S&P 500’s Put/Call ratio has plunged to 2018 lows…

 

52 week lows are surging as it seems the Hindenburg Omen that hit in September was quite prophetic this time…

 

The VIX Term Structure inverted once again…

 

As equity protection (VIX) played catch up to credit protection (IG/HY CDX)…as IG spreads blow out to new cycle wides…

 

Stocks caught down to bonds reality once again…

 

Treasury yields tumbled once again – down around 4bps across the curve…

 

10Y Yield broke down to 2.82% intraday

 

Back to its lowest since August…

 

The yield curve remains inverted from 2s to 5s..

 

10Y Inflation Breakevens (following crude’s collapse) fell to their lowest since Dec 2017…

 

The Dollar did its usual trend reversal intraday – this time from positive to negative…

 

 

Cryptos dumped further with Bitcoin Cash now crashing 33% on the week!!

 

PMs remain positive on the week but crude and copper have dumped…

 

 

WTI closed lower but oscillate around the $50/51 level all day as OPEC headlines jockeyed with inventory data…

 

Gold tagged $1250 intraday – highest since October 28th…

 

Notably Silver is back a key level of support relative to gold (85x ratio)…

 

Finally, during tonight’s business channel infomercials… expect to hear this…

But maybe – in the back of your mind – remember this – The market has entirely given up on The Fed’s rate-hike trajectory (half a hike in 2019, and a rate cut in 2020) suggesting serious economic trouble ahead…

So, to be clear, the market spikes higher on an egineered short-squeeze and a WSJ report that the Fed is turning dovish BUT the market has already priced in less than 1 rate hike in 2019.

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Garden State Crime Is Down Since New Jersey Ditched Cash Bail

Bail signNew Jersey is about to end its second year using a pretrial court system that has all but stopped using cash bail to decide which defendants can stay out of jail before appearing in court. And guess what? There’s been no spike in crime.

Critics of bail reform say that forcing defendants to commit some money as a condition of pretrial release is why they show up to trial and keep their noses clean beforehand. Mind you, it was primarily the bail bond industry making this claim, because it has a financial stake in maintaining cash bail. But they weren’t the only ones worried about what would happen to the crime rate when New Jersey allowed more people to remain free before trial.

Thankfully, New Jersey is not seeing an increase in crime. In fact, it’s seeing the exact opposite. Stats collected over the past two years show a significant drop in crime across many major categories. The New Jersey Star-Ledger compared the violent crime numbers from the first nine months of 2016 to the first nine months of 2018 and found a 30-percent drop. Homicides, rapes, robberies, assaults, and burglaries are all on the decline.

Over this same timespan, New Jersey’s pretrial jail population has dropped by 40 percent.

We should, of course, be wary about too much correlation here. First of all, we’re seeing a general drop in violent crime nationwide. And the Star-Ledger is talking about the statistics for the worst, most dangerous crimes. Nevertheless, it is not too soon to say that the reforms have yet to fail.

Under New Jersey’s pretrial system, courts use risk assessment tools to calculate the odds a defendant will commit additional crimes or miss court dates while on release; the calculation is heavily informed by a defendant’s criminal history. With feedback from attorneys on both sides, a judge evaluates these risks and decides the terms of pretrial release for each defendant, calling for varying levels of monitoring depending on risk level. If the judge decides there’s no way to make sure the defendant shows up for court and stays clean on release, the judge can keep him or her detained in jail until the conclusion of the case. Judges detained about 18 percent of defendants in 2017.

In short, the new system appears to be keeping violent and dangerous defendants behind bars while allowing lower-level offenders more freedom as their cases make their way through the court system.

Keeping defendants who aren’t dangerous from languishing in jail is important. Those who are stuck behind bars just because they can’t afford bail often end up feeling like they have no choice but to plead guilty, if only to get out and get things over with. Defendants who are jailed unnecessarily risk losing their jobs, getting evicted, and suffering other economic consequences that destabilize families. Studies show that defendants are more likely to get bad plea deals and receive harsher punishments than they would if they were free. Why? Because they have no leverage with prosecutors, they’re desperate, and sometimes the court system operates so slowly that they serve the equivalent of the punishment in jail before they’re ever tried. For many lower level crimes, the pretrial detention feels no different than being convicted.

When looking at New Jersey’s declining crime rates, one fairly safe conclusion is that the state has thus far succeeded in assessing risk, which allows defendants to fight criminal charges without one hand tied behind their backs. So not only is New Jersey seeing less crime, it’s also seeing less punishment, and that’s a good thing.

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Stocks Blast Higher On WSJ Report Fed May Signal “Wait And See” Approach

After tumbling as low as 800 points, the Dow Jones jumped to session highs just after 3:30pm, pulling the S&P with it and blasting the NASDAQ into the green, as a WSJ story quickly made the rounds across trading desks which was centered on the same dovish line first introduced by Powell last week, namely that the Fed is considering whether to signal a new wait-and-see mentality after a hiking rates in December, which could slow down the pace of rate increases next year.

How this is bullish for a market which already prices in less than one rate hike in 2019 is unclear, but it provided enough of an upward momentum boost to send the Dow to -150 and still rising.

So how will the Fed telegraph that its dot plot has been abysmally wrong?

As the WSJ explains, officials still think the broad direction of short-term interest rates will be higher in 2019, according to recent interviews and public statements. But as they push up their benchmark, they are becoming less sure how fast they will need to act or how far they will need to go and want to assess how the economy is holding up under moves they’ve already made.

How they manage this new, less-predictable approach will depend in large part on the performance of the economy and markets in the weeks ahead.

Under the evolving “data dependent” strategy, the Fed could step back from the predictable path of quarterly hikes it’s been on for most of the past two years, raising the possibility it might delay rate increases at some upcoming meetings, according to recent interviews and statements.

The WSJ also adds that under the old pattern, the Fed would raise rates again in March, but officials now don’t know when their next rate move will be after December. The reason for this is largely the market, even though as the WSJ reports, recent turbulence hasn’t much dented the Fed’s view that the U.S. economy is on solid footing, with growth strong and unemployment low.

But inflation has softened in recent months and falling oil prices portend further declines, reducing the Fed’s sense of urgency about raising rates to prevent the economy from overheating

On the other hand, “growth or inflation heats up unexpectedly, the Fed could decide to go further than planned.”

Federal Reserve Chairman Jerome Powell compared the Fed’s policy strategy to walking into a living room when the lights suddenly go out.

“What do you do? You slow down and you maybe go a little bit less quickly, and you feel your way more,” he said in a speech last week. “So under uncertainty of this kind, you be careful.”

Finally, there is Trump, whose input into this process is certainly relevant, and since the President will do anything to push the market higher, one almost wonders if the new “Fed whisperer” at the WSJ, Nick Timiraos who has replaced Jon Hilsenrath, is conveing messages from the Marriner Eccles building, or wishful thinking from the White House.

 

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The US Achieves Energy Independence, Becomes Net Oil Exporter For First Time

As we previewed last month using estimates from Bank of America, today the Energy Information Administration (EIA) officially confirmed that the United States became a net exporter of crude and refined products for the first time last week. This marks a departure from American dependence on foreign oil which the U.S. has relied upon for more than 75 years. According to U.S. data, crude shipments reached a record 3.2 million barrels last week with net exports turning just positive. 

As a result of the boom in shale production, OPEC has seen its influence decline, putting to bed its decades-long reign as one of the globe’s massive geopolitical forces, and a key factor behind the petrodollar. The news comes just as OPEC is meeting in Vienna to agree on potential output cuts in order to support the price of oil.

Michael Lynch, president of Strategic Energy & Economic Research, told Bloomberg that the US is “becoming the dominant energy power in the world. But, because the change is gradual over time, I don’t think it’s going to cause a huge revolution, but you do have to think that OPEC is going to have to take that into account when they think about cutting.”

Last week the U.S. sold 211,000 barrels a day of crude and refined products, compared to net imports of more than 2 million barrels per day on average so far this year. This number peaked at more than 12 million barrels back in 2005.

Oil analyst Joe McMonigle told Bloomberg: “Trump is making America great again. First president in modern time to get America to be energy independent, if only for one week.” We previewed this critical inflection point last month when discussing America’s imminent energy independence. We noted then that, helped by higher prices, total oil production had hit a record level in the US, reaching a combined 15.9 million b/d (crude oil and NGLs) in the past month and almost 2mn b/d above last year.

This number was broken down into 11.35mn b/d of crude oil and 4.57 mn b/d of natural gas liquids (NGLs). As a reference, the US will likely consume about 20.7mn b/d of oil and other liquid fuels in 2018. The surge in US and also Canadian output has pushed total North American crude production volumes above 20 mn b/d.

The larger-than-expected surge in North American oil volumes has come primarily from the Permian, Canada’s oil sands, and more recently, the Gulf of Mexico.

In contrast to the fast growth experienced by its Northern neighbors, Mexican oil output continues to fall as the effects of the latest energy sector reform have yet to be translated into output.

We had also mentioned that the additional pipelines being built in the Texas Permian Basin were likely going to help solve a bottleneck of crude transportation that could put the United States in the position that it’s now in. From there, we noted that the bottleneck would likely move to the ports of Texas as oil would eventually go from “production hell” to “delivery hell” to “logistics hell”.

Like in 2014, the biggest threat to Saudi Arabia remains the Texas oil patch. Producers in America have added significant volume over the last 12 months. In fact, just the added output this year is equivalent to the entire output of OPEC‘s Nigeria.

Undoubtedly the Saudis are acutely aware that the United States is gaining traction on becoming energy independent, especially specific to crude. As MBS continues to further his juggling act between the oil market, OPEC and world leaders, it looks as though the price of crude – as well as the Saudi government – may remain volatile for the new year to come.

 

 

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The Other Two Kinds Of Debt

Authored by Mark Jeftovic via Medium.com,

“Any corporation, private or governmental, that wishes to provide for a sound and equitable continuity of its business must take steps towards the systematic retirement of debt immediately after it has been incurred.Postponement of all payment for property or privileges by those who presently enjoy their benefits is calculated to bring uncomfortable consequences to them or those who succeed them.”

— Engineering Economics, by C.R Young. 1949

We frequently hear pundits and talking heads talking about how short-sighted government policies and unfunded entitlements are in essence “stealing from the future” or at best “borrowing from the future” and I found myself thinking about the difference between the two ideas.

Normally when we think about “the two kinds of debt” we think productive versus unproductive debt. Exemplified in the Richard Kiyosaki “Rich Dad / Poor Dad” series, we learn that productive debt is that which you incur and then use in a way that will help pay itself off.

Examples include vendor or bank financing on buying a business that you would then pay back with the earnings from said acquisition, something I’ve done a couple times over my career; or taking out a mortgage to buy an investment property. From there you would use the rent to pay off the mortgage.

I emphasize paying off the mortgage here as opposed to simply servicing the debt with minimum payments or interest only, and we’ll see why shortly. Contrast this with unproductive debt, which is borrowing money to go on vacation or buy consumer goods, or do anything else with it that leaves you with the bill afterward. As Kiyosoki frequently stresses, it’s the difference between debt that makes you money vs debt that costs you money.

Now, what is the difference between borrowing from the future and stealing from the future? Debt is aptly described as pulling future demand or future productivity into the present. Government entitlement programs and ballooning deficits do this with abandon. So do companies, like the high flying Netflix which is a FAANG favorite but is carrying about $10 billion in bonds on the books, having recently issued another $2 billion in junk bonds just to fund their content development for the next six months.

What’s the big question?

It’s this: is there a realistic plan that this debt will be paid off in the future? Or is the plan to simply roll it over, in perpetuity?

We know Big Governments the world over have incurred debt that cannot, ever, be paid off. Maybe they’ll be liquidated via default, or hyper-inflated away, but that’s not the same as paying them down. I call that stealing from the future. If there is actually a plan to pay the debt down, then that’s a borrowing from the future.

At the governmental level, in the US at least, that hasn’t happened since Eisenhower, who was the last president to actually reduce the national debt. The last president who actually paid off the national debt was Andrew Jackson (those fabled “Clinton-era surpluses” were somewhat of a sleight-of-hand fiction, take a look at the chart here to see them in context).

If we take the two kinds of two kinds of debt, then we get ourselves a nice matrix or grid:

The two sides are Why vs How. Why are you borrowing money? vs How will you structure it, as borrowings or theft against the future?

The examples in each quadrant are just that, examples. Will Netflix ever pay down those bonds? Maybe the CFO thinks they will, someday. Or maybe they plan to just keep rolling it, in which case it should be over with share buybacks in the bottom-right quadrant.

The more I thought of it, the more I couldn’t come up with a legitimate use case that would put productive debt into the stealing (perpetual debt) quadrant. All justifications aside, it will wind up in the unproductive quadrant because time is the enemy of debt, at any price.

But wait, what? Share buybacks are unproductive? Most of the time, yes. Especially lately, when companies are borrowing money at artificially low interest rates to buyback their shares trading near all-time highs. As I observed in The Transition Overview, “the value investor in me finds that kind of stupid”.

The poster child for all this lately is GE, who spent $40 billion on stock buybacks between 2015 through 2017 on shares that have declined in value 75% since. The company is now has a tangible net worth at negative $48 Billion. My mom’s pension is with GE, as my dad worked on the shop floor there for 30 years.

I remember assuring her a few years back that no matter how badly GE messed themselves up, there was no chance they would bankrupt themselves …along with their pension liabilities, in her lifetime. She was around 86 at the time and it’s now looking like she’s the one who’s going to outlive General Electric.

After the last financial crisis I came across a web hosting company that had attempted to grow via leveraged acquisitions, borrowing more and more money to buy up ostensibly “accretive” companies but when everything blew up, they were offside on all of their covenants and couldn’t possibly repay the debt. I wound up in talks to acquire them from a hedge fund who had somehow inherited the debt and with it the entire company after some sort of Bear Sterns style shotgun wedding with another hedge fund in order to survive.

They showed me the CEOs plan to fix the situation should the hedge fund (or me, if I bought the company) accept his proposal to restructure the debt.

The plan was to take out another loan to do some more acquisitions!

I took one look at that and said “no thanks”. A few years later I bought some other business as part of a carve-out. I financed that with a vendor take-back and paid down the loan in full a year later. That unit has produced a minimum of 100% of the total purchase price in earnings every year since. That would be a Quadrant A style investment.

More recently, today in fact, which is what got me thinking about all this, I just walked away from a deal I’d been working on for a little over a year. It involved taking a significant ownership stake in a very small publicly traded company (I never accrued more than 1% of the equity, had I gone through with it I would have been a full-on insider with 12.77%). Anyway — same story. They had levered up a few years ago to do an acquisition. This was also Quad A investment — productive and they planned to pay off the debt in 3 years. Only the market conditions changed. Now they can’t pay off the debt and they had to dilute all the shareholders by half to restructure the debt last year. That’s the problem with debt, even when you plan to pay it off, if you’re too levered, it can still kill you.

With the latest, even relatively benign, rise in interest rates, all sorts of these fissures have begun to appear throughout the system.

The permabulls are betting on a new Powell Put so that interest rates can’t climb too high but that is another problem in itself. No matter what happens, the stairway to heaven stock market rally, and the leveraged buyback orgy of the last 10 years is for all intents and purposes, over.

So now the bills come due. I’ve said it before, when these kinds of shifts happen or cycles turn, it’s the debt load that separates the survivors from the statistics.

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