Tag: news

Why Are Western Elites Succumbing To Russia Conspiracy Theories?

The West – and in particular Western elites, have taken to blaming Russia for everything from Hillary Clinton’s 2016 loss, to Brexit, to their latest target of Putin’s “nefarious designs”; the Yellow Vest movement. 

To that end the New York Post‘s Sohrab Ahmari has penned an intriguing Op-Ed on the phenomenon of the West uncritically accepting tales of Russian meddling behind everything. Originally from Iran – a “nation of conspiracy-mongers” who believe there’s a “hidden hand” behind every setback or stroke of bad luck, Ahmari notes: 

“Only in the West these days, the hidden hand is usually a Russian one. And unlike in the Muslim world, where it’s typically the man on the street who suspects elites of serving nefarious foreigners, in the West, it’s the reverse: Many elites imagine that the common people, vast swaths of their own populations, are Kremlin agents.“

The latest example of this conspiracy mongering is the unsupported narrative that Russian cyber operations are behind the Yellow Vest protests which have gripped France and spread to several other countries. 

“There has been some suspect activity,” a French official relayed to the Wall Street Journal. “We are in the process of looking at the impact.”

And that’s all it takes to seed a conspiracy theory… 

Paris is probing “any Kremlin role in social-media activity that has amplified” the uprising “and spread misinformation about it,” per the Journal. This, even though Facebook says it hasn’t found any evidence, and a researcher with the Atlantic Council similarly denied seeing foreign interference.

It doesn’t take a political-science genius to uncover the origins of the yellow-vest movement. French President Emmanuel Macron invited the backlash with a fuel tax that would have penalized rural and working-class people for their lifestyles. They rose up and were soon joined by others dissatisfied with Macron’s high-handed liberalism.

No matter: If it’s a challenge to liberalism, it must be the Russians’ doing. –New York Post

Then of course there’s American elites who have been fixated on the more than two-year-old Russian “collusion” narrative which has become a persistent stain on President Trump’s legacy – perhaps by design. 

Ahmari concedes that “Yes, Russian operatives flooded social media with misleading (and often comically amateurish) posts,” however it would take an absolute moron to think that voters in places like Wisconsin, Michigan and Pennsylvania to think that these Russian meme-warriors actually influenced the election – as opposed to, say, because Trump addressed the key issues most important to voters in said states. 

Russian trolling even gets blamed when movie franchises disappoint their fans. In October, a University of Southern California researcher claimed that online trolls had spread and amplified political criticism of last year’s “Star Wars: The Last Jedi,” with its cringy PC themes. The aim was to propagate “discord and dysfunction in American society,” which “remains a strategic goal for . . . the Russian Federation.” –New York Post

Or – perhaps Americans who grew up on Star Wars are monumentally disappointed that Disney turned Luke Skywalker into a bitter, broken man in a franchise that has resorted to forced humor and unmemorable characters.  

All of this Russophobia “allows political and cultural elites to shift blame for mass dissatisfaction with liberalism to someone else,” writes Ahmari – who isn’t blind to the actual threat Russia poses. 

Don’t get me wrong: Russia is a serious adversary of the US and democratic West. Putin seeks to dominate the small and unfortunate states that live under Russia’s shadow. He wants to displace America as the leading outside power in the Middle East. And he wants to downgrade American prestige. No doubt sowing social division inside Europe and the US is part of the plan. –New York Post

Behind the curtain, however, some Democrats have said that the Trump-Russia probe is a “running joke” among lawmakers which their voting constituants never ask about. 

That said, there are some Western elites – such as former Secretary of State Condoleezza Rice, who said back in March that it was time to wrap up the Russia probe so that America could “get back to business.” 

Even CNN employees caught on undercover camera by Project Veritas admitted that network is pushing the Russia story for ratings, and that it’s a big nothingburger.

Ahmari closes his Op-Ed with a warning to liberals; “listen to the angry cries of voters and left-behinds rather than pretending that they act under Moscow’s spell — or worse, treating them as pathological bigots whose online speech needs to be closely monitored and curtailed, lest it spreads the pro-Russian germ to others.” 

“That elite attitude is far more likely to widen social divisions than any meme produced in a troll farm on the outskirts of St. Petersburg.” 

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Oregon Proposes Ditching Single-Family Zoning Statewide

Tis the season for zoning reform, with cities and states across the country either proposing or passing bold, deregulatory reforms that would shore up property rights and, God willing, bring down housing costs.

In early December, California politicians introduced a state bill that would override local regulations to allow up for up to five-story apartment buildings near public transit stops—a dry sounding reform that would nevertheless pave the way for a lot of new building in a state that desperately needs it. A week later, the Minneapolis City Council passed legislation that abolishes single-family zoning citywide, allowing for the construction of duplexes and triplexes where once only single homes were allowed.

Then on Friday, Portland’s Willamette Week reported that Rep. Tina Kotek (D–Portland) would be introducing a bill that would banish single-family zoning from the state, save for the smallest communities.

“Oregon needs to build more units, and we must do so in a way that increases housing opportunity for more people,” Kotek said in a statement. “Allowing more diverse housing types in single family neighborhoods will increase housing choice and affordability.”

Kotek’s proposal—which has yet to be introduced as formal legislation—would preempt local single-family zoning laws—which permit only one home per lot—to allow for duplexes, triplexes, and quadplexes in all cities with over 10,000 residents and an urban growth boundary. Cities would be given 16 months to draft new zoning codes to conform to this plan. If they fail to do so, the state will write new zoning laws for them.

This proposal would open up many of the state’s high cost, low density areas to more development. If the laws of supply and demand still hold true, this would help arrest the growth in housing costs, and even bring prices down.

Moving these kinds of decisions to the state level also means routing around local governments where anti-development voices have greater influence, says Emily Hamilton, an urban policy expert at the Mercatus Center.

“Homeowners tend to live in one jurisdiction longer than renters and tend to vote more often than renters,” says Hamilton. “Local policymakers are very beholden to those homeowners and land use policies tend to reflect home voter preferences.”

Because more supply brings down the price of existing homes, this makes homeowners, and by extension local governments, far more likely to oppose new home construction.

Indeed, in Portland, Oregon, the city government has for years been mulling a zoning reform proposal that would, like Kotek’s plan, legalize four-unit dwellings in almost all of the city. Fierce opposition from neighborhood activists has succeeded in delaying its implementation.

A state bill could succeed where these local efforts have failed. Indeed, the fact that Kotek—who serves as speaker of the Oregon House—is the one proposing this bill, and doing so very early on in the process, gives the proposal a fighting chance.

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Nomura Sees Institutional Derisking Accelerating, Fears “Weaponization Of Stocks” In Trade War

It’s ugly out there.

While the headlines suggest things are dicey with all the major US equity indices in the red year-to-date, and in correction; under the surface things are going from worse to worserer…

  • Forced VaR-down,

  • retail outflows,

  • and institutional pile-ons,

  • early Oct / Nov fund redemptions building into tax-loss selling into YE,

  • pension fund de-risking into a hiking-cycle (buying USTs / STRIPS vs selling Equities as they achieve funding ratios),

  • systematic trend funds again turning ‘short,’ very negative (~1st %ile) SPX index option greeks for both negative Delta- and Gamma-,

  • resumption of the buyback blackout window (already started for banks, transports and household goods),

  • slowing global growth…

  • …against shrinking G3 central bank balance sheets and net / net “tighter” financial conditions…

…and all into a Fed this week which due to enormous “dovish” expectations built-in has a risk of disappointing the markets with a more “hawkish” tone that has to remain somewhat “neutral” despite the “balance-of-risks” shifting to the downside. 

That is Nomura cross asset strategy MD Charlie McElligott’s short, sweet, and entirely un-sanguine summary of all things going on that the mainstream is likely missing.

Global cross-asset markets look nearly identical to where they were 24 hrs ago– currently we see some modest mean-reversion of QTD price-action, likely on position flattening into the “real” final week of the year from a Fed event-risk- and liquidity- perspective: US Dollar again sharply lower (esp vs Euro strength, Gold strength and higher-beta EM firming), Global Equities very modestly higher and UST yield curve bull-steepening, partially fueled by more ugliness in Crude and Industrial Metals.

Yesterday within US Equities was very interesting because yes we saw “purge” (all S&P sectors lower by minimum 1% and led WEAKER by Defensives, perhaps tactical traders playing risk-off monetizing winners ahead of the Fed), with huge sell-program flows over the course of the US Equities afternoon session as per TICK INDEX flows > 1200 at a number of negative impulses.

But ahead of meetings today, let’s get right to it – why are we seeing such a profound “risk-off” move right now, one where the market reaction is so clearly outstripping the actual “slowing-growth” economic reaction (a 2019 story)?  A few thoughts below…

EXPOSURE / LEVERAGE REDUCTION INTO THE NEW “HIGHER BASELINE VOL” WORLD AS WE HAVE TRANSITIONED “FROM QE TO QT”:

Without a doubt, one core theme I have continued messaging since February’s leveraged VIX ETN “vol event” was that the excesses of the QE era are being forcibly “shed” via both the unwind of leverage accumulation (ongoing VaR-down / gross-down / net-down of exposures as risk models simply do not allow for this much risk-budget in light of the realized volatility profile) and the slow-bleed of redemptions reversing-out of Equities funds—from retail- investors over the course of the year, with now too seeing institutional- investors piling-on

 

The greatest metric for the capture of the fund exposure gashing is not just Equities PB gross- & net- historically low %ile bands, but also the price-action of the “Beta” factor market-neutral strategy, which is now -19.1% QTD as long books (which were exceedingly “long market risk / high beta”) have been nuked-out, while at the same time, legacy shorts / underweights in “low vol” / “bond-proxies” (especially in light of the consensual nature of the “bearish rates” view) have exploded higher (“defensives” Utes, REITS, Staples and Healthcare are the S&P’s top four sectors QTD, and Healthcare and Utes are the S&P’s top two sectors and only sectors “up” YTD as well)—obviously the masses are not “set-up” for that market behavior

THUS, OUTFLOWS:

As such, we see the last week’s tectonic US Equities fund outflows: -$27.7bil (sub 1st %tile since 2000, 6th %tile as a % of AUM), with Institutional finally reducing in earnest -$11.9bil this week (however still +$76.3bil of buying for the year—so more potential supply to go) with Retail now really stepping it up -$15.5 bil this week (sub 1st %tile) and now 6m outflows hitting -$59bil (8th %tile) and over the year -$102.4bil…

…and this is coming with Nov and Dec as historically the 1st and 2nd best months for monthly US equities flows on avg since 2005 = Total puke, this is the “anti-seasonal” which nobody expected

US EQUITIES FUND FLOWS YTD:

Source: Nomura / EPFR

CFTC data confirmed this “institutional de-risking” across Asset Manager flows, with last Friday’s CFTC data showing showed an additional -$16.3B sold in US Equities futures last week (-$15.2B SPX, -$1.1B in Russell, and their aggregate ‘net long’ down to +$47.3B vs a long-term average of +$59.2B)

ASSET MANAGER SELLING OF US EQUITIES FUTURES LENGTH (SPX, RTY AND NDX) TURNS CAPITULATORY—2006 TO PRESENT:

And mind-you, this performance wobble came at the perfectly wrong-time for funds, where already fragile conditions due to “end-of-cycle” perception and a volatile geopolitical climate also occurred with the “tough part” of the calendar into significant fund redemption flows in Oct / Nov (ahead of the Q4 redemption request window in mid-Nov) and much larger “tax-loss selling” across the various fiscal year-ends of Oct / Nov / Dec…

Source: Nomura, CFTC

PENSION DE-RISKING OUT OF EQUITIES / INTO FIXED-INCOME:

To my point in Friday’s note, I received a little more historical ‘fleshing-out’ of my point on pension fund behavior into hiking cycles and this incentivizing de-risking flows (buy bonds, sell equities as funding ratios normalize towards targets) with this chart from my Fixed-Income Strategy colleague Sam Wen—which further corroborates my view:

Source: Nomura

And finally, McElligott warns, don’t sleep on yesterday’s TIC data, which showed that foreigners sold -$22B of US Equities in October, the sixth consecutive month of selling where official- and private- foreign investors sold a cumulative -$124B of stocks—a new (bad) record…

 

Source: ZeroHedge

Weaponization of stocks as “trade war” fodder, anyone?!

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Shale Under Pressure As WTI Flash-Crashes Below $50 For 2nd Time Today

Xi’s speech did not help (with no growth measures revealed) but oil markets seem extremely fragile this morning having broken below $50 and flash-crashed for the second time in a few hours.

“The oil market has come under renewed pressure” and “a large part of the move is due to a broader market sell-off,” said Warren Patterson, commodities strategist at ING Bank NV.

“Specifically for the oil market, there are no clear signs yet of the market tightening.”

WTI is trading extremely ugly this morning…

And as, OilPrice.com’s Nick Cunningham notes, the OPEC+ cuts still are not doing very much to boost oil prices, dashing hopes for many U.S. shale producers. With companies in the process of formulating their budgets for 2019, the prospect of $50 oil sticking around raises questions about the heady production figures expected from the shale patch.

The IEA expects U.S. oil production to grow by 1.3 million barrels per day (mb/d) in 2019. But oil prices could significantly impact those projections.

“Total U.S. shale oil growth is highly sensitive to WTI prices in the $40-60 range,” Morgan Stanley wrote in a December 13 note. The investment bank said that shale producers are growing more sensitive to prices below $60 but less sensitive to price spikes above $60. “If WTI remains around current levels (~$50/bbl), US growth should start to slow.”

The investment bank said that larger companies, such as ConocoPhillips or Occidental Petroleum, are less sensitive to price swings than smaller E&Ps. On the other hand, some companies could begin to slow production if prices linger at low levels. Morgan Stanley pointed to Apache Corp., Murphy Oil, Newfield Exploration, Oasis Petroleum, Whiting Petroleum and Chesapeake Energy. “With low oil prices, we see these companies slowing production growth in 2019 to spend within cash flow (or minimize outspend), [free cash flow] levels fall or turn negative, and leverage metrics move higher.”

Other analysts also see price sensitivity from the shale sector. “We expect 5-10% capex growth on average at $59 WTI, which should yield production growth of nearly 1.3mn b/d,” Bank of America Merrill Lynch wrote in a note. “However producers may budget for lower oil prices given the recent decline in prices and increase in uncertainty.”

BofAML went on to add:

“We believe the $50 to $60 price range for WTI yields highly variable E&Ps budgets. In a mid to low $50s WTI scenario, producer budgets would likely come in flat to lower YoY and would likely lower US production growth to somewhere closer to 1mn b/d for next year.”

There is one major obstacle that the shale sector faced in 2018 that could start to dissipate: pipeline constraints.

U.S. shale producers and pipeline companies have deployed a variety of methods to mitigate the impact of pipeline constraints.

The higher-than-expected production figures from U.S. shale this year largely come down to the ability of producers and pipeline companies to work around the swelling bottleneck, particularly in the Permian. Pipeline operators have used drag reducing agents to speed up the flow of oil through the lines, allowing them to ship more oil than the nameplate capacity suggests. Also, the Plains All American Sunrise pipeline came online ahead of schedule, which also relieved some congestion. No major outages occurred in 2018, which has been “an element of luck” given the high throughput rates, the IEA said in its Oil Market Report.

More projects are set to come online in 2019, which should reduce the pressure on oil producers. The Bridgetex and the Sunrise expansions will add 40,000 and 175,000 bpd in the first half of 2019, respectively. Another 100,000 bpd will come from the Cactus 2, while Enterprise Products Partners could add 200,000 bpd by converting a natural gas liquids pipeline to crude oil.

That should be close to enough to avoiding production impacts. “Takeaway capacity growth will therefore closely track output growth in the Permian, but it will still lag behind until the second half of 2019, when the 675 kb/d EPIC project comes online,” the IEA said.

To be sure, the midstream challenges are not entirely resolve just yet. Pipeline “congestion at the Cushing hub should persist during 1H19, keeping pressure on WTI timespreads and differentials to Brent relatively wide,” Bank of America Merrill Lynch said in a note.

Also, the margin is tight – the multiple pipeline projects slated for operation in 2019 need to stay on schedule, while the midstream sector needs to avoid any unexpected outage. “Operators can ill afford major pipeline or refinery shutdowns during that time, as this would only exacerbate the shortage,” the IEA cautioned.

However, by the end of 2019, there will be very few midstream constraints holding back the shale industry. New planned export terminals will also clear the path for oil to be shipped overseas in ever rising volumes. “[P]ipeline and export projects slated for completion by 2020 should unchain North American oil production growth early in the next decade,” Bank of America Merrill Lynch wrote.

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J&J (Barely) Bounces On Buyback, “Much, Much Lower” Talc Liability

After its collapse on Friday, and extended losses yesterday (wiping out $50 billion in market cap), Johnson & Johnson is bouncing this morning on the back of a well-timed $5 billion buyback and headlines suggesting talc liabilities will be lower than expected.

Attorney behind Johnson & Johnson lawsuit speaks out from CNBC.

Lanier Law Firm Founder Mark Lanier (one of the lawyers who successfully represented women in a July lawsuit against JNJ) spoke on CNBC about the potential costs for J&J’s ongoing lawsuits related to its talcum powder.

Lanier said he sees litigation resolution costing the company “much, much less” than the more than $50 billion that has been wiped from the drugmaker’s market value since a Reuters report last week.

Lanier noted the size of the litigation for thousands of lawsuits over claims its baby powder caused cancer is “manageable for the size and strength of J&J.”

That seems to have briefly enthused traders who bid up JNJ by over 3.1% in the pre-market. However, the early gains are fading fast as it seems the STFR crowd is back…

We’re gonna need a bigger buyback!

 

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Sen. Warren Has a Plan to Socialize Pharmaceuticals: Reason Roundup

Big Gov wants a piece of Big Pharma. Are you ready for government-branded blood pressure meds, birth control pills, and other common pharmaceuticals? Sen. Elizabeth Warren (D-Mass.) is proposing the creation of a massive new federal project to manufacture medications. Under Warren’s plan, the federal government would own and operate its own pharmaceutical company and mass-produce generic drugs.

In a statement, Warren insisted that she didn’t want a government takeover of drug markets, just “to fix them.” Her bill would create a new Office of Drug Manufacturing and order it to produce at least 15 different types of generic medications (drugs for which the patent has run out) in its first year.

But generic medications aren’t generally the ones causing money troubles. Since they’re not limited to patent-holding pharmaceutical companies, competition keeps prices low. Some stores even fill very common generic prescriptions for free, as an enticement to get customers to make other purchases there.

“The bulk of the country’s drug-cost problem rests with high-priced branded medicines,” notes Politico.

Which means Warren’s proposal amounts to a huge new government undertaking that doesn’t remotely accomplish what it purports to, leaving the initial problem intact while potentially erecting new access barriers and other unintended consequences. In addition to the huge cost of a federally funded pharma company, cutting into the money that private drug companies can make off generics could make it harder for them to invest in new research and bring more experimental drugs to market.

“When generics provide Americans with nine out of 10 of their prescriptions at only 23 percent of total spending on drugs, it is hard to fathom why anyone would call this system broken or insist that the government commandeer the business of developing, manufacturing and distributing these medicines,” the Association for Accessible Medicines, which represents generic drug manufacturers, told Politico.

At best it’s “an unrealistic distraction from policies that would meaningfully reduce drug prices,” the group added.

Warren’s so-called Affordable Drug Manufacturing Act “is unlikely to pass the Republican-led Senate,” write Politico’s Alex Thompson and Sarah Karlin-Smith. “But it signals that a future Warren White House could try to radically revamp the federal government’s role in the pharmaceutical market in order try to lower prices.”

While Warren’s plan is uniquely ambitious, a lot of Democratic presidential hopefuls are proposing ways for government to meddle more in medicine markets. For instance, Sens. Kamala Harris (Calif.), Amy Klobuchar (Minn.), and Jeff Merkley (Ore.) introduced legislation last week that would give the feds power to forbid drug companies from raising prices. In the simplistic, Pollyanna-ish, and authoritarian accounting of many Democrats, drug companies prohibited from raising prices will simply keep making medications and selling them at or below cost rather than stopping production of products that they’ve been barred from profiting from.

FREE MINDS

Tumblr’s porn ban took effect yesterday. The company offered examples of nudity that won’t be affected by the ban, including images of “female-presenting nipples” used in a medical context, artwork, or political speech. The site’s own anti-porn filters flagged their examples of permitted imagery as being forbidden.

FREE MARKETS

How Republicans learned to love government bailouts:

QUICK HITS

• A bright spot for sentencing and prison reform, not so much for stodgy old crime-panic perpetuators:

• But Cotton is now offering a slew of amendments that could doom the bill.

• Behold, gun buybacks in action:

• New York’s ban on nunchucks has been declared unconstitutional.

• ICYMI: Yesterday was International Day to End Violence Against Sex Workers. Coyote Rhode Island prepared this video to memorialize sex workers lost to violence in the past year.

• Join Reason at LibertyCon this January?

• Tune in to Jack Murphy’s podcast this week to catch our far-reaching conversation about sex, social media, women’s agency, my libertarian origin story, and more:

• The Bitcoin bubble has burst, but that doesn’t mean Bitcoin is dead.

• New York Gov. Andrew Cuomo now supports marijuana legalization. It’s about time, writes Reason’s Jacob Sullum.

• Cato calls for a war on drug-related deaths:

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Buchanan: Can America Fight Two Cold Wars At Once?

Authored by Patrick Buchanan,

Kim Jong Un, angered by the newest U.S. sanctions, is warning that North Korea’s commitment to denuclearization could be imperiled and we could be headed for “exchanges of fire.”

Iran, warns Secretary of State Mike Pompeo, is testing ballistic missiles that are forbidden to them by the U.N. Security Council.

Turkish President Recep Tayyip Erdogan has warned that, within days, he will launch a military thrust against U.S.-backed Kurdish forces in northern Syria, regarding them as allies of the PKK terrorist organization inside Turkey.

Vladimir Putin just flew two Tu-160 nuclear capable bombers to Venezuela.

Ukraine claims Russia is amassing tanks on its border.

How did the United States, triumphant in the Cold War, find itself beset on so many fronts?

  • First, by intervening militarily and repeatedly in a Mideast where no vital U.S. interest was imperiled, and thereby ensnaring ourselves in that Muslim region’s forever war.

  • Second, by extending our NATO alliance deep into Eastern Europe, the Balkans and the Baltics, thereby igniting a Cold War II with Russia.

  • Third, by nurturing China for decades before recognizing she was becoming a malevolent superpower whose Asian-Pacific ambitions could be realized only at the expense of friends of the United States.

The question, then, for our time is this: Can the U.S. pursue a Cold War policy of containment against both of the other great military powers, even as we maintain our Cold War commitments to defend scores of countries around the globe?

And, if so, for how long can we continue to do this, and at what cost?

Belatedly, the U.S. establishment has recognized the historic folly of having chaperoned China onto the world stage and seeking to buy her lasting friendship with $4 trillion in trade surpluses at our expense since Bush 41.

Consider how China has reciprocated America’s courtship.

  • She has annexed the South China Sea, built air and missile bases on half a dozen disputed islets, and told U.S. ships and planes to stay clear.

  • She has built and leased ports and bases from the Indian Ocean to Africa. She has lent billions to poor Asian and African countries like the Maldives, and then demanded basing concessions when these nations default on the debts owed for building their facilities.

  • She has sent hundreds of thousand of students to U.S. colleges and universities, where many have allegedly engaged in espionage.

  • She kept her currency below market value to maintain her trade advantage and entice U.S. corporations to China where they are shaken down to transfer their technology secrets.

  • China has engaged in cyber theft of the personnel files of 20 million U.S. federal applicants and employees. She apparently thieved the credit card and passport numbers of 500 million guests at Marriott hotels over the years.

  • She has sought to steal the secrets of America’s defense contractors, especially those working with the Navy whose 7th Fleet patrols the Western Pacific off China’s coast.

  • She is believed to be behind the cybersecurity breaches that facilitated the theft of data on the U.S. F-22 and F-35, information now suspected of having played a role in Beijing’s development of its fifth-generation stealth fighters.

  • Christians are persecuted in China. And Beijing has established internment camps for the Uighur minority, where these Turkic Muslim peoples are subjected to brainwashing with Chinese propaganda.

  • China’s interests, as manifest in her behavior, are thus in conflict with U.S. interests. And the notion that we should continue to cede her an annual trade surplus at our expense of $400 billion seems an absurdity.

We have, for decades, been financing the buildup of a Communist China whose ambition is to expel us from East Asia and the Western Pacific, achieve dominance over peoples we have regarded as friends and allies since World War II, and to displace us as the world’s first power.

Yet if engagement with China has failed and left us facing a new adversary with 10 times Russia’s population, and an economy nearly 10 times Russia’s size, what should be our policy?

Can we, should we, pursue a Cold War with Russia and China, using Kennan’s containment policy and threatening war if U.S. red lines are crossed by either or both?

Should we cut back on our treaty commitments, terminating U.S. war guarantees until they comport with what are true vital U.S. interests?

Should we, faced with two great power adversaries, do as Nixon did and seek to separate them?

If, however, we conclude, as this city seems to be concluding, that the long-term threat to U.S. interests is China, not Putin’s Russia, President Trump cannot continue a trade relationship that provides the Communist Party of Xi Jinping with a yearly $400 billion trade surplus.

For that would constitute a policy of almost suicidal appeasement.

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Does Silicon Valley Manipulate Users? New at Reason

Leaked emails show some Google engineers blaming their company for Trump’s 2016 win, suggesting that the site should censor outlets like The Daily Caller and Breitbart.

Google says the company never did that, but for many people, it raises the question: could Google executives flip an election?

“Google’s senior management was heavily in favor of Hillary Clinton,” The Creepy Line writer Peter Schweizer tells John Stossel. “Their ability to manipulate the algorithm is something that they’ve demonstrated the ability to do in the past…and the evidence from academics who monitored 2016 was clearly that they did.”

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The views expressed in this video are solely those of John Stossel; his independent production company, Stossel Productions; and the people he interviews. The claims and opinions set forth in the video and accompanying text are not necessarily those of Reason.

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Wall Street Turns Apocalyptic: “We Just Had The Biggest Ever Rotation Into Bonds”

So much has changed in the past year (at least according to respondents in Bank of America’s latest Fund Manager Survey).

This time in December 2017, FMS investors were super bullish and long Bitcoin (which hit $19,611 on Dec 19th 2017), global stocks, banks, and short bonds and defensives. One year later, everything has been flipped on its head: FMS investors are bearish, long cash, the US dollar, and defensives and are short global stocks, tech, industrials (oh and Bitcoin is trading around $3,000).

So what else does the latest fund manager survey (which polled a total of 243 respondents with $694bn AUM in the period Dec 7-13) reveal? Not surprisingly, the survey found close to “extreme bearishness” on Wall Street, with BofA’s Michael Hartnett noting that December saw the third biggest decline in inflation expectations, down 33ppt to just net 37% expecting global CPI to rise over the next year, a big reversal from the recent peak of net 82% in April.

As a result of this pre-deflationary deluge, investors have flooded into bonds and out of stocks, while within equities there were large moves into defensives via energy and tech into staples and utilities.

More importantly, this month’s survey found the biggest ever one-month rotation into bonds class as investors dumped equities around the globe while bond allocations rose 23ppt to net 35% underweight….

… marking the highest bond allocation since the Brexit vote in June 2016.

Meanwhile, the allocation to global equities has fallen 15ppt to a two-year low of net 16% overweight, with US equity allocation falling 8ppt to net 6% overweight, largely as a result of collapsing global GDP/EPS expectations in December…

… but cash level at 4.8% (from 4.7%) are not enough to trigger a contrarian “buy signal” for risk assets from BofAML Bull & Bear Indicator…now 2.5.

So what are the key highlights from the report?

On Macro:

While only 9% of investors surveyed expect a global economic recession in 2019, down 2ppt from last month…

… net 53% expect global growth to weaken over the next 12 months, the worst outlook on the global economy since Oct. 2008.

In addition to overall economic weakness, December also saw the third biggest drop in inflation expectations, down 33% to just net 37% expecting global CPI to rise over the next year, a big reversal from the recent peak of net 82% in April.

On Corporates

Stepping away from the macro, the Dec. survey found that the most preferred use of corporate cash flow amongst FMS investors is improving balance sheets (46%, highest since 2009), followed by increasing capex (34%, lowest since 2012) and returning cash to shareholders (13%) as suddenly everyone appears to be worried about soaring debt even as just two months ago the same fund managers currently surveyed would trip over each other to 5x oversubscribe any shitty covenant-lite loan.

And related to this, a net 46% of fund managers surveyed think corporate balance sheets are overleveraged, the highest on record. Which is also ironic because three months ago a record number of investors tripped over themselves to 5x oversubscribe cov-lite 6x lev  loan deals.

Investor concern about corporate leverage (highest since since Oct’09) tracks equities vs. bonds performance closely and implies considerable downside for equities relative to bonds in the coming quarter.

And yet, FMS survey respondents – well known to contradict themselves repeatedly in the same survey – also said there will be no full-scale rotation from equities to bonds until 3.6% on US Treasury 10-year yield (averaged weighted response); 10bp lower than last month. Which is ironic in light of the top observation, namely that Dec saw the biggest monthly rotation into bonds on record.

Meanwhile, it’s not just the global economy and inflation expectations that are tumbling: this month’s survey also found the worst profits outlook in a decade, with net 47% of investors expecting global profits to deteriorate in the next 12 months

And related to this, a net 57% of those polled think corporate margins will deteriorate in the next year, a six-year low.

Finally, looking at the biggest risks, trade war (37%) once again tops the list of biggest tail risks cited by investors for the seventh straight month…

… followed by quantitative tightening (18%) and a slowdown in China (16%)

And while the sentiment presented above probably does not need a summary, according to BofA’s chief investment strategist, Michael Hartnett, “Investors are close to extreme bearishness,” adding that “all eyes are on the Fed this week, and a dovish message could equal a bear market bounce.”

Then again, if Powell goes further and is “bearish” by not hiking, which in turn triggers recession concern, the US dollar rally will continue, while a sell-off in rate-sensitives and cyclicals (watch RTY) would prompt US stocks to join global bear market with SPX flush to 2400.

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Mike Flynn & The Deep State’s Fatal Over-Reach

Authored by James Howard Kunstler via Kunstler.com,

Last Friday morning, we adjourned the blog in anticipation of Special Counsel Robert Mueller handing over certain FBI documents in the General Flynn matter demanded by DC District Federal Judge Emmett G. Sullivan no later than 3:00 p.m. that day. Guess what. Mr. Mueller’s errand boys did not hand over the required documents – original FBI 302 interrogation reports. Instead, they proffered a half-assed “interview” with one of the two agents who conducted the Flynn interrogation, Peter Strzok, attempting to recollect the 302 half a year after it was written. Of course, Mr. Strzok was notoriously fired from the Bureau in August for bouts of wild political fury on-the-job as FBI counter-intel chief during and after the 2016 election. (This was the second time he was fired; the first was when Robert Mueller discarded him from the SC team in 2017 as a legal liability.)

So, 3:00 p.m. Friday has come and gone. It appears that the FBI 302 docs have come and gone, too. Actually, we have reason to believe that nothing ever created on a computer connected to the internet can actually disappear entirely. Rather, the data gets sucked into the bottomless well of the NSA server-farm out in Utah. Most likely, the original 302s exist and Mr. Mueller is pretending he can’t find them. In effect, it appears that Mr. Mueller has responded by gently whispering “fuck you” to Judge Sullivan.

Interestingly, The New York Times didn’t even report the story (nor The WashPo, nor CNN, nor MSNBC). Since their “Russia Collusion” narrative is foundering, they can’t tolerate any suggestion that their Avenging Angel of Impeachment, Mr. Mueller, is less than the sanctified plain dealer he affects to be. Judge Sullivan kept his own counsel all weekend. The next scheduled chapter in the story is Gen. Flynn’s sentencing this Tuesday. It would be a surprise if the Judge does not observe that Mr. Mueller has acted in contempt of court. Ditto if the charge against Gen. Flynn is not thrown out. After all, the main articles of evidence against him apparently don’t exist.

And if it turns out that Mr. Mueller and his team are disgraced by their apparent bad faith behavior in the Flynn case, what then of all the other cases connected to Mueller one way or another: Manafort, Cohen, Papadopoulos? And the other matters still in question, such as the Trump Tower meeting with the Russian “Magnitsky” lawyer and Golden Golem Junior, the porn star payoffs… really everything he has touched. What if it all falls apart?

In theory, this punch-drunk country could take a turn back to the genuine rule-of-law instead of the medieval-cum-Bolshevik practices of Deep State style justice. This would entail the prosecution of the prosecutors themselves. Far from an historical aberration, this is often the outcome when authorities overstep the boundaries of common decency. Which is what has happened in the setting-up of General Flynn.

Readers may wonder: why am I so concerned with these shenanigans among the FBI, the DOJ and Intel Community when there is that other elephant in the room, viz: Mr. Trump, the Golden Golem of Greatness, the awkward, embarrassing, childish fellow dishonoring the Oval Office? Because the actions of his antagonists are much more dangerous to the public interest than the oafish president. Elected officials come and go, but when America chucks the rule of law on the old garbage barge, this will cease to be the land of the free and the home of the brave. It will be a land of cringing cravens waiting in terror for the iron fist to smack them down like bugs.

Today, Tuesday Dec 18, some of the questions raised here will be answered, and I’ll add an addendum afterward. But there are many other forces in play right now on a world scene that is each day becoming more fraught with intimations of upsetting the current order of things.

The West is enduring paroxysms of political uproar and disenchantment.

China is more opaque politically, but its financial disorder is plain to see.

And finally, there is the question of markets and banking, with their entwined fates heading in a bad direction.

Of his many blunders, the worst for his own political survival was Mr. Trump taking ownership of the “greatest economy ever.” Stocks, bonds, and commodities are all wobbling at once, and approaching the event horizon where there is no floor under the price of anything.

That will not make America great in the Trumpian sense, but it will be another opening for the long-awaited return of reality to a society where, for a long time, now, anything goes and nothing matters.

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