Tag: news

Authored by Neels Heyneke and Mehul Daya via Nedbank,

It’s not just Turkey, the dollar liquidity storm is ahead of us – buckle up.

Bottom line: Should Global $-Liquidity and Global financial conditions fail to improve or even contract further we can expect a deflationary environment to materialise. In this environment we prefer to maintain defensive investment portfolios i.e. Cash over bond over equities.

We cannot stress enough the importance of the 95 level on the US Dollar index. A confirmed break above this level will mark the beginning of the next risk-off phase. More importantly, it is not the value of the US Dollar Index per se that matters, but rather what it represents – i.e. expansion/contraction in the pool of money.

Astonishingly for us, there is a high correlation with causality in our opinion between every financial market cycle (VIX) and with the story count in which the world “DOLLAR LIQUIDITY” appears. This is another example of how the availability of US Dollars has a profound effect on financial markets.

Probably the most defining photo in decades to come…

• The political consequences of this photo gets a lot of coverage, we however would like the point out the importance of this photo with regards to the current USD-based monetary system that the world so heavily relies upon.

• Trump and his “bring back my money” home will suck-up all the USD from the rest of the world – the next crisis will be centred around the shortage of USD’s which the world heavily relies on.

A symbiotic economic relationship grew post the fall of the Berlin wall between the developed and developing economies with the rise of globalization. The US was a major consumer of the world’s production and the consequence was a $11 trillion cumulative trade deficit with the rest of the world – during this period the world’s USD monetary base grew from 4 to 16% of global GDP.

A consequence of globalisation was disinflation which allowed central banks to cut policy rates (discount factors). This helped stimulate economic growth and fuel asset prices. The destructive inflationary episode of the 1970’s meant monetary policy became focused on consumer inflation targeting.

This caused investors to became obsessed with the monetary policy cycle. The market did not appear to pay attention to the extraordinary growth in the USD monetary base instead focussing on measuring the price of money (CPI) and not the quantum. This is still the case today. What resulted was all asset classes out-performed GDP as the rising tide of $-liquidity lifted all ships.

Now that the USD monetary base or ‘tide of liquidity’ has started to recede central banks are starting to play an active role in controlling the quantum (viaQE), and not just the price of the monetary base (via policy rates).

We believe that with this shrinking USD monetary base it becomes as important to understand liquidity, global flows and the role the dollar plays as the reserve currency in order to identify the right investment destination.

The challenge for investment manager will be for investors to identify the optimal asset class (beta) in a receding ‘tide of liquidity environment’.

On top of the ballooning monetary base we mentioned above, the debt creation process went through a major evolutionary process of its own and gearing in the system grew dramatically. The fractional banking system has been around for 600 years and banks traditionally lend out the same money 14 times. Just before the 2008 GFC global banks lent out the same money in excess of 40 times!

The reason being, on top of the regulated banking sector there was the shadow banking sector that regulators failed to monitor. There was also the Eurodollar system – the dollar banking system outside the US, that no regulator monitored. All in all, there was more money and credit in the system than regulators, economists and analysts were aware of because it did not show up in consumer inflation. The important question is where is this excess money/debt. The answer lies in asset inflation and how asset prices managed to out-perform the real economyfor30-years.

It is not just the global real economy that cannot afford a shrinking base of the money pyramid. The indebted balance sheets of the world cannot afford the asset deflation that will go hand in hand with shrinking money supply.

In a volatile world where the growing US dollar monetary base of the last 30-years is changing, we believe investors should pay more attention to the source of money.

Oops – USD debt outside the US is massive and is systemic.

Post WWII global trade took off and the importance of the dollar grew, this accelerated in the late 1980s. Today 60% of the world’s countries are linked to the dollar. The US GDP share of the world economy has however declined from 27 to 18% over the same period – remember the US is the only provider of USD base money.

Should global growth become less synchronized the US deficit will shrink. This will provide less USD into the global financial system resulting in a shortage of dollars. Tighter monetary policy from the Fed, a higher Fed funds rate and shrinking of the Fed’s balance sheet, will further slowdown USD creation.

The shrinking dollar monetary base will slow down the credit creation process because the economy is so highly geared. This shrinking pool of dollars will cause the dollar to rise. The strengthening USD means higher offshore USD funding, this will hurt USD indebted nations/corporations.

In this environment i.e. tighter global financial conditions, the infamous carry-trade will come under pressure and the misallocation of credit will be revealed. EMs will be at the centre of the misallocation of credit.

As the US trade deficit fuelled the global monetary base from 4 to 16% of global GDP, and the process of Financialisation began – the gap between the real economy and financial markets accelerated from the late 1980’s accelerating up out of an 80-year old band.

The tail is wagging the dog. Next crisis will be in the financial markets and not the real economy – as has been the case for many decades now.

A slowdown in debt creation will not bode well for financial assets.

Market view:

• We conclude the world needs an injection of Global $-Liquidity soon to improve global financial conditions. If the cavalry fails to arrive (QE4, material uptick in global growth) we can expect global financial conditions to contract and the USD to appreciate.  In this scenario, a stronger USD and rising offshore USD funding costs will lead to a risk-off phase. Dollar indebted countries, corporations and the carry-trades will be most impacted.

• The US Dollar index is going up – because the Eurodollar system is stalling.

The monetary base as percentage of global trade (see above) started to roll over post the 2008 GFC. The dollar started to rally as the total pool of dollars started to shrink driven by the financial system deleveraging.

With global interest rates at historical low levels, covered interest parity – the prominent driver of currencies – also started to break down.

It is a meaningful technical analysis signal that the dollar index failed to break back into the bear trend at 88 that has been in place since the 1985 Plaza Accord.

The US dollar index has now reached our first target level at 95 and we expect a consolidation phase over the next few weeks. A sustained break above this level will project a move to above the 2017 high at 103.80.

 

The most important chart for EM / DM asset allocation is centred on changes in USD liquidity.

EM’s are on the verge of another 1998.

Since the 1980’s there has been major cycles of money flow moving in and out of emerging markets. We believe dollar liquidity played a major role in these cycles stemming from commodities being traded in dollars.

It was not just the Fed that bailed out the markets in 2009. The big rally in EMs post the GFC was on the back of the commodity run which was fuelled by the Chinese ‘bail-out’. The rising commodity prices (and petro-dollar balances) added many dollars to the financial system. Commodity prices peaked in 2011 and fell until the end of 2015 and EM’s started to under-perform. The rising liquidity that triggered the risk-on phase of 2016-2017 came from the rising oil price ($28 to 78) and the ECB flooding the system. This however came to an end in February 2018.

This relative chart warned in 1994 already that emerging markets were slowing down although the crisis only materialised in 1997/8. In 1998 EM’s especially SE Asia had fixed exchange rates and their currencies could not buffer them against capital out-flows. Most of these countries now have floating currencies and reserves, but post 2008 they have taken on substantial USD debt putting them in the same situation as in 1998.

Hence our concern, if global liquidity does not improve soon EMs will be very vulnerable to major outflows again.

Lastly – if the pool of USD is going to shrink, then the price of USD must rise – i.e. term–premium higher offshore funding will be dreadful for leveraged carry-traders who will de-risk. It is the funding currency that will be forcing them out and not the fundamentals of where the money was invested – exactly what happened during 1H18.

We often face the question, “but where will the money go?” – The answer is nowhere, because most of the funds was never true savings, it was a loan created against some collateral. When the money returns to the source the loaned gets repaid.

Lastly – Get ready for higher funding costs as the pool USD shrinks, the price of USD money will rise too.

With the Fed continuing with interest rate hikes and shrinking of its balance sheet, the US Treasury issuing more debt, absorbing USD flows, China slowing down (dollar creation via commodity cycle), other central banks slowing down QE (roc matters) and a Trump with his “bring back my dollars, jobs home” – the world and financial markets better be prepared for a dollar shortage.

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After a  fifth straight month of contraction in the shadow banking system…

…and the amid the ongoing collapse of its currency, a deluge of major Chinese macro data disappointed notably tonight.

• Retail Sales missed expectations – rising just 8.8% YoY (against +9.1% exp), slowing from 9.0% in June.

• Industrial Production also disappointed, rising just 6.0% against expectations of a 6.3% rise.

• Fixed Assets Investment rose just 5.5% – its lowest on record and well below expectations of a 6.0% rise.

It seems China is going to have get that credit impulse ramping back up again…

Offshore Yuan is fading back towards last week’s cycle lows.

 

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The myth surrounding “highly sophisticated” ‘Russian’ hackers “meddling” with US elections continues to be pushed by the mainstream media, promulgated by such luminaries of fear as Senator Mark Warner who will seemingly not be satisfied until a) Democrats run it all, and b) all Russians are locked up.

However, as will surprise few, a competition in Las Vegas shows that when it comes to interfering with a US election, even a child can do it.

Hosted by technology non-profit R00tz Asylum, the competition was held on the sidelines of the annual Def Con hacking conference in Las Vegas, where RT reports that children between the ages of 8 and 17 were tasked with hacking into replica election office websites in key “battleground” states where the upcoming US midterm elections in November are expected to be tight.

Of the 39 contestants who entered, 35 were successful in breaking into the sites with the fastest being 11-year old Audrey Jones.

She cracked the site’s code in just 10 minutes.

While R00tz Asylum’s mantra is “hacking for good,” it exposes glaring vulnerabilities to the cyber security of the US election system despite a whopping $380 million approved by Congress to improve cyber-security for elections in 2018 alone.

But blaming Hillary’s loss on an 11-year-old American girl doesn’t have quite the same impact as the nefarious-sounding Russian hacking empire…

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Authored by Paul Craig Roberts,

The Russian and Chinese governments are puzzling. They hold all the cards in the sanction wars and sit there with no wits whatsoever as to how to play them.

The Russians won’t get any help from the Western media which obscures the issue by stressing that the Russian government doesn’t want to deprive its citizens of consumer goods from the West, which is precisely what Washington’s sanctions intend to do.

The Russian and Chinese governments are in Washington’s hands because Russia and China, thinking that capitalism had won, quickly adopted American neoliberal economics, which is a propaganda device that serves only American interests.

For years NASA has been unable to function without Russian rocket engines. Despite all the sanctions, insults, military provocations, the Russian government still sends NASA the engines. Why? Because the Russian economists tell the government that foreign exchange is essential to Russia’s development.

Europe is dependent on Russian energy to run its factories and to keep warm in winter. But Russia does not turn off the energy in response to Europe’s participation in Washington’s sanctions, because the Russian economists tell the government that foreign exchange is essential to Russia’s development.

As Michael Hudson and I explained on a number of occasions, this is nonsense. Russia’s development is dependent in no way on the acquisition of foreign currencies.

The Russians are also convinced that they need foreign investment, which serves only to drain profits out of their economy.

The Russians are also convinced that they should freely trade their currency, thereby subjecting the ruble to manipulation on foreign exchange markets. If Washington wants to bring a currency crisis to Russia, all the Federal Reserve, its vassal Japanese, EU, and UK central banks have to do is to short the ruble. Hedge funds and speculators join in for the profits.

Neoliberal economics is a hoax, and the Russians have fallen for it.

So have the Chinese

Suppose that when all these accusations against Russia began – take the alleged attack on the Skirpals for example – Putin had stood up and said:

“The British government is lying through its teeth and so is every government including that of Washington that echoes this lie. Russia regards this lie as highly provocative and as a part of a propaganda campaign to prepare Western peoples for military attack on Russia. The constant stream of gratuitous lies and military exercises on our border have convinced Russia that the West intends war. The consequence will be the total destruction of the United States and its puppets.”

That would have been the end of the gratuitous provocations, military exercises, and sanctions.

Instead, we heard about “misunderstandings” with out “American partners,” which encouraged more lies and more provocations.

Or, for a more mild response, Putin could have announced: “As Washington and its servile European puppets have sanctioned us, we are turning off the rocket engines, all energy to Europe, titanium to US aircraft companies, banning overflights of US cargo and passenger aircraft, and putting in place punitive measures against all US firms operating in Russia.”

One reason, perhaps, that Russia does not do this in addition to Russia’s mistaken belief that it needs Western money and good will is that Russia mistakenly thinks that Washington will steal their European energy market and ship natural gas to Europe. No such infrastructure exists. It would take several years to develop the infrastructure. By then Europe would have mass unemployment and would have frozen in several winters.

What about China?

China hosts a large number of major US corporations, including Apple, the largest capitalized corporation in the world. China can simply nationalize without compensation, as South Africa is doing to white South African farmers without any Western protest, all global corporations operating in China. Washington would be overwhelmed with global corporations demanding removal of every sanction on China and complete subservience of Washington to the Chinese government.

Or, or in addition, China could dump all $1.2 trillion of its US Treasuries. The Federal Reserve would quickly print the money to buy the bonds so that the price did not collapse. China could then dump the dollars that the Fed printed in order to redeem the bonds. The Fed cannot print the foreign curriences with which to purchase the dollars. The dollar would plummet and not be worth a Venezuelan bolivar unless Washington could order its pupper foreign central banks in Japan, UK, and EU to print their currencies in order to purchase the dollars. This, even if complied with, would cause a great deal of stress in what is called “the Western alliance,” but what is really Washington’s Empire.

Why don’t the Russian and Chinese play their winning hands? The reason is that neither government has any advisers who are not brainwashed by neoliberalism. The brainwashing that Americans gave Russia during the Yeltsin years has been institutionalized in Russian institutions. Trapped in this box, Russia is a sitting duck for Washington.

Turkey is a perfect opportunity for Russia and China to step forward and remove Turkey from NATO. The two countries could offer Turkey membership in BRICS, trade deals, and mutual security treaties. China could easily buy up the Turkish currency off foreign exchange markets. The same could be done for Iran. Yet neither Russia nor China appear capable of decisive action. The two countries, both under attack as Turkey is from Washington, sit there sucking their thumbs. 

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Ford Motor Credit Company LLC (“Ford Credit”) filed court documents with the Northern District of Texas last week, as part of a lawsuit against Reagor-Dykes Motors, LP claiming the dealerships and other related Debtors entities ran “the largest floor-plan-financing frauds in the history of the United States.”

The documents said Reagor-Dykes Auto Group hid a “massive breach” from Ford Credit by fraudulently misrepresenting sales-reporting data to Ford Credit. The company believed Reagor-Dykes was timely paying off cars it sold to the public, however, Ford Credit said the company was selling vehicles on average of 55 days before reporting it to Ford Credit.

Ford Credit is asking Bankruptcy Court to appoint a trustee to manage the Chapter 11 filing, claiming Reagor-Dykes committed “multiple acts of fraud and gross mismanagement.” The auto giant’s financing unit alleges that Reagor-Dykes stole over $41 million previously advanced by Ford Credit. On July 31, Ford Credit sued numerous companies related to Reagor-Dykes Motors, LP. Shortly after that, those businesses filed for Chapter 11 bankruptcy.

The documents said:

“(Reagor-Dykes) may have caused one of the largest floor-plan-financing defaults in the history of the United States. And while the size of the default is certainly significant, the fact that it occurred during the years of unprecedented car-sale growth is just as telling. Since its (lowest point) in 2009, the automotive market for new and used cars has exploded. Annual U.S. car and truck sales topped 17 million for the third straight year in 2017. But despite the sustained market growth, (Reagor-Dykes’) business has cratered. Indeed the current management has run (Reagor-Dykes’) operations into the ground, causing a $41 million default. Simply put, a trustee is necessary to take over (Reagor-Dykes’) operations and turnaround the business.”

Ford Credit claimed that Reagor-Dykes engaged in fraud known as “check kiting”.

This is how it worked: vehicles financed by Ford Credit were sold to customers, and Reagor-Dykes would keep the money without reporting the sale to Ford. By not immediately reporting the transaction, the fraudulent company would not have to reimburse Ford immediately. In a July audit, Ford lawyers discovered “an average discrepancy of 55 days” on about 150 vehicle sales. Ford’s policy is only seven days. The documents also said, “Ford Credit has also determined that Debtors [Reagor-Dykes] double-floored at least 85 vehicles.”

“Double-floored means that one dealership took possession of a new vehicle and requested financing from Ford Credit. Then, having received financing from Ford, the same vehicle was transferred to another dealership. The second dealership would then apply for financing on the same vehicle,” said NBC Amarillo.

In another bankruptcy document, Ford Credit said it has $46 million in uncollateralized obligations with the dealership;  the total debt was reported to be around $116 million.

Bankruptcy documents relating to Reagor-Dykes indicated that an external investigation “in the name of transparency” is welcomed.  The dealership said even its owners, Bart Reagor and Rick Dykes, should be subject to investigation. Ford Credit states the contract breach is loan fraud, and if proven in court, could be punishable by years in prison.

Ford Credit requested the motion for a bankruptcy trustee to be heard on an expedited basis in conjunction with the hearing on the use of cash collateral scheduled for August 16, 2018.

While fraud is usually minimized or concealed during an economic boom cycle, it seems as Bart Reagor and Rick Dykes could not continue their fraudulent scheme of check kiting and double-flooring, as it has become apparent the auto industry is heading into a slowdown. At the end of an economic expansion, that is when fraud usually comes out of the woodwork.  Which leaves a question: how many other dealerships around the country are committing similar frauds?

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Authored by Tom Lewis via GoldTelegraph.com,

The U.S. economy grew by 4.1 percent during the past quarter, and that’s good news. All the economic signs are positive. Or are they?

There is much less discussion about debt, which has hit another record high. The global debt just reached $247 trillion for the first quarter of this year. That is $29 trillion higher than two years ago. While we rejoice in growth, let’s consider that the global debt-to-GDP ratio exceeds 318 percent. The U.S. debt to GDP exceeds 100 percent. The flood waters are rising, the dams are broken, and we are literally drowning in debt.

Emerging markets, such as Argentina and Nigeria, have accumulated $58.5 in debt, $900 billion of which are in U.S. bonds which will mature in 2020. When interest rates eventually rise, as they will, repayment and refinancing will be more difficult and expensive. Some debts, without a doubt, will be defaulted.

Investor Warren Buffett admits stocks are currently overvalued. He foresees the market going down, but then pulling itself back up. Others are a bit more pessimistic. David Lipton of the IMF has indicated that the burgeoning debt, combined with low interest rates, pose a tremendous economic risk. Dan Coatsof U.S. National Security views America’s $21 trillion debt as not only an economic problem but a security risk, as well.

With rising interest rates looming and trade war between the U.S. and China a real possibility, there are reasons for concern.

Where there is debt, interest payments follow. If current fiscal policies, including President’s Trump’s tax cuts, continue, interest payments could climb to $1.05 trillion by 2028. This would exceed payments for the military or Medicaid as part of the U.S. budget. Interest payments are the fastest part of our budget.

Debt, and the interest payments thereon, are a commitment. However, the current policy of tax cuts and increased spending are decreasing instead of increasing the federal revenues which would allow for repayment. It is up to Congress to set some sound, sane fiscal policies. The simple fact, known to any ten-year with an allowance, is that you can’t keep spending more than you take in.

Thus far, Congress has shown no signs of doing its job. The Federal Reserve continues to print fiat money with abandon, literally throwing fake money at the problem.

It is up to Congress to put a ceiling on our ever-growing debt and find new ways to raise revenues and cut needless spending. Tax breaks and loopholes need to be eliminated. Our debt needs to be paid instead of ignored, and this will take a huge commitment from policymakers. If Congress fails us, it won’t be members of Congress paying our current out-of-control debt. It will our children, grandchildren, and great-grandchildren. They are inheriting a record budget deficit before they have been born.

Congress also needs to consider that Social Security, a debt owed to America’s elderly, is expected to run out of funds in 12 years. We need a plan that protects the money paid into the system for future generations. They have paid for it; they have earned it.

Instead of reveling in our current economic growth, we need to ensure that necessary programs are funded, and our debt is decreased. Wishing won’t make this happen. Congress needs to do something utterly unprecedented – it needs to act sensibly, logically, and in favor of the American people.

Does any American family want to face interest payments as the largest portion of its budget? Neither should the government.

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Authored by Finian Cunningham via The Strategic Culture Foundation,

The new round of sanctions this week unleashed by the United States on Russia has only one meaning: the US rulers want to crush Russia’s economy. By any definition, Washington is, in effect, declaring war on Russia.

The implemented economic measures may have a seemingly abstract or sterile quality about them: banning electronic exports to Russia, rattling financial markets, stock prices falling. But the material consequence is that American officials are intending to inflict physical damage on Russian society and Russian people.

It’s economic warfare on a sliding scale to military warfare, as the Prussian General Karl von Clausewitz would no doubt appreciate.

It seems all the more significant that this week also saw US internet services launching a major clampdown on anti-war websites, suggesting that the powers-that-be want to shut down any criticism or public awareness of their reckless warmongering.

What’s more, the latest round of US sanctions – there have been several previous rounds since the contrived Ukrainian conflict in 2014 – is based on nothing but wild, ridiculous speculation. That only adds insult upon injury.

Washington said the new proposed sanctions are due to its “determination” that the Russian state was responsible for an alleged chemical-weapon attack on a former double agent in England earlier this year.

The so-called Skripal affair involving Sergei Skripal and his daughter Yulia allegedly being poisoned by Russian agents using a deadly nerve agent is as yet an unproven conundrum. Some might even say “farce”.

No evidence has ever been presented by the British government to substantiate its sensational allegations against Moscow. Its claims that Russia was responsible for poisoning the Skripals rests entirely on dubious assertion and innuendo.

Now Washington is proposing sanctions based on a wholly unverified “determination” by the British – sanctions that are intended to crush the Russian economy. The proposed punitive measures go way beyond the usual freezing of assets pertaining to individuals. What Washington is moving to do is attack the core financial operation of the Russian economy.

No wonder that Russian Prime Minister Dmitry Medvedev issued a grave response to the latest American sanctions. He said they were comparable to “economic warfare”. Medvedev warned that Moscow would have to retaliate either “politically, economically or in some other way”. Medvedev’s tone was unmistakably one of alarm at the draconian, gratuitous and irrational nature of the US actions.

Kremlin spokesman Dmitry Peskov also expressed incredulity and apprehension over Washington’s conduct. He said that following the seemingly constructive summit between US President Donald Trump and Russian counterpart Vladimir Putin in Helsinki last month, this latest provocation from Washington makes the American side completely unpredictable.

The immediate sanctions coming into force are limited to banning exports of US electronics to Russia. But it’s what comes next that is perplexing. Washington is saying that if Russia does not give a “guarantee” on halting the future use of chemical weapons, and if Moscow does not allow international inspectors into its country to monitor alleged chemical weapons – then the second wave of sanctions will be applied within 90 days.

The subsequent round of sanctions include banning Russian state-owned airline, Aeroflot, from operating flights to the US. The impossibility of Russia meeting Washington’s absurd demands make the further application of sanctions inevitable.

A separate bill is passing through Congress which is planning to hit the Russian banking system, aimed at preventing international transactions.

Senators sponsoring that bill have labelled it “the sanctions bill from hell”. The title of the proposed legislation says it all: “Defending American Society From Russian Aggression Act”. Senators John McCain, Lindsey Graham, Robert Menendez and Ben Cardin, among other Russophobes who are pushing the bill, are explicit about the objective. They say the measures implemented will “crush the Kremlin”.

Tragically, the American people are being led to the abyss by politicians who are either ignorant, insane or prostitutes for war profits. Maybe even all of the above. Perversely, these politicians and their media clients accuse Russia of “acts of war” over fantastical claims about “election interference” when in reality it is they who are the ones committing acts of war against Russia.

The chances are paltry that President Trump will use his executive power to block the forthcoming sanctions. The political climate in the US among the intelligence agencies, lawmakers and the mainstream media has become saturated with anti-Russian hysteria. The US is an oligarchy in throes of insanity beyond democratic accountable to its people.

Already this week’s announcement of more offensive economic incursions on Russia sent the Russian economy plummeting. The ruble, bonds and stocks all nosedived. This is an attack on Russia’s vital interests. An economic Barbarossa.

No doubt part of the American calculation is to foment social discontent and discord towards the Putin government. It’s the same illegal playbook that the Americans are using with Iran, whose economy this week was also hit with draconian US sanctions.

If Russia’s economy has been thrown into turmoil already over the latest announced sanctions one can only imagine the damage inflicted when further American attacks are mounted on the fundamentals of Russia’s banking system and its freedom to trade with the rest of the world.

For Washington this seems to be open season for sanctions. It’s not just Russia and Iran on the receiving end. China, Canada, the European Union, Turkey, Venezuela, North Korea, among others, are also being battered with American economic warfare, either under the name of “sanctions” or indirectly using the rhetoric of “tariffs”.

For Russia’s part, it has shown immense forbearance up to now in tolerating Washington’s provocations and indeed aggression over numerous pretexts. From the conflict in Ukraine, to the alleged annexation of Crimea, to Moscow’s principled support for Syria being traduced as “supporting a dictator”, to alleged “meddling in US elections”, and much more, Russia has shown huge reserves of stoicism and self-discipline in tolerating what can only be called gratuitous American aggression.

At all times, Russia has maintained a dignified, unflappable posture in the face of American taunting and irrationality. Moscow perhaps thought that President Trump could bring some normality to bilateral relations. That’s turned out illusory.

But what happens now? When Washington has really gone too far. The US has taken its churlish conduct to a whole new dangerous level, by preparing to launch a full-on economic war on Russia’s vital interests.

The crazed American rulers are pushing the world to the brink by their belligerence.

Washington has heretofore given notice that it is not interested in diplomacy, dialogue, or negotiation. It only has one mode of conduct – war, war, war.

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A Baltimore police officer was suspended with pay after a viral video showed him repeatedly punching a man in the face before body slamming him to the ground.

Interim Police Commissioner Gary Tuggle said he was “deeply disturbed” by the video published on social media, and that the incident is now under investigation.

“The officer involved has been suspended while we investigate the totality of this incident,” Tuggle said. “Part of our investigation will be reviewing body worn camera footage.”

The Baltimore Police said the incident occurred Saturday afternoon. It was not clear what provoked an initial police response outside the 2600 block of E. Monument St. in East Baltimore City.

Police said the second officer present at the scene was placed on administrative duties pending the outcome of the investigation.

Attorney Warren Brown, who is representing the man who was brutally punched, told The Baltimore Sun his client is Dashawn McGrier, 26. Brown said McGrier was not being charged with a crime but was rushed to a nearby hospital for suspected fractures to the face from the fight.

“Brown said McGrier had a previous run-in with the same police officer — whom he identified as Officer Arthur Williams — in June that resulted in McGrier being charged with assaulting the officer, disorderly conduct, obstructing and hindering, and resisting arrest. Brown said that in that incident and in the one Saturday, McGrier was targeted without justification by the officer,” said The Baltimore Sun.

“It seems like this officer had just decided that Dashawn was going to be his punching bag,” Brown said. “And this was a brutal attack that was degrading and demeaning to my client, to that community, and to the police department.”

The 36-second video was shared on numerous social media platforms by activists, community members, and journalist, shows a Baltimore police officer talking to a man on the city street backed up against a building.

The man, yells at the officer, “For what?” That is the moment when the officer pushed the man against the building, but the man then shouts, “Don’t touch me,” before the officer then unleashes a WWE Smackdown assault.

The officer strikes the man with a barrage of blows to the face as he body slams him onto the ground. Even as the man hits the ground, the officer continues punching the man. Throughout the short video, it appears the man did not hit the officer.

DeRay Mckesson, an American civil rights activist, shared the video on Twitter Saturday afternoon, which he asked for a response from the city’s mayor, Catherine Pugh. Since the tweet, the video has been viewed more than 300k times.

TW: Police Violence

This is a video of the @BaltimorePolice reported to be from earlier today.

And this is why folks don’t have any faith in the police. @MayorPugh50, what’s your response to this? What is happening with the consent decree? pic.twitter.com/yABsCZDEmq

— deray (@deray) August 11, 2018

Brown said Internal Affairs officers interviewed McGrier at the hospital. Brown had a conversation with the office of Baltimore State’s Attorney Marilyn Mosby. However, Mosby’s office did not respond to a request for comment via The Baltimore Sun.

In a statement, Mayor Pugh said she viewed the video and “demanded answers and accountability.”

“We are working day and night to bring about a new era of community-based, Constitutional policing and will not be deterred by this or any other instance that threatens our efforts to re-establish the trust of all citizens in the Baltimore Police Department,” the statement read.

Mayor Pugh referred to Tuggle in a statement late Saturday, in which she also called the incident between officers and McGrier “disturbing.”

City Councilman Brandon Scott said the department followed protocol by suspending the officer but should have fired him.

“You see that video and you see what we are trying to prevent in the police department,” said Scott, who is chair of the council’s public safety committee. “It goes against the consent decree and the work we’re trying to do to rebuild trust between the community and the police department.”

In early 2017, Baltimore and the U.S. Justice Department entered into a consent decree deal that aimed to issue new drastic reforms for the crippled police department. The agreement via the Feds discovered widespread racial discrimination against black residents in the department’s policing tactics.

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Authored by Christopher Wood via Grizzle.com,

The base case here remains that the 2Q18 US GDP will mark the peak of growth in this cycle on the ‘sugar rush’ of Donald Trump’s tax reform.

Still, the latest US GDP data was impressive. Consumption was strong and capital spending maintained its momentum. US real GDP rose by an annualized 4.1%QoQ in 2Q18, compared with 2.2% in 1Q18, and was up 2.8% YoY in 2Q18 (see following chart). While real private consumption rose by an annualized 4.0%QoQ and 2.7%YoY in 2Q18 (see following chart).

As for real private non-residential fixed investment, or capex, it rose by an annualized 7.3%QoQ and 6.7%YoY in 2Q18, compared with an annualized 11.3%QoQ and 6.7%YoY in 1Q18.

US REAL GDP GROWTH

Source: US Bureau of Economic Analysis

US REAL PRIVATE CONSUMPTION GROWTH

Source: US Bureau of Economic Analysis

INCOME OUTPACING CONSUMPTION

The really interesting point about the second quarter data was the impact of some significant revisions to the personal income data. Annualized personal disposable income growth for the past two years to 1Q18 has been revised up from 3.4% to 4.4% in nominal terms and from 1.5% to 2.4% in real terms.

The result is to make the US household sector look in much better health. It now transpires that income growth has been running ahead of consumption growth in the past five quarters, which was not the case previously. Thus, real personal disposable income growth rose from 1.1%YoY in 3Q16 to 2.9%YoY in 2Q18, while real personal consumption growth remained broadly flat at 2.7%YoY over the same period (see following chart).

REAL PERSONAL CONSUMPTION GROWTH AND PERSONAL DISPOSABLE INCOME GROWTH

Source: US Bureau of Economic Analysis

As a result, the US savings rate is almost double the level it was previously estimated at. The US personal savings rate was 6.8% of disposable income in 2Q18, according to the revised data, and broadly flat over the past five years.

By contrast, the previously released data showed that the savings rate had declined from 6.2% in 2Q15 to 3.1% in April-May 2018 (see following chart). Moreover, this strong income growth trend has also been confirmed to an extent by the release of the monthly personal income data for June. Personal disposable income rose by 5.4% YoY in nominal terms and 3.1%YoY in real terms in June, up from 4.9%YoY and 2.7%YoY in May (see following chart).

The same trend is also reflected in the latest Employment Cost Index (ECI) data for 2Q18. The Employment Cost Index rose by 2.8%YoY in 2Q18, up from 2.7%YoY in 1Q18. This is the highest growth rate since 3Q08.

REVISIONS IN US PERSONAL SAVINGS AS % OF DISPOSABLE INCOME (QUARTERLY DATA)

Note: Old data up to April-May 2018. Source: US Bureau of Economic Analysis

US MONTHLY PERSONAL DISPOSABLE INCOME GROWTH

Note: Data up to June 2018. Source: US Bureau of Economic Analysis

STRONG CONSUMPTION COULD ACCELERATE MONETARY TIGHTENING

All of the above data has increased the risk of another test of the top end of the channel on the yield on the 10-year Treasury bond. It is also the case that the recent revisions have also strengthened the case for higher inflation. The US GDP deflator rose from 2%YoY in 1Q18 to 2.4%YoY in 2Q18, the highest level since 4Q07 (see following chart). While core PCE inflation accelerated from 1.7%YoY in 1Q18 to 1.9%YoY in 2Q18 (see following chart).

All this has the potential to resurrect accelerating monetary tightening concerns and this time there will be a political dimension to the story given that Donald Trump has now made Fed policy part of the political debate.

Money markets are already projecting 75-100bp of monetary tightening through to the end of 2019, with another 25bp rate hike expected at the September FOMC meeting on 25-26 September.

US GDP DEFLATOR

Source: US Bureau of Economic Analysis

US CORE PCE INFLATION

Note: Quarterly data up to 2Q18. Source: US Bureau of Economic Analysis

IMPACTS OF THE END OF US CYCLICAL EXPANSION

Thus, in investment terms, it has become very important if the last quarter really does mark the peak of US cyclical expansion. For if that is the case, then it is more likely that the US dollar has seen the bulk of its rally and the bond market has seen most of its correction, outcomes which would be positive for both emerging market debt and equities.

But if the cyclical momentum seen last quarter is maintained, then another test is coming for markets in general, and Asian and emerging markets in particular, most particularly if it is combined with renewed negative news flow on the ‘trade war’ issue.

For if US cyclical momentum is not peaking, then that would suggest that the current macro ‘combo’ in a Trump-led America will go on for longer, namely monetary tightening combined with aggressive fiscal easing.

That combination can be super dollar bullish, as was the case the last time the US really had such a combo when Ronald Reagan was elected in November 1980 and pursued “supply side reform” while at the same time then Federal Reserve Chairman Paul Volcker was tightening monetary policy.

The US dollar index surged from 88.4 in November 1980 to a peak of 164.7 in February 1985, a level that remains an all-time high (see following chart).

US DOLLAR INDEX

Source: Bloomberg

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Is America’s most celebrated grandfatherly statesman and diplomat, the man whose advice and guidance on world affairs nearly every president of the past half-century has sought, himself being pulled into the nebulous world of “Russia-linked” allegations?

A new Bloomberg investigative report begins with the following tantalizing intro:

In March 2016, as the U.S. foreign policy establishment shunned presidential candidate Donald Trump, his son-in-law Jared Kushner was invited to lunch for a think tank urging detente with Russia and struggling for influence in Washington.

The meeting at Manhattan’s Time Warner Center, which hasn’t been reported before, would prove significant for the Center for the National Interest and Kushner, who was still a little-known figure in the Trump campaign.

And then enter Dimitri Simes — the Russian-born president of the think tank — as Bloomberg is keen to inform its readers, and enter accused Russian agent Maria Butina, who once wrote a single op-ed piece for The National Interest. 

And finally, with key pieces of the standard “collusion course” narrative in place, the main attraction is ready to enter the center of the new saga …enter Henry Kissinger. 

That’s right, what may be a Russia-linked think tank run by a Russian-born conservative intellectual once upon a time hosted way back in 2016… gasp… now senior White House advisor and Trump son-in-law Jared Kushner alongside Henry Kissinger.

Kushner at that time merely made a brief introduction of himself to Kissinger after the latter gave a talk on US-Russian relations as the center’s honorary chairman. Kushner, as the lesser recognizable figure at the time “remained quiet and unobtrusive during the lunch” according to Bloomberg’s description.

Kissinger, as former National Security Advisor under President Nixon, has actually long maintained close ties with the Center for the National Interest from its foundations in the 1990s. The think tank was personally founded by Nixon under the original name, the Nixon Center for Peace and Freedom.

But for Bloomberg the March 2016 lunch has huge significance as alleged Russian agent Maria Butina had used the center to set up meetings possibly between US and Russian financial officials. Bloomberg notes, “Questions have recently been raised about the center for its ties to Russia, including its interactions with Maria Butina, a woman accused of conspiring  to set up a back channel by infiltrating the National Rifle Organization and the National Prayer Breakfast.”

The Kissinger lunch event was reportedly the start of lasting relationships that would significantly boost Kushner’s profile around Washington foreign policy circles, according to Bloomberg:

Kushner meeting Simes at the lunch turned out to be a solid match. In the weeks following they discussed the possibility of an event hosted by the center to give Trump a chance to lay out a cohesive foreign policy speech. Simes’s organization, more pro-Russian than most in Washington, had invited other presidential candidates but none accepted. And Republican foreign policy analysts feared associating with Trump could end their careers. The center had the imprimatur of Kissinger, however, because it had been established by Richard Nixon who named him national security adviser.

A partnership with the center would help catapult Kushner to his role as a key diplomat in the White House. He and Simes organized Trump’s “America First” speech at the Mayflower Hotel the next month, with writing input and a guest list from the center.

So a “more pro-Russian than most” think tank founded by Richard Nixon shortly before his death in 1994 became the setting for the launch of Kushner’s Russia-tainted political career.

The report notes further that Simes and the center would help organize key foreign policy speeches highlighting Trump’s “America First” doctrine which called for easing tensions with Russia.  

Bloomberg highlights the significance of these events at the Mayflower:

It was at the Mayflower that Kushner first met Russian Ambassador Sergey Kislyak, an encounter he left off disclosure forms when he initially joined the government. After Trump was elected, but before he took office, Kushner asked Kislyak whether the transition team could use the Russian embassy to communicate privately with Moscow.

But Kissinger’s role in providing Kushner legitimacy in D.C. policy circles continued after their 2016 encounter at the Center for the National Interest, to wit:

Through a spokeswoman, Kissinger confirmed meeting Kushner for the first time at the lunch in March. A year later, he wrote an endorsement of Kushner for Time’s list of the 100 most influential people, saying his closeness to the president, his education, and his years in business “should help him make a success of his daunting role flying close to the sun.”

And there it is… the bombshell smoking gun outcome to the story, Kushner’s Ties to Russia-Linked Group Began With Kissinger Lunch.

But actually there’s more, namely the shocking contents of that fateful Trump campaign speech at the Mayflower Hotel which was the ultimate fruit produced of the unlikely Simes-Kushner-Butina-Kislyak-Kissinger axis of mutual influence peddling.

 

In his speech at the Mayflower, Trump called for easing tensions with Russia.

“Common sense says this cycle, this horrible cycle of hostility must end and ideally will end soon,” Trump said. “Good for both countries.”

And the sinister plot continues to be unravel.

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