Tag: news

At a moment of widespread acknowledgement that the short-lived Islamic State is no longer a reality, and as ISIS is about to be defeated by the Syrian Army in its last urban holdout of Abu Kamal City in eastern Syria, the US is signalling an open-ended military presence in Syria. On Monday Defense Secretary Jim Mattis told reporters at the Pentagon that the US is preparing for a long term military commitment in Syria to fight ISIS "as long as they want to fight."

Mattis indicated that even should ISIS loose all of its territory there would still be a dangerous insurgency that could morph into an "ISIS 2.0" which he said the US would seek to prevent. “The enemy hasn’t declared that they’re done with the area yet, so we’ll keep fighting as long as they want to fight,” Mattis said. “We’re not just going to walk away right now before the Geneva process has traction.”

Defense Secretary Jim Mattis stands in front of a map of Syria and Iraq.

Mattis was referring to the stalled peace talks in Geneva which some analysts have described as a complete failure (especially as the Geneva process unrealistically stipulates the departure of Assad), as the future of Syria has of late been increasingly decided militarily on the battlefield, with the Syrian government now controlling the vast majority of the country's most populated centers.

Ironically just as some degree of stability and normalcy has returned to many parts of the county now under government control, Mattis coupled the idea of a permanent US military presence with the goal of allowing Syrians to return to their homes. He said, “You keep broadening them. Try to (demilitarize) one area then (demilitarize) another and just keep it going, try to do the things that will allow people to return to their homes.”

Meanwhile Turkey once again reiterated that the US has 13 bases in Syria, though the US-backed Syrian YPG has previously indicated seven US military bases in northern Syria. The Pentagon, however, would not confirm base locations or numbers – though only a year-and-a-half ago the American public was being assured that there would be "no boots on the ground" due to mission creep in Syria.

During the last year of the Obama administration, State Department spokesman John Kirby was called out multiple times by reporters for tell obvious and blatant lies concerning "boots on the ground" in Syria. 

Remember this? "We are not going to be involved in a large scale combat mission on the ground in Syria. That is what the president [Obama] has long said."

Last summer, in a move that angered the US administration, Turkish state media leaked the locations of no less than ten small scale American military bases in northern Syria alone (revelations of US bases in southern Syria began surfacing as well). As another recent Pentagon press conference further acknowledged, these bases – though likely special forces forward operating bases – require a broad network of US personnel operating in various logistical roles inside Syria and likely now includes thousands of US troops deployed on the ground, instead of the Pentagon's official (and highly dubious) "approximately 500 troops in Syria" number. 

What makes even the timing of Mattis' declaration of an open ended military commitment in to supposedly fight ISIS is that it came the same day that the BBC confirmed that the US and its Kurdish SDF proxy (Syrian Democratic Forces) cut a deal with ISIS which allowed for the evacuation of possibly thousands of ISIS members and their families from Raqqa. 

According to yesterday's bombshell BBC report:

The BBC has uncovered details of a secret deal that let hundreds of Islamic State fighters and their families escape from Raqqa, under the gaze of the US and British-led coalition and Kurdish-led forces who control the city. A convoy included some of IS's most notorious members and – despite reassurances – dozens of foreign fighters. Some of those have spread out across Syria, even making it as far as Turkey.

IMPORTANT NOTE: Omar fields falling into hands of SDF could well have been part of a Quid pro quo deal that allowed ISIS to leave Raqqa for allowing SDF to capture Omar oil field after ISIS attacks #SyrianArmy positions. If you read 1 article today, make sure its one by BBC below https://t.co/FFQhOIjPEC

— EHSANI2 (@EHSANI22) November 13, 2017

4000 #ISIS and families evacuated by #USA forces from #Raqqah, including foreign fighters: the scandal of the century. http://pic.twitter.com/P5UdgbgBn1

— Elijah J. Magnier (@ejmalrai) November 13, 2017

Though it's always good when the mainstream media belatedly gives confirmation to stories that actually broke months prior, the BBC was very late to the story. ISIS terrorists being given free passage by coalition forces to leave Raqqa was a story which we and other outlets began to report last June, and which Moon of Alabama and Al-Masdar News exposed in detail a full month prior to the BBC report. 

And astoundingly, even foreign fighters who had long vowed to carry out attacks in Europe and elsewhere were part of the deal brokered under the sponsorship of the US coalition in Syria. According to the BBC report:

Disillusioned, weary of the constant fighting and fearing for his life, Abu Basir decided to leave for the safety of Idlib. He now lives in the city. He was part of an almost exclusively French group within IS, and before he left some of his fellow fighters were given a new mission.

 

"There are some French brothers from our group who left for France to carry out attacks in what would be called a ‘day of reckoning.’”

 

Much is hidden beneath the rubble of Raqqa and the lies around this deal might easily have stayed buried there too. The numbers leaving were much higher than local tribal elders admitted. At first the coalition refused to admit the extent of the deal.

So it appears that the US allowed ISIS terrorists to freely leave areas under coalition control, according to no less than the BBC, while at the same time attempting to make the case before the public that a permanent Pentagon presence is needed in case of ISIS' return. But it’s a familiar pattern by now: yesterday's proxies become today's terrorists, which return to being proxies again, all as part of justifying permanent US military presence on another nation's sovereign territory.

America's Syrian adventure went from public declarations of “we’re staying out” to “just some logistical aid to rebels” to “okay, some mere light arms to fight the evil dictator” to “well, a few anti-tank missiles wouldn’t hurt” to “we gotta bomb the new super-bad terror group that emerged!” to “ah but no boots on the ground!” to “alright kinetic strikes as a deterrent” to “but special forces aren’t really boots on the ground per se, right?” to yesterday's Mattis declaration of an open-ended commitment. And on and on it goes.

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Well that escalated quickly as the USDJPY ramp momo ignition failed…

 VIX pushed up to itshighest in 3 weeks as stocks tumbled below yesterday's lows to 3-week lows…

 

All major indices red for November

 

The question is… are HY bonds the canary?

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Last night, the Washington Post reported Attorney General Jeff Sessions is considering whether to appoint another special counsel to investigate the Clintons and other Obama-era officials. This morning, the AG will face questions from Democrats when he testifies before the House Judiciary Committee. According to Reuters, the questions will likely focus on whether Sessions lied about communications between the Trump campaign and Russian officials.

The hearing was scheduled as a routine oversight hearing. But given the recent leaks from the Mueller probe and the release of Carter Page's redacted testimony – which both Page and the committee agreed to release to the public – Sessions has been warned to expect a barrage of questions about the Trump camp's ties to Russia or Russian-linked entities.

Sessions has publicly testified before the Senate Intelligence Committee – back in June – and Senate Judiciary Committee – in October – previously this year to answer questions related to the various Congressional inquiries into whether Russia intentionally tried to influence the US election.

Democrats on the House Judiciary Committee told Sessions in a letter sent last week to expect questions on Russia, according to Reuters. The letter notes that George Papadopoulos, the Trump campaign foreign policy adviser who pleaded guilty to lying to FBI agents, spoke with other campaign officials about his attempts to coordinate a meeting with Russian officials.

Sessions told Sen. Al Franken in October that he was "not aware of anyone else" within the campaign who had communications with the Russians. Given the revelations involving Papadopoulos, Page and Manafort that have emerged since, the veracity of Sessions' previous sworn testimony will likely be called into question.

"There will be a lot about his sworn testimony to the Senate," Rep. Steve Cohen, D-Tenn., said of today’s hearing.

ABC added that on the topic of political interference in his department's work, Democrats want "assurances" that the Justice Department's leaders aren't being pressured by Trump into "protecting friends and punishing enemies."

Sessions may also be asked about the Justice Department's response to the nation's latest mass shooting. More than 20 people died after a gunman opened fire at a church about 40 miles southeast of San Antonio, Texas, Nov. 5.

The hearing is slated to begin at 10 a.m. Eastern:

Watch it live below:

 

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Authored by Lance Roberts via RealInvestmentAdvice.com,

With Thanksgiving week rapidly approaching, I thought it was an apropos time to discuss what I am now calling a “Turkey” market.

What’s a “Turkey” market?  Nassim Taleb summed it up well in his 2007 book “The Black Swan.”

“Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race ‘looking out for its best interests,’ as a politician would say.

 

On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.”

Such is the market we live in currently.

In a market that is excessively bullish and overly complacent, investors are “willfully blind” to the relevant “risks” of excessive equity exposure. The level of bullishness, by many measures, is extremely optimistic, as this chart from Tiho Krkan (@Tihobrkan) shows.

Not surprisingly, that extreme level of bullishness has led to some of the lowest levels of volatility and cash allocations in market history.

Of course, you can’t have a “Turkey” market unless you are being lulled into it with a supporting story that fits the overall narrative. The story of “it’s an earnings-driven market” is one such narrative. As noted  by my friend Doug Kass:

“Earnings are there to support the market. If we didn’t have earnings to support the market, that would be worrying. But we have earnings.”
—Mary Ann Bartels, Merrill Lynch Wealth Management

 

“Earnings are doing remarkably well.”
—Ed Yardeni, Yardeni Research

 

“This is very much an earnings-driven market.”
—Paul Springmeyer, U.S. Bancorp Private Wealth Management

 

“This is very much earnings-driven.”
—Michael Shaoul, Marketfield Asset Management

 

“Equities have largely been driven by global liquidity, but they are now being driven by earnings.”
—Kevin Boscher, Brooks Macdonald International

 

“Most of the market action in 2017 has been earning-driven.”
—Dan Chung, Alger Management

 

“The action is justified because of earnings.“
—James Liu, Clearnomics

 

In another case of “Group Stink” and contrary to the pablum we hear from many of the business media’s talking heads, the U.S. stock market has not been an earnings-driven story in 2017. (I have included seven “earnings-driven” quotes above from recent interviews on CNBC, but there are literally hundreds of these interviews, all saying the same thing)

 

Rather, it has been a valuation-driven story, just as it was in 2016 when S&P 500 profits were up 5% and the S&P Index rose by about 11%. And going back even further, since 2012 S&P earnings have risen by 30% compared to an 80% rise in the price of the S&P lndex!

He is absolutely right, of course, as I examined in the drivers of the market rally three weeks ago.

“The chart below expands that analysis to include four measures combined: Economic growth, Top-line Sales Growth, Reported Earnings, and Corporate Profits After Tax. While quarterly data is not yet available for the 3rd quarter, officially, what is shown is the market has grown substantially faster than all other measures. Since 2014, the economy has only grown by a little less than 9%, top-line revenues by just 3% along with corporate profits after tax, and reported earnings by just 2%. All of that while asset prices have grown by 29% through Q2.” 

The hallmark of a “Turkey” market really comes down to the detachment of price from valuation and the deviation of price from long-term norms. Both of these detachments are shown in the charts below.

CAPE-5 is a modified version of Dr. Robert Shiller’s smoothed 10-year average. By using a 5-year average of CAPE (Cyclically Adjusted Price Earnings) ratio, it becomes more sensitive to market movements. Historically, deviations above 40% have preceded secular bear markets, while deviations exceeding -40% preceded secular bull markets.

The next chart shows the deviation of the real, inflation-adjusted S&P 500 index from the 6-year (72-month) moving average.

Not surprisingly, when the price of the index has deviated significantly from the underlying long-term moving averages, corrections and bear markets have not been too distant.

Combining the above measures (volatility, valuation, and deviation) together shows this a bit more clearly. The chart shows both 2 and 3-standard deviations above the 6-year moving average. The red circles denote periods where valuations, complacency and 3-standard deviation moves have converged. 

Of course, with cash balances low, you can’t foster that kind of extension without sufficiently increasing leverage in the overall system. The expansion of margin debt is a good proxy for the “fuel” driving the bull market advance.

Naturally, as long as that “fuel” isn’t ignited, leverage can remain supportive of the market’s advance. However, when the reversion begins, the “fuel” that drove stocks higher will “explode” when selling forces liquidation through margin calls.

While the media continues to suggest the markets are free from risk, and investors should go ahead and “stick-their-necks-out,” history shows that periods of low volatility, high valuations and deviations from long-term means has resulted in very poor outcomes.

Lastly, there has been a lot of talk about how markets have entered into a new “secular bull market” period. As I have addressed previously, I am not sure such is the case. Given the debt, demographic and deflationary backdrop, combined with the massive monetary interventions of global Central Banks, it is entirely conceivable the current advance remains part of the secular bear market that began at the turn of the century.

Only time will tell.

Regardless, whether this is a bull market rally in an ongoing bear market, OR a bull rally in a new bull market, whenever the RSI (relative strength index) on a 3-year basis has risen above 70 it has usually marked the end of the current advance. Currently, at 84, there is little doubt the market has gotten ahead of itself.

No matter how you look at it, the risk to forward returns greatly outweighs the reward presently available.

Importantly, this doesn’t mean that you should “sell everything” and go hide in cash, but it does mean that being aggressively exposed to the financial markets is no longer opportune.

What is clear is that this is no longer a “bull market.”

It has clearly become a “Turkey” market. Unfortunately, like Turkeys, we really have no clue where we are on the current calendar. We only know that today is much like yesterday, and the “bliss” of calm and stable markets have lulled us into extreme complacency.

You can try and fool yourself that weak earnings growth, low interest rates and high-valuations are somehow are justified. The reality is, like Turkeys, we will ultimately be sadly mistaken and learn a costly lesson.

“Price is what you pay, Value is what you get.” – Warren Buffett

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Deja vu all over again?

 

Hold your breath for the USDJPY momo ignition in 3…2…1…

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The latest monthly Fund Manager Survey by Bank of America confirmed what recent market actions have already demonstrated, namely that, as BofA Chief Investment Strategist Michael Hartnett explained, there is a “big market conviction in Goldilocks leading to capitulation into risk assets” while at the same time sending Fund managers’ cash levels to a 4-year low, and pushing “risk-taking” to a new all-time high, surpassing both the dot com and the 2007 bubbles.

BofA’s takeaways from the survey, which polled a total of 206 panelists with $610 billion in AUM, will not come as a surprise to those who have been following this survey in recent months, and which reaffirms that while investors intimately realize how bubbly assets have become, they have no choice but to buy them.

The latest survey highlights:

It’s still all about FAANG froth: the biggest market conviction is in Goldilocks (+ price action in FAANG/BAT, Bitcoin) resulting in bull capitulation; A stunning chart shows that risk-taking among Fund Managers hit an all time high in the lastest period…

…  even as cash levels grind lower despite a record high number saying equities overvalued. Indeed, as the next chart demonstrates, while the number of respondents saying equities are overvalued is at 48% – a new record high – cash levels continue to fall. Coupled with the record high number of “risk takers”, Bank of America concludes that “this is a sign of irrational exuberance“.

Hartnett’s next observation is a carryover from the October Fund Manager Survey, namely the prevailing belief that the economy has entered a Goldilocks state. One month later, this view is now consensus.

Calling it “Consensilocks”: Hartnett notes that there is an all-time high Goldilocks expectations (56% expect “high growth, low inflation”); which contrasts with tumbling bear view of secular stagnation as macro backdrop (was 88% Feb’16, now 25%); US tax reform expected to sustain or inflate Goldilocks. Just as importantly, goldilocks is now the consensus view for the global economic outlook, while the “below-trend growth/ inflation” outlook fell 9ppt to 25%, the lowest since May 11 & a total reversal from Jun’16.

Since this is fundamentally a Hartnett report, a mention of the Icarus rally was inevitable, and sure enough, the chief strategist points out that markets find themselves “ever closer to the sun”.  The reason: cash levels among fund managers dropped to 4.4% in November from 4.7%, the lowest since Oct’13 & no longer a “buy signal” according to BofA’ proprietary indicator; FMS hedge fund equity exposure at 11-year high. And while BofA’s Bull & Bear indicator has risen to 7.2, but cash did not fall sharply enough – yet – to trigger 8.0 “sell” signal.

So if this is an “irrationally exuberant” bubble, the next step is clear, only the timing is uncertain. As such, BofA notes that the key correction catalysts are inflation & market structure, while the biggest FMS risk to EPS = wage inflation;

Meanwhile, there are rising fund manager concerns over “market structure” (seen as the 3rd biggest tail risk); strategies most likely to exacerbate correction: vol selling (32%), ETFs (28%), risk parity (16%).

* * *

Her are some of the more notable survey takeaways: crowded trades are #1 long Nasdaq, #2 short volatility, #3 long credit…

   
… while “Long Nasdaq” is now the most crowded trade for the 6th time this year…

… while allocation to global equities in November rose to net 49%, the highest since Apr’15, 

… Highest Japan OW in 2-years, an epic FMS UW in UK assets, and big Nov

As a result, for any wannabe “contrarian stagflationists” out there, here are the BofA recommended trades: long UK, short Eurozone; long pharma, short banks; long utilities, short tech.

Putting it all together, here is Hartnett’s conclusion: “Our conviction in winter post-tax reform risk asset correction hardens.“

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Authored by Charles Hugh Smith via OfTwoMinds blog,

In this scenario, time is running out for Saudi Arabia's free-spending royalty and state – and for all the other free-spending oil exporters.

While there are numerous dynamics at work in the turmoil roiling Saudi Arabia and by extension, the Mideast, one way to cut to the chase is to follow the oil, follow the money. Correspondent B.D. recently posited a factor that has been largely overlooked in the geopolitical / fate-of-the-petrodollar discussions:

Perhaps the core dynamic is a technical one of diminished oil production. Here is Bart's commentary:

"I think the Saudis may be quickly running out of profitable oil to produce/export.

I think they tried to over-produce for a while to damage the competition… and they now have production issues resulting from that. (As has happened in the past)

I think they may have recently slipped over the event horizon for being the world's swing producer of 'cheap-ish and abundant' oil. That has huge ramifications for the global markets ability to quickly respond to supply/demand fluctuations.

I suspect they’re no longer cutting production voluntarily … they are now in the grip of a technically driven decline in output. (Why else begin selling off ARAMCO now?)

I doubt that many national economies can handle $70+ oil for very long… price will be limited by the ability of the consumers to pay. What I assume should happen is relentless severe volatility in the absence of a big swing producer that can open up or shut in production with comparative ease."

Thank you, B.D. Let's start with what's well-established about Saudi oil production:

1. The days of sticking a straw in the sand and oil gushing out are long gone. Oil production now depends on costly technologies such as pressurizing the wells with seawater, CO2, etc.

2. The soaring population of Saudi Arabia is dramatically increasing domestic consumption of the Kingdom's oil, reducing the amount of oil available for export.

3. The industry is skeptical of official Saudi estimates of proven reserves and production capacity.

Let's sketch a conjectural scenario which explains the extraordinary purges and power plays underway in Saudi Arabia:

1. As B.D. posited, Saudi production is already flat-out, and there is no million-barrel-per-day slack that can be brought online to depress global prices, crushing competitors and maintaining control of crude prices. In other words, the Saudis no longer have the technical / production capability needed to control global oil pricing– a power that they've enjoyed since 1973.

2. Saudi production is declining due to technical/real-world factors (depletion of super-major fields, etc.) that cannot be overcome at a financial cost that make sense at $50/barrel oil.

3. The possibility of a global recession unfolding in 2018 is rising. In a global recession, oil demand will fall, crushing the marginal pricing power of exporters.

4. The Saudi royal family and the Kingdom's vast state welfare system is no longer sustainable should oil fall into the $30-$35/barrel range due to a collapse of global demand.

5. The only way out is to grab the power now that will be needed to slash domestic welfare and domestic consumption of oil/gas, i.e. the power to overcome resistance within the royal family to severe reductions in royal/central state budgets.

Geopolitically speaking, very few if any oil exporters are able to prosper and fund their regional/global ambitions if oil plummets to $35/barrel and stays there for years. Every oil exporter makes brave statements about being just fine with $25/barrel oil, but the reality is every major oil exporter is dependent on oil revenues of a scale that can only be generated at $50/barral and up.

The discovery of new oil fields has fallen far below global consumption.

Meanwhile, U.S. producers have taken market share away from OPEC exporters, effectively reducing their influence over prices, as U.S. producers are to some degree the marginal swing producers.

The costs of exploration and production changed around the turn of the 21st century. The cost of discovering, extracting, refining and transporting new oil have increased dramatically.

All this suggests oil will have to become more costly for it to make financial sense to produce it. But as B.D. observed (and analyst Gail Tverberg has explained in great detail), oil-consuming economies will be pushed into stagnation/recession by significantly higher oil prices.

Will China Bring an Energy-Debt Crisis? (Our Finite World, Gail Tverberg)

In this scenario, time is running out for Saudi Arabia's free-spending royalty and state – and for all the other free-spending oil exporters. As a global recession looms ever closer, every oil exporter edges closer to the event horizon of financial, social, and political disorder and upheaval. Venezuela is just the first domino that's toppling. The Saudi leadership is trying to avoid being in the line of oil exporting dominoes that will fall in the 2018 global recession.

*  *  *

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With a December rate-hike baked into the cake (odds as close to 100% as possible), the hotter-than-expected PPI print has sparked notable outperformance in the long-end (amid Fed-driven slowdown fears) sending the yield curve to new cycle flats – flattest since 2007…

 

The last two times the yield curve was this flat, the US economy was in recession…

 

As a reminder, it took The Fed driving rates up to 5.25% before financial conditions finally snapped tighter…

 

But The Fed has only around 100bps of tightening space before the curve is inverted this time.

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