Month: December 2016

Not liking the outcome of the 2016 election, President Obama has apparently made the decision to use his final days in office to do everything possible to “box in” and undermine President-elect Trump.  The latest actions, of course, revolve around sanctions on several Russian entities and the expulsion of 35 Russian diplomats for “hacking” the election.  Unfortunately, that move seemingly backfired this morning when Putin announced that he “will not sink to the level of [Obama’s] ‘kitchen’ diplomacy”…apparently “when the Obama’s go low, Putin goes high”…to paraphrase the First Lady (see “Putin Stunner: ‘We Will Not Expel Anyone; We Refuse To Sink To Obama’s Level’“).

Meanwhile, the reckless parting moves against Russian aren’t the only unilateral actions Obama has made in his waning days to undermine the incoming Trump administration.  He also allowed the UN Security Council to condemn Israeli settlement activity, permanently banned oil and gas drilling large swaths of the Atlantic and Arctic oceans, closed off 1.6 million acres of Western land to development through the creation of new “national monument” and scrapped the last vestiges of a registration system used largely on Muslim immigrants.

We wonder how long America’s liberal snowflakes would spend rioting if similarly aggressive, hostile actions were taken by an outgoing Republican President?

Clearly, the unilateral moves and shear contempt for the will of the American people being displayed by the current administration is not sitting well with President-elect Trump.

Doing my best to disregard the many inflammatory President O statements and roadblocks.Thought it was going to be a smooth transition – NOT!

— Donald J. Trump (@realDonaldTrump) December 28, 2016

 

Meanwhile, Kellyanne Conway appeared on several stations last night to note that even the New York Times, and other outlets typically sympathetic to the Obama administration, are saying this is nothing more than a petty attempt to “box in” the incoming administration.

“Even those who are sympathetic to Obama on most issues are saying that part of the reason he did this today was to “box in” President-elect Trump.”

 

“That would be very unfortunate if politics were the motivating factor here.  But we can’t help but think that’s often true.”

 

“Even the New York Times characterized as such that this may be an attempt to box him in to see what he’ll do as President.  That’s not the way that peaceful transitions of administrations work in our great democracy.”

 

Per The Hill, incoming White House press secretary Sean Spicer confirmed that Obama’s actions could hamper the new administration, even as he praised the president’s team for being “very helpful” with the logistical aspects of the transition.  In other words, we would appreciate it if you didn’t set fire to the world before leaving office but thanks for showing us where the coffee machine is.

“Both the regulatory stuff, the executive orders that are on the way out … that [is] something that I believe, you know, makes it a little bit tougher in terms of the transition on the policy side,” Spicer told conservative talk radio host Hugh Hewitt.

While Trump released a statement yesterday saying it was “time to move on” from the “Russian hacking” narrative and sent the following tweets regarding Obama’s Israel snub…

We cannot continue to let Israel be treated with such total disdain and disrespect. They used to have a great friend in the U.S., but…….

— Donald J. Trump (@realDonaldTrump) December 28, 2016

not anymore. The beginning of the end was the horrible Iran deal, and now this (U.N.)! Stay strong Israel, January 20th is fast approaching!

— Donald J. Trump (@realDonaldTrump) December 28, 2016

 

…as The Hill points out, Trump’s hands will be tied from a practical perspective with regards to a number of Obama’s recent actions.

It’s unclear how many of Obama’s late actions Trump will able to reverse upon taking office.

 

Should Trump seek to scrap the sanctions on Russia next year, it could trigger a fight with congressional Republicans, who mostly praised the retaliatory steps Thursday even as they lambasted the Obama administration’s foreign policy.

 

Senior administration officials argued that any effort to roll back the sanctions would be “inadvisable” because they apply to Russian intelligence agencies working against America’s national interest.

 

“Hypothetically, you could reverse those sanctions,” one official told reporters. “But it wouldn’t make a lot of sense.”

 

The U.N. vote on Israeli settlements is another late move by Obama that complicates Trump’s policy goals.

 

But even if Trump follows through on changing U.S. policy toward Israel, it’s unlikely he will be able to repeal the U.N. resolution condemning Israeli settlements.

 

To do so, he would need to convince nine members of the Security Council — and the four other members with veto power, China, France, Russia and the United Kingdom — to back a measure scrapping the resolution.

 

The settlement resolution passed the council 14-0, with the U.S. abstaining. 

We look forward to the outrage from the mainstream media on the weekend political talk shows condemning these hostile actions from Obama.

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Submitted by Michael Shedlock via MishTalk.com,

As we head into 2017, how should one be positioned? Let’s explore that idea with a trio of contrarian indicators.
 

US Treasuries?

The one idea most widely agreed upon is that Trump will spur inflation and treasuries are the last place to be.

This headline says it all.

The other day this was in @USATODAY http://pic.twitter.com/lgzCyW9BLM

— Peter Atwater (@Peter_Atwater) December 28, 2016

This morning I saw this in @FT http://pic.twitter.com/OomYsEVvfz

— Peter Atwater (@Peter_Atwater) December 28, 2016

 

US Equities?

The nearly always wrong Harry Dent threw in the towel on his stock market crash prediction on December 19.

Please consider Economist who Predicted a 17,000-Point Stock-Market Crash Just 10 Days Ago is Suddenly Bullish.

Harry Dent is bullish.

 

Dent, an economist and one of the biggest doubters of the stock market’s rise since the end of the recession, said he no longer believes a crash is imminent for the market after persistently calling for a massive drop over the past seven years.

 

What changed the mind of the man who said that the market would be “cut in half” in 2011, called for a “year and a half” long crash in 2013, and said the Dow could fall 17,000 points as recently as December 10?

 

The markets ability to withstand the election of Donald Trump.

 

“All of my research pointed to signs that the end was near,” wrote Dent in a blog post last week. “The Dow was set to shed thousands of points in short order. How much has changed since November 8.”

 

No matter how irrational this market is, I admit I’ve gotten the timing wrong,” said Dent.

Gold?

I discussed gold on December 27 in Financial Times, Barron’s Tout Death of Gold.

Here are the pertinent headlines.

End of a Golden Era

For Whom the Bell Tolls

Synopsis

1. Gold is despised
2. Treasuries are despised
3. Harry “wrong way” Dent is suddenly bullish

@Peter_Atwater Another Cover Curse?: It takes special talent to be consistently wrong and make millions doing it. https://t.co/BCQp429EFg http://pic.twitter.com/xYU2ToLe7Y

— Mike Mish Shedlock (@MishGEA) December 10, 2016

 

Magazine Curse

Finally, please consider Dow 20,000: Another Magazine Curse? Amusing Cover Flashbacks From Economist, Newsweek, Others.

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The momentum driven post election rally has ended. Next up is the US Dollar driven collapse in the markets.

Copper called this weeks ago as we noted before. No one listed. It’s now down nearly 10% from its peak and clinging to support for dear life.

Stocks are now following. They’ve taken out support. The bulls will claim we’re going to hold at 2,200, but the reality is we’re going to unwind the entire election move and then some. 2,050 beckons.

Indeed, stocks will be lucky if they don’t crash like they did in August ’15 based on what China’s doing with the Yuan.

While 99% of investors ignore this ticking time bomb, smart investors are already preparing.

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Chief Market Strategist

Phoenix Capital Research

 

 

 

 

 

 

 

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First it was the US, then Germany blamed much of what is wrong in society on “fake news”, and not, say, a series of terrible decisions made by politicians. Now it is Italy’s turn to call for an end to “fake news”, which in itself would not be troubling, however, the way Giovanni Pitruzzella, head of the Italian competition body, demands the European Union “cracks down” on what it would dub “fake news” is nothing short of a total crackdown on all free speech, and would give local governments free reign to silence any outlet that did not comply with the establishment propaganda.

In an interview with the FT, Pitruzzella said the regulation of false information on the internet was best done by the state rather than by social media companies such as Facebook, an approach taken previously by Germany, which has demanded that Facebook end “hate speech” and has threatened to find the social network as much as €500K per “fake” post.

Pitruzzella, head of the Italian competition body since 2011, said “EU countries should set up independent bodies — co-ordinated by Brussels and modeled on the system of antitrust agencies — which could quickly label fake news, remove it from circulation and impose fines if necessary.” 

In other words, a series of unelected bureaucrats, unaccountable to anyone, would sit down and between themselves decide what is and what isn’t “fake news”, and then, drumroll, “remove it from circulation.” On the other hand, coming one week after Obama give Europe the green light to engage in any form of censorship and halt of free speech that it desires, when the outgoing US president voted into law the  “Countering Disinformation And Propaganda Act“, it should come as no surprise that a suddenly emboldened Europe is resorting to such chilling measures.

So with Europe on the verge of rolling out unbridled censorship, here is the strawman used to justify it.

“Post-truth in politics is one of the drivers of populism and it is one of the threats to our democracies,” Pitruzzella told the FT. “We have reached a fork in the road: we have to choose whether to leave the internet like it is, the wild west, or whether it needs rules that appreciate the way communication has changed. I think we need to set those rules and this is the role of the public sector.”

Translation: it will soon be up to Brussles to decide what content on the Internet is appropriate for broad European consumption, because unless a bureaucrat intervenes “fake news” will lead to even more populism and not, say, years of failed political reform, and central bank decisions.

In short, it’s all the internet’s fault that Europe’s legacy political system is reeling from an unprecedented anti-establishment backlash, which has nothing to do with, well, anything else.

As the FT notes, Pitruzzella’s call comes amid growing concern over the impact of fake news on politics in western democracies, including in this year’s UK Brexit vote and the US election. In Germany, which faces parliamentary elections in 2017, the government is planning a law that would impose fines of up to €500,000 on social media companies for distributing fake news.

Allies of Matteo Renzi, the former prime minister, have also complained that fake news contributed to his defeat in the December referendum on constitutional reform, which led to his resignation, even though he lost by a wide 20-percentage point margin. At least they haven’t blamed Russian hackers… yet.

So even assuming limiting free speech is the answer, why not force potential offenders to companies to police themselves? 

Well, according to Pitruzzella it would be inappropriate to leave this task to social media self-regulation. “Platforms like Facebook have created great benefits for people and customers: they are doing their part as an economic entity in adopting policies to modify their algorithms to reduce this phenomenon”, he said. “But it is not the job of a private entity to control information. This is historically the job of public powers. They have to guarantee that information is correct. We cannot delegate this completely.”

We know of at least one Italian who would agree.

And just like the person shown above, Pitruzzella dismissed concerns that setting up state agencies to monitor fake news would introduce a form of censorship, saying people could “continue using a free and open internet”… as long as all the members of the “open” internet agreed with what the agencies determined to be true and undisputed. But he said there would be a benefit in that there would be a public “third party” — independent of the government — to “intervene quickly if public interests were harmed”.

At the moment, the only way that fake news can be tackled — at least in Italy — is through the judicial system, which is notoriously clunky. “Speed is a critical element,” Pitruzzella said, so what is the solution? Why a Ministry of Truth of course.

The anti-establishment Five Star Movement is often labelled as the main facilitator of fake news in Italy, through the blog of its founder, the comedian Beppe Grillo, and a network of other websites affiliated to the party. But Pitruzzella declined to cite them as the main culprits. “I don’t know if this is true, I would not want to criticise anyone, not even the Five Star Movement. But I believe that if there aren’t any rules then many can take advantage of this.”

Of course, once free speech is censored, Pitruzzella will have no problem with no only criticizing anyone who disagrees with him, but promptly shutting down their freedom of speech on the net.

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Submitted by Osama Rizvi via OilPrice.com,

As an apparent wave of populism sweeps through the world, Theresa May prepares to trigger Article 50, and fears of a trade war between China and the U.S grow, financial markets are on edge. But alongside this uncertainty, there has been some good news for markets as well, with oil markets moving towards rebalancing. The recent OPEC production cut agreement, and the additional cuts by non-OPEC countries caused oil prices to touch a post-2014 high. But Saudi Arabia and Russia, among other oil producers, are now in the limelight, as the world waits to see how true to the agreement each country will remain. Perhaps more important at this point are those countries who were never part of the agreement, or who were absolved from it.

One such country is Libya; its rising oil supply can easily offset the effect of the proposed production cut. Recently, oil exports from Libya's key oil terminals Es-Sider and Zueitina were resumed. This could bring 270,000 bpd back to the market, which is just a taste of how Libya, if peace prevails, could increase its production. The addition of 270,000 barrels alone accounts for almost a quarter of the OPEC production cut.

The second country is Iraq. Iraq fought hard to be exempted from any sort of cut or freeze, arguing that it needed money “to fight ISIS”, and while it eventually accepted a cut, the risk of this huge oil nation cheating on the deal is significant. Iraq’s output has grown at an alarming rate this year and the recently signed a deal with Lukoil, the Russian energy giant, to tap into the West Qurna-2 reservoir adds to the concerns.

Then there is Iran. Iran was not exempted from the deal but agreed to a production freeze at 3.8 million barrels per day. Like Iraq, Iran has also been busy signing deals with oil giants to ramp up its production. On December 7th Iran and Shell signed a deal to explore three oil and gas fields. Saudi Arabia has always seen Iran as a rival, with Iran being the key reason that Deputy Crown Prince Muhammad Bin Salman refused to sign the deal as put forward earlier in the year. This time around things were different, and matters has grown increasingly serious for Saudi Arabia.

The Kingdom had already borne the brunt of its decision in 2014 to not to cut production. We saw how the country’s masses, accustomed to government largesse in the shape of subsidies, extravagant pay and the leisure of not working, turned against the country’s gerontocracy when pay was slashed, holidays curtailed and subsidies removed. Also, the Foreign Exchange reserves of the Saudis were being depleted at an unprecedented rate. These factors explain the display of flexibility by the Kingdom at the Vienna conference on the 30th of December. On the other hand, prospects for Iran are just opening up after the Obama administration signed the controversial nuclear deal with the Islamic Republic. As the sanctions are being lifted gradually from Iran, it now sees the whole world opening up as a potential market – a temptation that may prove very hard to resist.

The Putin Factor: The appointment of Mr. Rex Tillerson as secretary of State and the various insinuations by the President-elect to lift sanctions could be symptomatic of greater production from Russia. Russia has recently claimed that it will beat 2016’s estimated oil production total of 253 million tons in 2017.

"Supposedly 253.5 [million tonnes of oil are expected to be exported from Russia] this year, which is 4.8 percent more than in 2015. In 2017, we will have a little more than this," Molodtsov said.

Finally, Nigeria. As of now it is busy fighting Boko-Haram and attempting to strike some kind of political deal with the Niger Delta Avengers. Exempted from the oil deal, its production stands around 1.6 mbpd. President Buhari has vowed to increase the production to 2.2mbpd, a statement that will not be welcomed by fellow OPEC producers.

If any of these countries do significantly increase production, then the euphoria that has yet to reach its peak may begin to fade.

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If 2016 taught traders anything, it was that old norms were useless and the concept of the market as a discounting mechanism (as opposed to an algo-driven headline-reacting maelstrom of manias) is lost forever. This flipping of reality is nowhere more evident in the topsy turvy shifts in risk expectations across global asset classes – where 'safe' is now riskiest and 'riskiest' is now safe.

Cross-asset-class correlations collapsed in 2016 – from S&P and Dow decoupling to bonds and stocks recoupling and high- and low-beta stocks losing all relationship.

 

And as correlations broke, as Bloomberg notes, traders now see currencies and Treasuries as more volatile than when the year began, the opposite of their outlooks for several other major asset classes.

Expected swings in foreign exchange swelled this year, with the JPMorgan Global FX Volatility Index averaging its highest level since 2011, as political surprises such as Brexit brought turbulence to markets. A Bank of America Corp. measure of U.S. government bond fluctuations advanced for the first time in three years amid a recent selloff in the debt.

 

And while equity risk has risen modestly in the last few days, Bonds remains 'riskier' than Stocks – despite the former having already surged in yield (and at record short positioning) and the latter at near-record valuations.

 

Will 2017 be the year to normalize these relationships?

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