In Historic Reversal, Saudi Arabia Allows Women To Drive

In an unprecedented step for a country where a sprawling monarchy has managed to cling to power in part because of its concessions to hardline conservative clerics, Saudi Arabia announced today that its King Salman has issued a historic royal decree granting driving licenses for women in the kingdom, meaning that women will soon be allow to drive – overturning a longstanding symbol of oppression in the Muslim world just days after President Donald Trump slammed the US ally’s human rights record during remarks at the UN.

The royal decree issued on Tuesday also ordered the establishment of a high-level committee of involving the ministries of internal affairs, finance, labor and social development. They will be tasked with studying the arrangements to enforce the new law.

“The royal decree will implement the provisions of traffic regulations, including the issuance of driving licenses for men and women alike,” the Saudi Press Agency said, according to Al Aribaya

According to the New York Times, the change which will not happen immediately, was announced both on state television and during a simultaneous media event in Washington.

The policy change represents Saudi Arabia acquiescing to international criticism. The change also arrives as the cash-strapped Kingdom is trying to modernize its economy, and sell a stake in the state-controlled oil company, Aramco.

Saudi Arabia, the birthplace of Islam, is ruled by Sharia law. It was also the first foreign country that Trump visited as president, where he and the kingdom’s rulers touted business relationships – including a historic arms deal – between Saudi Arabia and the US.

According to the Times, some in Saudi Arabia believe that women shouldn’t drive because male drivers would not know how to handle women in cars next to them. Others argued that allowing women to drive would lead to promiscuity.

As Saudi Arabia’s rulers appear to have decided that modernization is the best future course for the country, we wonder, what freedoms will the country’s repressive regime acquiesce to next? Will it be suffrage for women (they’re already involved in political life, though they can’t vote)? Or perhaps allowing them to show their faces in public?
 

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Federal Relief to Puerto Rico Won’t Include Waiving Law That Drives up Import Costs

Puerto RicoPresident Donald Trump will be visiting Puerto Rico next week to take in the massive damage from Hurricane Maria. But if the island is looking for some regulatory relief, it may be out of luck.

The administration announced some bad news for Puerto Rico: It will not be waiving the Jones Act, which significantly restricts the ability of foreign or foreign-owned ships from bringing goods to Puerto Rico.

The law requires ships traveling from port to port in America and its territories be made, owned, and crewed by Americans. Foreign ships are permitted to dock in one port and that’s it. They cannot visit several different ports sequentially within our borders. The result is higher shipping costs to islands like Puerto Rico and Hawaii because the law shields U.S.-based companies from a lot of foreign competition.

The act is a bane to Puerto Rico. As I noted yesterday, studies show it can double to cost of shipping goods to ports there compared to nearby island countries that aren’t American territories (and therefore aren’t affected by the law). The Department of Homeland Security can waive this part of the Jones Act in crisis situations and had done so specifically for fuel shipping to Puerto Rico. But the administration has announced it will not be expanding or extending any relief for Puerto Ricans as it imports what it needs to recover. From the Associated Press:

A spokesman for the Department of Homeland Security says officials believe there is sufficient capacity of U.S.-flagged vessels to move goods to Puerto Rico. Spokesman David Lapan said most of the humanitarian shipments to Puerto Rico will be through barges, which make up a significant portion of the U.S.-flagged cargo fleet.

This is flat-out centralized government planning for the benefit of a small group of powerful U.S. shipping interests. It’s no different than a city government deciding how many taxi cabs or liquor stories its community “needs” and using medallions and licensing to keep out competition. Entrenched interests cash in while worrying about competitors entering the marketplace offering lower prices or better services.

The defense of the Jones Act, like most trade restrictions, revolves around “protecting U.S. jobs,” about 1,400 in this case, according to a Government Accountability Office report. Puerto Rico has a population of 3.4 million.

Puerto Rico is swamped in debt as well as water, and terrible fiscal management of government and its failure to plan for its expenses definitely plays a role in how difficult it will be for the island to recover.

That makes it all the more important to dump the Jones Act, because guess who is going to be asked to chip in for Puerto Rico’s recovery? It will be all of us, of course. And with the Jones Act in place our tax dollars (and our voluntary donations) will not go as far as they should in helping Puerto Rico.

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9 Lessons from the Trump/NFL Anthem Wars

Please do not Google how much taxpayer money was spilled on this thing. ||| Minnesota VikingsAs the nation’s attention and (not coincidentally!) the president’s Twitter feed begin shifting away from the latest Culture War bauble and toward the plight of 3.4 million distressed American citizens on the island of Puerto Rico, there are some takeaways from this embarrassment worth pondering. Some of these points are counterintuitive; some are obvious mostly to libertarians; some are obvious to everyone yet worth reiterating if we’re going to continue talking about this nonsense at all. So here goes:

1) The most offensive aspect about mixing politics and sports is the conscripted tax money and police power. President Donald Trump has serially suggested over the past several days that fans boycott the National Football League if some players continue not to stand during the playing of the national anthem. Leaving aside for a moment the propriety of a president acting as Boycotter in Chief, Trump surely is correct in observing that consumers of this entertainment product should feel free to agitate for a league policy change by opting out.

If only taxpayers had that chance.

Earlier this month, Reason‘s Eric Boehm wrote a salient piece headlined “Stop Subsidizing Football.” Among Boehm’s bill of particulars:

Gregg Easterbook, author of The King of Sports: Football’s Impact on America and a longtime critic of taxpayer subsidies for the sport, says taxpayers have covered more than 70 percent of the total cost of NFL stadiums built in the past two decades….

Stadium construction costs are the most expensive, most egregious way that taxpayers are forced to subsidize football, but others have also come under scrutiny in recent years. One of the biggest backdoor subsidies for football—the special loophole in the federal tax code that allowed the National Football League, but not any of its smaller competitors, to avoid federal taxes—was eliminated in 2015. A U.S. Senate investigation in 2015 revealed that the Pentagon had paid $5.4 million to NFL teams for so-called “displays of patriotism” during games between 2011 and 2014.

Even on the rare occasion when they finance their own stadium construction, billionaire owners are allowed to issue tax-free municipal bonds, a perk not offered to most other industries. And having so much local-politico skin in the game greases the wheels all that much more for egregious, private-to-private eminent domain abuse.

It is immoral for government to dislodge private property owners and confiscate money from taxpayers so that rich men can get richer organizing a sport that scores of millions don’t care one whit about. The more government puts its hands where it oughtn’t, the more likely the resulting actions will offend your core values. Wanna really stick it to the NFL? Get the government out of its business.

2) Donald Trump made the conscious choice to revive a near-moribund social controversy for political advantage. Do you know how many players made any kind of protest gesture during the national anthem the weekend before Trump called them SOBs? Less than 10.

Solid tie game, tho ||| C-SPANThe conclusion here is inescapable. The president of the United States, while claiming to be appalled by scattered incidents of alleged anti-patriotism, voiced his displeasure (at a political rally) in such a way that guaranteed those incidents would multiply. He doesn’t want this controversy to die down; he wants it to intensify, in a way that pits American vs. American.

Just look at the follow-up reporting. “He knows it’ll get people stirred up and talking about it,” a senior administration official reportedly told Politico. Another Trump adviser reportedly told CNN’s Jim Acosta that the president is “winning the cultural war…just made millionaire sport athletes his new HRC.” At a dinner with conservatives last night, according to multiple outlets, Trump (in a paraphrase by Politico‘s Josh Dawsey) said “that his NFL feud was going well and he wants to keep it going.”

There is something fundamentally unseemly about a governmental chief executive deliberately whipping up us-vs.-them antipathy toward an entire bloc of his own constituents. Republicans (and others) were rightly outraged when New York Gov. Andrew Cuomo asserted three years ago that “extreme conservatives who are right-to-life, pro-assault-weapon, anti-gay” have “no place in the state of New York.” Hillary Clinton was rightly excoriated for calling a whole chunk of Trump supporters an irredeemable “basket of deplorables.” Even Barack Obama’s bitter-clinger comments from 2008, which were made in a semi-private setting and with the patina of trying to understand a certain population, reeked of a kind of collectivist condescension that critics had cause to reject.

Trump’s politics of Othering is, has been, and will always be central to his political project, from his birther freelancing to his Mexico-is-sending-us-rapists campaign kickoff to his assertion that District Judge Gonzalo Curiel’s Mexican heritage was “an inherent conflict of interest” to his travel ban to his pardon of Sheriff Joe Arpaio, and so on. His campaign themes were patterned after the culture-war wedge-issuing of Richard Nixon. “The silent majority is back, and we’re going to take our country back,” the candidate declared in July 2015. His dark acceptance speech at the Republican National Convention was a virtual Nixonpalooza: “I have a message to every last person threatening the peace on our streets and the safety of our police,” he thundered. “When I take the oath of office next year, I will restore law and order to our country. Believe me. Believe me….I am the law and order candidate.”

The president’s populist advisors welcome racially tinged culture war as advantageous political strategy. “I want them to talk about racism every day,” Steve Bannon told The American Prospect just before leaving the White House. “If the left is focused on race and identity, and we go with economic nationalism, we can crush the Democrats.”

The language Trump used in Alabama was telling. In a speech where he mused “Isn’t it a little weird when a guy who lives on 5th Avenue in the most beautiful apartment you’ve ever seen comes to Alabama and Alabama loves that guy?” and said that if he’d lost the election he might have moved “to Alabama or Kentucky,” the president railed against the anthem protesters’ “total disrespect of our heritage, a total disrespect of everything that we stand for” and diagnosed the NFL’s problems in this way: “But do you know what’s hurting the game more than that? When people like yourselves turn on television and you see those people taking the knee when they’re playing our great national anthem.”

3) Almost every sentence containing the phrase “we must” in reference to strangers is a bad sentence, particularly coming from a president. For instance, this one:

No president, whether a vulgar former reality TV star or a preeningly ambitious former community organizer, gets to define patriotism, let alone issue imperatives on how love of country is to be ritualized. One of the strengths of American patriotism, not unlike one of the strengths of our military, is that it’s voluntary, a choice tailor-made by the individuals who pursued that particular slice of happiness.

As long as private industry is not flouting the law and/or inflicting injury, a president has no real business wagging his finger at owners, employees, or even customers. Yet our populist pitchman can’t stop barking unenforceable orders. “The issue of kneeling has nothing to do with race,” Trump tweeted yesterday. “It is about respect for our Country, Flag and National Anthem. NFL must respect this!” Or not, turns out.

4) Freedom of political expression for athletes is directly proportional to their freedom of contract. Until the 1970s, professional athletes were contractually bound to the teams they played for. If the team and player could not agree on terms, the player had three choices: have his contract be automatically renewed on the team’s terms, not play, or risk lifetime banishment by skipping to a competing league, if any exist. Two unsurprising results: The players earned a fraction of what they do now, and they mostly avoided political controversy like Babe Ruth avoided salads.

With economic power came a flowering of athletic expression, whether political or (perhaps even more radically) personal. As I put it in a Reason feature 12 years ago,

||| India TimesMuhammad Ali opposed Vietnam and the military draft years before it was cool, while encouraging a generation of kids to give themselves new names and manipulate the formerly all-powerful media. Three decades before metrosexual was a word, New York Jets quarterback Joe Namath shocked male football fans by parading around in mink coats, posing as an “Olivetti Girl” in a sexually charged typewriter ad, and filming commercials for pantyhose. Knuckleball pitcher Jim Bouton ripped the lid off of professional baseball’s Ward Cleaver packaging with his pussy-and-pills 1970 memoir Ball Four; two years later Yankee pitchers Fritz Peterson and Mike Kekich became the most famous wife swappers in the country. Bill Walton convinced the notoriously square UCLA coach John Wooden that smoking dope and attending Grateful Dead shows could be every bit as crucial to the legendary motivator’s “Pyramid of Success” as hard work and respecting your teammates (provided you could still shoot 21 for 22 in the NCAA finals). And just about every star of the time had to grapple on a daily basis, in full view of the newly national television audience, with America’s combustible conflict between black and white.

In a single generation—between John Kennedy’s assassination and the fall of Saigon—the archetype for the pro athlete was transformed from lantern-jawed Midwesterners like Mickey Mantle to pot-gobbling longhairs like Bill “Spaceman” Lee. Earthbound sidemen like Bob Cousy found their game passed over by skywalking soloists like Dr. J. The era of Johnny Unitas buzz-cuts and Jackie Robinson no-comments was replaced by athletes who looked, played, and spoke however they damn well pleased, injecting creativity and innovation on the field while puncturing mythologies and ditching racist baggage outside the stadium walls.

(Jackie Robinson, I would learn later, deserved more credit than I gave him then for courting unpopularity through speaking out in real time.)

Those on the margins of a professional sports league, such as gay former NBA backup center Jason Collins, openly gay star collegiate football player Michael Sam, and protest-generator Colin Kaepernick, risk unemployment by becoming sources of controversy. (Though in the cases of Collins and Sam, it seems clear that gayness will soon and thankfully be no longer anything like a controversial issue.) This is one of many reasons why Major League Baseball player Bruce Maxwell’s anthem-kneel this weekend was especially noteworthy.

5) Trump is on the opposite side of the criminal justice reform cause that sparked all this stuff in the first place. This is the logical extension of #2 on this list, but it’s worth reiterating that regardless of what one thinks about Kaepernick’s questionable choice of attire, or even whether you think Black Lives Matter is an unfortunate organization and framing device, the original point of taking a knee was to protest improper and often lethal use of force by police officers who too often escape punishment. That problem is real, ongoing, and multifaceted, and President Trump is on the wrong side of it.

6) Fantasizing about ordering ungrateful “privileged” athletes around is one of the lower tendencies in American sports fandom. Part of Trump’s theatrical genius is that he has consistently gotten into the shoes of his audience, acting out fantasies they wish they had the nerve/power to conduct in real life. On the campaign trail, he would often play-act the (completely invented) story of U.S. soldiers lining up and shooting Muslims with bullets dipped in pig’s blood. And in Alabama last week, he again performed his most controversial passage:

Wouldn’t you love to see one of these NFL owners, when somebody disrespects our flag, to say, “Get that son of a bitch off the field right now, out, he’s fired. He’s fired!” You know, some owner is gonna do that. He’s gonna say, “That guy that disrespects our flag, he’s fired.” And that owner, they don’t know it. They don’t know it. They’re friends of mine, many of them. They don’t know it. They’ll be the most popular person, for a week. They’ll be the most popular person in this country.

What makes this paragraph doubly telling is Trump blurting out his motivation—this stuff’s popular. It’s also gross.

Where's the chair? ||| Fox NewsBarstool fans from coast to coast have long fetishized the sports world’s most successful authoritarians—college basketball tyrant Bobby Knight, Chicago Bears barker Mike Ditka, Buffalo Bills loudmouth Rex Ryan (Trump supporters all)—in part because these coaches push around athletes who are frequently perceived as ungrateful, disrespectful, and lazy. All kinds of skeevy class and race issues, as well as good old-fashioned envy, get mixed up in this tendency.

Trump’s wording on this was a classic of the barstool form. “If a player wants the privilege of making millions of dollars in the NFL,or other leagues,” he tweeted, “he or she should not be allowed to disrespect…. …our Great American Flag (or Country) and should stand for the National Anthem. If not, YOU’RE FIRED. Find something else to do!”

Professional sports leagues are meritocracies; you cannot inherit from daddy your space on an NFL roster. Also, football careers in particular tend to be nasty, brutish, and short, with long-lasting aftereffects that hobble the league’s vets. But the idea that a small number of athletes have been gifted with and overcompensated for a game that millions would gladly play for free is ingrained in the DNA of American sports culture. And the older a fan gets, the more he or she is likely to bemoan the new generation’s flouting of once-revered traditions.

It’s a reactionary combination, which Trump is tapping into with reactionary politics.

7) Public patriotic rituals are already political, and should not be a one-way ratchet. This is the kind of tautology only jerkbag libertarians like to emphasize, but there’s no such thing as a compulsory patriotic ritual devoid of political content. To the contrary.

As Eric Boehm mentioned, ritualized and militaristic patriotism has long been part of the explicit marketing efforts both of pro sports leagues and the Pentagon. The NFL, whose traditional jingoism has been matched perhaps only by NASCAR, only started requiring all players in all games to stand on the sidelines during the National Anthem in 2009. Baseball, for understandable reasons initially, started playing “God Bless America” during the seventh-inning stretch of the post-9/11 2001 World Series in New York, but then kept on playing it at every home Yankee game, as well as every Sunday game in the rest of the league. (Before that, the song was a sporadic and usually welcome replacement for “The Star-Spangled Banner” before the game.) If I told you how many times military jets have flown over my head just because I enjoy baseball, you probably wouldn’t believe it.

Like all rituals, these public displays of patriotism can be at turns moving, comforting, numbing, and annoying. But if they only increase in frequency and duration over time, and if the U.S. president keeps on throwing words around like “must,” they risk producing their own backlash, and not just from certain cheeky non-conformists.

8) Telling the president to get bent is a healthy democratic response. You may have seen a much-shared sermon from former NFL star Shannon Sharpe, who was eloquently and specifically critical of the “hypocrisy” of team owners and players suddenly unifying against Donald Trump only now, instead of protesting him and/or police brutality, back before it was cool. It’s totally worth watching, and Sharpe has it totally backward.

Of course owners and players finally got motivated to kneel or link arms or otherwise cause a fuss only after the president of the United States personally insulted them. That’s because the president of the United States personally insulted them! If any resident of 1600 Pennsylvania were to tell me what to do, I would start with a one-fingered salute and work my way from there. Such defensive disrespect in the face of presidential overreach is a sign of democratic pulse in our increasingly authoritarian age.

And finally, 9) Culture-war dissidents deserve a shout-out, too. I put out this poll after Trump’s initial remarks…

…and was heartened to see not just a healthy numerical variance, but also a bunch of responses complaining that their own specific preference was not expressed in those choices. Which is only right and just. Americans are far more complicated than our biggest Culture Warriors demand.

Alejandro Villanueva ||| YouTubeConsider the case of Steelers’ offensive tackle Alejandro Villanueva, an Army Ranger and Bronze Star recipient who served three tours of duty in Afghanistan and became an overnight folk hero for breaking ranks with his locker-room-bound team and standing outside for the anthem Sunday. Just as one side of the Culture War was about to name him honorary captain, Villanueva gave a remarkable press conference complicating just about every narrative you might have of the man. Good on him. (And good on Marie Tillman, widow of slain former NFL player turned Afghanistan friendly-fire victim Pat Tillman, for calmly rebuffing the president’s attempt to invoke her marvelously individualistic husband in this silly controversy.)

The recipe for getting politics out of sports is not by bashing athletes’ politics or demanding that they behave in some particularly political (or apolitical) way. It’s by getting government out of wherever it doesn’t belong, be it the stadium construction business or the definitionally divisive act of drawing precise boundaries over acceptably patriotic behavior. No politician, or government, deserves that authority, let alone respect.

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“This Has Only Happened Twice Since 2009” – A New Source Of Concern For VIX ETFs

Last week, ahead of the FOMC, we reported that in the latest striking development involving volatility derivative products, the total outstanding Vega across the entire levered and inverse VIX ETP space had reached $375 million, an all time high. 

This, as Bank of America showed, was the result of the highest positioning in levered long VIX ETPs since July 2016 offset by a record high exposure across short ETPs.

And while the surge in long vol ETFs vega is something that had been duly documented over the past year, the offsetting move by inverse VIX ETPs is certainly a novel development. So much so that Barclays writes today that the recent increase in AUM in Inverse VIX ETPs has raised concerns that investors in these products are likely to amplify fundamentally driven moves in VIX and VIX futures.

As Barclays' derivative strategist Maneesh Deshpande writes, since the mini-selloff in August driven by North Korea related geopolitical concerns, AUM in inverse VIX ETPs, or Exchange Traded Products, has increased significantly. In other words, for whatever reason whether due to Capital, Price, and Roll flow, investors – mostly retail – are now betting not so much on a mean reversion in volatility, but a continuation of the current record low vol trend (a trend which, as we showed earlier today, resulted in the September VIX settlement being the lowest on record).

As  shown in the chart above, the AUM of inverse VIX ETPs is now ~$260 MM vega which is comparable to that in long volatility ETPs at ~$280 MM vega. As a result, the net VIX ETP demand and supply is almost completely in balance, a situation which has happened only twice before since 2009. The only two previous occasions when the AUM of inverse ETPs caught up with their long peers, was after the October 2014 Ebola scare and right after the August 2015 ETFlash crash, when vol sellers emerged after the VIX surge (note VIX was briefly halted for dissemination on August 24, 2015 when the market literally broke). 

According to Barclays, the increase in AUM is partially being driven by the fact that equity markets have so far shrugged off the aggressive escalation in missile tests being conducted by North Korea and increasingly heated rhetoric from both the U.S. and North Korean administrations, which in turn has sent the S&P 500 index to new record highs while the VIX has reverted back to ~10.

More importantly, and as we have cautioned ever since we first noted the dramatic increase in overall vega across the VIX ETP complex, this increased AUM has – according to Barclays – raised concerns that a fundamentally driven selloff in VIX could be exacerbated as the investors in inverse VIX ETPs cover their short volatility positions by redeeming their holdings in these products. And since holders of these products are likely to be retail investors, "the argument is that they are more likely to panic."

Barclays also notes that a more important source of concern is that the inverse products are also Leveraged VIX ETPs. "Since Leveraged VIX ETP managers have to buy (sell) VIX futures when they go up (down), the concern is that they might exacerbate the moves if their trading volume is large."

And with attention likely to focus increasingly more on the VIX ETP sector as a potential source of market instability during upcoming VIX spike, here are some additional observations from Barclays:

Interestingly, we see that over the one-day period there is almost no correlation with the changes in the VIX future for both the Long and Inverse Volatility ETPs. In other words, on the day that the VIX spikes, VIX ETP investors as a group do not significantly change their holdings. We emphasize that this is only true as a group since the secondary volumes in these products increase significantly when VIX spikes and so these ETPs do change hands across investors. Figure 4 plots the gross secondary volumes and the gross Capital Flow for all VIX ETPs and we see that former is nearly 20x that of the latter. It is remarkable that the ETP volume actually crossed $1Bn vega in August when VIX only increased to ~15. Thus, even discounting the fact that a lot of this volume could be driven by intra-day speculators, there appears to be a significant diversity of opinion across VIX ETP investors and thus it would be a mistake to assume that they are a homogenous group.

Looking at trading patterns in the various ETFs, Barclays observes that, as one would expet, when VIX spikes the flow is negative and thus investors monetize their long volatility positions to lock in gains. And yet, there is a major caveat:

Remarkably, even the Inverse VIX ETP investors sell volatility during VIX spikes. In other words, despite the fact that their returns are negative, as a group, these investors have on average added to their short volatility positions. The “as a group” caveat is critical: it is likely that some investors do cut their positions as they face losses but there are enough other investors who are willing to step into their shoes. As highlighted in these figures, this pattern has held even for large VIX spikes such as during August 2015.

In other words, instead of just BTFD in equities, retail investors are now doing that through vol ETFs. This, Barclays continues, can be a problem:

Thus the key risk, as we have highlighted before, is that of a “one-two punch” scenario which unfolds in two phases. In the first phase VIX spikes moderately due to adverse fundamental news and then stabilizes for a few days at an elevated level. The VIX ETP investors follow their play-book of selling volatility expecting a mean reversion. However, if at this point, the fundamentals were to deteriorate further, it would create an air-pocket phenomenon where the subsequent spike in VIX could be amplified.

That "air pocket" scenario is just the waterfall analysis that Morgan Stanley put together back in July when it previewed what could happen to the VIX ETP sector, and the market in general, "If The Vix Goes Bananas."

Summarizing the above (there are more nuanced observations in the full note), the following interesting picture emerges:

  • On the day of the VIX spikes, the leveraged VIX ETP managers buy VIX futures.
  • However, on the first day, the end investors (as a group) do not change their holdings although there is fair amount trading within the group.
  • Over the subsequent few days, the end investors sell volatility (long volatility ETP investors redeem and inverse ETP investors add to their positions).
  • As a result of these creations/redemptions VIX ETP managers are now forced to sell VIX futures.

Obviously the swing in flows causes a fair amount of volatility of VIX futures.

And while the two competing flows have partially compensated each other so far, it is not obvious that same balance will hold in the future:

  • As the AUM of inverse VIX ETPs has reached new all-time highs, as shown in Figure 1, the rebalance flow from Leveraged VIX ETP managers has doubled to ~ $60MM vega for a 10% move up in 1M VIX future (Figure 12) and is also now at all-time highs.
  • Importantly, the Capital Flow from investors in unleveraged Long Volatility investors is also negative but the AUM in this category has remained fairly stagnant.
  • Finally, the Short Interest in Inverse VIX ETPs has dropped sharply over the last few weeks. As we had pointed out recently the hedging activity from the counterparties of the short interest in leveraged ETPs would offset the rebalance flow from the ETP managers. The recent drop means that this compensating flow has decreased.

Barclays troubling conclusion:

Thus on balance the total demand from VIX ETP managers is likely to be higher relative to a few weeks ago and is a significant source of risk especially during a large fundamentally driven shock. The only caveat we would keep in mind is that the volume in VIX futures is likely to cross $1Bn vega during a shock scenario.

And an even more concerning extension: if the VIX Complex is indicative of overall markets trends, and if a similar surge in risk exposure, gamma and vega has taken place among the other two prominent volatility players, risk parity funds and annuities, using the Morgan Stanley short-hand of extrapolating exposure, it would imply that the overall volatility vega could be $10 billion or substantially higher. Such exposure would lead to dramatic moves in the overall market if the next VIX spike or 5 or more vol points does not suddenly reverse and "fill the gap" as has been largely the case on most previously similar episodes.

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Republicans Throw In The Towel: Senate Will Not Vote On Obamacare Repeal Bill

With the Republicans Obamacare repeal effort having died no less than three times over the few days, on Tuesday afternoon Republicans announced the Senate would not vote on Republicans’ last-ditch bill to repeal Obamacare, putting an end to their seven-year push for now. According to Politico, the decision was reached at a party lunch Tuesday after it became clear the plan would fail. Three Senate Republicans had already said they would vote against the measure, and the GOP could only afford two defections.

“We don’t have the votes so it’s probably best we don’t do the vote,” said Republican Sen. Steve Daines of Montana. “We’ve lost this battle, but we’re going to win the war.”

“Why have a vote if you know what the outcome is and it’s not what you want. I don’t know what you gain from that. But I do believe that the health care issue is not dead, and that’s what counts,” said GOP Sen. Richard Shelby of Alabama. “We’ve got some time this year to deal with it and I think we have to.”

Vice President Mike Pence told Republicans they should keep working on health care and not give up just because a key procedural deadline to pass the bill with a simple majority expires after Sept. 30.

“He does” want us to keep working,” said Sen. Jim Inhofe (R-Okla.). “He’s conveyed it outside of that meeting [too]. The votes aren’t there so let’s keep massaging.” However, Republicans may not opt to pursue a health care overhaul and tax code rewrite simultaneously, as some GOP lawmakers desire. Sen. Pat Toomey said it’s it’s better to “focus on taxes right now.”

Earlier, Ted Cruz acknowledged his conference does not have the 50 Republican votes necessary to muscle the bill through the Senate. “There’s more work to be done. I mean we don’t yet have 50 votes. I think we’re close and we need to continue working,” he said.

The hail mary legislation sponsored by Sens. Bill Cassidy and Lindsey Graham would dismantle ObamaCare’s insurance subsidy program and Medicaid expansion and convert their funding into block grants to states.

Senate Republicans considered holding a vote they knew was doomed to fail to show the conservative grass roots and the broader party that they did all they could to dismantle the law. But there was also concern about the optics of going ahead with a failed vote. Republicans are also privately worried that President Donald Trump could continue to attack them if they give up on the effort publicly. Still, they said that they will continue to work on health-care reform, even though they will likely miss the Sept. 30 deadline for the special reconciliation bill that would allow them pass legislation with a simple majority vote.

Senate Health, Education, Labor and Pensions Committee Chairman Lamar Alexander (R-Tenn.), who led bipartisan negotiations earlier this month with Sen. Patty Murray (D-Wash.), said the environment simply isn’t conducive to it.

“We stopped the bipartisan talks last week because my goal wasn’t just to get a bipartisan agreement — it was to get a bipartisan result. I didn’t see any way to get one in the current political environment,” he said, shortly before Collins announced her opposition. “That environment hasn’t changed, maybe it does change — but it hasn’t.”

Senator Susan Collins, one of three Republicans to publicly say they opposed the measure, urged colleagues to resume bipartisan negotiations in the Senate Health Committee between Chairman Lamar Alexander and Sen. Patty Murray.

“I think the best route is for us to resume the hearings in the HELP [Health, Education, Labor and Pensions] Committee that we were doing before we were diverted by Graham-Cassidy,” Collins told reporters.  She said “it would be helpful if the vice president outlined his support for resuming the hearings in the HELP Committee and the negotiations that were making such good progress,” she said ahead of a Republican lunch with Vice President Mike Pence.

As the Hill adds, there had been talk about including ObamaCare repeal in a new budget reconciliation measure that has been planned for tax reform. That would allow both ObamaCare repeal and tax reform to be brought up under special rues that would prevent a filibuster. But that would also put tax reform at risk by pairing the issue with health care, and a number of key Republicans, including Cornyn and House Freedom Caucus Chairman Mark Meadows (R-N.C.), voiced opposition to that plan on Tuesday.

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In Historic Speech, Macron Makes “Radical” Appeal For United Europe, Calls For “Military Intervention Force”

Just two days after the Alternative for Germany (AfD) party won a larger-than-expected 13% of the vote in Germany’s federal elections over the weekend – dealing a staggering defeat to Chancellor Angela Merkel’s Christian Democrat-led coalition which suffered its worst electoral showing since 1949 – French President Emmanuel Macron delivered a lesson in contrasts when he gave what the Financial Times described as “the most integrationist speech by a French leader since the creation of the euro.”

Speaking to students at the Sorbonne in Paris, Macron said that "the challenge is vital: the sea walls behind which Europe has thrived have gone,” adding that “we need to trace the only path ensuring our future; it is the refoundation of a sovereign, united and democratic Europe.

In other words, a United States of Europe.

The dissonance between Macron’s words, and the expression of defiance by German voters, who elevated a right-wing party to Parliament for the first time since World War II, is remarkable considering the unprecedented showing of France’s own nationalist party, the Marine Le Pen-led National Front, in parliamentary elections earlier this year, according to the Financial Times.

Put another way, while voters on the continent are expressing serious reservations about further integration, Macron is proposing that the EU develop a joint “military intervention force”, a shared military budget, and a common budget funded by aggregated tax receipts and supervised by a single finance minister, along the lines of what last week's "State of the Union" speech by Jean-Claude Juncker proposed.

“Among the French president’s numerous proposals were the creation of a “military intervention force” and a common military budget by 2020, a European agency to deal with counter-terrorism intelligence and another to drive “radical innovation” in the economy.

Macron also proposed reviving talks about a financial-transaction tax and a stronger carbon-tax mechanism, while also proposing that every student in France learn to speak at least two foreign EU languages. 

In his wide-ranging address, Mr Macron said he wanted to revive talks on the introduction of a financial transaction tax to fund development aid to Africa, sought to introduce a carbon-pricing mechanism and outlined a plan for each youngster to speak at least two foreign EU languages by 2024.

In what was perhaps Macron’s boldest proposal, he pushed for the adoption of pan-European lists of candidates during the next EU parliamentary election, slated for 2019.

He also broke a French taboo by proposing an overhaul of the common agriculture policy and pushed for pan-European lists of candidates for 2019 European parliamentary elections.

 

However, Mr Macron was more restrained on the question of bolstering the eurozone, which had been billed as the centrepiece of his speech, in spite of a disappointing election result for Chancellor Angela Merkel’s Christian Democrats and the historic breakthrough of the rightwing Eurosceptic Alternative for Germany party.

And while Macron has, in the past, expressed support for a shared eurozone budget – a policy goal that is vehemently opposed by politicians in Germany, the eurozone’s largest constituent economy – he stopped short of calling for one in Tuesday’s speech.

He did take an implicit swipe at critics in Berlin who have opposed the idea of a significant eurozone budget because it would imply more risk sharing and fiscal transfers, he added: “I have no red lines, I only have horizons.”

 

But he stopped short of laying out specific demand on the eurozone, only reiterating his wish for a common budget funded by corporate tax receipts and supervised by a finance minister.

As the FT notes, Merkel and Macron share a diplomatic relationship, and the German Chancellor has said she would consider “small budget” and a common fund to help weaker economies carry out tough reforms, although in light of the post-election reality in which Merkel will have to share power with vehemently anti-integrationist parties, this now looks like a pipe dream.

As for his own constituents, Macron promised the French people that painful budget cuts to public spending, and more business-friendly labor and welfare laws would be offset by more aid from the EU, which of course is the whole point behind this pinnacle in "globalist" thought: while all can share in the growth, other European nations can also jointly fund France's chronic deficits while also sharing sovereignty, an idea which has zero chance of passing now or for the foreseeable future.

Watch the full speech below:


 

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The Fed Freaks Out: the Inflation Genie Is Officially Out of the Bottle

Something truly astonishing is happening at the Fed.

The Fed FOMC minutes for July contained an incredible admission although most missed it. During that meeting Fed officials implicitly admitted that the Fed had no clue about inflation.

This admission was largely swept under the rug. But we took note. And we started preparing accordingly. However, even we did not think the Fed would start broadcasting this admission on a near weekly basis.

Fast-forward to last week and Fed Chair Janet Yellen openly admitted that the Fed does not “fully understand” inflation. And then just this morning Yellen stated that the Fed was “wrong” employment and inflation.

Remember, this is THE FED we’re talking about: the group of individuals responsible for maintaining financial stability. And its leadership is now openly admitting that A) they’re wrong about the most important aspects of the economy and B) they don’t understand why this is!?!?

Already, “sticky inflation” or inflation for prices that are slow to change is now above the Fed’s 2% target.

And now the Cleveland Fed’s Median CPI measure has broken above 3.0%.

Put simply, the Fed has let the inflation genie out of the bottle. Yellen and her cohorts are now frantically trying to invent excuses for when inflation rips through the financial system.

This is THE trend of the next six months. If you’re not taking steps to actively profit from this, it’s time to get a move on.

We  published a Special Investment Report concerning a secret back-door play on Gold that gives you access to 25 million ounces of Gold that the market is currently valuing at just $273 per ounce.

The report is titled The Gold Mountain: How to Buy Gold at $273 Per Ounce

We extended out deadline on this report based on Janet Yellen's testimony this morning, but today is the final day this report will be available to the public.

To pick up yours, swing by:

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

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Trump To Adopt Draconian Refugee Cap, Admit Fewest Refugees In Decades

Two days after the Trump administration officially abandoned its controversial travel ban in favor of targeted restrictions singling out travelers from a larger list of countries, Foreign Policy is reporting that the Trump administration plans to dramatically reduce the number of refugees that the US accepts every year – the long-awaited second part of the administration’s immigration agenda.

The new targeted restrictions, officially confirmed late Sunday, range from a near-total ban on visitors from some countries to restrictions on only a small number of visas in others. Officials say they were applied to countries that were unable or unwilling to adopt policies that help vet their nationals to detect security threats.

Combined with the Trump administration’s new “targeted” restrictions – to be sure, pro-immigration groups have vowed a legal challenge – the tighter restrictions on refugees represents the replacement of a section of Trump's travel ban that faced fierce resistence from federal district judges who repeatedly tried to overturn the ban, or limit its scope.

The long-awaited decision comes less than a week after Trump told the United Nations General Assembly that the United States prefers to prevent refugees from leaving their region and resettling in the United States. It comes at a time when the ranks of the world’s refugees have swelled to more than 22 million, placing an enormous burden on countries from Bangladesh to Turkey.

 

“For the cost of resettling one refugee in the United States, we can assist more than 10 in their home region,” Trump told the gathering in remarks that were overshadowed by the president’s threat to destroy North Korea and his criticism of the Iran nuclear deal.

Foreign Policy explained that the new limits on refugees represented a compromise between White House hardliners who wanted to slash the resettlement program deeper, and moderates who wanted to preserve the program, even if at a lower level than under former President Barack Obama.

Stephen Miller, a White House advisor and key architect of the president’s immigration policies, had argued for a far smaller number, but was overruled.

Officials at the Department of Homeland Security recommended a slightly higher quota, arguing that it would give the US leverage to encourage other nations to accept refugees.

The Department of Homeland Security had argued behind closed doors for a ceiling of 40,000. But Deputy Secretary of State John Sullivan suggested that the U.S. could easily absorb 50,000 new refugees and that a more generous resettlement policy could provide other diplomatic benefits, including greater leverage in encouraging other countries to resettle refugees, and enhance the United States’ moral standing in the world.

According to FP, the State Department proposal was backed by the office of the vice president, the Department of Defense, the Joint Chiefs of Staff, and the US mission to the United Nations. The military pushed for special provisions to allow for the resettlement of interpreters from countries like Afghanistan and Iraq, who would be targeted as collaborators by insurgents if left in their own countries.

Secretary of State Rex Tillerson was reportedly responsible for picking the final number for the quota.

Then Secretary of State Rex Tillerson undercut Sullivan’s position, proposing that the number be reduced to 45,000, according to one administration official and a former U.S. official.

 

The news agency Axios first reported on Tillerson’s recommendation to cap refugee resettlement at 45,000. Tillerson and Elaine Duke, the acting Homeland Security secretary, will present a report to Congress Wednesday detailing the request for 45,000 to Congress.

The Administration’s decision comes as the number of refugees around the world swells to more than 20 million as countries from Bangladesh to Turkey to Germany have absorbed large numbers of migrants fleeing conflicts in Syria, Libya and Afghanistan. However, the EU has struggled to formulate a comprehensive response to the refugee crisis. By reducing its refugee quota, Trump is sending a message that he remains a hardliner on immigration, despite striking a deal that will likely allow Democrats to pass legislation enshrining DACA into law.

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Update from Puerto Rico: People are running out of cash, ATMs aren’t working and groups of looters are posing as police

My friend Adam (not his real name) lives in Puerto Rico and sent me a startling update…

Adam and his family evacuated the island for the hurricane, but he’s been in close contact with his friends who stayed on the ground.

And the situation is bad.

According to his contacts on the ground, people in Puerto Rico are running out of cash. And ATMs aren’t working.

That’s how it happens during a crisis – food, gas, cash (all the things you need most) disappear first.

This is exactly why you keep several months’ worth of expenses in cash in a safe (a little gold helps, too). It’s a simple step you can immediately take to help keep you and your family safe during a crisis… And the tragedy in Puerto Rico shows you that crises do happen.

Adam also told me a mutual friend is pleading with him to call his government contacts and ask for guns. He wants them to fend off looters who are allegedly banding together into large groups and imitating police officers.

Puerto Rico is struggling right now. And it’s going to be painful as the territory rebuilds after Hurricanes Irma and Maria.

But Adam is going back after the storm. And I’m still hosting my Total Access members there in November.

The island is still there. Act 20 and Act 22 still exist. And there’s still tons of long-term potential in Puerto Rico. We’re doing our part to bring economic activity to the island and start the rebuilding process right away.

Changing gears, let me tell you about Adam and why he decided to move to Puerto Rico…

He built one of the most successful educational software companies in the world (you’d know the name if I told you).

But Adam and his equally hardworking wife, Hope, lived in Los Angeles for most of that time.

Every year, they’d make progress. And then every year, they’d get the bill: The federal government demanded more than a third of their hard-won success. The state government wanted an additional 9%, plus a franchise tax that increased according to gross income. Local taxes added up as well.

Adam and Hope were drowning in taxes.

Before we discuss how they solved their problem, let’s look at what they were dealing with:

California is one of the most punishing states in the country when it comes to taxes. The state is infected with parasitic idea that businesses owe the state a disproportionate amount for any success they experience.

In fact, an Op-Ed in the LA Times, published a week before Tax Day 2017, blazed the following headline across its pages: Instead of taxes, make corporations give the government stock.

MAKE corporations GIVE the government stock?

Another Op-Ed published in the same paper, three days before tax time, stated the following: America is a country where someone like Trump can become a billionaire. We need to change that.

Whatever your feelings about the president, this is absurd.

The tenor of such pieces states a clear message: Success is quickly becoming anathema in the US. We need to make it harder to come by. And the government is “owed” more and more for it.

At the moment, the United States’ corporate tax rates remain at 38.9%… one of the highest rates in the world.

And remember that in the US, corporate taxes are levied at the federal, state, and often local levels as well.

Being strangled by taxes, especially when you are just starting out and don’t have a lot of extra cash flow to invest back into your business, squelches growth. It often prevents entrepreneurs from expanding their product lines or market scope. It delays or thwarts the ability to hire other people… it hinders the ability to provide jobs to other taxpayers.

Adam and Hope finally had enough.

Now, they live in Puerto Rico… and they pay 4% in taxes. Period.

And, yes, they finally feel free.

Adam and Hope say they are happier now, with a richer and more satisfying social life, than they ever were in Los Angeles.

They were familiar with Puerto Rico before they moved. But only after hearing about Puerto Rico’s tax incentives, did they consider relocating…

Act 20, as it’s known, grants a 4% tax rate to businesses. Act 22 is tailored to investors and other individuals and allows for zero taxes on capital gains, dividends and interest earnings. In a nutshell, under Act 20, business owners who move to the island can slash taxes down to 4%.

The taxes looked attractive to Adam and Hope. But Puerto Rico looked like a war zone in the press. So they didn’t consider moving there.

Then they saw a video from Sovereign Man’s 2015 Cancun event, where I discussed the incentives with local experts.

They flew to San Juan a week later. And, no surprise, the media was wrong…

Puerto Rico was far from a war zone.

Adam and Hope calculated how much money they would save by moving to Puerto Rico, made one more trip to find a place to live… and then, on December 30, 2015, they started their new life in San Juan.

What they found, in addition to immense tax savings, was a community with a shared ethos. People who move to Puerto Rico for these incentives programs tend to be entrepreneurs with similar mindsets and drive.

And even though Puerto Rico is in a time of crisis… All of these opportunities still exist.

If you take the long view today, you can still save a fortune in taxes and live a high-quality life in Puerto Rico.

I’ll let Adam have the last word: “You don’t even think about the stress of dealing with tax details anymore,” he says. “You can just run your business and live your life. There’s tremendous freedom in that.”

Source

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Jeff Sessions Wades Into Debates Over Campus and NFL Speech

U.S. Attorney General Jeff Sessions announced at Georgetown University today that the Justice Department will take on a greater role in free expression battles on college campuses.

In a speech denouncing what he characterized as an ongoing assault by illiberal administrators and students, Sessions said the Justice Department will file a Statement of Interest in a free speech case at Georgia Gwinnett College college this week, with more such statements likely in the coming weeks. A Christian student at Gwinnet filed a lawsuit against the college after he was told he could distribute literature only in two tiny areas approved by the college.

“Starting today, the Department of Justice will do its part in this struggle,” Sessions said. “We will enforce federal law, defend free speech, and protect students’ free expression from whatever end of the political spectrum it may come.”

Battles over what kind of speech should be permitted on college campuses have been going on for years, but they’ve reached a feverish pitch in recent months as white nationalists and anti-fascist protesters fought in the streets.

As a large number of faculty and students protested outside the building, Sessions invoked America’s long history of open debate and free expression, from the founding of the country to the civil rights movement, to argue that speech should not be subject to the whims of government officials.

“Freedom of thought and speech on the American campus are under attack,” Sessions said. “The American university was once the center of academic freedom—a place of robust debate, a forum for the competition of ideas. But it is transforming into an echo chamber of political correctness and homogeneous thought, a shelter for fragile egos.”

“The right to freely examine the moral and the immoral, the prudent and the foolish, the practical and the inefficient, and the right to argue for their merits or demerits remain indispensable for a healthy republic,” he continued. “This has been known since the beginning of our nation.”

Sessions cited cases of students being stopped from handing out copies of the U.S. Constitution, which administrators deemed “provocative” literature, as well as the proliferation of campus speech codes and “free speech zones” that limit how and where students can exercise their First Amendment rights.

Such speech codes and zones have been the subject of many challenges by the Foundation for Individual Rights in Education (FIRE), which Sessions cited in his remarks.

“The First Amendment is the law of the land on public campuses, but for decades colleges have been treating that fundamental right as though it’s optional,” FIRE Executive Director Robert Shibley said in a statement. “By supporting student litigation, the Department of Justice can help us ensure that all students can express themselves freely on campus.”

Somewhat ironically, Georgetown designated three official “zones” for those protesting Sessions’ speech. It is probably also worth noting that a woman is being prosecuted for laughing at Sessions during his confirmation hearing.

During a Q&A session after his speech, Sessions was asked about the ongoing controversy over NFL players kneeling during the national anthem, which has sparked a series of scathing tweets from Sessions’ boss, President Donald Trump.

“The president has free speech rights, too,” Sessions said. “So I agree that it’s a big mistake to protest in that fashion, because it weakens the commitment we have to his nation that has provided us these freedoms. I would note, of course, that the players aren’t subject to any prosecution, but if they take a provocative act, they can expect to be condemned.”

The juxtaposition between Sessions’ civic-minded calls for tolerance and the president’s use of his bully pulpit to hurl insults at peaceful protesters was not lost on the students protesting outside Sessions’ speech.

“I find it hypocritical for a member of the Trump administration to act as a champion for free speech while the president has consistently mocked and insulted those trying to exercise the very same rights,” Richard Hand, a third-year law student at Georgetown, told CNN.

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