Month: December 2017

After Chinese vessels were “caught red handed” – in the words of President Trump – by US spy satellites, illegally selling oil to North Korea, and following this morning’s news that a Hong Kong ship was seized after transferring oil to North Korea, Reuters  is reporting ‘two senior Western European security sources’ confirm Russian tankers have supplied fuel to North Korea on at least three occasions in recent months by transferring cargoes at sea.

As Reuters reports, the transfers in October and November indicate that smuggling from Russia to North Korea has evolved to loading cargoes at sea since Reuters reported in September that North Korean ships were sailing directly from Russia to their homeland.

“The vessels are smuggling Russian fuel from Russian Far Eastern ports to North Korea,” said the first security source, who spoke on condition of anonymity.

Reuters was unable to independently verify that the vessels had transferred fuel to North Korean vessels, whether the Russian state knew about the sales or how many Russian vessels were involved in the transfers. It was also unclear how much fuel may have been smuggled.

Ship satellite positioning data consulted by Reuters and available on Reuters Eikon shows unusual movements by some of the Russian vessels named by the security sources including switching off the transponders which give a precise location.

The security sources said the Russian-flagged tanker Vityaz was one vessel that had transferred fuel to North Korean vessels.

 

The Vityaz oil products tanker

The Vityaz left the port of Slavyanka near Vladivostok in Russia on Oct. 15 with 1,600 tonnes of oil, according to Russian port control documents.

The owner of the Russian vessel denied any contact with North Korean vessels but also said it was unaware that the vessel was fuelling fishing boats.

Yaroslav Guk, deputy director of the tanker’s owner, Vladivostok-based Alisa Ltd, said the vessel had no contacts with North Korean vessels.

“Absolutely no, this is very dangerous,” Guk told Reuters by telephone. “It would be complete madness.”

Two other Russian flagged tankers made similar journeys between the middle of October and November, leaving from the ports of Slavyanka and Nakhodka into open seas where they switched off their transponders, shipping data showed.

The sales of oil or oil products from Russia, the world’s second biggest oil exporter and a veto-wielding member of the United Nations Security Council, breach U.N. sanctions, the security sources said.

“Russian vessels have made ship-to-ship transfers of petrochemicals to North Korean vessels on several occasions this year in breach of sanctions,” the first security source, who spoke on condition of anonymity, told Reuters.

A second source, who independently confirmed the existence of the Russian ship-to-ship fuel trade with North Korea, said there was no evidence of Russian state involvement in the latest transfers.

“There is no evidence that this is backed by the Russian state but these Russian vessels are giving a lifeline to the North Koreans,” the second European security source said.

The two security sources cited naval intelligence and satellite imagery of the vessels operating out of Russian Far Eastern ports on the Pacific but declined to disclose further details to Reuters, saying it was classified.

Russia’s Foreign Ministry and the Russian Customs Service both declined to comment when asked.

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Finally, if these alleged interactions are true, then it highlights the degenerating position of the supposed US hegemon in the eyes of the world. Just today, we saw reports that China’s launching of its petro-yuan oil futures contract is days away.

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Ugly end…

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But on the year, the dollar tanked (worst since 2003), stocks and bonds (the long-end) soared higher, commodities rebounded dramatically, cryptocurrencies exploded, and gold had its best year since 2010 as VIX saw its lowest average in history…

and all that driven by the biggest increase in central bank balance sheets since 2011… anyone else feel like this… (our estimate is we are at around the 30 second mark currently)

 

2017…

Now that was a year for stocks…

• The Dow is up 25% over 2017, putting it on track for its second straight annual increase, as well as its best year since 2013.
• The S&P is up 20% year-to-date. Like the Dow, it is set for its second straight annual increase and its best year since 2013.
• The Nasdaq is up 29% in 2017, its best year since 2013. 2017 is set to be the Nasdaq’s sixth straight annual gain. According to the WSJ Market Data Group, this is the longest streak for the Nasdaq since a six-year streak lasting from 1975 to 1980.
• The Russell has gained 13.6% in 2017. The index is set for its second straight annual gain.

 

Additionally, The Nasdaq also has posted a record number of all-time high closes this year.

Vols across every asset class collapsed to multi-year (if not record) lows…

 

Treasuries were extremely mixed on the year with 2Y Yields soaring 67bps and the long-bond yields collapsing 34bps…

 

The collapse in the yield curve (2s30s) is the biggest flattening since 2007…

 

This is the flattest yield curve since Oct 2007…

 

The Dollar was a bloodbath this year – the biggest loss for the greenback since 2003…

 

 

All the major commodities ended higher on the year with copper’s recent crazy rampage leading the way..

 

 

While all the headlines have proclaimed Bitcoin the big winner, its 1400% return in 2017 is dwarfed by the explosion in Ripple…

 

 

In December…

• The Dow is up 2% in December. This will mark its ninth straight monthly rise, its longest such streak since 1959.
• The S&P is up 1% thus far this month. This will also be the S&P’s ninth positive month in a row, representing its best streak since 1983.  On a total-return basis, however, the S&P is set for its 14th straight monthly gain, which will lengthen a record… and is the first “perfect year” of 12 straight months in one calendar year gains.
• The Nasdaq is up 0.5% in December, which will represent its sixth straight monthly increase. The tech-heavy index has risen in 13 of the past 14 months.
• The Russell is down 0.5% in December. breaking its longest winning streak since Feb

Ugly close to the month…

 

 

30Y Yields were also lower in December overall as the rest of the curve was higher (10Y Unch)…

 

The dollar dropped for the second straight month led by Aussie, Yuan, and Euro strength…

 

 

As the dollar weakened following The Fed rate hike so commodities all started ramping higher in December…

 

 

On the week…

Santa failed to deliver this year (so far) with stocks ending a huuge year with whimper… tumbling into year-end with all major indices red on the week

 

 

Nasdaq was smashed lower for the 5th day in a row…

 

 

Bonds were very aggressively bid, and the yield curve flattened dramatically…

 

 

Bond yields and the dollar tracked each other all week…

 

 

The dollar fell for the 3rd straight week – the biggest weekly drop in almost 4 months…

 

 

And cryptos surged with only Litecoin lower, despite the Korean headlines, as Ripple roared…

 

 

Gold surged to $1310, near 3 month highs, this week but silver and crude led the way…

 

 

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Finally, if there is one chart that sums up 2017, it is this…

 

 

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Happy New Year to all… and remember, on Tuesday… It’s…

 

 

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Huma Abedin’s first cousin, Omar Amanat, 44 and an associate were convicted of Fraud on Tuesday for deceiving shareholders in their tech company by falsely inflating revenues. They face a 10 years in prison at his scheduled April 25th sentencing. 

Huma Abedin and cousin Omar Amanat

Notably, the jury was “not permitted to hear a recorded telephone conversation in which Amanat tells a government cooperator that his first cousin is Huma Abedin, a former aide to last year’s Democratic presidential nominee, Hillary Clinton,” according to the Associated Press. Amanat and his partners deceived shareholders of “Kit Digital” between 2010 and 2012, falsely inflating revenues to hide losses. During the trial Amanat introduced fabricated emails as evidence. 

Ironically, court documents also reveal Amanat tried to destroy evidence before the trial – asking his brother over email to “delete all of my emails from the yahoo site,” over concern that they might be subpoenaed at some point. 

“The evidence of their criminal schemes was so overwhelming that Amanat actually tried to fool the jury by introducing fake emails into the record as exculpatory ‘evidence’ in this trial,” said Acting Manhattan U.S. Attorney Joon H Kim, adding “Unfortunately for Tuzman and Amanat, the jury saw through their tangled web of lies, convicting them on all counts.”

Amanat was ordered immediately jailed by US District Court Judge Paul G. Gardephe after U.S. Attorney Andrea Griswold argued he was a flight risk, due to the “substantial” sentence likely to be handed down. 

Another first cousin of Huma Abedin Irfan Amanat, was charged on December 5 in Manhattan Federal Court in the KIT Digital case. He was busted by The SEC in a separate case for tricking the Nasdaq exchange into giving him $50,000 with a computer program he wrote.

And as Luke Rosiak of the Daily Caller reports, in 2013 Omar Amanet partnered with businessman Vladislav Doronin, known as The Russian Donald Trump, to buy a luxury resort for $358 million. 

An in-depth 2014 profile in Fortune magazine says Doronin is “referred to in the British press as the ‘Russian Donald Trump.’” Dorinin was born in what was then Leningrad before moving to Geneva to work for Marc Rich, a financier who fled the U.S. after being indicted for fraud and trading with Iran, and was pardoned by former President Bill Clinton on Clinton’s last day in office.

“Clinton’s motive for pardoning Rich on his last day in office was questioned,” USA Today reports, “because Rich’s ex-wife, Denise Rich, was a wealthy Democratic donor who made a $450,000 donation to Clinton’s presidential library foundation and more than $100,000 to Hillary Clinton’s Senate campaign.” The pardon was investigated by the FBI in 2001.

After Doronin and Amanat parted ways, Doronin began calling Amanat a “serial swindler,” who forged signatures on million dollar contracts. As the Daily Caller also reports, Amanat was permanently barred by FINRA in 2008 “from associating with any FINRA member firm in any capacity” for repeatedly failing to disclose legal judgments and an SEC investigation. 

In 2002, he sold a company called Tradescape for $100 million to E*Trade, which charged that Amanat hid that before it was sold, the company had “no money! Zero. Zilch. Nada… We can’t pay any of our bills,” as one employee wrote in a contemporaneous email, according to the Forbes piece.

At one point after having declared bankruptcy, a creditor attempted to seize Amanat’s house, when Abedin’s cousin allegedly backdated a document claiming he had sold the property to his brother for $10 the prior year. The scheme didn’t work and the house was sold. 

As a side-note, there also lies an interesting connection; Doronin, one-time business partner of Huma Abedin’s cousin, Omar Amanat, worked for financier Marc Rich (deceased). And who else worked for Rich? None other than Dan Gertler – one of the 13 “corrupt” or “serious human rights abusers” listed in President Trump’s new Executive Order. 

Dan Gertler

As we reported earlier this week, Gertler – an Israeli billionaire mining magnate, was revealed by the Paradise Papers to be chief negotiator between the Democratic Republic of the Congo (DRC) and his primary business partner – mining company Glencore, founded by none other than Marc Rich – the former employer of Omar Amanat’s money man – Vladislav Doronin. 

And there you have it – a particularly bad December for a few colorful characters – most, if not all of whom are only a few degrees of separation from the longtime core of the DNC.

What a small world.

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From the “Yellen Call” to “globalization” and from “disruption” to “dumping“, 2017 had it all and Goldman Sachs’ annual ‘themes’-driven crossword is just the ticket as the final few minutes of the trading year tick away…

Via Goldman Sachs,

 

Across Clues:

 

Down Clues:

*
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*
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*
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The Answer (don’t cheat!) – click image for legible version

 

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Americans who are lucky enough to own their own little slice of the ‘American Dream’ are about $2 trillion wealthier this year courtesy of Janet Yellen’s efforts to recreate all the same asset bubbles that Alan Greenspan first blew in the early 2000’s.  After surging 6.5% in 2017, the highest pace in 4 years according to Zillow data, the total market value of homes in the United States reached a staggering all-time high of $31.8 trillion at the end of 2017…or roughly 1.5x the total GDP of the United States.

If you add the value of all the homes in the United States together, you get a sum that’s a lot to get your mind around: $31.8 trillion.

How big is that? It’s more than 1.5 times the Gross Domestic Product of the United States and approaching three times that of China.

Altogether, homes in the Los Angeles metro area are worth $2.7 trillion, more than the United Kingdom’s GDP. That’s before this luxury home on steroids hits the market.

In the New York City metro, total home values equal $2.6 trillion, more than the French economy — and enough money to buy 8,494 Boeing 787-10 Dreamliners.

And here is a look at the “Housing Bubble 2.0” on a state-by-state basis:

Ironically, among the 35 largest U.S. housing markets, the one to experience the greatest total home value growth happened to be Columbus, Ohio, which gained 15.1% to $152.3 billion.

Meanwhile, the millions of Americans who have been forced into renting following their short sales or foreclosures in the wake of the last housing bubble, threw a record $485.6 billion dollars down the drain in 2017 on rent, an increase of $4.9 billion from 2016. Not surprisingly, folks in New York and Los Angeles spent the most on rent in 2017 while San Francisco rents soared to such high levels that renters collectively paid $616 million more in rent than Chicago renters did, despite there being 467,000 fewer renters in San Francisco than in Chicago.

Of course, as we pointed out at the end of November, while staggering, the pricing gains on housing only look to just now be heating up…

As the latest housing data shows an uptick in sales, Case-Shiller’s 20-City Composite index surged 6.19% YoY in September – the fastest rate of gain since July 2014.

As Bloomberg notes, the residential real-estate market is benefiting from steady demand backed by a strong job market and low mortgage rates. The ongoing scarcity of available houses on the market, especially previously-owned dwellings, is likely to keep driving up prices.

Eight cities have surpassed their peaks from before the financial crisis, according to the report.

All 20 cities in the index showed year-over-year gains, led by a 12.9 percent increase in Seattle and a 9 percent advance in Las Vegas (slowest gains in Washington area at 3.1 percent, Chicago at 3.9 percent)

Luckily, American’s are too ‘smart’ to get crushed by another housing crash this cycle…no, this time around they’re not taking any chances and are instead taking all their equity out of their  homes to buy Bitcoin…which is a genius plan if we understand it correctly.

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After tumbling in early December, gold has exploded higher since The Fed hiked rates on 12/13, hitting $1310 today – the highest since Oct 16th.

 

And as Gold has soared so the dollar index has collapsed…

Interestingly in the last month, Gold and Bitcoin have seen a wild ride – converging again today…

 

As Reuters reports, the dollar’s drop to three-month lows versus a basket of currencies on Friday lifted gold to its highest since mid October.

Putting the year’s relative performance in context…

 

This is the dollar’s worst year since 2003… despite 3 Fed rate hikes, repatriation expectations, and exuberant economic hopes.

“In the last couple of weeks, trade has been relatively thin, yields have been under pressure and the dollar as well, so gold has profited from that,” ABN Amro analyst Georgette Boele said. “If you look over the year, dollar weakness has been the main theme.”

The impact of three U.S. interest rate hikes this year was offset by the dollar’s weakness, Boele said. “The dollar is the most important driver, and then real yields. The Fed is increasing rates, but the dollar’s not profiting.”

This is gold’s best year since 2010… despite no volatility, no inflation, and a total lack of comprehension of any geopolitical risk in equity markets.

Gold, which is also on course for its best month since August, has also benefited of late from technically driven momentum, analysts said.

ScotiaMocatta’s technical team said in a note that chart signals for the metal look positive after it broke above its 100-day moving average this week at $1,295 an ounce. “Momentum indicators are bullish.”

 

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Just yesterday we warned that the lives of the world’s new “Bitcoin Billionaires” had just become a bit more complicated after reports surfaced that one such crypto investor, Pavel Lerner, was kidnapped by a group of armed men wearing ski masks as he left his office in the Obolon district of Kiev earlier this week.

While it may have seemed that his fate was sealed at the moment of his kidnapping, the Financial Times has just confirmed the Lerner has been released after paying his kidnappers a $1 million ransom in Bitcoin.

An executive of a UK-registered cryptocurrency exchange kidnapped in Ukraine this week has been released after paying a ransom of more than $1m in bitcoins, according to an adviser to the Ukrainian interior minister, in a crime he dubbed “bitcoin kidnapping and extortion”.

“He was kidnapped by an armed gang for the purpose of extorting bitcoins,” Mr Gerashchenko told the Financial Times, adding: “We have operative information that he paid more than $1m worth of bitcoins.”

He said Mr Lerner was held for one and a half days, “then released in a state of shock. … He got very lucky that he remained alive.”

As we noted yesterday, Pavel, a Russian citizen, has a number of startups in Ukraine linked to cryptocurrency mining and blockchain technology.  In addition, he is also the CEO of EXMO, a UK-based Bitcoin exchange. 

According to prior reports from The Telegraph, Lerner (40) was pulled into a black Mercedes Benz by a group of armed men wearing ski masks as he left his office on December 26. Adding to the intrigue of the abduction, EXMO’s website suffered a DDOS attack yesterday morning, which knocked trading temporarily offline, just as news of the kidnapping begin to draw public attention.

Following the news of Lerner’s disappearance, EXMO issued a statement requesting “any information regarding his whereabouts” and assuring customers that he could not be ‘convinced’ to give up their Bitcoin or personal data stored on the exchange.

A spokesman was unavailable for comment but a statement sent to RT, the broadcaster backed by the Russian government, said that Mr Lerner’s kidnapping would not affect the business.

“We are doing everything possible to speed up the search of Pavel Lerner,” it said.

“Any information regarding his whereabouts is very much appreciated. Despite the situation, the exchange is working as usual. We also want to stress that nature of Pavel’s job at EXMO doesn’t assume access either to storages or any personal data of users. All users funds are absolutely safe.”

Of course, Lerner is not the first Bitcoin extortion target for the world’s new breed of crypto terrorists.  Earlier this month we reported that, Nice Hash, the largest crypto-mining marketplace, was hacked with over 4,700 bitcoins, worth over $62 million, stolen and ultimately ending up at the following address:

Conclusion: If you’ve made a small fortune trading Bitcoin over the past couple of quarters it may be best to keep that information to yourself…

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Since the start of 2017, a number of opportunistic investors sought to profit from the expected demise of the physical retail sector, a trade which we and others dubbed the next “Big Short” – also known as the “Amazon crushes everyone” trade – and in which investors bought credit-default swaps against subordinate bonds in certain CMBX derivative indices that are tied to CMBS deals with healthy concentrations of loans against shopping malls and retail centers.

As CMBS advisory Trepp notes, the trade gained notoriety last February, when spreads for the BBB- and BB rated components of the indices went through a massive widening. They continued to widen at a somewhat steady clip until only recently. That alone indicates the trade, particularly if executed early, has paid off nicely.

CMBX consists of a group of indices that are each linked to a group of 25 CMBS conduit deals issued during a particular year. The indices are used as an indicator of the overall performance of the CRE market and enables investors to make bets on corresponding long and short positions.

Investors who expect deals in a specific index to incur losses can buy protection: they would pay a fixed-rate premium to a seller of protection who would bet against losses. If losses occur, the seller of protection would cover them. So, a short trade becomes most profitable when deals in an index suffer actual losses. It also becomes profitable in the event spreads widen, as they have.

Spreads Move Wider and Wider

The spread blowout in CMBX has been especially pronounced for the 6 and 7 series, which are tied to CMBS deals issued in 2012 and 2013. Those spreads have widened largely due to the perceived greater exposure to struggling mall properties and retail bankruptcies. The focus of the trade has been placed on junior bonds in the lower credit stack because the notes are typically the first to incur losses when distressed loans are liquidated or written off.

Compared to their tightest levels in late January, BBB and BB spreads for the two segments initially widened between 130 and 295 basis points, respectively, in just two months as word about the trade emerged. While the sell-off paused momentarily in April, spreads for the BBB- tranches of CMBX 6 and 7 resumed their climb by August. The spreads then peaked at year-to-date highs in early November that were 358 and 202 basis points wider, respectively, than their lows in January.

By the same token, spreads for the lower credit BB bonds in those same indices reached highs that were a staggering 499 and 254 basis points wider than their narrowest points roughly 10 months ago. During this devaluation period, the traded price pegged to the BBB and BB portions of CMBX 6 and 7 series were reduced by 10 to 17% as investors rushed to crowd the trade.

 

Prices and spreads for the derivative positions have since recouped some of their losses as the market has begun to catch on that the underlying bonds are being priced below their actual worth.

Broader Retail Worries Weigh on CMBX

It’s no secret that the retail landscape is in the midst of an unprecedented revolution. The cause of the blowout in CMBX spreads centers on the idea that the weak performance of certain retailers, particularly JCPenney, Sears, and Macy’s, would impact the properties they occupy. The three department store chains often anchor class-B and -C malls and have been shuttering stores by the dozens.

Such closures often trigger co-tenancy clauses for other in-line mall tenants, prompting them to downsize or vacate altogether. The thinking has been that properties, particularly those in secondary or tertiary markets, exposed to the three firms are at greater risk of default and losses. As such, those holding short positions in certain CMBX indices would receive a payout.

But has the bet paid off? Not quite. Retail loans are the most exposed property type for both the CMBX 6 and CMBX 7 indices with a 38.24% and 32.4% concentration, respectively. But only 1% of the remaining balance of retail assets has been marked as delinquent.

So far, only 40 retail loans in deals tied to the CMBX 6 and 7 series have paid off, and four incurred losses totaling $4.3 million. Each of those notes disposed was in a 6 series deal. No losses have been attributed to deals tied to CMBX 7. But the number of distressed retail mortgages will likely increase as they inch closer to their scheduled maturity dates and collateral performance continues to deteriorate.

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The art of (future) war is rapidly evolving with Beijing spearheading the push into the first modern operational hypersonic glide vehicle (HGV). According to The Diplomat, the weapon, known as the Dong Feng (“East Wind”), DF-17 for short, is designed to challenge existing missile defense systems, such as America’s anti-ballistic missile defense system called: Terminal High Altitude Area Defense (THAAD).

An unnamed U.S. government source, who has studied recent intelligence reports on the People’s Liberation Army Rocket Force (PLARF), said China conducted two separate tests of the hypersonic missile back in November. The first test was conducted on November 01 and the second test took place on November 15. The Diplomat signals, that the November 01 test was the first Chinese ballistic missile launch to take place after the Communist Party of China’s 19th Party Congress in October.

Following half-dozen development tests between 2014-2016, the most recent tests were launched from the Jiuquan Space Launcher Center in Inner Mongolia. The Diplomat then explains that the November 01 test was widely viewed as successful after the hypersonic weapon hit its intended target “within meters.”

During the November 1 test flight, which took place from the Jiuquan Space Launcher Center in Inner Mongolia, the missile’s payload flew to a range of approximately 1,400 kilometers with the HGV flying at a depressed altitude of around 60 kilometers following the completion of the DF-17’s ballistic and reentry phases.

HGVs begin flight after separating from their ballistic missile boosters, which follow a standard ballistic trajectory to give the payload vehicle sufficient altitude.

Parts of the U.S. intelligence community assess that the DF-17 is a medium-range system, with a range capability between 1,800 and 2,500 kilometers. The missile is expected to be capable of delivering both nuclear and conventional payloads and may be capable of being configured to deliver a maneuverable reentry vehicle instead of an HGV.

Most of the missile’s flight time during the November 1 flight test was powered by the HGV during the glide phase, the source said. The missile successfully made impact at a site in Xinjiang Province, outside Qiemo, “within meters” of the intended target, the source added. The duration of the HGV’s flight was nearly 11 minutes during that test.

The source told The Diplomat, this was “the first HGV test in the world using a system intended to be fielded operationally.” U.S. intelligence assessments indicate the DF-17 could be operational as soon as 2020.

China just showed its hypersonic-BGV in a vid on 08 Oct. Probably a test design model, but AFAIK this is first pics of an actual object 1/ http://pic.twitter.com/EXIMHkXTEA

— Raymond Wang (@soraywang) November 5, 2017

“Although hypersonic glide vehicles and missiles flying non-ballistic trajectories were first proposed as far back as World War II, technological advances are only now making these systems practicable,” Vice Admiral James Syring, director of the U.S. Missile Defense Agency, said in June, during a testimony before the U.S. House Armed Services Committee.

In 2015, Lockheed Martin, well aware of China’s HGV threat, dusted off their plans to upgrade its THAAD missile system to counter hypersonic weapons.

Lockheed Martin is hoping the maturing threat of hypersonic boost glide vehicles from ambitious adversaries will spark interest in the company’s dormant plan to design a more capable interceptor for the Terminal High-Altitude Area Defense (Thaad) air defense system.

Chinese officials confirmed they conducted a test last month of what they are calling a hypersonic strike vehicle. U.S. officials worry this missile could outsmart their defenses.

That said, China is not the only superpower in the HGV game, the United States and Russia are developing hypersonic weapons, as well.

And lastly, the Rand Corporation  warns, “the trajectory and capabilities of HGVs provide them with some unprecedented attributes that may be disruptive to current military doctrines of advanced nations.”

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