Month: February 2018

Testifying in front of Congress on Tuesday, Uber CIO John Flynn said that there was “no justification” for the company covering up a massive 2016 breach by hackers from Canada and Florida which affected 57 million accounts.

“I think we made a misstep in not reporting to consumers, and I think we made a misstep in not reporting to law enforcement,” said Flynn.

The CIO also said that it was inappropriate to have paid one of the hackers $100,000 through a “bug bounty” program to destroy the stolen data. The bounty program offers financial rewards to anyone who identifies vulnerabilities.

Flynn confirmed the man who obtained data from Uber was in Florida and that his partner, who first contacted the company on Nov. 14, 2016, to demand a six-figure payment, was located in Canada. The company’s security team made contact with both people and received assurances the pilfered data had been destroyed before paying the intruders $100,000, Flynn said. –Reuters

“We recognize that the bug bounty program is not an appropriate vehicle for dealing with intruders who seek to extort funds from the company,” Flynn said in his written testimony. “The approach that these intruders took was separate and distinct from those of the researchers in the security community for whom bug bounty programs are designed.”

Of the 57 million user accounts were compromised last November, 25 million were located in the United States. Of those, 4.1 million were Uber drivers, according to Flynn’s testimony. The hackers were able to obtain names, addresses and drivers license numbers. 

Lawmakers on the Senate Commerce consumer protection subcommittee railed against the company over how it handled the breach.

“The fact that the company took approximately a year to notify impacted users raises red flags within this Committee as to what systemic issues prevented such time-sensitive information from being made available to those left vulnerable,” said subcommittee chairman Sen. Jerry Moran (R-KS).

“There ought to be no question here that Uber’s payment of this blackmail without notifying consumers who were greatly at risk was morally wrong and legally reprehensible and violated not only the law but the norm of what should be expected,” added Sen. Richard Blumenthal (D-CT).

Blumenthal also noted that Uber was in the process of negotiating a settlement with the Federal Trade Commission over an earlier, smaller breach and charges of deceptive privacy claims – while covering up the giant breach from November 2016. 

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Authored by Brandon Smith via Alt-Market.com,

I have been saying it for years and I will say it again here – stocks are the worst possible “predictive” signal for the health of the general economy because they are an extreme trailing indicator. That is to say, when stock markets do finally crash, it is usually after years of negative signs in other more important fundamentals.

Of course, whether we alternative analysts like it or not, the fact of the matter is that the rest of the world is psychologically dependent on the behavior of stock markets. The masses determine their economic optimism  (if they are employed) according to the Dow and the S&P and, to some extent, by official and fraudulent unemployment statistics. When equities start to dive, society takes notice and suddenly becomes concerned about fiscal dangers they should have been worried about all along.

Well, it may have taken a couple months longer than I originally predicted, but it would seem so far that a moment of revelation (that slap in the face I discussed a couple weeks ago) is upon us. In less than a few days, most of the gains in global stocks for 2018 have been erased. The question is, will this end up as a “hiccup” in an otherwise spectacular bull market bubble? Or is this the inevitable death knell and the beginning of the implosion of that bubble?

After I predicted the election of Donald Trump, I also predicted that central banks would begin pulling the plug on life support for equities markets. This did in fact take place with the Fed’s continued program of interest rate increases and the reduction of their balance sheet, which effectively strangles the flow of cheap credit to banking and corporate institutions that fueled stock buybacks for years. Without this constant and ever expansionary easy fiat, there is nothing left to act as a crutch for stocks except perhaps blind faith. And blind faith in the economy always ends up being smacked down by the ugly realities of mathematics.

I believe the latest extraordinary dive in stocks is NOT a “hiccup,” but a sign that “contagion” is still a thing, and also a trailing sign of instability inherent in our fiscal system. Here are some reasons why this trend is likely to continue.

Historic Corporate Debt Levels

As mentioned above, artificially low interest rates have allowed corporations incredible leeway to manipulate stock markets at will using stock buybacks and other methods.  However, there are still consequences for this strategy.  For example, corporate debt levels are now at historic annual highs; far higher even than debt levels just before the crash of 2008.

If this doesn’t illustrate the falseness of the so called “economic recovery”, I don’t know what does.  Beyond that, what happens as the Fed continues to raise interest rates and all that debt held by the “too big to fails” becomes vastly more expensive?  Well, I think we are seeing what happens.  Over time, faith in the corporate ability to prop up equities will erode, and a considerable decline is built directly into the farce.

Price To Earnings Ratio

In some of her final statements upon stepping down as the head of the Federal Reserve, Janet Yellen had some choice comments about the state of equities markets. These included statements that stock market valuations were high and that the price-to-earnings ratio of the S&P 500 (the ratio of stock values versus actual corporate earnings per share) were at a historical peak. This fits exactly with the policy shift I warned about in 2017, and my assertion that Jerome Powell will be the Fed chairman to oversee the final crash of the post-bailout market bubble.

The spike in P/E ratios is not only taking place in U.S. markets. For example, the same trend can be observed in countries like India.  Meaning, there are equities valuation problems around the world.

The issue here is that corporate earnings do not justify such high stock prices. Therefore, something else must be inflating those prices. That something was, of course, central bank stimulus, and now that party is almost over, whether the “buy the f’ing dippers” want to admit it yet or not.

10-Year Treasury Yield Spike

Have spiking Treasury bond yields actually been a signal for an “accelerating economy” as mainstream economists often suggest? Not really. In the era of central bank monetary manipulation, it is more likely that yields were spiking because markets are anticipating the arrival of Jerome Powell as Fed chair and accelerating interest rate hikes rather than an accelerating economy.

The notion that the economy itself might be “overheating” in 2018 is a rather new and nefarious propaganda meme being used by central bankers to set a particular narrative. I believe that narrative will be the claim that “inflation” is a key concern rather than deflation and that central banks must act to temper inflation with more aggressive rate increases. In reality, what we are seeing is not “inflation” in a traditional sense, but stagflation. That is to say, we are seeing elements of price inflation in necessary goods and services and well as property markets, but continued deflation in the rest of the economy.

The Fed in particular will continue to ignore negative fundamentals because they are seeking to deliberately pop the market bubble they have created.

The spike in 10-year bond yields seems to be correlating closely to the recent volatility in stocks. This volatility increased exponentially as yields neared the 3% mark, which appears to be the magical trigger point for equities failure.  Though yields suffered a modest decline as stocks tumbled this week, I still recommend keeping an eye on this indicator.

Dollar Weakness

As I have mentioned in recent articles, there has been a strange disconnect between interest rates and the U.S. dollar. As the Fed continues its policy of hiking interest rates, generally the dollar index should rise in response. Instead, the dollar has been swiftly falling, only stalling in the past couple of trading sessions. If the dollar index continues to fall even as stocks decline and rates increase, this may suggest a systemic risk to the dollar itself.

Such risk could include a dollar dump by foreign central banks in favor of a wider basket of currencies, or the SDR trading basket created by the IMF.

Balance Sheet Reductions Accelerating

The Fed’s most recent release of data on its balance sheet reduction program shows a drop in holdings of $18 billion; this is far higher that the originally planned $12 billion slated by the Fed.  Meaning, the Fed is dumping its balance sheet holdings much faster than it told the public initially.

Why is this important?  Well, if you have been tracking the behavior of stocks over the past few years as well as the increases in the Fed’s balance sheet, you know that stock markets have risen in direct correlation with that balance sheet.  In other words, the more purchases the Fed made, the higher stocks climbed.

If this correlation is directly linked, then as the Fed reduces its balance sheet, stocks should fall.

So, the fed announces its latest round of balance sheet reductions on January 31st, the reduction is much higher than anticipated, and within a week we witness the largest two day market drop in years.  You would think this observation might just be important, but if you look at the mainstream economic media, almost NO ONE is mentioning it.  Instead, they are searching for all sorts of random explanations for what just happened, none of which are very logically satisfying.

I believe that the Fed will not only continue its program of interest rate increases even if stocks begin to flounder, but that they will also unload their balance sheet as quickly as possible.

Corporate Investor Comments

Major corporate investment firms are beginning to raise their voices about the potential not only for stock devaluations, but also the amount that they might fall. Sydney-based AMP capital suggested a rather moderate 10% pullback in equities, which I think will become the talking point for most of the mainstream media over the next couple weeks. At least, until the whole thing comes crashing down much further than that.

The head of Blackstone COO expects stocks to fall at least 20% this year, a much more aggressive number but not high enough in my view.

I still believe these kinds of estimates are only applicable in the very short term. By the end of 2018, it is possible that markets will double the worst estimated declines predicted by the mainstream investment world given the fundamentals.

Central Banker Comments

Comments by agents of the Federal Reserve reinforce the notion that the central bank is about to crush the bull market bubble. San Francisco branch head Robert Kaplan has been quoted as saying the Fed may be required to hike interest rates MORE than the three times expected by mainstream economists in 2018.

As noted above, Janet Yellen’s exit statements were decidedly “hawkish,” suggesting that property markets and stocks are overpriced. On top of this, Jerome Powell, the new Fed chair, has been quoted in Fed documents from 2012 (finally released this past month) discussing the market bubble the Fed had created and the need to temper than bubble. In other words, Powell is the perfect man for the job of imploding stocks. Powell even predicted in 2012 that when the Fed raises rates the reaction by stock markets might be severe.  Interesting that markets would plunge the very first day Powell assumes the Fed chair position.

I suppose finally a Fed agent and I have something in common. We’ve both been predicting the same exact market outcome caused by the same trigger event for around the same number of years.

I outlined in great detail the plan for the “global economic reset” and Powell’s role in overseeing the next stock crash in my article Party While You Can – Central Bank Ready To Pop The Everything Bubble. In that article, I predicted exactly the results which seem to be developing today in equities.

In essence, Powell is being portrayed by the mainstream media as “Trump’s guy,” and the change in Fed leadership is now being referred to as “Trump’s Fed.” This is not random rhetoric.  I can’t think of ANY other president in the past that was given credit by the mainstream media for the activities of the Federal Reserve. Trump’s control over the Federal Reserve is zero. But, the actions of the Fed over the course of this year will undoubtedly crash the very equities markets that Trump has been foolishly taking credit for since his election.

The real issue here now is, how fast will this ugly festering sore explode? That’s hard to say. I would not be surprised if markets fall about 20% below recent highs in the course of the next couple of months and then stall. We may even see a couple spectacular bounces in the near term, all set to trumpets and fanfare by the mainstream economic media who will proclaim that the latest shock-drop was nothing more than an “anomaly.” Then, the crash will continue into the end of 2018 and panic will ensue.

That said, if there is some kind of major geopolitical crisis (such as a war with North Korea), then all bets are off. Stocks could crash exponentially over the course of a few weeks rather than a year. As the past few days have proven, stocks are not invincible, not in the slightest. And all the gains accumulated in the span of years can be wiped away in an instant.

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After a day of conference calls with investors, Goldman’s newly-hired quant Rocky Fishman has assembled the most frequently asked questions that are relevant for trading dynamics in the VIX and equities in the coming days.

Here is the result: Goldman’s Q&A on the Trading Dynamics of ETPs

* * *

1. Do I have to worry about VIX ETPs driving another similar volatility spike?

Not for now, and not likely anytime soon. The large short VIX products were the primary driver of Monday afternoon’s late-day acceleration in the VIX, and with them diminished ($300mm AUM now vs $3.9bln peak AUM), the quantity of VIX futures ETP issuers would have to buy on a further volatility spike is diminished as well. Levered long ETPs remain sizable ($1.1bln AUM), but per unit of VIX futures exposure, they trade less on a volatility spike than inverse products would (filling the gap between long futures that have risen and a fund NAV that has risen faster requires fewer units of futures than between a NAV and futures position that are moving in opposite directions). The higher level of VIX futures also makes an N-point move a lower percentage move than it would be with lower VIX futures prices.

2. What’s the impact of the XIV (and Japan-listed 2049) redemption? What’s the impact of the SVXY continuing to trade?

The previously sizable short VIX ETPs no longer have a significant impact on the VIX futures market because Monday’s sell-off pushed their AUM down so much that their VIX futures holdings would be immaterial to the broad market (the SVXY is short less than 1% of VIX futures open interest), regardless of whether or not they continued trading.

 

3. Why were VIX futures and S&P futures both down throughout much of Tuesday’s trading day?

Typically, VIX futures rise when S&P 500 futures are falling; however, VIX futures had such outsized, technicals-driven buying pressure on Monday afternoon that the absence of this was enough to allow VIX futures to fall on Tuesday, even in the context of an initially weaker equity market.

4. Were short ETPs a material percentage of the VIX futures market? What implications do this week’s events have on VIX future trading volumes?

 

VIX future volumes closely track VIX ETP trading volumes, so we would expect a material drop in ETP volumes due to the lack of sizable short ETP trading activity to result in a similar drop in VIX future volumes. We estimate short VIX ETPs constituted over 40% of ETP trading volume in January, when measured in VIX future-equivalent terms. While VIX derivatives naturally are active when volatility is moving around, we expect VIX future volumes to fall below – perhaps substantially below – their typical 2017 range (1st & 2nd futures volume was 30% higher than the typical 2015-6 volume) as conditions normalize.

 

5. Is there a transmission mechanism by which VIX futures activity can lead to S&P 500 trading?

Investors may use S&P 500 futures to hedge some of the risk of short VIX future positions. If some of the investors selling VIX futures to ETP issuers on Monday simultaneously sold SPX futures as a hedge against the market risk inherent in their short VIX future positions, their positioning could potentially have impacted equity prices. High volatility can also pressure equity prices via flows from systematic volatility-linked funds, investor confidence, and VAR-driven risk reduction.

 

6. Was this technical selloff expected? Should vol-of-vol (i.e., VIX option prices) be structurally higher given what has taken place?
VIX option prices had been abnormally high for the current low level of volatility throughout much of January as investors had priced in some risk of outsized short VIX ETPs causing turmoil like Monday’s. In effect, option pricing implied that should volatility rise, it would rise quickly. With the short VIX ETP market now small, we think that implied volatility of VIX options should reset to levels lower than the last few months once conditions normalize, which could create opportunities to sell VIX options.

7. If the AUM of short VIX ETPs was only $3.9bn at their peak, why are they important?

Short VIX ETPs were important because a hypothetical spike in VIX futures would economically drive their issuers to buy an outsized amount of VIX futures, and that buying could push VIX futures up more, creating escalating volatility like we saw on Monday. VIX ETPs are small relative to the US equity market, but large relative to the VIX futures market (often accounting for 40% of open interest). These ETPs were also highly correlated with the equity markets and had multiples of the SPX’s volatility, giving them a larger impact on portfolios than their AUM would suggest.
 

8. Why do short and levered long VIX ETPs both buy more VIX futures when volatility spikes?

When volatility rises, both inverse and levered long VIX ETP issuers are economically driven to buy VIX futures: the inverse product issuers do so to reduce a short position that has become too large relative to their AUM, and the levered issuers do so to supplement a long position that has not risen as quickly as the AUM of the ETP itself.
 

9. Can VIX ETPs cause vol to fall abnormally quickly just like they caused this rise?

Yes and no, in our view. VIX futures tend to spike up more than they spike down, but should volatility drop dramatically, ETP rebalancing could help VIX futures overreact to the downside as well. We estimate that Tuesday’s normalization of volatility left ETP issuers with around 40k VIX futures to sell – a large amount but far below Monday’s estimated “vega to buy” that exceeded 200k VIX futures.
 

10. Why do issuers have to trade near the 4:15 futures market close?

The indices behind the VIX ETPs are based on one-day changes in VIX futures levels, measured by their 4:15 PM NY time prices. Every day, an ETP’s NAV change is a weighted average of the one-day returns of two VIX futures, but those weights change every day. It is only at the close of each trading day that the next day’s weights are fully known, because the total dollar amount of futures involved needs to be exactly the right leverage times the price of the product. This process becomes a feedback loop because each ETP’s closing NAV is an input to the size of its position the next trading day. As we approach the close every day, an ETP issuer shifts its portfolio to the next day’s position so it can correctly replicate the next day’s return.
 

11. Did the XIV and SVXY cause 2017’s surprisingly low VIX range? Now that they are diminished will volatility return?

In our view, 2017’s low VIX range was driven primarily by low S&P 500 realized volatility (the lowest S&P 500 realized volatility since 1964), which was a byproduct of low volatility across asset classes, low intra-SPX correlation, and benign economic conditions. We do not see evidence that VIX ETPs furthered this in any material way.

12. What is vega?

Vega is a measurement of volatility risk that represents dollars per volatility point. Because the contract has a 1,000 multiplier, each VIX futures contract carries 1,000 vega – i.e. its value changes by $1,000 for each point that the VIX futures price moves. The amount of vega in any one VIX ETP share changes over time, as the amount of VIX futures exposure that can “fit” inside a share is a function of the share’s NAV and the price of VIX futures. Short VIX ETPs had seen their vega per share grow quickly in late 2017, but now the SVXY has very little vega per share.

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A US-led coalition has conducted several “defensive” airstrikes against Syrian forces allied with President Bashar al-Assad on Wednesday in Syria’s Deir al-Zor province, in retaliation for what the coalition said was an “unprovoked” attack on the US-backed left-wing Syrian Democratic Forces (SDF) headquarters.

Furthermore, CNN reported late Thursday that US forces are now investigating whether Russian contractors were involved in the initial attack against the SDF, after a US official told the news outlet that the possibility could not be ruled out.

The retaliatory airstrikes are said to have occurred 8km (5 miles) east of the Euphrates River, while no U.S. troops embedded with the local fighters at their headquarters are believed to have been wounded or killed in the attack on the headquarters, reports Reuters.

The US-led coalition did not say whether any pro-Syrian forces were killed in the retaliatory strike.

“Syrian pro-regime forces initiated an unprovoked attack against well-established Syrian Democratic Forces headquarters,” reads a Feb 7 press release from Central Command. “In defense of Coalition and partner forces, the Coalition conducted strikes against attacking forces to repel the act of aggression against partners engaged in the Global Coalition’s defeat-Daesh mission.” 

Although no U.S. servicemembers were reportedly involved in the attack on the SDF, the US-led coalition has previously asserted a “non-negotiable right to act in self-defense,” pointing to the fact that coalition service members are embedded with the SDF “partners” on the ground in Syria. 

Syrian President Bashara al-Assad has repeatedly stated that the presence of the US-led coalition on Syrian soil is an act of aggression and a violation of Syrian sovereignty. Officially, Russian and Syrian air forces are the only military allowed to operate in Syria – however Syria and Iran are close strategic allies, with the latter providing logistical, technical and financial support to the Syrian government during the ongoing Syrian Civil War. Syria has repeatedly asked the United Nations to convince the United States to leave following the defeat of most ISIS forces in the country, however US Secretary of State Rex Tillerson says US troops will remain in Syria as a counter to Syrian President Bashar al-Assad and Iranian forces.

News of the retaliatory coalition airstrike comes on the heels of what we reported was an overnight attack against Syrian government locations near Damascus, in yet another attempt to provoke war with Syria. 

Bombs Away

As we discussed earlier, for at least the third time since the start of the 7-year long war in Syria, Israeli jets attacked a site just outside of Syria’s capital city called Jamraya – believed to be a military research facility related to chemical weapons.

Jamraya’s government facilities are well known – and include a branch of Syria’s Scientific Studies and Research Center – the site of two previous Israeli attacks in 2013 and December of 2017. 

Like with other recent attacks, Israeli jets are reported to have fired from over Lebanon, with a Syrian military media statement saying that its air defenses intercepted most of the inbound missiles, though no further details were given. Unconfirmed international media reports, however, indicate one or more of the Israeli missiles may have impacted parts of the Syrian government facility during the strikes which occurred at 03:42 am local time Wednesday morning.

In response to Israel’s most recent attack – apparently timed to coincide with recent allegations against repeated chemical attacks conducted by the Syrian government against al-Qaeda held pockets of the country, the Syrian military said “The general command of the armed forces holds Israel fully responsible for the dangerous consequences of its repeated, aggressive and uncalculated adventures.”

Though admitting “no evidence” US Defense Secretary Jim Mattis suggested last week that the Syrian Army may be using sarin gas while also alleging multiple smaller scale chlorine attacks. 

Israel, however, has lately been quick to justify what Damascus has condemned as unprovoked “acts of aggression” in humanitarian terms as retribution for supposed gas attacks. Israel has long been on record as condemning Iran’s presence in the region, however, Israeli leaders lately appear increasingly reliant on chemical attack claims as rationale for bombing Syrian government sites. 

Looks like more regime change is on the menu. The only question is when, and whether or not chocolate cake will be served for dessert. 

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In late-December, former Fortress macro fund manager and crytpo-billionaire, Mike Novogratz shelved plans to launch his crypto-currency fund because he “didn’t like market conditions,” noting that Bitcoin may drop to $8,000 in the short-term… but adding that the bull market is not over.

To be clear, we delayed launching a hedge fund with outside investors capital last week because we didn’t like market conditions for new investors. In no way does it mean we are less bullish the crypto markets.

— Michael Novogratz (@novogratz) December 22, 2017

Looks to me like a short term top is in. My hunch is we consolidate between 10-16k for a while. Extreme would be 8k. Bull market isn’t over. Just pausing.

— Michael Novogratz (@novogratz) December 22, 2017

“We didn’t like market conditions and we wanted to re-evaluate what we’re doing…I look pretty smart pressing the pause button right now.”

image courtesy of CoinTelegraph

Novogratz was correct. Bitcoin tumbled since he spoke, dropping back below $8,000…

And now, as Bloomberg reports, Novogratz has opportunistically raised about $250 million for his cryptocurrency merchant bank during one of the biggest routs yet in Bitcoin, according to a person familiar with the deal.

Unlike in an IPO, Galaxy is raising money privately as part of a series of transactions that will allow it go public without disclosing financial statements.

The process also involves a reverse takeover of a Canadian shell company, Bradmer Pharmaceuticals Inc.

Terry Gou, the billionaire chief executive officer of China’s Foxconn, is among the investors in the private placement, said the person, who asked not to be identified because the transaction isn’t public.

Investors committed to buy shares of Novogratz’s firm, Galaxy Digital LP, through a holding company that eventually will trade on Toronto’s TSX Venture Exchange, according to the person.

Novogratz announced the private placement and listing plans in a statement last month.

As Novogratz detailed previously, Galaxy is building out a full fledged crypto merchant bank.

“I have over 30 percent of my net worth in crypto assets.  We have venture bets, ICOs, tokens, investments in funds, mining and advisory.  We also trade very actively.  We are making a large long term bet on crypto.“

We wonder if the ramp off the sub-$6000 lows ahead of the regulatory hearings was the hand of Mike putting some of that newly found AUM to work?

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Authored by Bryan Macdonald via The Ron Paul Institute for Peace & Prosperity,

Countering Russia has become a lucrative industry in Washington. In recent years, the think tank business has exploded. But who funds these organizations, who works for them and what are the real agendas at play?

From the start, let’s be clear, the term “think tank” essentially amounts to a more polite way of saying “lobby group.” Bar a few exceptions, they exist to serve – and promote – the agendas of their funders.

However, particularly in the United States, the field has become increasingly shady and disingenuous, with lobbyists being given faux academic titles like “Senior Non-Resident Fellow” and “Junior Adjunct Fellow” and the like. And this smokescreen usually serves to cloud the real goals of these operations.

Think tanks actually originate from the Europe of the Dark Ages. That’s 9th-century France, to be precise. But the modern American movement is modeled on British organizations from around a millennium later, many of which, such as “RUSI (1831),” still exist today. The concept was possibly brought to America by the Scottish-born Andrew Carnegie. And his “Carnegie Endowment for International Peace” (1910) is still going strong.

Yet, the real boom in the “think tank” industry came with the era of globalization. With a 200-percent rise in numbers since 1970. And in recent years, they’ve become more transnational, with foreign states and individuals sponsoring them in order to gain curry favor in Washington.

One country that largely hasn’t bothered playing this game is Russia. Instead, mostly in the foreign policy and defense sectors, Moscow frequently serves as Enemy Number One for many advocacy groups. Here are some prominent outfits in the think tank racket, which focus on hyping up threats from Russia.

The Atlantic Council

Founded: 1961

What is it? Essentially the academic wing of NATO. The Atlantic Council serves to link people useful to the organization’s agenda across Europe and North America. However, in recent years, its recruitment has increasingly focused on employees who directly attack Russia, especially on social media. Presumably, this is to give them a guaranteed income so they can continue their activities, without needing to worry about paying the bills.

What does it do? Promotes the idea of Russia being an existential threat to Europe and the US, in order to justify NATO’s reason for being.

Who are its people? The Atlantic Council’s list of lobbyists (sorry, ‘Fellows’!) reads like a telephone directory of the Russia bashing world. For instance, Dmitri Alperovitch (of Crowdstrike, which conveniently alleges how Russia hacked the Democratic National Congress) is joined by the perennially- wrong Anders Aslund, who has predicted Russia’s impending collapse on a number of occasions and has, obviously, been off the mark. Then there’s Joe Biden’s “Russia hand,”Michael Carpenter and their recent co-authored ‘Foreign Affairs’ piece suggests he actually knows very little about the country. Meanwhile, Evelyn Farkas, a fanatical Russophobe who served in Barack Obama’s administration has also found a home here. Another interesting Atlantic Council lobbyist is Eliot Higgins, a “geolocation expert” who has made a career out of spinning tales from the Ukraine and Syrian wars but is, naturally, mostly disinterested in covering Iraq and Yemen, where the US and its allies are involved, but Russia has no particular stake. Lastly, we can’t forget CNN’s Michael Weiss, the self-declared “Russia analyst” who, by all accounts, has never been to Russia and can’t speak Russian.

Who pays for it? The Atlantic Council has quite an eclectic bunch of patrons to serve. NATO itself is a big backer, along with military contractors Saab, Lockheed Martin and the Raytheon Company, all of which naturally benefit from increased tensions with Moscow. The UK Foreign Office also splashes the cash and is joined by the Ukrainian World Congress and the US Department of State. Other sugar daddies include the US military (via separate contributions from the Air Force, Navy, Army and Marine Corps), Northrop Grumman and Boeing.

The Center for European Policy Analysis (CEPA)

Founded: 2005

What is it? Despite the name, CEPA is based in Washington, not the ‘old continent’, but it does have an outpost in Warsaw. This club specifically focusses on Central and Eastern Europe and promoting the US Army and foreign policy establishment’s agenda there. Or, in its own words, creating a “Central and Eastern Europe with close and enduring ties to the United States.”

What does it do? CEPA amounts to a home for media figures who devote their careers to opposing Russia. It whips up tensions, even when they don’t really exist, presumably in order to drum up business for its sponsors, who are heavily drawn from the military industry. For example, it spent last year hyping up the ‘threat’ from Russia’s and Belarus’ joint “Zapad” exercises, even running a sinister-looking countdown clock before the long-planned training commenced.

CEPA grossly overestimated the size of the event, saying it “could be the largest military exercise since the end of the Cold War” and dismissing basically all Moscow’s statements on its actual nature as “disinformation.”

Who are its people? Times of London columnist Edward Lucas has been part of CEPA for years.

The dedicated “Cold Warrior” doesn’t appear to have spent much time in Russia for a long while and still seems to view the country through a prism which is very much rooted in the past. Thus, he’s more-or-less an out-of-touch dinosaur when it comes to Russia expertise. He will soon be joined by Brian Whitmore, who comes on board from RFE/RL and appears to be even more ill-informed than Lucas. His work for the US state-run broadcaster led to him being described as the “Lord Haw Haw of Prague,” where he has been based for some years. CEPA is a pretty fluid organization and, until recently, Anne Applebaum and Peter Pomerantsev were also on its list of lobbyists. The former is a Polish-American Washington Post columnist who obsessively denigrates Russia and the latter has previously worked with the Atlantic Council’s Michael Weiss, which shows you how small and incestuous the Russia-bashing world is.

Who pays for it? While other think tanks at least try to make their funding look semi-organic, CEPA looks to have zero hang-ups about its role as a mouthpiece for defence contractors. Which is, at least, honest. FireEye, Lockheed Martin, Raytheon, Bell Helicopters and BAE systems pump funds in and they are joined by the US State Department and the Department of Defence. Another notable paymaster is the National Endowment for Democracy – ‘regime change’ experts who are surely interested in CEPA’s remit to also cover Belarus. The US Mission to NATO and NATO’s own Public Diplomacy Division also provide cash.

German Marshall Fund of the United States

Founded: 1972

What is it? Don’t be fooled by the name, the German Marshall Fund (GMF) is a very American body these days with little input from Berlin. It was founded by a donation from Willy Brandt’s Bonn-government to celebrate the 25th anniversary of the Marshall Plan. Ironically, Brandt is today best remembered as the father of “Ostpolitik,” which sought a rapprochement between Germany and Russia.

What does it do? After the fall of the Soviet Union, the GMF transformed into a vehicle promoting US influence in Eastern Europe, with outreaches in Warsaw, Belgrade and Bucharest. However, in the past 12 months, it’s taken a very strange turn. Following the election of US President Donald Trump (ironically a German-American), the lobby group launched the Alliance for Securing Democracy (ASD) project. Its centerpiece is the ‘Hamilton 68 Dashboard’, which seems to classify social media users which reject the US liberal elite’s consensus as “Russian trolls.” The reaction has been highly critical, with even the secretly-funded Russian opposition website Meduza asking “how do you identify ‘pro-Russian amplifiers’ if… themes dovetail with alternative American political views?”

Who are its people? The GMF, especially through its new ASD plaything, has a high-profile bunch of lobbyists. They include Toomas Ilves, an American-raised son of Estonian emigrants who once headed the Estonian desk at erstwhile CIA cut-out Radio Free Europe and eventually became president of Estonia. Also on board is Bill Kristol, known as the ‘architect of the Iraq War’ and former CIA Director Michael Morrell. Former US Ambassador to Russia Michael McFaul, who recently announced he was partially abandoning his Russian scholarship and has “lost interest in maintaining my (sic) ability to speak/write Russian” is another team member.

After serving on Obama’s team, McFaul has re-invented himself as a network TV personality since 2016 with 280,000 Twitter followers, 106,000 of which are fake, according to Twitter audit.

Who pays for it? USAID are big backers, throwing in a seven-figure annual sum. This, of course, raises some questions about US taxpayers essentially funding the Hamilton 68 dashboard, which may be smearing Americans who don’t agree with their government’s policies as Russian agents. The State Department also ponies up capital, as does NATO and Latvia’s Defense Ministry. Other interesting paymasters are George Soros, Airbus and Google. While Boeing and the ubiquitous Raytheon are also involved.

Institute for the Study of War

Founded: 2007

What is it? This lobby group could as easily be titled “The Institute for the Promotion of War.” Unlike the others, it doesn’t consider Russia its primary target, instead preferring to push for more conflict in the Middle East. However, Moscow’s increased influence in that region has brought the Kremlin into its crosshairs.

What does it do? The IFTSOW agitates for more and more American aggression. It supported the Iraq “surge” and has encouraged more involvement in Afghanistan. IFTSOW also focuses on Syria, Libya and Iran. Just last week, one of its lobbyists, Jennifer Cafarella,  called for the US military to take Damascus, which would bring Washington into direct conflict with Russia and Iran.

Who are its people? Kimberly Kagan is the brains behind this operation. She’s married to Frederick Kagan, who was involved in the neocon “Project for the New American Century” group along with his brother, Robert Kagan. Which makes Kimberly the sister-in-law of Victoria “f**k the EU” Nuland.

Another lobbyist is Ukrainian Natalia Bugayova, who was involved in Kiev’s 2014 EuroMaidan coup. She previously worked for the Kiev Post, a resolutely anti-Russian newspaper which promotes US interests in Ukraine. However, IFTSOW’s most notorious lobbyist was Elizabeth O’Bagy, who emerged as a ‘Syria expert’ in 2013 and called for American political leaders to send heavy weaponry to Syrian insurgent groups. She claimed to have a PhD from Georgetown University in Washington, DC, but this was fictional and once the media twigged to it, she was dismissed by the IFTSOW. Two weeks later, she was rewarded for her deception by falling up to a job with fanatical Russophobe Senator John McCain. O’Bagy has also collaborated with the Atlantic Council’s Michael Weiss, which is further evidence of how tight-knit the world of US neoconservative advocacy really is.

Who pays for it? Predictably, Raytheon has opened its wallet. Meanwhile, other US military contractors like General Dynamics and DynCorp are also involved. L3, which provides services to the US Department of Defense, Department of Homeland Security, and government intelligence agencies is another backer along with Vencore, CACI and Mantech.

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On Monday, Pornhub’s statisticians were busy computing the numbers behind the web site’s internet traffic after Super Bowl LII on Sunday, February 4th. The unexpected result: New England Patriot fans apparently turned to porn to ease the pain after their team’s stunning loss to the Philadelphia Eagles.

As America’s game kicked off from 6:30 pm to 10:30 pm Eastern Time, Pornhub’s statisticians noted, “across the United States traffic dropped an average of -24 percent” below the typical average for  Sunday. Around 9 pm, a further decline in porn watching occurred with the largest drop of -28 percent, while the eyes of Americans were glued to their 60 Inch LED TV that was, of course, purchased on credit. After the game, football fans rushed back to their computers, mobile devices, and fancy tablets with a +9 percent surge above the average levels for 11 pm. Statisticians said Sunday around 11 pm is Pornhub’s highest traffic time of the week, so a +9 percent move is quite impressive. 

Across the entire country, game-day traffic declined, but the percentage differed depending on the state and or region. Here is what the statisticians had to say: 

Traffic declines were similar in both Philadelphia and Boston during most of the game, though, Eagles fans delayed the ole’ cleaning of the pipes a bit longer, with their biggest traffic drop of -58 percent at 10 pm. 

Late in the fourth quarter, Philadelphia Eagles defense made a huge play to secure Super Bowl LII victory, with Brandon Graham strip-sacking Tom Brady to help seal the 41-33 win. As soon as that occurred, Boston was already rushing back to Pornhub, where traffic surged +28 percent above normal in the hours following the defeat.

We might have found the answer why Eagles fans delayed porn watching.

 

On a state by state basis, the biggest drops happened around 9 pm by -45 percent in Pennsylvania and -53 percent in Massachusetts. The statisticians added: 

Based on Pornhub’s Google Analytics data, their statisticians found that U.S. male traffic data declined by -30 percent while U.S. female traffic data declined by -22 percent at the climax of the game. Female traffic remained low around 8 pm, which the statisticians believe women wanted to stick around to watch Justin Timberlake’s halftime show, meanwhile, men snuck off to watch porn. Postgame stats show men surged +10 percent at midnight, while females surged +7 percent at 2 am. Very sneaky…

The lull in web traffic during the Super Bowl, followed by a massive surge in porn by Americans, is part of a reoccurring pattern for Pornhub during sporting events. Interesting enough, Pornhub’s statisticians point out that New England Patriot fans jumped to the porn site first to ease the pain after their team’s loss. Sunday is the biggest day of the week for porn watching in America, eventually, at the end of the night, trends in google analytics indicated that no matter the team–American’s as a whole still made time to watch their favorite porn star. Does America have a porn addiction?

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Authored by James Rickards via The Daily Reckoning,

Barely a week after it set another record high, the Dow just suffered its worst one-day point loss in its entire history.

While the latest turmoil hasn’t reached the crisis level by any means, I’ve been warning about a correction for months.

Warnings about an imminent collapse of developed economy stock markets, especially the U.S. markets, have been everywhere.

Whether you use Shiller’s CAPE ratio, Warren Buffett’s preferred market-cap-to-GDP ratio, or traditional P/E ratios, markets were overpriced and ready to fall. Of course, that did not mean they would fall anytime soon, or on anyone’s timetable.

As we saw in the dot.com bubble of 1996-2000, and the housing bubble of 2002-2007, so-called “irrational exuberance” can last longer than the skeptics believe. However, some warnings perhaps deserve more attention than others.

Anyone can sound warnings about doom and gloom or stock market crashes. But those Cassandras are not worth listening to unless they offer facts and analysis to support their views. Opinions without something solid to back them up are just that — opinions. The warnings I pay most attention to are those from establishment insiders.

These are the kinds of individuals who attend Davos and routinely discuss market conditions with central bank heads, finance ministers and people like Christine Lagarde, head of the IMF.

The credibility of such insiders is enhanced ever further when they come with serious academic credentials such as an economics Ph.D. from a top university in the field.

William White is such an individual. He was former head of the OECD review board and former chief-economist for the BIS, the “central bankers central bank” based in Basel, Switzerland.

In a recent interview, White flatly declared, “All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten.”

You can’t get much more of a blinking red light than that.

Heading into this year, I called 2018 “The Year of Living Dangerously.”

That description seemed odd to lot of observers. Major U.S. stock indexes kept hitting new all-time highs, which continued through the end of January.

Even in strong bull market years there are usually one or two down months as stocks take a breather on the way higher. Not last year. There was no rest for the bull; it was up, up and away.

The unemployment rate has been at a 17-year low. U.S. growth was over 3% in the second and third quarters of 2017. It underwhelmed in the fourth quarter at 2.6%, but it was still above the tepid 2% growth we’ve seen since the end of the last recession in June 2009.

The U.S. hasn’t been alone. For the first time since 2007, we were seeing strong synchronized growth in the U.S., Europe, China, Japan (the “big four”) as well as other developed and emerging markets.

In short, all has been right with the world.

Or not.

To understand why I said 2018 may unfold catastrophically, we can begin with a simple metaphor. Imagine a magnificent mansion built with the finest materials and craftsmanship and furnished with the most expensive couches and carpets and decorated with fine art.

Now imagine this mansion is built on quicksand. It will have a brief shining moment and then sink slowly before finally collapsing under its own weight.

That’s a metaphor. How about hard analysis? Here it is:

Start with debt. Much of the good news described above was achieved not with real productivity but with mountains of debt including central bank liabilities.

In a recent article, Yale scholar Stephen Roach points out that between 2008 and 2017 the combined balance sheets of the central banks of the U.S., Japan and the eurozone expanded by $8.3 trillion, while nominal GDP in those same economies expanded $2.1 trillion.

What happens when you print $8.3 trillion in money and only get $2.1 trillion of growth? What happened to the extra $6.2 trillion of printed money?

The answer is that it went into assets. Stocks, bonds, emerging-market debt and real estate have all been pumped up by central bank money printing.

What makes 2018 different from the prior 10 years? The answer is that this is the year the central banks stop printing and take away the punch bowl.

The Fed is already destroying money (they do this by not rolling over maturing bonds). Last week, the Fed reduced its balance sheet by $22 billion. While that doesn’t seem like much when you’re talking about a $4 trillion balance sheet, it was the Fed’s largest cut to date.

Funny how the market hit the skids just after this happened. But you haven’t heard the mainstream media mention that.

By the end of 2018, the annual pace of money destruction will be $600 billion — if the Fed under new chairman Jerome Powell stays on course.

The European Central Bank and Bank of Japan are not yet at the point of reducing money supply, but they have stopped expanding it and plan to reduce money supply later this year.

In economics everything happens at the margin. When something is expanding and then stops expanding, the marginal impact is the same as shrinking.

Apart from money supply, all of the major central banks are planning rate hikes, and some, such as those in the U.S. and U.K., are actually implementing them.

Reducing money supply and raising interest rates might be the right policy if price inflation were out of control. But despite a recent uptick in some inflation measures, prices have mostly been falling.

The “inflation” hasn’t been in consumer prices; it’s in asset prices. The impact of money supply reduction and higher rates will be falling asset prices in stocks, bonds and real estate — the asset bubble in reverse.

And as the past few days show, the problem with asset prices is that they do not move in a smooth, linear way. Asset prices are prone to bubbles on the upside and panics on the downside. Small moves can cascade out of control (the technical name for this is “hypersynchronous”) and lead to a global liquidity crisis worse than 2008.

This will not be a soft landing. The central banks — especially the U.S. Fed, first under Ben Bernanke and later under Janet Yellen — repeated Alan Greenspan’s blunder from 2005–06. Greenspan left rates too low for too long and got a monstrous bubble in residential real estate that led the financial world to the brink of total collapse in 2008.

Bernanke and Yellen also left rates too low for too long. They should have started rate and balance sheet normalization in 2010 at the early stages of the current expansion when the economy could have borne it. They didn’t.

Bernanke and Yellen did not get a residential real estate bubble. Instead, they got an “everything bubble.” In the fullness of time, this will be viewed as the greatest blunder in the history of central banking.

Not only that, but Greenspan left Bernanke some dry powder in 2007 because the Fed’s balance sheet was only $800 billion. The Fed had policy space to respond to the panic of 2008 with rate cuts and QE1.

Today the Fed’s balance sheet is over $4 trillion. If the current rout becomes a full-blown panic, or even if it is delayed until later, the Fed’s capacity to cut rates is only 1.5%. And its capacity to expand the balance sheet is basically nil, because the Fed would be pushing the outer limits of an invisible confidence boundary.

This conundrum of how central banks unwind easy money without causing a recession (or worse) is just one small part of a risky mosaic.

For now, think of 2018 as the year of living dangerously.

Smart investors should prepare now with reduced exposure to stocks and increased allocations to cash and gold.

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A leaked strategy document reveals that billionaire financier George Soros is one of three senior figures tied to a Remain group called “Best for Britain,” which is “secretly” pushing for a second referendum on Brexit to keep Britain in the EU, the Telegraph reports.

The 87-year-old Hungarian-American worth an estimated $25 billion has given over £400,000 ($554,840) to the group through his Open Society Foundation.

The leaked document also outlines a nationwide advertising campaign this month, as well as a drive to recruit major Tory donors in an attempt to undermine Prime Minister Theresa May and influence MPs.

It also plans to target MPs and convince them to vote against the final Brexit deal to trigger another referendum or general election, according to a strategy document leaked from a meeting of the group.

The document says the campaign, which will begin by the end of this month, must “wake the country up and assert that Brexit is not a done deal. That it’s not too late to stop Brexit”. –Telegraph

According to the Telegraph, MPs in 100 “Leave-supporting constituencies” will be pressured using “a range of guerrilla marketing tactics” to vote against Brexit. In addition to a series of “momentum-style” mass rallies and concerts planned by the “Remain” proponents, the campaign will reportedly have a “heavy youth focus.” 

The group also plans to provide financial support to the European Movement, which counts former UK health minister Stephen Dorrell, and former chancellor Kenneth Clarke as Vice President.

Soros’s involvement in the scheme emerged after he entertained six Conservative donors at his Chelsea mansion last Monday.

His involvement comes more than 25 years after he made over £1 billion betting against the pound shortly before the UK withdrew from the European Exchange Rate Mechanism. More recently he has been accused of organising rallies against Donald Trump in the US and interfering in the democracies of several European nations.

Also at the dinner were Stephen Peel, a businessman and former Olympic rower who is also said to be putting money into the new venture and is on the board of Best for Britain; Lord Malloch-Brown, the former Labour minister and chairman of Best for Britain; and Sir Martin Sorrell, the chief executive of the advertising firm WPP.

Soros also invited a select group of Tory donors to the event, who were told that the goal of Best for Britain was “to raise public support for Remain to a clear and growing national majority by June/July 2018 and channelling that pressure into MPs’ mailbags and surgeries”

According to sources who were at the dinner, however, Best for Britain’s pitch fell flat, and donors left Soros’s house without pledging any money.

Stephen Peel, one of the organizers of the movement who was in attendance, has previously spoken of his desire for the UK to remain in the EU, while Mr. Soros said last year that Brexit was a “lose-lose proposition.” Lord Malloch-Brown, another organizer, said last year: “We need to sway public opinion nationally so that there is a majority to remain at the time of the vote in Parliament.”

Peel has been a director of the UK-EU Open Policy since it was established in October 2016, while Lord Malloch-Brown joined 13 months later – sitting on Best for Britain’s board. 

The leaked “battle plan” concludes that the Best for Britain movement must “win the meaningful vote that Mrs May has promised on her Brexit deal in October,” adding that if she loses, it is “likely to trigger a new referendum, or election.”

“We must prevail decisively so reassuring Europe that our return will be permanent,” it states.

Read the “Brexit Plot” document given to Soros guests below:

The campaign relies heavily on launch advertising and free media to wake the country up and assert that BREXIT is not a done deal. That it’s not too late to stop BREXIT. The first wave is planned for late February and is why funding is now so urgent. Like the campaign overall, the paid media will have a heavy youth focus.

We will then move to constituency building activities through a combination of person-to-person campaigning and social media that pulls together stakeholders, including consumers, in sectors like the NHS, auto, aviation, pharma etc; again with a major youth push and other similar targeted activities. We have identified partner organisations in these sectors who will lead as we provide strategic, messaging, creative, social media and critically financial support. The partner organisations include unions, employee organisations, youth and consumer groups etc. Many are not exclusively Remain organisations but have wider community or industry interests which make them powerful third party endorsers of the Remain message.

We are also building a national field presence, concentrated on seats whose MPs needs [sic] to be brought into the Remain column by providing financial and other support to the European Movement, which has the best, but limited, current field presence of the Remain Groups.

We have a range of guerrilla marketing tactics in preparation to build early public impact by seizing attention and indicating a building momentum. A prominent Remain figure, Andrew Adonis, will brainstorm the top 100 leave constituencies. We are planning youth focused concerts and march combinations for the summer.

Our goals are to raise public support for Remain to a clear and growing national majority by June/July 2018 and channeling that pressure into MPs mailbags and surgeries,

We must then win the meaningful vote that Mrs May has promised on her BREXIT deal in October of this year. That is likely to trigger a new referendum, or election. We must prevail decisively so reassuring Europe that or return will be permanent.

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There is an interesting development that has begun of late to get attention in the investment world as it relates to long-term American consumption trends.

Grizzle.com’s Chris Woods explains in his latest notes that ‘millennials’ – defined as people aged between 17 and 35 (or born from 1982 to 2000) – are now larger (85 million) than the baby boomers (73.8 million)– defined as those born between 1946 and 1964 – according to the U.S. Census Bureau’s population estimates.

This is good news for some, and bad news for others.

As Woods notes, the good news is that the growth of millennials may raise the potential for an inflection point in the relatively weak consumption trend, which has been a feature of the American economy since the 2008 financial crisis as savings rates have risen.

Thanks to a sharp decline in the U.S. homeownership rate, a decline which by the way has now seemingly reversed.

The sharp decline in the U.S. labour participation rate of young people.

Real median household income for older millennials defined as aged 25 to 34 has turned higher.

And while they do carry a lot of debt, Woods argue that the student loan trend is not quite as disastrous as the gross number would suggest, namely US$1.36 trillion with a formal delinquency rate of 11.2%. The overall situation is not so grim because millennials otherwise do not carry much debt, if any, because no one would lend to them after the global financial crisis.

Clearly demographics drive long-term trends. So, Woods concludes, these are potentially huge developments in what is for now still the world’s largest economy.

And here is the bad news (if he’s right)…

If U.S. growth really does recover in the manner the cyclical optimists are now expecting, by which is meant 3-4% growth compared with the average annualized U.S. real GDP growth of 2.2% since mid-2009, it will not be positive for financial assets because there will be a massive monetary tightening scare triggered by increased inflation concerns.

Read more here…

 

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