Month: March 2018

In a striking interview with Goldman’s Allison Nathan, legendary trader Paul Tudor Jones argues that US inflation is set to accelerate sharply, making bonds a very poor investment, and that the Fed must act swiftly to tackle financial bubbles created by prolonged monetary easing.

Joining such luminaries as Bill Gross and Ray Dalio, who have both claimed the bull market in bonds is over, PTJ joins the choir and warns that “markets disciplined Greece for its budget transgressions; it’s just a matter of time before they discipline us” and as a result he sees the 10-year yields rising to 3.75 percent by year-end as a “conservative” target amid the now traditional and widely discussed bogeymen: supply outweighing demand, economic momentum outpacing the monetary policy response, and “glaring” bond valuations. Oh, and central banks ending the party, of course:

Beginning next September, when the ECB concludes its asset purchases, the aggregate balance sheet of the main central banks will start contracting after nearly a decade of expansion. That will be a major data break, making it a horrible time to own bonds.

PTJ also pours cold water on the repeated suggestion that higher yields will lead to more buying from pension funds: “Bond pension buying, for example, is very pro-cyclical. When stock prices rise, pensions reallocate their capital gains from stocks into bonds. As we’ve seen, this depresses the term premium and fuels more gains in the stock market. If and when the Fed raises rates enough to stop and reverse the stock market rise, that virtuous circle predicated on increasing capital gains will reverse, and bonds and stocks will decline together like they did in the 1970s.“

The biggest factor, however, which is preventing PTJ from owning any risk assets is today’s unnaturally low rates: “with rates so low, you can’t trust asset prices today. And if you can’t tell by now, I would steer very clear of bonds.”

There is another reason PTJ is not deploying capital: last month’s vol shock was just the beginning:

In my view, higher volatility is inevitable. Volatility collapsed after the crisis because of central bank manipulation. That game’s over. With inflation pressures now building, we will look back on this low-volatility period as a five standard- deviation event that won’t be repeated.

When would Tudor buy stocks? “When would I want to buy stocks? When the deficit is 2%, not 5%, and when real short-term rates are 100bp, not negative“… in other words not for a while.

So what is he buying: “I want to own commodities, hard assets, and cash… The S&P GSCI index is up more than 65% from its trough two years ago. In fact, relative to financial assets, the GSCI is at one of its lowest points in history. That has historically been resolved by commodities putting on a stunner of a show, stoking inflation. I wouldn’t be surprised if that happened again.“

In other words, PTJ and Gundlach agree on two things: stay away from bonds, and buy commodities.

But the most notable part of the interview, and where PTJ’s most apocalyptic sentiment shines through, is his description of where he sees Fed Chair Powell right now: as General Custer before the Battle of Little Big Horn, a battle which – at least in the history books – was lost.

Let me describe to you where I think Jerome Powell is right now as he takes the reins at the Fed. I would liken Powell to General George Custer before the Battle of the Little Bighorn, looking down at an array of menacing warriors. On the left side of the battlefield are the Stocks—the S&P 500s, the Russells, and the NASDAQs—which have grown, relative to the economy, to their largest point not just in US history, but in world history. They have generally been held at bay and well-behaved, but they are just spoiling to show their true color: two-way volatility. They gave you a taste of that in early February. Look to the middle and there waits the army of Corporate Credit, which is also larger than ever relative to the economy, as ultra-low rates have encouraged it to gain in size, stature, and strength. This army is a little more docile right now, but we know its history, and it can be deadly when stressed. And then on the right are the Foreign Currency Fighters, along with the Crypto Tribe, an alternative store of value that only exists because of the games central banks are playing; the opportunity cost of Crypto is so low, why not own some? The Foreign Currency Fighters have strengthened by 10% over the past year. Compounding the problem, they have a powerful, ascending leader, the renminbi, to challenge the US dollar’s hegemony as the reserve currency. All of these forces have been drawn to the battlefield because of our policy experiment with sustained negative real rates.

So Powell looks behind him to retreat. But standing there is none other than Inflation Nation, led by the fiercest warmongers of them all: the Commodities. He might take comfort that he is not alone on the battlefield. But then he looks over at the Washington, DC, fiscal battalion and realizes they are drunk on 5% deficit beer. That’s what Powell is facing, whether he recognizes it or not. And how he navigates this is going to be fascinating to watch.

* * *

His full must read interview is below:

Interview with Paul Tudor Jones

Allison Nathan: You’ve said that you would rather hold a burning coal than a 10-year Treasury. Why?

Paul Tudor Jones: The bear market in bonds is the natural upshot of the bull market in monetary and fiscal laxity. My view on bonds is based on three major factors. First, there is a huge flow of funds imbalance with supply overwhelming demand. We are in a unique historical situation with the Fed stepping away from the market while the  US government is significantly increasing its auction sizes. I assume bonds will fall until the peak in full Treasury  auction sizes, which I don’t think will be before 2Q2019. At the current pace, next February we might have a quarterly auction of $20bn 30-years vs. $15bn recently. That is so big it will only clear at substantially lower prices.

Second, economic momentum is now overwhelming the pace of the monetary policy response. We’re in the third-longest economic expansion in history. Yet we’ve somehow managed to pass a tax cut and a spending bill, which together will give us a budget deficit of 5% of GDP—unprecedented in peacetime outside of recessions. This reminds me of the late 1960s when we experimented with low rates and fiscal stimulus to keep the economy at full employment and fund the Vietnam War. Today we don’t have a recession, let alone a war. We are setting the stage for accelerating inflation, just as we did in the late ‘60s.

Finally, and most importantly, adverse valuations are becoming more glaring. Bonds are the most expensive they’ve ever been by virtually any metric. They’re overvalued and over-owned. Valuations haven’t been that relevant in recent years because of central bank manipulation outside of the US, but with the Fed in motion and the US economy in fifth gear, they start to matter a lot. I believe we’re at that critical threshold right now.

Allison Nathan: Inflation expectations have been very well-anchored; does that make history a less useful guide?

Paul Tudor Jones: No. I think we’re experiencing a hysteresis effect in global groupthink, led by the Fed, believing that we can depress term and risk premia without consequences for inflation or financial stability. That may have been the case for the past six to seven years. When it comes to inflation, you need to be careful what you wish for. At the end of other big asset price booms—Japan in 1989 or the US in 1999—inflation did not increase in a measured way. Rather, it accelerated in a non-linear fashion until the central bank had to come in and stop it with substantially higher real rates than we have today.

Allison Nathan: Is the market underestimating commodity-related inflation today? 

Paul Tudor Jones: Absolutely. The S&P GSCI index is up more than 65% from its trough two years ago. In fact, relative to financial assets, the GSCI is at one of its lowest points in history. That has historically been resolved by commodities putting on a stunner of a show, stoking inflation. I wouldn’t be surprised if that happened again.

Allison Nathan: Some argue that it will be difficult to overcome structural deflationary forces, like technological progress or demographic change. You don’t agree?

Paul Tudor Jones: On technology, what I’ve seen during this disinflationary period is the concentration of economic power into a few corporate hands. Once they have cleared the playing field of their competitors, they could ratchet up prices to decompress margins. So I am not sure these technological disruptions will continue to bring disinflation. In terms of demographics, economists at the Bank for International Settlements (BIS) have shown that it is the relative size of the working-age population that influences long-term trends in inflation. Unlike the prior decade, the share of the working-age population globally is beginning to shrink, and that would argue for inflation trending up.

Allison Nathan: Does all of this just boil down to the Fed being behind the curve?

Paul Tudor Jones: Central banks love to look in the rearview mirror. They typically operate by waiting for the most obvious moment they can to make a decision to fight yesterday’s battles. Heck, the ECB hiked rates in July 2008! It is why price targeting is such a bad idea in rate decisions, as is its first cousin, gradualism. There is little in human nature that is linear, so why should rate policy be that way?

But the elephant in the room—the most important point that doesn’t get discussed enough—is the level of real interest rates. The peacetime 10-year real interest rate that has determined the efficient allocation of capital averaged 3½% since 1790 and 2½% in modern times. Yet in 2018, with the economy operating at full employment, our real 10-year rate is 0.64%, well below historical averages. Why? It seems the reason is the Fed is trying to bring core inflation from a smidge below 2% to a smidge above it. But since 1790, US inflation has averaged 1.3% in peacetime. And yet somehow we have this magical 2% inflation target. It’s a unicorn we keep chasing at the expense of everything else.

Sitting where we are today, this grand experiment with negative real rates might seem successful: We have the strongest economy in 40 years, at full employment. The mood is euphoric. But it is unsustainable and comes with costs such as bubbles in stocks and credit. Navigating these bubbles will be one of the most difficult jobs any Fed chair has ever faced.

Allison Nathan: Is the Fed up to the task?

Paul Tudor Jones: Let me describe to you where I think Jerome Powell is right now as he takes the reins at the Fed. I would liken Powell to General George Custer before the Battle of the Little Bighorn, looking down at an array of  menacing warriors. On the left side of the battlefield are the Stocks—the S&P 500s, the Russells, and the NASDAQs—which have grown, relative to the economy, to their largest point not just in US history, but in world history. They have generally been held at bay and well-behaved, but they are just spoiling to show their true color: two-way volatility. They gave you a taste of that in early February. Look to the middle and there waits the army of Corporate Credit, which is also larger than ever relative to the economy, as ultra-low rates have encouraged it to gain in size, stature, and strength. This army is a little more docile right now, but we know its history, and it can be deadly when stressed. And then on the right are the Foreign Currency Fighters, along with the Crypto Tribe, an alternative store of value that only exists because of the games central banks are playing; the opportunity cost of Crypto is so low, why not own some? The Foreign Currency Fighters have strengthened by 10% over the past year. Compounding the problem, they have a powerful, ascending leader, the renminbi, to challenge the US dollar’s hegemony as the reserve currency. All of these forces have been drawn to the battlefield because of our policy experiment with sustained negative real rates.

So Powell looks behind him to retreat. But standing there is none other than Inflation Nation, led by the fiercest warmongers of them all: the Commodities. He might take comfort that he is not alone on the battlefield. But then he looks over at the Washington, DC, fiscal battalion and realizes they are drunk on 5% deficit beer. That’s what Powell is facing, whether he recognizes it or not. And how he navigates this is going to be fascinating to watch.

Allison Nathan: So, what should Powell do?

Paul Tudor Jones: Unlike his predecessors, he needs to be symmetrically fearless. Policy unorthodoxy needs to be reversed as quickly as it was deployed. After Alan Greenspan ignored the NASDAQ bubble, it crashed and led to this incredible foray into negative real rates. That created the mortgage bubble, which was initially ignored by Ben Bernanke and ultimately spawned the financial crisis, leading us to fiscal and monetary measures that were unfathomable 20 years ago.

Today, we need a Fed chair who is proactive, not reactive. Policy-wise, that means moving as quickly as possible to  raise rates and restore appropriate risk premia so as to promote the long-term, efficient allocation of capital. While this will hurt a bit in the short run, it is better than the intergenerational theft that is being perpetrated now with the combination of low rates and high deficits. And it definitely will promote a more stable long-term economic equilibrium.

It also means having honest discussions about financial stability. A “symmetrical” way to signal that our policy path is unsustainable is to conventionally use what has now become an unconventional tool through its disuse: raise margin
requirements on stock borrowing. Whether you’re an individual or a corporation, now is not the time to be aggressively leveraging your balance sheet. In fact, for individuals, given the record-low personal savings rate, now is the time to be doing the exact opposite. Remember, saving is the seed corn of future investment and worthy of as much discussion as inflation. If the Fed doesn’t change its course, the systemic threat to the economy will only increase, making the eventual unwind that much more painful.

Allison Nathan: You’ve repeatedly mentioned fiscal policy. Can you elaborate on your views on that?

Paul Tudor Jones: I think the recent tax cuts and spending increases are something we will all look back on and regret. And I lay them firmly at the feet of the Fed for encouraging such a fiscal transgression by pursuing this experiment with negative real rates at full employment. With central banks globally experimenting with negative rates, zero rates, quantitative easing, and price targeting, it is easy to see how central governments could feel green-lighted to pursue unconventional fiscal policies. Certainly, central banks are not in a position to criticize them… If real rates had been at their long-term averages, would we have enacted a $1.5tn tax cut? My guess is the Congressional Budget Office’s scoring of the increased interest burden would have nixed it.

Allison Nathan: In this context, what do you want to own?

Paul Tudor Jones: I want to own commodities, hard assets, and cash. When would I want to buy stocks? When the deficit is 2%, not 5%, and when real short-term rates are 100bp, not negative. With rates so low, you can’t trust asset prices today. And if you can’t tell by now, I would steer very clear of bonds. Just think, Greece will have a budget deficit below 2% of GDP by the time ours grows to 5%-plus. The markets disciplined Greece for its budget transgressions; it’s just a matter of time before they discipline us. I think that time could be starting now with 10-year Treasuries rising to 3.75%, and 30-years to 4.5%, by year-end, and those are conservative targets.

Allison Nathan: Won’t easier monetary policy in Europe and Japan cap the rise in US yields?

Paul Tudor Jones: I don’t think so. Beginning next September, when the ECB concludes its asset purchases, the aggregate balance sheet of the main central banks will start contracting after nearly a decade of expansion. That will be a major data break, making it a horrible time to own bonds.

Allison Nathan: Won’t rising yields attract some buyers?

Paul Tudor Jones: No. Bond pension buying, for example, is very pro-cyclical. When stock prices rise, pensions reallocate their capital gains from stocks into bonds. As we’ve seen, this depresses the term premium and fuels more gains in the stock market. If and when the Fed raises rates enough to stop and reverse the stock market rise, that virtuous circle predicated on increasing capital gains will reverse, and bonds and stocks will decline together like they did in the 1970s.

Allison Nathan: You are well-known for calling Black Monday. Is the recent surge in volatility behind us?

Paul Tudor Jones: In my view, higher volatility is inevitable. Volatility collapsed after the crisis because of central bank manipulation. That game’s over. With inflation pressures now building, we will look back on this low-volatility period as a five standard- deviation event that won’t be repeated.

via Zero Hedge http://ift.tt/2Fe8EHO Tyler Durden

In a world in which a handful of tech companies which derive the bulk of their revenues from advertising are the market leaders, what happened to WPP Plc – the world’s largest ad agency – this morning is particularly relevant: the company suffered its biggest one day crash since 1999, tumbling as much as 15%, after CEO Martin Sorrell again slashed the company’s profit outlook and predicted another year of no growth, in what Bloomberg dubbed a jarring reminder to investors “that the advertising industry is undergoing its most dramatic upheaval in decades.”

To be sure, WPP’s woes are hardly new, with the company tumbling almost as much back in August when it reported dismal earnings and unveiled “terrible” guidance. This time it was even worse.

WPP unveiled that its long-term earnings growth will be as little as 5% and twice that at best, slashing its previous guidance of as much as 15%. The year got off to a “slow start,” WPP said, continuing a trend from 2017 that saw flat margins and sales. Investors responded by sending shares down by the most in 19 years, resulting in a brief trading halt. In sympathy, Publicis Groupe SA, WPP’s French rival, dropped as much as 6.1%.

“There’s a real sense of shock and awe at what’s happened to his business model,” media analyst Alex DeGroote told Bloomberg. “This is a stark reminder of the significant challenges WPP faces.”

On one hand, the WPP crash may seem good news for its digital competitors as the steep slump of the industry leader is the most dramatic sign yet of the deepening crisis facing Sorrell as companies like Google and Facebook “hollow out his core business.”

On the other hand, and more ominous to the tech vanguards, WPP’s collapse may be a harbinger of broad weakness coming to the advertising market, which in turn could wreak havoc on tech valuations: after all major customers such as Unilever Plc have announced they are holding back ad spending to cut costs, a rallying cry which has been joined by many other companies.

There is another red flag: as Bloomberg notes, WPP’s advertising sales have long been seen as a bellwether of strength in the global economy, as companies tend to expand or cut their marketing budgets depending on how well their businesses are performing.

As such, today’s historic crash suggests that ad spending in tumbling, a clear indicator of a global economic slowdown.

Thursday’s stock slump deepens an already poor performance of WPP, which lost more than a quarter of its value over the course of last year, as discussed previously.

Having founded the company in the 1980s, Sorrell is the biggest individual shareholder at WPP, with a stake of about 1.4 percent.

The ad giant said it’s responding by trying to break down silos among its various creative, ad buying, strategy and public relations businesses to draw on top talent and seamlessly serve clients. After “not a pretty year” in 2017, WPP is “upping the pace” of its effort to combine its global team, Sorrell said.

“In this environment, the most successful agency groups will be those who offer simplicity and flexibility of structure to deliver efficient, effective solutions – and therefore growth – for their clients,” he said.

For now, the WPP weakness has yet to spread to the ad-funded FANGS, as traders give the market leaders the benefit of the doubt for now.

via Zero Hedge http://ift.tt/2GW1eX3 Tyler Durden

A day after his foreign minister accused the US of violating the nuclear nonproliferation treaty, Russian President Vladimir Putin shocked his audience during his annual state of the union address to his country’s political elite by claiming Russia had developed new nuclear weapons that cannot be shot down by US anti-ballistic missile defenses, according to the Sun.

The missiles, Putin said, are capable of striking almost any point on Earth.

Russia is testing the new line of strategic, nuclear-capable weapons, the president said, as he showed video and animation of Russian ICBMs, cruise missiles and other weapons that he said have been developed by Russia as a result of the US pulling out of the 1972 anti-ballistic missile treaty, the Guardian reported.

In what sounded like an implicit threat, Putin said Russia has repeatedly warned Washington not to go ahead with anti-missile systems that Moscow fears could erode its nuclear deterrent. However “nobody listened to us. Listen now,” he said, to a loud ovation from the crowd of legislators, officials and dignitaries.

While he stressed that Russia isn’t “threatening anyone,” he asserted that, if attacked, Russia wouldn’t hesitate to respond with a nuclear strike. Per the Guardian, the Russian president’s remarks risk sparking an arms race between the Russian Federation and the US reminiscent of the US-Soviet arms race during the Cold War, according to RT.

“Our nuclear doctrine says Russia reserves the right to use nuclear weapons only in response to a nuclear attack or an attack with other weapons of mass destruction against her or her allies, or a conventional attack against us that threatens the very existence of the state.”

“It is my duty to state this: Any use of nuclear weapons against Russia or its allies, be it small-scale, medium-scale or any other scale, will be treated as a nuclear attack on our country. The response will be instant and with all the relevant consequences,” Putin warned.

Describing the missiles abilities in explicit detail, Putin said they barrel toward their target “like a meteorite” adding that Western efforts to contain Russia have largely failed, according to Bloomberg. 

“Efforts to contain Russia have failed, face it,” Putin said in a nearly two-hour address he illustrated with video clips of the new arms, which included underwater drones, intercontinental missiles and a hypersonic system he said “heads for its target like a meteorite.”

The speech is one of Putin’s first of the campaign season. He’s widely expected to win a fourth term as Russian president on March 18.

The balance of the address was spent discussing economic promises and problems. For example, Putin warned that a shrinking Russian labor force could constrain economic growth for years, Reuters reported.

“This trend will stay for the coming years and will become a serious limit to economic growth,” Putin told lawmakers. He added that Russia would spent 3.4 trillion rubles (about $60 billion) supporting families and demographic growth over the next six years as Putin pushes to establish Russia as one of the world’s top-five economies. For that to happen, Putin said, Russian growth domestic product should grow by 1.5 times during the next decade, per Reuters. 

He added that Russia needs to expand “freedom in all spheres” while also establishing a breakthrough in standards of living.

In another bout of saber-rattling, Putin said Russia would deploy five destroyers and

via Zero Hedge http://ift.tt/2Fg6wiI Tyler Durden

With the worst month for global markets in two years now in the history books, world stocks entered March with shaky knees as global equity markets and US futures are a sea of red this morning, as European shares drop the most since a global rout three weeks ago following sharp declines in the U.S. and Asia ahead of Powell’s second testimony, and amid talk that Trump is ready to announce steep tariffs on steel and aluminum imports.

After attempting a breakout above the unchanged line overnight, S&P 500 Index futures have drifted lower, and the selloff has accelerated in recent minutes, sliding below 2700.

Today’s main event for markets will be Fed Chairman Jerome Powell’s appearance before the Senate Banking Committee following his comments Tuesday that spurred speculation the U.S. central bank might raise rates four times this year. Chinese purchasing managers’ indexes missed estimates on Wednesday, while President Donald Trump warned the U.S. would use “all available tools” to pressure the nation on trade.

Philip Shaw, chief economist at Investec in London said Powell’s testimony was unlikely to change from the one he delivered on Tuesday, putting the focus on the question and answer session.

“He (Powell) appears to have got an easy ride from lawmakers in the sense that the technical questioning on Tuesday wasn’t too heavy,” Shaw said. “He may not have such an easy time today with the Senate Banking Committee.”

Confirming the risk-off mood, the U.S. dollar rose to six-week highs against G-10 currencies while the gap between short-dated U.S. and German bond yields was at its widest since 1997. MSCI’s all-country equity benchmark fell 0.4% after snapping a record 15-month long winning streak in February, while European stocks lost almost 1 percent

Asian equity markets were hit hard after the S&P 500 and DJIA posted their worst monthly performance in over 2 years. This weighed on the Asia-Pac majors from the open with ASX 200 (-0.7%) led lower by weakness in energy names after similar underperformance of the sector in US due to declines in crude, while Nikkei 225 (-1.6%) suffered broad losses amid a firmer JPY. Chinese bourses outperformed, Hang Seng (+0.7%) and Shanghai Comp. (+0.4%) with pressure somewhat alleviated following better than expected Chinese Caixin Manufacturing PMI data and the resumption of PBoC liquidity operations.

Europe was also hit hard, with the Stoxx 50 down over -1%, as retailers and media companies were among the biggest losers in the Stocks Europe 600 Index as some earnings missed estimates and manufacturing data showed mounting signs growth momentum may have peaked. In terms of sector specific moves, losses are relatively broad-based with all ten sectors trading with losses; minor underperformance in the IT sector with Dialog Semiconductor paring back some of yesterday’s earnings-inspired gains. Ultimately, this morning’s trade has been one dominated by earnings with notable movers including: Cobham (+11.6%), Peugeot (+6.6%), AB Inbev (+5.3%), Eiffage (+2%), WPP (-13.2%), Adecco (-8.5%), Carrefour (-6.5%), Beiersdorf (-3.4%).

“A simultaneous sell-off in equity and bond markets, higher U.S. yields and concerns of possible outflows continue to buttress USD/Asia,” says Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore. China’s faltering manufacturing PMI has stoked worries of weaker growth momentum, he says.

Ahead of Powell, Treasury yields fell to a two-week low despite surging earlier in the week on his comments which riled markets earlier this week. . Treasuries began unwinding Wednesday’s strong month-end related buying with 10-year futures edging lower from the open.

In global macro, the Bloomberg Dollar Spot Index rose to a six-week high before Powell’s Senate testimony, and preparations for trade wars as Trump is set to unveil steep tariffs on steel and aluminum imports, hurting EM exporters. Traders will watch for consistency in Powell’s message earlier this week on faster pace of tightening. The greenback’s major peers failed to sustain Asia-session gains even as month-end flows that had been supporting the dollar have ended.

The Aussie dollar dropped to a two-month low after disappointing capital expenditure data encouraged leveraged funds to add to short positions. Asia’s emerging currencies fell after a drop in U.S. stocks damped appetite for risk and the dollar kept rising. The region’s sovereign notes were mixed, while most stock markets rose.

Elsewhere, the U.K. pound extended a decline after the European Union published a draft Brexit treaty, squaring off with Prime Minister Theresa May.

Aluminum headed lower with President Donald Trump set to announce steep import tariffs on Thursday. West Texas Intermediate crude retreated for a third day, with oil futures seeing very little in the way of price action during Asia-Pac and European trade following yesterday’s DoE-inspired sell-off with newsflow today otherwise particularly light. In metals markets, spot gold has been unable to benefit from the risk aversion seen in European equity markets as the firmer USD supresses prices and extends on recent losses. Elsewhere, Chinese steel futures were seen higher overnight as the prospects of additional output cuts supports prices, whilst copper prices endured another session of losses despite encouraging Chinese Caixin Manufacturing PMI.

Key events include Powell’s comments, Trump’s announcement of trade sanctions, the ISM and vehicle data and reports from companies including Nordstrom and Kohl’s

Market Snapshot

• S&P 500 futures down 0.2% at 2,709.25
• STOXX Europe 600 down 0.5% to 377.58
• MXAP down 0.8% to 176.01
• MXAPJ down 0.2% to 576.93
• Nikkei down 1.6% to 21,724.47
• Topix down 1.6% to 1,740.20
• Hang Seng Index up 0.7% to 31,044.25
• Shanghai Composite up 0.4% to 3,273.76
• Sensex down 0.4% to 34,045.30
• Australia S&P/ASX 200 down 0.7% to 5,973.34
• Kospi down 1.2% to 2,427.36
• German 10Y yield fell 1.9 bps to 0.637%
• Euro down 0.06% to $1.2187
• Italian 10Y yield fell 3.0 bps to 1.706%
• Spanish 10Y yield fell 1.4 bps to 1.525%
• Brent Futures down 1.8% to $64.60/bbl
• Gold spot down 0.6% to $1,310.89
• U.S. Dollar Index up 0.1% to 90.73

Bulletin Headline Summary from RanSquawk

• European bourses have followed on from performance in their US and Asia-Pac counterparts (Eurostoxx 50 – 1.1%) to trade lower across the board
• Core bonds are gradually building on earlier positive momentum and advancing further amidst what appears to be heightened risk-off or averse sentiment
• Looking ahead, highlights include US manufacturing PMI, US PCE, US manufacturing ISM and a slew of speakers including Fed’s Powell

Top Overnight News

• Euro-area factory output continues to expand at a robust pace but with mounting signs that growth momentum may have peaked. The manufacturing gauge’s decline since the end of 2017 was the steepest in two years, reinforced by a slowdown in export orders across the region
• U.K. manufacturing lost a bit of steam last month, with growth slipping to an eight-month low
• EU officials were fairly sure the draft Brexit deal they published on Wednesday would be unacceptable to Theresa May. It’s part of their strategy to pressure the British government so that it decides to keep the U.K. as close to the EU as possible, according to three people familiar
• U.S. President Donald Trump is set to announce steep tariffs on steel and aluminum imports Thursday, people familiar with the matter said, in what would be one of his toughest actions yet to implement a hawkish trade agenda that risks antagonizing friends and foes alike
• Fed Chair Jerome Powell, who delivers his second round of semi-annual testimony to Congress on Thursday, told lawmakers on Tuesday the next two years will be “good” ones for the economy. If he’s right, he’ll be at the controls when the current U.S. expansion becomes the longest on record
• China’s rubber-stamp parliament is expected to enact sweeping legislative changes in a two-week session starting Monday that would allow President Xi to rule indefinitely and give him greater control over the levers of money and power

Asian equity markets were mostly lower as the downbeat tone rolled over from the US, where the S&P 500 and DJIA posted their worst monthly performance in over 2 years following the market turmoil seen in early February. This weighed on the Asia-Pac majors from the open with ASX 200 (-0.7%) led lower by weakness in energy names after similar underperformance of the sector in US due to declines in crude, while Nikkei 225 (-1.6%) suffered broad losses amid a firmer JPY. Chinese bourses outperformed, Hang Seng (+0.7%) and Shanghai Comp. (+0.4%) with pressure somewhat alleviated following better than expected Chinese Caixin Manufacturing PMI data and the resumption of PBoC liquidity operations. Finally, 10yr JGBs were subdued with prices contained after yesterday’s reduced-Rinban-induced selling, while a 10yr auction also failed to spur firm demand as the results were mixed with b/c slightly softer and accepted prices higher than prior. Chinese Caixin Manufacturing PMI (Feb) 51.6 vs. Exp. 51.3 (Prev. 51.5). PBoC injected CNY 100bln via 7-day reverse repos, CNY 30bln via 28-day reverse repos & CNY 20bln via 63-day reverse repos.

Top Asian News

• Xi Set to Pass Last Hurdle in Bid for Power to Reshape China
• BOJ’s Kataoka Urges More Stimulus, Says Tightening Long Way Off
• Exxon’s PNG LNG Project Seen Shut for Six Weeks After Quake
• Singapore Freezes World-Leading Ministerial Salaries For Now

European bourses have followed on from performance in their US and Asia-Pac counterparts (Eurostoxx 50 -1.1%) to trade lower across the board. In terms of sector specific moves, losses are relatively broad-based with all ten sectors trading with losses; minor underperformance in the IT sector with Dialog Semiconductor paring back some of yesterday’s earnings-inspired gains. Ultimately, this morning’s trade has been one dominated by earnings with notable movers including: Cobham (+11.6%), Peugeot (+6.6%), AB Inbev (+5.3%), Eiffage (+2%), WPP (-13.2%), Adecco (-8.5%), Carrefour (-6.5%), Beiersdorf (-3.4%).

Top European News

• Euro-Area Factories’ Slowing Pace Seen Hinting at Growth Peak
• U.K. Manufacturing Comes Further Off the Boil Amid Brexit Worry
• Germany Feb. Manufacturing PMI 60.6 vs Flash Reading 60.3
• France Feb. Manufacturing PMI 55.9 vs Flash Reading 56.1
• Italian Jobless Rate Rises as More People Seek Employment

In FX, the DXY has cleared another chart hurdle having climbed above 90.500-600 resistance on Wednesday, and has maintained positive momentum to edge towards the next upside technical objective around 90.886 (Fib level) despite Usd/Jpy and the Jpy in general bucking the overall trend (on safe-haven grounds). Eur/Usd is retesting sub-1.2200 bids around 1.2180 ahead of Fib support at 1.2173, and with decent option expiries between 1.2150 and 1.2200 (1 bn and 2 bn respectively) also in the mix. Cable continues to weaken on Brexit-related factors and trending even lower under 1.3750, while Eur/Gbp has breached 0.8850 even though the single currency is relatively soft independently (more long liquidation and political premium ahead of Italian and German votes on Sunday). On that note, Eur/Jpy is hovering just above 130.00 having dipped below overnight, and back on track to hit TOTW profit targets for a couple of major banks. The Aud is underperforming G10 peers again, and heading for a 0.7700 test after significantly weaker than forecast Aussie Capex data. Having breached key support at 0.7759, bears will be eyeing 0.7695, while Nzd/Usd is only just holding above 0.7200. Usd/Cad hovering around 1.2850 ahead of Canadian current account data and

In commodities, WTI and Brent crude futures have seen very little in the way of price action during Asia-Pac and European trade following yesterday’s DoE-inspired sell-off with newsflow today otherwise particularly light. In metals markets, spot gold has been unable to benefit from the risk aversion seen in European equity markets as the firmer USD supresses prices and extends on recent losses. Elsewhere, Chinese steel futures were seen higher overnight as the prospects of additional output cuts supports prices, whilst copper prices endured another session of losses despite encouraging Chinese Caixin Manufacturing PMI. North Sea Buzzard oil field production is still restricted; according to sources

Looking at the day ahead, a range of data will be out, including: January Core PCE, February ISM manufacturing index, personal income and spending, weekly initial jobless claims and continuing claims and total vehicle sales. Onto other events, the Fed’s Powell is back again in front of the US Senate while the US Transportation Secretary Ms Chao also testifies before the Senate on Trump’s infrastructure plan. The ECB’s Nouy and Lane will also speak. Finally senior officials from Euro area finance ministries will discuss the banking union and the future role of the ESM.

US Event Calendar

• 8:30am: Personal Income, est. 0.3%, prior 0.4%; Personal Spending, est. 0.2%, prior 0.4%; Real Personal Spending, est. -0.1%, prior 0.3%
• 8:30am: PCE Deflator MoM, est. 0.4%, prior 0.1%; PCE Deflator YoY, est. 1.7%, prior 1.7%;
• 8:30am: PCE Core MoM, est. 0.3%, prior 0.2%; PCE Core YoY, est. 1.5%, prior 1.5%
• 8:30am: Initial Jobless Claims, est. 225,000, prior 222,000; Continuing Claims, est. 1.93m, prior 1.88m
• 9:45am: Bloomberg Consumer Comfort, prior 56.6;
• 9:45am: Markit US Manufacturing PMI, est. 55.9, prior 55.9
• 10am: Construction Spending MoM, est. 0.3%, prior 0.7%
• 10am: ISM Manufacturing, est. 58.7, prior 59.1
• Wards Domestic Vehicle Sales, est. 13.3m, prior 13.1m; Total Vehicle Sales, est. 17.2m, prior 17.1m

DB’s Jim Reid concludes the overnight wrap

If you’re in Europe I hope your encounters with “The Beast from the East” weather system are going as well as can be expected. London saw some heavy snow yesterday – a rare sight. I was somewhat alarmed to read that meanwhile the Arctic is seeing a heatwave. Siberia is seeing temperatures 35 degrees C above averages at the moment and Greenland is having some of its hottest days for the time of year on record. There are always exceptions and extremes but I’ve seen a lot of stories suggesting that scientists are worried that global warming is causing this weather shift and that there is some evidence that climate could change more quickly in the future than even the most extreme forecasters have previously suggested. Food for thought.

Talking of which a turbulent February is now behind us and that’s just the markets. At the end today we’ll do our normal performance review but the highlight is that the record 15 month successive positive run for S&P 500 total returns are over. Interestingly yesterday was the fourth successive plus or minus 1% move day (in either direction) for the S&P 500 (-1.11%). February actually had 12 such days after the 13 months from the start of 2017 to January 2018 had just 10. An impressive stat.

Today we’ll see all the usual first of the month PMIs which are as important as ever, especially as its’ been a week of largely disappointing global data. We also have the all-important Fed preferred core US PCE inflation number. We’ll preview later but first today sees the fourth part of our series on the impact of rising yields and discusses the rising incidence of zombie firms in recent years (link).

Bottom-up data of some 3,000 companies in the FTSE All World index show that the percentage of zombie firms more than tripled to 2.0% of firms in 2016 from 0.6% in 1996. That matters because zombie firms are linked to fading  business dynamism and because years of low interest rates should have led to fewer such firms, not more. There are early signs we are at a turning point, however. The numbers for 2017, with two-thirds of firms reporting, suggest that zombie firm incidence declined sharply last year. If this proves to be a real trend, it may give central banks confidence that continuing to raise rates and pull away from unconventional monetary policy will have some advantages. As a recap on Monday we outlined the macro reasons why yields are rising and why they will continue to (link). On Tuesday we looked at the relationship between yields and credit through history (link) and yesterday the same with equities (link) with lots of trade ideas. So feel free to dip back in.

Onto today, as discussed we have the potentially market sensitive January PCE data. The consensus is for a +0.3% mom core reading and +1.5% yoy reading (which would be unchanged versus December). As a reminder the big pickup in medical services inflation in the January CPI report and healthcare industries series in the PPI report should read-through positively to today’s PCE. Our US economists also expect a +0.3% mom print. It’s worth also highlighting that Fed Chair Powell will also testify again today (in front of the Senate this time) however its highly unlikely to differ much from Tuesday’s speech so shouldn’t be much of a game changer. This morning we’ve also got the final manufacturing PMIs in Europe which means a first look at the data for the periphery also.

This morning in Asia, markets are broadly lower with the Nikkei (-1.84%) and Hang Seng (-0.40%) both down following the late US sell-off while China’s CSI300 (+0.31%) is up. The Kospi is closed today. Datawise, China’s February Caixin manufacturing PMI was slightly above market at 51.6 (vs. 51.3 expected) while Japan’s 4Q capital spending also beat at 4.3% yoy (vs. 3%) and the final reading of the Nikkei manufacturing PMI was revised up by 0.1 to 54.1. Elsewhere, President Trump has warned China that the US will use “all available tools” to prevent it from undermining global competition.

Risk assets were soft yesterday with European bourses ending lower after a late day sell-off (Stoxx 600 -0.71%) with the S&P 500 reversing earlier gains to close -1.11% with all sectors in the red and losses led by energy and material stocks.

Elsewhere, WTI oil dropped 2.32% following a higher than expected build up in US crude inventories while the VIX rose 7% to 19.85. Yields in Europe fell between 2 and 3bps while 10y Treasuries ended 3.2bps lower – albeit still c2bps above Tuesday’s lows.

Closer to home, Brexit headlines largely dominated the news outlets – at least after the storm stories – as the EU Commission released its draft legal text on the article 50 withdrawal agreement. All of the focus, and to put it simply – the important stuff, concerned Northern Ireland. As a reminder, at the December EU Council meeting it was the status of Northern Ireland post Brexit which was the main sticking point on agreeing progress on divorce talks between the UK and EU. As DB’s Oliver Harvey notes in a report he published yesterday (link), yesterday’s legal text showed that the EU have made Northern Ireland’s post-Brexit status much more explicit. In the absence of a future free trade agreement or technological solutions that would solve the border issue, Northern Ireland would remain within the EU regulatory and customs area. Oliver thinks that there is little prospect of PM May agreeing to the EU’s current draft text. Indeed May said that no UK prime minister could accept such a deal in the House of Commons yesterday. Indeed aside from the question of the opposition of the DUP, the details could compromise the constitutional integrity of the United Kingdom.

In this sense, May would face a far larger parliamentary rebellion than the 10 DUP MPs. As a reminder the release of the legal text comes only three weeks before the UK and EU must agree a transitional deal at the March EU Council, in which the UK needs the support of the Irish government. It also comes before May’s speech on Friday in which she is due to lay out her vision of a future UK/EU trade relationship, which now appears to be a must watch TV event.

As Oliver rightly says, they have reduced the chance of transitional agreement being reached at the March Council, and increased the risk of an imminent political crisis in the UK. We can’t help feel that the EU have seen opposition leader Corbyn’s loose support for a customs union and decided to play a game of high stakes given they in theory like this idea. It could be that the unelected officials at the EU force the UK electorate to the polls again soon if a  Northern Ireland solution can’t be found. Ex Tory PM Sir John Major didn’t help Mrs May by saying “the (Brexit referendum) result gave the government the obligation to negotiate a Brexit. But not any Brexit; not at all costs and certainly not on any terms” and that voters have rights to “reconsider” Brexit. Elsewhere, he added “the only solution that I can see is to join a customs union”.

Unsurprisingly it was Gilts and Sterling that were the relative big movers in markets yesterday. 10 Gilt yields ended the session down 6.1bps at 1.499% and the Pound fell -1.07% versus the USD (most since 5th Feb) and -0.75% versus the Euro (most since Nov. 17).

Before we take a look at today’s calendar, we wrap up with the other data releases from yesterday. In the US, the February Chicago PMI was below market but still solid at 61.9 (vs. 64.6 expected). The January pending home sales fell 4.7% mom (vs. 0.5% expected), partly impacted by higher mortgage rates.

Notably, the annual growth is now -1.7% and the lowest since 2014. Elsewhere, the second reading on the 4Q GDP was revised down by 0.1ppt, but in line with expectations at 2.5% qoq.

The Euro area’s February headline and core CPI were both in line at 1.2% yoy and 1% yoy respectively, while France (1.3% yoy vs. 1.5% expected) and Italy’s CPI (0.7% yoy vs. 1% expected) were below market. Germany’s February unemployment rate was also in line at 5.4% and remained at its post-unification low. Elsewhere, France’s January PPI was 0.9% yoy (vs 1.7% previous) while the second reading of its 4Q GDP was in line at 0.6% qoq, leading to annual growth of 2.5% yoy. The February GfK consumer confidence index for the UK was in line at -10, while the March index for Germany was slightly softer at 10.8 (vs. 10.9 expected).

Looking at the day ahead, the final readings on February manufacturing PMIs across Europe are also due. Elsewhere, the Euro area and Italy January unemployment rate will be out. In the UK, the January net consumer credit lending and mortgage approvals along with the February flash manufacturing PMI and Nationwide House price index are all due. In the US, a range of data will be out, including: January Core PCE, February ISM manufacturing index, personal income and spending, weekly initial jobless claims and continuing claims and total vehicle sales. Onto other events, the Fed’s Powell is back again in front of the US Senate while the US Transportation Secretary Ms Chao also testifies before the Senate on Trump’s infrastructure plan. The ECB’s Nouy and Lane will also speak. Finally senior officials from Euro area finance ministries will discuss the banking union and the future role of the ESM.

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Ignoring threats of a WTO challenge by the European Union and other potentially harmful countermeasures by China, President Trump is reportedly preparing to impose stiff tariffs on steel and aluminum on Thursday, according to Bloomberg.

Trump has abruptly summoned steel and aluminum executives to the White House – telling them he could announce the tariffs at the meeting, the Wall Street Journal adds.

Last week, media reports said Trump was leaning toward the stiffest trade protections from a bevy of options presented to him by the Commerce Department two weeks ago. These include  a tariffs of 25 percent on steel and 10 percent on aluminum from all countries.

However, other sources told WSJ that a final decision on tariffs had not yet been made, and that the meeting could just be an opportunity to consider alternatives.

In its initial study, the Commerce Department and other agencies concluded that imports of cheap steel and aluminum harm US national security and military needs. While Trump is said to favor the broadest measures, Defense Secretary James Mattis has suggested that exemptions could be made. Commerce Secretary Wilbur Ross, a longtime steel executive, has also pushed for the toughest sanctions.

The White House ordered the Commerce Department back in April to look into these issues under the seldom-used section 232 of the 1962 Trade Expansion Act.

Both BBG and WSJ pointed out that tariffs could elicit protests and retaliations from some of the US’s biggest trading partners. The timing of the announcement could also be interpreted as an insult to China. Liu He, President Xi Jinping’s top economic advisor who’s widely believed to be in line to become China’s next financial superregulator as well as head of the PBOC, is visiting Washington this week. 

Contrary to the outraged reactions from US trade partners and some pro-free trade economists, UBS’ chief economist Paul Donovan suggested that a 25% tariff on steel and 10% tariff on aluminum wouldn’t have much of an impact on consumers, who could see prices of goods from beer cans to cars move marginally higher. Indeed, the pass-through impact felt by consumers from Trump’s tariffs on solar panels and washing machines would probably be more intense.

The real risk, UBS says, is to markets, which – if history is any guide – could pitch a fit as protectionist rumblings out of the Trump administrations have often harmed stocks and the dollar. Reports late last night that Trump might unveil the sanctions today sent Asian steel stocks lower.

One economist who spoke with Bloomberg said Trump’s tariffs likely wouldn’t have a major impact on global trade on their own – the danger, he said, lies in whether the affected countries (i.e. China, Mexico and Canada) choose to retaliate. China in particular has been accused of flooding the global market with cheap steel to undermine foreign producers.

Chinese bureaucrats are already threatening retaliation.

“The United States has over-used trade remedies and it will impact employment in the U.S. and the interests of U.S. consumers,” Chinese Foreign Ministry spokeswoman Hua Chunying said. “China will take proper measures to safeguard its rights and interests.”

European officials have argued it doesn’t make sense to penalize NATO members in the name of national security.

Trump’s protectionist push comes as free-trade Republicans pressure him to soften the crackdown. However, the decision will likely go over well in Pennsylvania and Ohio – two rust belt swing states that Trump needs to keep in his corner if he wants to win reelection in 2020.

Imposing these tariffs could also complicate the renegotiation of the North American Free Trade Agreement. Canada and the US are already engaged in mini-trade spats over the Trump administration’s decision to slap a massive 300% tariff on C-Series jets produced by Canadian aerospace company Bombardier.

Ironically, Trump’s unveiling of the new tariffs would follow a surprising statement made by Treasury Secretary Steve Mnuchin earlier this week that the president is open to rejoining the Trans-Pacific Partnership – that is, if he could secure a good enough deal.

Trump still prefers bilateral trade agreements over group accords, Mnuchin said.

Any announcement on tariffs likely wouldn’t come until late Thursday, after Trump’s meeting with steel and aluminum executives has concluded.

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Blain’s Morning Porridge, by Bill Blain of Mint Partners

“Which is worse? Siberia and “the Beast from the East”, or Donald Trump; “the Pest from the West.”

Happy St David’s Day. Cheer yourself up with a daffodil! It’s a horrible cold, grey, windy and snowy morning here in London. The weather sums up what feels like a miserable market mood – but yesterday’s late stock sell-off was as much end of the month as anything else.

Where is the bond market going? The bellwether 10-yr US treasury is back down at 2.86%, continuing to flirt with the significant 3% yield hurdle. Over the last few days I’ve seen and heard anywhere from a 2.5% to 4.5% bond yield target over the next 6 months. Its divergence of views that makes a market! The point is to understand why everyone has such differing perspectives

Some folk think it’s still too early to call the start of a bond bear market, pointing to unresolved economic weaknesses, fears and doubts left from the last crisis capping long-term rates. They think it unlikely global central banks – jealous of their post crisis powers – will let global markets wobble or risk contagion. Others point to changed long-term dynamics: the global economy shifting from export-driven industrial growth to consumer services changing inflation dynamics. One number that caught my eye recently was the expectation there will be over 1.2 bln new middle class Asian’s spending money in the next 12 years! The lower-for-long bond bulls say don’t panic – future bond yields are likely to remain much lower, and that should change long-term investment thinking and allocations.

Others bond watchers think we’re already in the bond bear market, but are reckoning on limited damage. The recent rise in yields, and the growing unease felt about the tightness of corporate spreads, highlights a market looking to correct. Central bank rates may not rise much – but they will create losses for holders of high risk and convex fixed income product. Their general advice is exit so-called safe-haven bond markets and park cash in risk-assets, gambling that a sell-off in bonds won’t impact stock markets.

And, then there are the conventional bears who think the bond market is set for much more painful correction – but no need to overly panic as these things happen… again and again. There will be a shake out of corporate bonds, we will see spreads widen on risk bond products like hi-yield and bank capital – to reflect higher yields and also to more properly value their underlying risk. This is a periodic thing – markets get overly enthusiastic in bull phases, and sell-off when they smell the coffee of a bear market. It presents opportunity.

Certainly, the fundamentals suggest bonds are toast.

• The facts include the new Fed-Hed saying growth is strong. Inflation is rising, the global economy is expanding, and tightening will be the reality across economies.
• The rumours say the real agenda of central banks is to swiftly unwind QE before the unintended consequences of financial asset distortion burst bubbles, and correct expectations central banks will continue to bail markets with free lunches. Its no secret that many markets look like bubbles as a result of QE and Central Bank largesse.
• The chartists say the long term moving averages are clearly moving towards break-out (higher) yields.

The distortions of QE should be layered on top – like the number of corporates that used ultra-low rates to leverage up balance sheets to finance stock buybacks, and the number of yield tourists who have fuelled tighter spreads in risk sectors of the bond market. When QE ends – what replaces them as a market driver?

On the other hand, I read a fascinating interview with a leading fixed income investor – unfortunately in another broker’s note – where the portfolio manager was pointing to long-term factors such as worsening demographics, rising debt burdens, and the shift from commodity-demand driven production economies to consumerism will cap inflation. At the same time, the same factors will ensure strong demand for long-term bonds to match liabilities of aging populations – hence keeping rates lower for longer.

What’s my guess on long-term bond rates? I’m thinking 3.5-3.75% in 6 months.

 

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Authored by Uzuy Bulut via The Gatestone Institute,

There is one issue on which Turkey’s ruling Justice and Development Party (AKP) and its main opposition, the Republican People’s Party (CHP), are in complete agreement: The conviction that the Greek islands are occupied Turkish territory and must be reconquered.

So strong is this determination that the leaders of both parties have openly threatened to invade the Aegean.

The only conflict on this issue between the two parties is in competing to prove which is more powerful and patriotic, and which possesses the courage to carry out the threat against Greece. While the CHP is accusing President Recep Tayyip Erdoğan’s AKP party of enabling Greece to occupy Turkish lands, the AKP is attacking the CHP, Turkey’s founding party, for allowing Greece to take the islands through the 1924 Treaty of Lausanne, the 1932 Turkish-Italian Agreements, and the 1947 Paris Treaty, which recognized the islands of the Aegean as Greek territory.

In 2016, Erdoğan said that Turkey “gave away” the islands that “used to be ours” and are “within shouting distance.” “There are still our mosques, our shrines there,” he said, referring to the Ottoman occupation of the islands.

Two months earlier, at the “Conference on Turkey’s New Security Concept,”Erdoğan declared: “Lausanne… has never been a sacred text. Of course, we will discuss it and struggle to have a better one.” Subsequently, pro-government media outlets published maps and photos of the islands in the Aegean, calling them the territory that “Erdoğan says we gave away at Lausanne.”

To realize his ultimate goal of leaving behind a legacy that surpasses that of all other Turkish leaders, Erdoğan has set certain objectives for the year 2023, the 100th anniversary of the establishment of the Turkish Republic, and 2071, the 1,000th anniversary of the 1071 Battle of Manzikert, during which Muslim Turkic jihadists from Central Asia defeated Christian Greek Byzantine forces in the Armenian highland of the Byzantine Empire.

The idea behind these goals is to create nationalistic cohesion towards annexing more land to Turkey. To alter the borders of Turkey, however, Erdoğan must change or annul the Lausanne Treaty. Ironically, ahead of his two-day official visit to Greece in December — touted as a sign of a new era in Turkish-Greek relations — Erdogan told Greek journalists that the Lausanne Treaty is in need of an update. During his trip, the first official visit to Greece by a Turkish head of state in 65 years, Erdoğan repeated his mantra that the Lausanne Treaty must be revised.

Turkish President Recep Tayyip Erdoğan has said that Turkey “gave away” Greek islands that “used to be ours” and are “within shouting distance”. “There are still our mosques, our shrines there,” he said, referring to the Ottoman occupation of the islands. (Photo by Carsten Koall/Getty Images)

The following month, Erdoğan targeted CHP leader Kemal Kılıçdaroğlu, again accusing the party that signed the Lausanne Treaty of giving away the islands during negotiations. “We will tell our nation about [this],” Erdoğan said. What this statement means is that Erdogan accepts that the islands legally belong to Greece. Yet, at the same time, he calls the Greek possession of the territory “an invasion” — apparently because the islands were once within the borders of the Ottoman Empire — and he now wants them back.

Meanwhile, the CHP has been equally aggressive in its rhetoric, with Kılıçdaroğlu telling the Turkish parliament that Greece has “occupied” 18 islands. When Greek Defense Minister Panos Kammenos was described as “uncomfortable” with this statement, CHP’s deputy leader for foreign affairs, Öztürk Yılmaz, responded, “Greece should not test our patience.” Yılmaz also reportedly stated that “Turkey is much more than its government,” and that any Greek minister who provokes Turkey, will be “hit with a sledgehammer on the head…If [Kammenos] looks at history, he will see many examples of that.”

History is, in fact, filled with examples of Turks carrying out murderous assaults against Anatolian Greeks. In one instance, the genocidal assault against Greek and Armenian Christians in Izmir in 1922 was highlighted in a speech before the parliament by Devlet Bahceli, the head of the Nationalist Movement Party (MHP):

“If they [the Greeks] want to fall into the sea again — if they feel like being chased after again — they are welcome. The Turkish nation is ready and has the faith to do it again. Someone must explain to the Greek government what happened in 1921 and 1922. If there is no one to explain it to them, we know how to stick like a bullet on the Aegean, rain from the sky like a blessed victory, and teach history to the couriers of ahl al-salib [the people of the cross] all over again.”

Turkish propagandists also have been twisting facts to try to portray Greece as the aggressor. Ümit Yalım, former secretary-general of the Ministry of National Defense, for example, said that “Greece has turned the Greek-occupied islands into arsenals and military outposts that Greece will use in its future military intervention against Turkey.”

Turkish politicians all seem to have their own motivations for their obsession with the islands: Traditional Turkish expansionism, Turkification of Hellenic lands, neo-Ottomanism and Islam’s flagship of conquest — jihad. There are also strategic reasons for their wanting to invade the islands, which can be understood in a statement made by Deputy Prime Minister Tuğrul Türkeş about Turkey’s control of Cyprus since 1974:

“There is this misinformation that Turkey is interested in Cyprus because there is a Turkish society there… Even if no Turks lived in Cyprus, Turkey would still have a Cyprus issue and it is impossible for Turkey to give up on that.”

The same attitude and mentality apply to the Aegean islands. Although Turkey knows that the islands are legally and historically Greek, Turkish authorities want to occupy and Turkify them, presumably to further the campaign of annihilating the Greeks, as they did in Anatolia from 1914 to 1923 and after. The destruction of any remnant of Greek culture that existed in Asia Minor, a Greek land prior to the 11th century Turkish invasion, is almost complete. There are fewer than 2,000 Greeks left in Turkey today.

Given that Turkey brutally invaded Cyprus in 1974, its current threats against Greece — from both ends of Turkey’s political spectrum — should not be taken lightly by the West.

Greece is the birthplace of Western civilization. It borders the European Union. Any attack against Greece should be treated as an attack against the West. It is time for the West, which has remained silent in the face of Turkish atrocities, to stand up to Ankara.

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Is South Africa on the verge of a race-based civil war?

Just as we warned was likely a week ago, the Parliament of South Africa voted this week in favor of a motion allowing lawmakers to amend the constitution to allow for the confiscation of white-owned farmland without any form of monetary compensation.

The motion, brought by the Economic Freedom Fighter (EFF) leader Julius Malema (radical Marxist), was overwhelming adopted in parliament with a vote of 241 in support, and 83 against.

According to News24.com, an English-language South African online news publication, there were only a few parties that were against the motion including the Democratic Alliance, Freedom Front Plus, Cope and the ACDP. The proposal will be sent to the Constitutional Review Committee which must report back to Parliament by late August.

Confiscation of white-owned farmland was a major topic in the new president Cyril Ramaphosa’s platform, after he became the fifth President of South Africa since the 1994 democratic transition, in mid-February.

“The time for reconciliation is over. Now is the time for justice,” Malema told the parliament.

“We must ensure that we restore the dignity of our people without compensating the criminals who stole our land.”

With over 50 million citizens in South Africa, Bloomberg indicates that a 2017 government report shows white people own 73 percent of farmland.

White farmers own almost three-quarters of South Africa’s agricultural land, even after 23 years of government efforts to redistribute land to the black majority, City Press reported, citing a land audit by farm lobbying group Agri SA.

Some 73.3 percent of agricultural land is owned by whites, down from 85.1 percent in 1994, the year South Africa first held democratic elections, the newspaper reported.

Black ownership has increased markedly in some of the country’s most fertile provinces. Black farmers own 74 percent of the land in KwaZulu-Natal and 52 percent in Limpopo, City Press reported, citing the report to be released this week.

Total acreage available for farming fell 4 percent over the 23 years reviewed, as mining and expanding municipalities took over agricultural land, according to economist Johann Bornman, who conducted the audit for the lobbying group.

Last week, South Africa’s new president, Cyril Ramaphosa, said that he would return the lands owned by the white farmers since the mid-1600s to the black citizens of the country. He added the country’s agriculture (see below) must be preserved.

Gugile Nkwinti, the former minister of rural affairs and land reform until Monday (reassigned to the minister of water affairs) said, “The ANC unequivocally supports the principle of land expropriation without compensation.”

“There is no doubt about it, land shall be expropriated without compensation,” he added.

On the other hand, the official opposition Democratic Alliance party (DA) has criticized the motion, saying white confiscation of farmland by the government will undermine property rights and possibly collapse the economy.

The DA’s Thandeka Mbabama told the parliament that the wrongs of the past must be addressed, but white confiscation of farmland without compensation “cannot be part of the solution.”

The Transvaal Agricultural Union of South Africa (TAU SA), a commercial farmers union in the region, warned the country is in danger of traveling the same path as Zimbabwe, which “plunged into famine after a government-sanctioned purge of white farmers in the 2000s,” said the Russian Times.

“Where in the world has expropriation without compensation coupled to the waste of agricultural land, resulted in foreign confidence, economic growth and increased food production?” Meintjes said, via Australia’s news.com.au.

“If Mr Ramaphosa is set on creating an untenable situation, he should actively create circumstances which will promote famine. His promise to expropriate land without compensation sows the seed for revolution. Expropriation without compensation is theft.”

Freedom Front Plus leader Pieter Groenewald warned, 

“If you continue on this course, I can assure you there is going to be unforeseen consequences that is not in the interest of South Africa.”

The Coming Civil War in South Africa explained: 

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