Month: September 2018

Authored by James Dorsey via MidEast Soccer blog,

A podcast version of this article is available here.

It’s easy to dismiss Iranian denunciations of the United States and its Middle Eastern allies as part of the Islamic republic’s long-standing rhetoric. The rhetoric makes it equally easy to understand American distrust.

But as President J. Trump and Hassan Rouhani, his Iranian counterpart, gear up for two days of diplomatic sabre rattling at the United Nations in advance of next month’s imposition of a second round of harsh US sanctions, both men risk fuelling a conflict that could escalate out of hand.

Both are scheduled to address the UN general assembly on Tuesday and Mr. Trump is slated to chair a meeting on Wednesday of the Security Council expected to focus on Iran.

Adding to the likely drama at the UN, European Union foreign policy chief Federica Mogherini, speaking alongside Iranian Foreign Minister Mohammad Javad Zarif, snubbed Mr. Trump, by announcing the creation of a payment system that would allow oil companies and businesses to continue trading with Iran despite US sanctions.

The risk of escalation is enhanced by the fact that Messrs. Trump and Rouhani are sending mixed messages.

Mr. Trump’s administration insists that its confrontational approach is designed to alter Iranian behaviour and curb its policies, not topple its regime.

Yet, the administration stepped up its engagement with exile groups associated with the Mujahedeen-e-Khalq, a controversial Saudi-backed organization that calls for the violent overthrow of the government in Tehran and enjoys support among current and former Western officials, as Messrs. Trump and Rouhani battle it out at the UN.

John Bolton, who has repeatedly advocated regime change before becoming Mr. Trump’s national security advisor, is scheduled to give a keynote address at the United Against Nuclear Iran’s (UANI) annual summit during the UN assembly. So is Secretary of State Mike Pompeo, another hardliner on Iran.

Mr. Pompeo and Mr, Bolton, who has spoken in the past at events related to the Mujahedeen, had so far since coming to office refrained from addressing gatherings associated with opposition groups.

The administration left that to Mr. Trump’s personal lawyer, Rudolph Giuliani, who last weekend told the Iran Uprising Summit organized by the Organization of Iranian-American Communities, a Washington-based group associated with the Mujahedeen and attended by the exile’s leader, Maryam Rajavi, that US. sanctions were causing economic pain and could lead to a “successful revolution” in Iran.

“I don’t know when we’re going to overthrow them. It could be in a few days, months, a couple of years. But it’s going to happen,” Mr. Giuliani, said speaking on the day of an attack on a military march in the southern Iranian city of Ahvaz that killed 25 people and wounded at least 70 others.

Messrs. Bolton, Pompeo and Giuliani’s hardline stems from US suspicions rooted in anti-American and anti-Western attitudes that are grafted in the Islamic republic’s DNA and produced the 444-day occupation in 1979 of the US Embassy in Tehran.

They are reinforced by the humiliation of a failed US military operation to rescue 66 Americans held hostages during the occupation.

Iranian rhetoric; bombastic threats against Israel; denial of the Holocaust, support for anti-American insurgents in Iraq, the brutal regime of Syrian president Bashar al-Assad, Hezbollah in Lebanon, Houthi rebels in Yemen and Hamas in the Gaza Strip; propagation of religiously inspired republican government as an alternative to conservative monarchy in the Gulf; and degrees of duplicity regarding its nuclear program, reaffirm America’s suspicion.

Iran’s seemingly mirror image of the United States traces its roots further back to the 1953 US-supported overthrow of the nationalist government of prime minister Mohammad Mossadegh and his replacement by Shah Mohammad Reza Pahlavi whom Washington staunchly supported till his fall in 1979.

Iranian concerns were reinforced by American backing of Iraq in the 1980s Gulf war, US support for Kurdish and Baloch insurgents, the broad spectrum of support of former and serving US officials for the Mujahedeen-e-Khalq, unequivocal Saudi signals of support for ethnic strife as a strategy to destabilize Iran, and Mr. Trump’s withdrawal from the 2015 international agreement to curb Iran’s nuclear program despite confirmation of its adherence to the accord.

Responses by the US and its Gulf allies as well as a series of statements by militant Iranian Arab groups, including the Ahvaz Resistance Movement, suspected of being responsible for this weekend’s attack, have only deepened Iranian distrust.

Those statements included one by the Arab Liberation Movement for the Liberation of Ahwazeffusively praising Saudi Arabia on its national day that the kingdom celebrated a day after the attack.

Yadollah Javani, the deputy commander of Iran’s Revolutionary Guard Corps, the target of the attack, vowed revenge for what he termed years of conspiracies against the Iranian revolution by its enemies.

Mr. Javani was referring to past US attempts to destabilize Iran and a four-decade long global Saudi campaign that included backing of Iraq in the Gulf war during the 1980s and an estimated $100 billion investment in support of anti-Iranian, anti-Shiite ultra-conservative Sunni Muslim groups.

All of this means that mounting hostility between the United States and Iran is muddied as much by fact as by perception – a combustible mix that is easily exploitable by parties on both sides of the divide seeking to raise the ante.

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The US housing market just took another hits as Case-Shiller reported that homeprices (in July) rose at the slowest pace since August last year, missing expectations notably.

20-city property values index increased 5.9% y/y (est. 6.2%), least since Aug. 2017, after rising revised 6.4%

 

This was the biggest miss since May 2016

July marked the fourth consecutive month that annual price gains in the 20-city index decelerated. That’s in sync with other reports indicating housing is stalling as buyers shy away from higher prices amid mortgage rates near the highest since 2011, in addition to a lack of choice among affordable properties. At the same time, steady hiring and elevated confidence are supporting demand.

“Rising homes prices are beginning to catch up with housing,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

“The slowing is widespread: 15 of 20 cities saw smaller monthly increases in July 2018 than in July 2017. “

Sales of existing single family homes have dropped each month for the last six months and are now at the level of July 2016. Housing starts rose in August due to strong gains in multifamily construction. The index of housing affordability has worsened substantially since the start of the year. 

This really should not be a huge surprise given the collapse in US housing macro data and homebuilder stocks…

Probably time for some more rate-hikes…

 

 

 

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Authored by Tom Luongo,

The “Gypsum Lady” Theresa May has no intention of staying strong on Brexit negotiations.  Her job was always to deliver a Brexit deal that was, in effect, no deal.

She was to thread the needle that kept the U.K. in the European Union for everything that matters, the customs and trade unions, while selling the illusion of an independent Britain that has no voting rights on the floor of the EU Parliament.

And that would be the ultimate win for the Soros Gang in Brussels.  All the control over Britain they want with none of the pesky Nigel Farage farragoes of scathing rhetoric along with it.

But, after the breakdown of talks this week in Salzburg it may be dawning on her that these Brexit negotiations are a Gordian knot designed to crush the U.K. under the boot heel of growing autocracy in Brussels.

And she is rapidly coming to the end of her rope.

Because, let’s seriously step back for a moment and look at the complete irrelevancy of the Northern Ireland border which is the issue of the day holding up a deal.  And it’s complete nonsense.

There is a way to come to terms with this but Brussels is having none of it.  They don’t have to because they don’t want the U.K. to leave the EU.

Furthermore, does anyone really think Remainer May is doing anything other than virtue signaling about the border issue to keep her fragile coalition with the Democratic Unionist Party (DUP) together long enough to stave off a revolt and deliver a Brexit no one can be proud of, except the technocrats in Brussels?

I, for one, certainly don’t.  And every time she shows the barest amount of spine, the currency markets throw up a little in their mouths.

On Friday after talks broke down in supposed acrimony the British Pound went south versus the dollar and the euro rose as offshore dollar markets positioned themselves for the quarter end coming up on Friday.

Failed Melt-Up of the British Pound on Brexit Fears

Here’s the gig.

The technocrats in the EU want a higher British Pound versus the Euro since it means suppressing the good effects of leaving the European Union.

So, when anything pro-Brexit happens the Pound is sold versus the euro creating stronger export markets for British goods.

This is why since Brexit the EU has been trying to push the Pound up by throwing ‘spanner’ after ‘spanner’ into the negotiating process.  The EU leadership knows that on Brexit, the Pound will fall to reflect British global competitiveness more accurately.

This gives them the opportunity to sell goods into Europe at better prices than EU members can internally given how overvalued the Euro is which benefits Germany and the northern banking centers and no one else.

But, no matter how much they try to put the genie back in the bottle, the Pound keeps sliding versus the euro. And it has been since May, quietly pushing down as we get closer to Brexit without a deal.

For this reason, the EU is failing.  The euro is a flawed currency that will not survive  this political upheaval in its current form.  Either Germany will leave or everyone else will.

Since the Eurodollar event on May 29th that Jeffrey Snider at Alhambra Partners is convinced is shaping the current tight dollar liquidity situation, there is little politicians like Tusk and May can do to change what’s happening.

Hell, pros don’t understand this stuff.  Do you really expect feckless jerks like Donald Tusk do?

The Eurodollar future spread between 2020 and 2021 has been negative for three months and beginning again to widen.  Simply put, this means the real money movers are handicapping a recession by then as dollars are in higher demand than a year later.

It’s no different really than any other yield curve inversion.  When short-term money is in higher demand than longer-term money there is a funding crisis brewing.

So, all of this theatre surrounding Brexit by these silly little politicians is truly a ‘deck chairs and Titanic’ moment with the notable exception that their incompetence in running the institutions which undergird these so-called markets is having a feedback effect of our confidence in them.

Thereby setting the stage for a debt-fueled asset value catastrophe.

People like EU Commission President Donald Tusk and French President Emmanuel Macron are the past.  German Chancellor Angela Merkel is on her last legs politically.

When I look around and see an open coup against Donald Trump in the U.S. having the effect on propping up failing markets like the EU where its Central bank is trapped at the negative bound on interest rates I have to wonder what happens after Trump survives the mid-term elections.

At that point the hard-line stance about the EU’s common market and importance of its inviolability becomes so much virtue-signaling as eurodollars begin to rushing out of Europe to simply become dollars again while levered-up bond prices begin falling at rates that will drain what little color Theresa May has left in her cheeks.

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Two weeks after the latest shock for Europe’s establishment parties, when Sweden’s ruling coalition suffered a dramatic drop in support in the latest elections, Sweden’s newly elected parliament voted to oust Prime Minister Stefan Lofven – leader of the center-left Social Democratic Party – in a vote of confidence, officially ending his tenure as head of government.

And so one more pillar of Europe’s populist establishment becomes a casualty to the continent’s growing populist wave.

A total of 204 of Sweden’s 349 members of parliament voted “no” to Löfven as prime minister on Tuesday morning. No one abstained, 142 voted for Löfven and three MPs were not present in the chamber. The Social Democrats, Greens and Left voted for Löfven, while the Moderates, Centre, Liberals, Christian Democrats and the Sweden Democrats voted against him, according to The Local.

The dismissal of Lofven, who earlier refused to step down voluntarily, was anticipated after members of the conservative Alliance announced in advance that they would not support him in Tuesday’s vote.

“Today, after the election, we’re doing what we promised before the election,” the Moderates’ Ulf Kristersson, leader of the largest party in the centre-right Alliance opposition, told parliament ahead of the vote. “To the Alliance it is obvious that Sweden needs a new government.”

Anders Ygeman, the group leader of the Social Democrats in parliament, argued that Sweden’s September 9th election gave 143 seats to the four-party Alliance and 144 seats to the centre-left bloc of the Social Democrats, Greens and Left Party. The centre-right however has argued that the Left Party is not formally part of government and should therefore not be counted as part of the centre-left bloc.

Political groups on both the left and right achieved the same number of votes in the general election, resulting in neither winning a majority in parliament. The election resulted in major success for the anti-immigration Sweden Democrats, which won 17.6 percent of the votes. However, neither side of the political center agreed to form a coalition with the party.

* * *

Lofven, who had headed a minority coalition government since 2014, refused to step down after the election on September 9, saying that keeping the Sweden Democrats out of power was a paramount goal for the establishment parties. However, the Moderates, who lead the conservative Alliance, refused to support Lofven’s bid to remain as prime minister.

It will now be up to speaker of parliament Andreas Norlén to ask another party leader to try to form a government. Löfven is however set to lead a caretaker government during the weeks or months it is expected to take to find a new head of government. The now former Prime Minister told reporters after the vote that he remained prepared to stay on as prime minister if asked to do so by the speaker, saying he wanted to negotiate across the political divide to seek bi-partisan compromises.

“It is my wish to continue serving our country as prime minister. I want to lead a government that enjoys broad support in Sweden’s parliament, so that we can leave bloc politics behind and take the country forward,” he said.

Elections on September 9th left neither of Sweden’s main blocs with an absolute majority, with just one seat separating the centre-left (Social Democrats and the Green Party) and the centre-right Alliance (Moderate Party, Centre Party, Christian Democrats, and Liberals).

The Sweden Democrats are the third largest group, and some right-wing MPs have suggested cooperation with the far-right party. The Centre Party and Liberals have said they would quit the Alliance if the Moderates and Christian Democrats were to negotiate a deal – for example on immigration – with the far-right in exchange for their support. Another alternative would be for the Alliance to reach a compromise with the Social Democrats on big political issues, such as the autumn budget.

* * *

The electoral success of the populist Sweden Democrats occurred amid tensions in the country over its immigration policy. The northern European country has long prided itself for its tolerant approach to asylum seekers, perhaps too tolerant: during the 2015 immigration crisis, Sweden took in more people per capita than any other EU member state.

Not long after, problems associated with immigrants – including regular torching of cars and other crimes – shifted to the forefront of public debate. This enabled the right-wing party to capitalize on anti-immigration sentiment, ultimately resulting its best-ever result in a general election.

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One day after Axios White House Correspondent Jonathan Swan sent markets reeling by reporting that Attorney General Rod Rosenstein had “verbally resigned” in a conversation with White House Chief of Staff John Kelly, Swan is back with what he claims is the text of the resignation letter that the DOJ sent to the White House on Rosenstein’s behalf.

The letter, which was reportedly written in the voice of Attorney General Jeff Sessions, declared that Sessions was “confident” that Noel Francisco, the solicitor general who is said to be more amenable to Trump, would dutifully carry out the oversight of the Mueller probe.

Importantly, Axios said the statement’s veracity was confirmed by three sources. Read the brief statement in full below:

Rod Rosenstein has served the Department of Justice with dedication and skill for 28 years. His contributions are many and significant. We all appreciate his service and sincerely wish him well.

Matt Whitaker, my Chief of Staff for the last year, will instill confidence and uphold the integrity of the Department as the second highest law enforcement officer in the Nation.

Finally, I am confident that Noel Francisco will oversee the special counsel with a commitment to justice as Acting Attorney General for this matter. As I have said before, the American people deserve an expeditious resolution of this investigation consistent with the rule of law.

According to Axios, talks over Rosenstein’s resignation were effectively foiled after Axios published its misleading report, setting off a frenzy of media speculation that forced the White House to reconsider its tactics after markets tanked and allies of Trump warned against letting Rosenstein leave. Rosenstein initially offered his resignation to Kelly on Friday, and negotiations had been ongoing over the weekend.

Still, there’s one important piece of the puzzle that Axios doesn’t yet know:

What I don’t yet know: How exactly the conversation between Rosenstein and Kelly changed on Monday. I don’t know what terms he had demanded and how, if at all, his demands changed from Friday to Monday. As of now, it’s possible that he remains Deputy Attorney General for the foreseeable future. He meets with President Trump on Thursday.

With Rosenstein expected to meet with Trump on Thursday, his fate remains uncertain. On the one hand, a New York Times report published Friday claiming that Rosie had been pushing cabinet officials to invoke the 25th amendment in what would have been a palace coup made the Deputy AG look not just bad, but biased in his oversight of the Mueller probe. On the other hand, many Trump allies have warned that firing Rosie would be “a trap” for the president.

Whatever happens, we should know more by the end of the week, as the White House will likely be looking to seize control of the narrative to avoid another bout of chaos like what investors experienced on Monday.

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BMW Shareholders are not impressed by what management calls a “moderate” drop in pretax profit expectations due to trade tensions and pricing pressure.

“The continuing international trade conflicts are aggravating the market situation and feeding uncertainty,” BMW said in a statement.

“These circumstances are distorting demand more than anticipated and leading to pricing pressure in several automotive markets.”

Specifically, BMW cut its overall 2018 pretax profit and automotive revenue and Ebit margin outlook.

The initial plunge was the biggest drop since Brexit (Summer 2016), but a modest bounce has pulled share ‘off the lows’

BMW also cited industry-specific factors like “unexpected competition” amid the industry-wide shift to the new WTLP test cycle, as well as increased goodwill and warranty measures.

It should not be a total surprise to see the European automakers cutting outlooks and the broad EU auto market is weak on this straw breaking the camel’s back…

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Cryptocurrencies are crashing once again following reports that the trustee liquidating the defunct exchange Mt. Gox has offloaded another 25.98 billion yen ($230 million) of Bitcoin and Bitcoin Cash.

While Bitcoin is the best-performer (down around 4%), the rest of the crypto space is collapsing faster…

Notably, as Bloomberg reports, the disposals were made in the period since the 10th creditors meeting was held on March 7, Nobuaki Kobayashi said in a statement on Tuesday.

Based on the yen raised and the number of coins sold, the latest disposal received an average price of $8,100 per Bitcoin, according to calculations by Bloomberg.

The total compares with 43 billion yen in the prior round of sales, which the bankruptcy attorney announced six months ago.

Despite the fact that these disposals are old history, Bitcoin is seeing more selling pressure…

And Ethereum is plunging, testing back down towards a $100 handle…

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Though it’s hardly surprising, given President Trump’s stridently anti-China rhetoric during the campaign, relations between the US and China have deteriorated to a dramatic degree since the beginning of 2018. And with the US and China trading threats following the US’s decision to sanction a branch of the Chinese military for buying arms from Russia (as China threatened the US with unspecified “consequences” if it didn’t undo its “mistake”), the US has thrown gasoline on the fire by moving ahead with a planned sale of F-16 fighter jets and other weaponry to Taiwan in defiance of China’s warnings, per Reuters and Bloomberg.

The arms sale follows China’s participation in joint military drills with Russia earlier this month, as well as drills in the Strait of Taiwan earlier this year that were intended to simulate an invasion.

Taiwan welcomed the arms package, adding that a “case-by-case” approach to arms sales might be more efficient than previous large shipments of arms. According to Reuters, the order includes parts for both US-made and domestic fighter aircraft as well as tools to help Taiwan maintain its “defensive and aerial fleet” as mainland China has never renounced the “use of force” to bring Taiwan under control.

The $330 million request covers spare parts for “F-16, C-130, F-5, Indigenous Defense Fighter (IDF), all other aircraft systems and subsystems, and other related elements of logistics and program support,” the Pentagon said, adding that it notified Congress of the possible sale. Lockheed Martin Corp (LMT.N) makes the F-16.

The Pentagon said the proposed sale is required to maintain Taiwan’s “defensive and aerial fleet,” and would not alter the military balance in the region.

In response, China “strongly” urged the US to honor “One China” principle and immediately revoke its sales of military hardware to Taiwan, Chinese defense ministry spokesman Ren Guoqiang said. Chinese Foreign Minister Geng Shuang echoed that warning in a Tuesday press briefing, saying that U.S. arms sales to Taiwan were a serious breech of international law and harmed Chinese sovereignty and security interests.

China strongly opposes the planned arms sales and has already lodged “stern representations” with the United States, he told a daily news briefing in Beijing.

China on Tuesday expressed dissatisfaction and said it had lodged stern representations with the United States after the State Department approved the sale to Taiwan of spare parts for military aircraft worth up to $330 million.

China’s foreign ministry spokesman Geng Shuang made the comments at a daily news briefing in Beijing.

U.S. military sales to self-ruled Taiwan, which China claims as its territory, are an irritant in ties between the world’s two largest economies. Taiwan would still need to finalize sale details with U.S. companies.

Notably, the arms sale follows China’s decision to call off trade talks with the US set for this week, ratcheting up trade tensions between the two countries and rattling markets as investors started to doubt whether the trade conflict between the world’s two largest economies would come to a swift and amicable solution.

The US has approved $1.3 billion in arms sales to Taiwan since Trump’s victory in the 2016 election. Trump nearly triggered a diplomatic crisis later that year when he accepted a congratulatory phone call from the leader of Taiwan, which China interpreted as an insult and a violation of the “One China” policy that has held since the days of Richard Nixon.

Faced with a newly defiant Taiwan, Chinese President Xi Jinping has repeatedly warned that the mainland won’t “give up an inch” of territory when it comes to its rogue province, while also warning that attempts to drive a wedge between Taiwan and China would be “punished by history.”

Trump’s relationship with Taiwan has been a hot issue for China since he accepted a congratulatory phone call from President Tsai Ing-wen after his election and questioned why the U.S. recognizes Beijing instead of Taipei, a policy that underpins China-U.S. relations.

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