Month: November 2018

Authored by Jesse Colombo via RealInvestmentAdvice.com,

Credit Suisse recently published its annual Global Wealth Report, which found that the United States “added 878,000 new millionaires [since 2017] – representing around 40% of the global increase.”

The report also claimed that “The United States has the most members of the top 1% global wealth group, and currently accounts for 41% of the world’s millionaires.”

While America’s surging wealth may seem like a good thing at first blush, my research has shown that it is actually a dangerous bubble driven by the Fed’s aggressive monetary stimulus since 2008. As I explained in a recent presentation, U.S. household wealth has surged by approximately $46 trillion or 83% since 2009 to an all-time high of $100.8 trillion. 

Since 1951, household wealth has averaged 379% of the GDP, while the Dot-com bubble peaked at 429%, the housing bubble topped out at 473%, and the current bubble has inflated household wealth to a record 505% of GDP (see the chart below):

Please watch my presentation “Why U.S. Wealth Is In A Bubble” to learn more:

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One day after Attorney General Jeff Sessions was announced out at the Department of Justice, CNN reports that special counsel Robert Mueller’s team has “begun writing its final report,” according to “multiple sources.” 

According to CNN, “all signs point to an investigation that is winding down.” 

Rumors over Mueller’s final report comes as Democrats go into full panic mode over the appointment of Matt Whitaker – Sessions’ former right-hand man, as interim Attorney General. Whitaker will take over the Russia investigation from Deputy Attorney General Rod Rosenstein, who signed off on a FISA surveillance warrant application and subsequent renewals for former Trump campaign aide Carter Page. 

Democrats have raised concerns over how Whitaker will handle the Russia investigation, with Sen. Chuck Schumer (D-NY) demanding Whitaker recuse himself over previous comments about the special counsel, after he said that if Mueller investigates the Trump family finances beyond anything to do with Russia, “that goes beyond the scope of the special counsel.” 

Rep. Nancy Pelosi (D-CA) also called for Whitaker’s recusal, stating that “Deputy Attorney General Rosenstein should be allowed to continue to oversee the investigation, unhindered.” 

In a Wednesday tweet, Pelosi said: “Given his record of threats to undermine & weaken the Russia investigation, Matthew Whitaker should recuse himself from any involvement in Mueller’s investigation. Congress must take immediate action to protect the rule of law and integrity of the investigation.”

Given his record of threats to undermine & weaken the Russia investigation, Matthew Whitaker should recuse himself from any involvement in Mueller’s investigation. Congress must take immediate action to protect the rule of law and integrity of the investigation. #FollowTheFacts

— Nancy Pelosi (@NancyPelosi) November 7, 2018

Stone faced

Meanwhile, questions remain over what Mueller intends to do with longtime Trump adviser Roger Stone, who has been at the center of the latest arc of the “Russiagate” saga. 

As recently as a month ago, Mueller asked Trump’s lawyers to produce call and visitor logs related to Stone from Trump Tower in New York, according to a source briefed on the matter. The request at this late stage of the investigation came as something of a surprise to lawyers involved, given that the Mueller team has been focused for months on Stone and his activities before the 2016 election.

Among the questions Mueller has asked the President to provide written responses on are queries about Stone and his communications with then-candidate Trump, according to a source briefed on the matter. –CNN

Stone associate Andrew Miller, meanwhile, has questioned Mueller’s authority to lead the Russia probe – as a federal appeals court considers his request to challenge the constitutionality of Mueller’s role. Miller was held in contempt after losing his bid to block a grand jury subpoena from the special counsel, however that ruling is on hold pending the outcome of the US Court of Appeals for the DC Circuit.  

Two District Court judges in Washington — one nominated by a Democrat, the other by Trump — have upheld the constitutionality of Mueller’s appointment in recent rulings. The hearing Thursday, however, is the first time an appeals court panel, made up of Judges Karen LeCraft Henderson, Judith W. Rogers and Sri Srinivasan, will review the special counsel’s authority. –WaPo

According to court filings, Miller’s legal team says that Mueller was named special counsel in violation of the Appointments Clause of the Constitution since he has broad prosecutorial authority and a “lack of supervision and control over this conduct,” according to The Post. 

Mueller has not provided any timeline for when he intends to complete his investigation, though we imagine “2024” would be about right, should Trump win the 2020 election. 

The heat is on

Regardless of what happens to Mueller, Tuesday’s midterm election result flipping control of the House back to the Democrats means they will have the ability to expand investigations into Trump, his businesses and his associates. 

On Wednesday, Rep. Maxine Waters (D-CA) told Bloomberg Television that she will investigate President Trump’s ties to Deutsche Bank if she is elected chair of the House Financial Services Committee. 

Meanwhile, Rep. Adam Schiff (D-CA), who will lead the House Intelligence Committee, told the Los Angeles Times on Monday that he will revive the investigation into so-called “Russian collusion” – vowing to go after Trump’s personal business interests. 

The president has sought to keep that off limits, but if that’s the leverage Russians pose that’s a real threat to our country,” said Schiff. 

Schiff insisted in March that there was “more than circumstantial evidence” connecting Trump to Russia, however despite the best efforts of the US-UK-Australian intelligence community and the DOJ/FBI’s multi-year counterintelligence “sting” and now probe, no such evidence has emerged. 

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Streaming video services like Sling TV and DirecTV Now – all spawned in the successful aftermath of Netflix – were once seen as the saviors of the media industry, pulling in those who decided to “cut the cord” and leave cable with promises of unbundled offerings and no long-term locksup. And initially, the growth trajectory for these types of services looked to be long and fruitful for years to come. But recently, these streaming services have hit a harsh reality: their growth has hit a wall, according to a new report, and it now appears that even these formerly boundless streaming services are left with no choice but to cannibalize off one another. 

The question then becomes: can these services help reverse the subscriber losses that have plagued the entertainment industry for more than three years, or has the industry simply hit a point of supersaturation?

Contributing to the slowdown is the fact that, contrary to some expectations, consumers have turned out to be – gasp – price sensitive at a time when both Sling and DirecTV recently raised their prices. Meanwhile, the positives of video streaming – that they are (or were) cheaper, don’t usually require a contract and allow watchers to be more selective with their choices – are balanced by the cons, including the fact that content choices can be limited.

Recent trends have been ominous. Dish’s Sling TV signed up just 26,000 new subscribers in the third quarter after attracting 41,000 in the previous three months and 91,000 prior to that. In aggregate, the company lost 341,000 customers in the third quarter. DirecTV Now added 49,000 subscribers last quarter after signing up 342,000 customers in the prior three months.

In short: growth has hit a wall.

Meanwhile, streaming provider Roku slid 11% on earnings on Wednesday afternoon, after the company stated that it may report a loss in the fourth quarter, while consensus was expecting a profit. Roku saw slowing growth in important figures like platform revenue, active accounts and average revenue per user. 

John Donovan, CEO of AT&T which also owns DirecTV, stated that this slowdown comes at a time when AT&T is focusing on trying to squeeze the most out of its revenue buck. It’s currently scaling back promotional prices for DirecTV now in hopes of juicing the bottom line. Donovan acknowledged the issue, saying on his earnings call last month: “Customers are seasonally shopping for shows and jumping from promotion to promotion and really spinning in the industry between us, Hulu Live, YouTube TV.” 

MoffettNathanson Analyst Craig Moffett stated that the growth of these two services appears to be “cratering”. However, he doesn’t believe that the market for these types of content packages is shrinking as much as these two companies are indicating. Instead, like Donovan, he believes that people are just be shifting services like YouTube and Hulu.

The slowdown, however, is pervasive: YouTube TV added about 100,000 customers over the past two quarters, after signing up 125,000 in the first quarter of this year. Hulu attracted 175,000 new viewers last quarter after signing up 200,000 in the two quarters prior to that, according to estimates. 

If these companies are cannibalizing from each other it could be a profound negative for other players in the space like Walt Disney, Discovery and Warner Media, who are all betting big on streaming viewers. It also begs the question whether Netflix itself is plateauing.

There is a silver lining: the slowing growth in streaming is nothing compared to the carnage amid traditional cable subscribers, which declined by more than 1 million in the third quarter – the worst drop ever recorded – according to MoffettNathanson.

Dish Chairman Charlie Ergen defended Sling TV during his earnings call on Wednesday: “I don’t think it is sputtering as much as people are writing,” he said. 

Ergen continues to attribute the changes to an evolving media landscape (probably because his job depends on it). However, the “unthinkable” scenario of supersaturation – or simply just more debt laden Americans on a budget that need to cut back – can’t help linger as an obvious explanation for the most recent growth declines.

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Authored by Bret Stephens, op-ed via The New York Times,

Stop manning imaginary barricades, and start building real bridges to the other America.

For months we’ve heard from sundry media apocalypticians that this year’s midterms were the last exit off the road to autocracy. On Tuesday, the American people delivered a less dramatic verdict about the significance of the occasion.

In a word: meh.

Are you interested in seeing Donald Trump voted out of office in two years? I hope so – which is why you should think hard about that “meh.” This week’s elections were, at most, a very modest rebuke of a president reviled by many of his opponents, this columnist included, as an unprecedented danger to the health of liberal democracy at home and abroad. The American people don’t entirely agree.

We might consider listening to them a bit more – and to ourselves somewhat less.

The 28-seat swing that gave Democrats control of the House wasn’t even half the 63 seats Republicans won in 2010. Yet even that shellacking (to use Barack Obama’s word) did nothing to help Mitt Romney’s chances two years later. The Republican gain in the Senate (the result in Arizona isn’t clear at this writing) was more predictable in a year when so many red-state Democrats were up for re-election. But it underscores what a non-wave election this was.

It also underscores that while “the Resistance” is good at generating lots of votes, it hasn’t figured out how to turn the votes into seats. Liberals are free to bellyache all they want that they have repeatedly won the overall popular vote for the presidency and Congress while still losing elections, and that the system is therefore “rigged.”

But that’s the system in which everyone’s playing — and one they had no trouble winning in until just a few years ago. To complain about it makes them sound like whiners in a manner reminiscent of Trump in 2016, when he thought he was going to lose. It’s also a reminder that, in politics, intensity is not strategy. You have to be able to convert.

The Resistance didn’t convert.

It didn’t convert when it nominated left-wing candidates in right-leaning states like Florida and Georgia. It didn’t convert when it poured its moneyinto where its heart was — a lithesome Texas hopeful with scant chance of victory — rather than where the dollars were most needed. It didn’t convert when it grew more concerned with the question of how much Trump did not pay in taxes than with the question of how much you pay in taxes.

It didn’t convert when Chuck Schumer chose to make Brett Kavanaugh’s nomination to the Supreme Court the decisive political test of the year. It didn’t convert when it turned his initial confirmation hearing into a circus. It didn’t convert when media liberals repeatedly violated ordinary journalistic standards by reporting the uncorroborated accusations against Kavanaugh that followed Christine Blasey Ford’s.

Above all, it didn’t convert the unconverted.

It doesn’t take a lot to get the average voter to tell you what he doesn’t like about Donald Trump: the nastiness, the divisiveness, the lying, the tweeting, the chaos, the epic boastfulness matched by bottomless self-pity. As my colleague Frank Bruni has astutely observed, Trump is as transparent as they come: You don’t need a Ph.D. in psychology to know that the president is an insecure narcissist with daddy issues.

Then again, what does the average voter think about the people who pompously style themselves “the Resistance”? I don’t just mean the antifa thugs and restaurant hecklers and the Farrakhan Fan Club wing of the women’s movement, though that’s a part of it.

I mean the rest of the Trump despisers, the people who detest not only the man but also contemn his voters (and constantly let them know it); the ones who heard the words “basket of deplorables” and said to themselves: Bingo. They measure their moral worth not through an effort at understanding but by the intensity of their disdain. They are — so they think — always right, yet often surprised by events.

I was a charter member of this camp. Intellectual honesty ought to compel us to admit that we achieved precisely the opposite of what we intended. Trumpism is more entrenched today than ever. The result of the midterms means, if nothing else, that the president survived his first major political test more than adequately. And unless Democrats change, he should be seen as the odds-on favorite to win in 2020.

To repeat: I’d hate to see that happen. I want Trump, and Trumpism, to lose. But if the Resistance party doesn’t find a way to become a shrewder, humbler opposition party, that’s not going to happen. The day Democrats take charge in the House would be a good opportunity to stop manning imaginary barricades, and start building real bridges to the other America.

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Touching on a point we addressed over the weekend when looking at real, “as reported” vs non-GAAP, “adjusted” profits, in his latest note Albert Edwards makes the following observation: the latest surprisingly poor capex/investment component of Q3 GDP is an ominous sign for both US growth and corporate profits, and comes at the worst possible time for the US economy: just as the beneficial tailwinds from Trump’s fiscal stimulus fade, and become headwinds.

As Edwards explains referring to the latest Q3 GDP print, “despite extremely high levels of corporate optimism on the back of Trump’s fiscal reforms, business investment (including inventories) has not been a key driver of the stronger economy, as it contributed less than 1pp to the 3% GDP yoy growth.”

Furthermore, and record business confidence aside, Edwards argues that “the subdued pace of business investment is what you would expect given the surprisingly moderate underlying profits uplift, as shown by the BEA National Income Accounts (NIA) measures of profits.”

But how does this strangely subdued measure of NIA Whole Economy “as reported” profits square with the near record adjusted earnings growth (as S&P corporations report on a non-GAAP basis) and the booming stock market measures?

“Not much it appears” Edwards responds rhetorically, and adds that if one looks at a wider definition than the domestic non-financial profit series shown in the left-hand chart below, things are no different. In fact, “they are actually worse. In the right-hand chart for example, we compare NIA Whole Economy national (ie including profits from abroad) pre-tax profits (as reported) with yoy growth in stock market profits.” And as the SocGen strategist exclaims, “The recent divergence of the two series is astounding. “

To be sure, financial purists may find a semantic flaw with this comparison, and Edwards is quick to preempt it:

Both the two NIA Whole Economic series shown above in red are pre-tax measures of profits. Despite taxes being slashed, it is still reasonable to focus on this pre-tax measure as this definition probably best explains growth in domestic business investment. But certainly on the right-hand chart above I am comparing apples and pears (although both are as-reported and the pre-tax measure is telling us something useful about the underlying profits performance).

To address this divergence, Edwards therefore shows the level of both pre- and post-tax national Whole Economic Profits on a reported basis in the chart below (the red line below is the same definition of profits as the red line in the chart on the right above).

What he finds is that even on a post-tax, reported basis “the recent rise in NIA whole economy profits has been somewhat subdued (blue line below) when compared with stock market measures.”

Why does this matter? Because as Edwards explains, “quite often we find the NIA Whole Economy profits measures are more reliable than the heavily manipulated pro-forma reported company eps.”

Putting it all together, Edwards writes that the ongoing weakness in both business investment and “as reported” profits comes at the worst possible time: just as President Trump’s “ill-timed fiscal incontinence is set to abate as we move into 2019  (caveat: the stimulus may have been ill-timed for where we are in the economic cycle, but it certainly was perfectly timed for the electoral cycle where the strong economy featured prominently).“

And, as Edwards concludes rhetorically, “if this is as good as it gets” for profits and business investment, “what happens next year when the sugar  rush of fiscal expansion begins to wear off?” That is one question whose answer president Trump will have absolutely no desire in seeing answered, especially now that the Democratic House has assured that any future fiscal stimulus to maintain the economy’s sugar high is virtually impossible.

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Authored by Todd South via MilitaryTimes.com,

Why a self-reliant Iraqi military may take ‘years, if not decades’ and could require a ‘generation’ to reform

Despite reports that the Islamic State terrorist group has lost 99 percent of its territory and shifted to insurgent tactics in Iraq and Syria, a recent report said an enduring defeatof the organization could take “years, if not decades.”

This, according to Department of Defense information provided to investigators with the DoD Inspector General, is in large part due to what is still needed to make Iraqi security forces “self-reliant.”

“Systemic weaknesses remain, many of which are the same deficiencies that enabled the rise of ISIS in 2014,” according to the quarterly IG report on Operation Inherent Resolve, the counter-ISIS operation that spans Iraq and Syria.

Though top military officials recognized the gaps in capabilities among the Iraqi forces and that a “resurgence” of ISIS in the region is likely without sustained support and attention, congressional support for the fight against ISIS has decreased in the new fiscal year and an estimated $230 million in U.S. stabilization funds earmarked for Syria has been shifted to other countries.

The quarterly report on OIR noted that while security in cities such as the capital Baghdad has improved to such a degree that security forces have removed about 300 police and security checkpoints and 1,000 barriers that divided and walled off the city.

The report covered July to September.

As violence in the cities has decreased, ISIS mass casualty attacks and killings have increased in the rural areas where ISF has less control.

Ninety-two percent of the reported 285 violent attacks occurred in the crescent of provinces north of Baghdad, including Anbar, Ninewa, Salah ad Din, Kirkuk and Diyala.

ISIS fighters have killed three to four tribal leaders and village elders per week over the past six months, according to reports.

Iraqis still lack the ability to conduct basic intelligence gathering and have no qualified drone pilots, instead relying almost entirely on coalition forces to gather, analyze and disseminate intelligence.

“In effect, this means that the Iraqi senior leadership is dependent on the Coalition for information about their own military’s operations,” according to the report.

“This strategy risks an enduring coalition presence in Iraq for years to come.”

Other foundational aspects of modern military command are sorely lacking.

“Coalition officials acknowledged that it is likely to take “a generation of officers with continuous exposure to Coalition advisers” before changes to the centralized command structure take hold,” according to the report.

Report authors also noted that ISF “could not function” without using personal cell phones. Commanders also require burdensome paper orders that can tie up operational work, delaying key movements in the field, far from the capital.

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Two days after reports that Goldman was lawyering up as the 1MDB scandal explodes and implicates bankers ever higher in the bank’s org chart, with the bank reportedly hiring the former deputy attorney general who was once the boss of the DOJ’s head of criminal investigations, it appears that not all Goldman bankers are looking forward to appearing in court.

According to Bloomberg, a former Goldman banker linked to the scandal-plagued Malaysian state investment company 1MDB, is fighting extradition to the U.S., where he would face charges of money laundering and bribery. Roger Ng was arrested last week in Malaysia at the request of American authorities, after which he filed an application to review the U.S. detention and extradition order.

Separately, Ng and his family have agreed to surrender about S$40 million ($29 million) to authorities in neighboring Singapore, which would then repatriate the funds to Malaysia, Bloomberg sources said.

Goldman, which has for years been under scrutiny over its role in raising $6.5 billion for 1Malaysia Development and for the massive fees it earned from three bond deals, has seen its involvement scrutinized in recent days after the DOJ filed the first round of criminal charges related to 1MDB, and after it emerged that under a “mystery” top-ranked Goldman executive was involved in the $4.5 billion fraud. As has been extensively documented in recent years, 1MDB has been at the center of a global scandal involving claims of embezzlement and money laundering by the former regime, which have triggered investigations in the U.S., Singapore, Switzerland and beyond and helped drive Malaysia’s former leader from power.

As Bloomberg reports, Ng is one of at least three current and former Goldman bankers implicated by the U.S. Department of Justice as having taken part in or having knowledge of what the DOJ calls a multiyear criminal enterprise. He was a deputy to Tim Leissner, Goldman’s former chairman of Southeast Asia, who has confessed to bribery and money laundering related to 1MDB.

Ng’s efforts may be in vain however, with the Malay Mail reporting last week that Malaysia plans to extradite Ng to the U.S., citing Amar Singh, commissioner at the police’s commercial crimes department. 

Earlier, the top Goldman banker in charge of the 1MDB relationship, Leissner, admitted in a plea that he bribed officials to get the bond deals, and that he and others arranged the fundraising as debt offerings because it would generate higher fees for Goldman. Leissner also admitted that more than $200 million in proceeds from 1MDB bonds flowed into accounts controlled by him and a relative.

Ng was Goldman’s head of Southeast Asia sales and trading when he resigned in April 2014, and was said to have played an important role in facilitating the $1.75 billion bond deal that Goldman arranged for 1MDB in May 2012, dubbed Project Magnolia.

Separately, Bloomberg reports that the S$40 million that Ng and his family are surrendering is in Singapore, where authorities have frozen the money, the people said.

“Assets seized by the Singapore authorities will be dealt with in accordance with the law,” the country’s police force said in an emailed statement. “The Singapore authorities have been liaising with the relevant Malaysian authorities in relation to the assets seized pursuant to investigations into 1MDB-related fund flows.”

In September, Singapore ordered millions of dollars pilfered from 1MDB to be returned to Malaysia, the first time the city-state has repatriated assets to its neighbor following the probe. The funds in various currencies totaled about S$15.3 million and were transferred to a special 1MDB recovery bank account in Kuala Lumpur.

Meanwhile, in its latest attempt to wash its hands of the entire affair, Goldman has said it believed the money it was raising for 1MDB would be used for development projects, and has sought to portray any wrongdoing as acts by rogue ex-employees. On Wednesday, new CEO David Solomon said in a Bloomberg Television interview that he felt “horrible” about the role former employees played in the scandal surrounding 1MDB, and that Goldman is cooperating with authorities.

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