Month: September 2019

Via Off-Guardian.org,

Middle East Eye are reporting a striking story that, if true, should be circulated widely as possible. It sheds a whole new light on just how deeply interwoven the Social Media monoliths and the Deep State truly are:

The senior Twitter executive with editorial responsibility for the Middle East is also a part-time officer in the British Army’s psychological warfare unit, Middle East Eye has established.

Apparently, Gordon McMillan – twitter’s head of editorial for Europe, Middle East and Africa – not only works for the British government, but is a reservist in the 77th Brigade.

In case you don’t know what the 77th Brigade is, it’s a “counter-intelligence” unit set up to “combat disinformation” on social media.

Translation:

They spread pro-Western propaganda on Twitter and Facebook. The unit was announced in 2015, in response – you can imagine – to a series of losses on the information warfare front, mainly re: Syria and Ukraine.

The Guardian happily reported it at the time, calling them “Facebook Warriors”:

The British army is creating a special force of Facebook warriors, skilled in psychological operations and use of social media to engage in unconventional warfare in the information age.

Whereas Sky News went with “Twitter Troops”, in a piece that has since disappeared from their website, but is thankfully still available as an archive {our emphasis]:

Using creative thinking it is hoped that 77 Brigade will influence the minds and shape the behaviour of the enemy and local populations.

This has led to the early nickname “Twitter troops” for the Brigade, which will be formally created on 1 April.

America has their own unit launched in 2011, and Israel has one too. These are not state secrets, but widely reported.

None of this counts as foreign intervention. Three whole armies never influenced and election, but 13 Russians did.

However, that Twitter is actually literally employing officers from this corps as executives is more brazen and unpleasant than many would expect.

Ian Cobain’s piece is meticulously sourced and cited, and a must-read.

It should be on the front page of every newspaper and website in the country, it’s the kind of journalism you just don’t get in the mainstream anymore.

Go here, digest it all, and share it widely. It deserves it…

[We would also recommend downloading a copy of the LinkedIn screencap, it’s important direct evidence that they are trying to memory hole]

Engineers working on Boeing’s 737 MAX flight control system left out key safeguards that were included on an earlier version of the same system used on a military tanker jet, according to the Wall Street Journal. 

The MCAS system in question has been determined by investigators to have been the cause of two deadly 737 MAX crashes that killed a total of 346 people. Investigators have implicated the MCAS system in the Lion Air jet crash of October 2018 and of an Ethiopian Airlines jet in March of this year. MCAS stands for the Maneuvering Characteristics Augmentation System.

The engineers responsible for creating MCAS more than a decade ago for the military tanker jet designed the system “to rely on inputs from multiple sensors and with limited power to move the tanker’s nose”. This design was to include “deliberate checks” against the system acting in error. 

A person familiar with the matter said:

 “It was a choice. You don’t want the solution to be worse than the initial problem.”

But when the MCAS system was put into the 737 MAX, it only relied on input from just one of the plane’s two sensors used to measure the angle of the plane’s nose. The 737 MAX version was also tougher for pilots to override. 

Boeing’s coming fix for the 737 MAX is expected to make it more like the one that was initially used in the tanker. Boeing declined to explain the difference between the system on the tanker planes and the 737 MAX. Instead, it just commented:

“The systems are not directly comparable.” 

But the Journal makes it clear that the design contrasts between the two aircrafts “highlight how different teams of Boeing engineers wound up including protections on one airplane but not on a later model of another aircraft.”

Boeing says that the MAX, with its new coming safeguards, will be among “the safest airplanes ever to fly”. The new system will rely on two sensors and will fire once – instead of repeatedly – each time it activates. 

After the Lion Air crash, military officials had expressed concerns that the tanker, known as the KC-46A Pegasus, would share the same problems as the MAX. An Air Force spokesperson said that senior officials met with Boeing who confirmed that the tanker’s MCAS system complied with military requirements that would prevent a single sensor from causing a system to fail. 

The MCAS used for the tanker was developed in the early 2000s. The tanker plane was a military offshoot of Boeing’s 767 and included pods on its wings used for refueling. The pods also added lift and would cause the tanker’s nose to pitch up in some conditions. The MCAS software was designed to automatically push down on the tanker’s nose if necessary, helping the tanker meet FAA standards.

One key difference between the old system and the new one is that the system on the tanker moves the plane’s horizontal stabilizer once per activation and not repeatedly. 

Tanker engineers also gave the MCAS system “limited power” to nudge the plane’s nose down to ensure specifically that pilots would be able to recover if the system accidentally pushed the plane into a dive. This means that the MCAS system had little authority over the stabilizer, which made it easier for pilots to counteract. 

Large new fuel efficient engines used on the 737 MAX had a similar effect to the pods on the tanker: they caused the plane’s nose to pitch up in certain extreme flight conditions, endangering the plane’s ability to win FAA certification. 

Again, MCAS was suggested by engineers as a possible solution. And Boeing said that a single “angle of attack” sensor was deemed sufficient for the MAX MCAS systems, which would rely on pilots in the event of a misfire:

Boeing said it isn’t aware of any consideration to rely on both sensors that measure the angle of the plane’s nose when its engineers designed MCAS for the 737 MAX. A single “angle of attack” sensor was deemed sufficient, and Boeing has said it complied with safety and regulatory requirements. Other systems on earlier 737s relied on single sensors, former Boeing engineers and others familiar with the designs have said.

Boeing instead relied primarily on pilots as the backstop should that plane’s MCAS misfire. MAX engineers determined pilots would quickly identify an MCAS misfire as an emergency known as a runaway stabilizer, then counteract the system with a longstanding cockpit procedure.

In addition the the extra sensors, the tanker version of the MCAS system allowed pilots to take control and override the system simply by pulling back on controls. 

Will Roper, an assistant Air Force secretary who is the branch’s procurement chief said: “We have better sensor data. But most importantly, when the pilot grabs the stick, the pilot is completely in control.”

On the MAX, however, MCAS was required to remain active even if the pilots pulled back on the control, making it more complicated to stop the system from forcefully and repeatedly pushing down on the nose. 

In the new system, pilots will be able to override MCAS by pulling back on the controls. 

The 737 MAX fleet remains grounded worldwide.

Authored by Martin Armstrong via ArmstrongEconomics.com,

Climate has ALWAYS changed from decade to decade. 

There were major swings (volatility) during the 1930s. You had the dust bowl during the summer and in 1936 you had record cold. The 1936 North American cold wave, which also hit Japan and China, still rank among the most intense cold waves in the recorded history of North America. You cannot blame this on soccer moms driving the kids around town burning fossil fuels. Cars were a luxury in the 1930s still.

There is just no evidence of human-induced climate change. There is nobody willing to call them out on this nonsense with just showing the dramatic swings in temperature over the centuries.

Here is a piece that appeared in the Weekend Australian on the covert issues behind the curtain.

It’s a well-kept secret, but 95 per cent of the climate models we are told prove the link between human CO2 emissions and catastrophic global warming have been found, after nearly two decades of temperature stasis, to be in error.

It’s not surprising.

We have been subjected to extravagance from climate catastrophists for close to 50 years.

In January 1970, Life magazine, based on “solid scientific evidence”, claimed that by 1985 air pollution would reduce the sunlight reaching the Earth by half. In fact, across that period sunlight fell by between 3 per cent and 5 per cent. In a 1971 speech, Paul Ehrlich said: “If I were a gambler I would take even money that ­England will not exist in the year 2000.”

Fast forward to March 2000 and David Viner, senior research scientist at the Climatic Research Unit, University of East Anglia, told The Independent, “Snowfalls are now a thing of the past.” In December 2010, the Mail Online reported, “Coldest December since records began as temperatures plummet to minus 10C bringing travel chaos across Britain”.

We’ve had our own busted predictions. Perhaps the most preposterous was climate alarmist Tim Flannery’s 2005 observation: “If the computer records are right, these drought conditions will become permanent in eastern Australia.” Subsequent rainfall and severe flooding have shown the records or his analysis are wrong. We’ve swallowed dud prediction after dud prediction. What’s more, the Intergovernmental Panel on Climate Change, which we were instructed was the gold standard on global warming, has been exposed repeatedly for ­mis­rep­resentation and shoddy methods.

Weather bureaus appear to have “homogenised” data to suit narratives. NASA’s claim that 2014 was the warmest year on record was revised, after challenge, to only 38 per cent probability. Extreme weather events, once blamed on global warming, no longer are, as their frequency and intensity decline.

Why then, with such little evidence, does the UN insist the world spend hundreds of billions of dollars a year on futile climate change policies? Perhaps Christiana Figueres, executive secretary of the UN’s Framework on Climate Change has the answer?

In Brussels last February she said, “This is the first time in the history of mankind that we are setting ourselves the task of intentionally, within a defined period of time, to change the economic development model that has been reigning for at least 150 years since the Industrial Revolution.”

In other words, the real agenda is concentrated political authority. Global warming is the hook.

Figueres is on record saying democracy is a poor political system for fighting global warming. Communist China, she says, is the best model. This is not about facts or logic. It’s about a new world order under the control of the UN. It is opposed to capitalism and freedom and has made environmental catastrophism a household topic to achieve its objective.

Figueres says that, unlike the Industrial Revolution, “This is a centralised transformation that is taking place.” She sees the US partisan divide on global warming as “very detrimental”. Of course. In her authoritarian world there will be no room for debate or ­disagreement.

Make no mistake, climate change is a must-win battlefield for authoritarians and fellow travellers. As Timothy Wirth, president of the UN Foundation, says: “Even if the ­(climate change) theory is wrong, we will be doing the right thing in terms of economic and environmental policy.”

Having gained so much ground, eco-catastrophists won’t let up. After all, they have captured the UN and are extremely well funded. They have a hugely powerful ally in the White House. They have successfully enlisted compliant academics and an obedient and gullible mainstream media (the ABC and Fairfax in Australia) to push the scriptures regardless of evidence.

They will continue to present the climate change movement as an independent, spontaneous consensus of concerned scientists, politicians and citizens who believe human activity is “extremely likely” to be the dominant cause of global warming. (“Extremely likely” is a scientific term?)

And they will keep mobilising public opinion using fear and appeals to morality. UN support will be assured through promised wealth redistribution from the West, even though its anti-growth policy prescriptions will needlessly prolong poverty, hunger, sickness and illiteracy for the world’s poorest.

Figueres said at a climate ­summit in Melbourne recently that she was “truly counting on Australia’s leadership” to ensure most coal stayed in the ground.

Hopefully, like India’s Prime Minister Narendra Modi, Tony Abbott isn’t listening. India knows the importance of cheap energy and is set to overtake China as the world’s leading importer of coal. Even Germany is about to commission the most coal-fired power stations in 20 years.

There is a real chance Figueres and those who share her centralised power ambitions will succeed. As the UN’s December climate change conference in Paris approaches, Australia will be pressed to sign even more futile job-destroying climate change treaties.

Resisting will be politically difficult. But resist we should. We are already paying an unnecessary social and economic price for empty gestures. Enough is enough.

For the topic of his Sunday Start note, Morgan Stanley’s chief equity strategist Michael Wilson picked a compare and contrast – but mostly compare – to the prevailing conditions in the stock market exactly one year ago, when the S&P hit an all time high in late September only to careen into a Q4 bear market amid sharply higher yields and fears of overtightening, which forced the Fed to pull a sharp policy U-turn and shift from hawkish to dovish, and eventually cut rates while hinting at a restart of QE.

“As we head toward the end of the third quarter, I can’t help but think it feels very similar to last year in many ways” Wilson wrote, adding that “The S&P 500 is near its all-time high at 3000, while the MSCI EM Index and the Topix sit 20% and 15% below their highs and the Eurostoxx is 7% lower, leaving all these indices exactly where they traded a year ago. Growth stocks are still the most crowded part of equity managers’ portfolios – and the love affair may be stronger than ever at this point. But there are important differences too. Cyclical stocks have completely fallen out of bed and trade 20% lower than last September, while long-duration sovereign debt has been the best investment by far over this period, with 10-year Treasury yields 50% lower than just 12 months ago. To put this into context, over the past 50 years such a dramatic move in yields over the prior 12 months has only happened twice – during the global financial crisis in 2008 and the European sovereign debt crisis of 2011-12.”

While there was much more in Wilson’s note (see here), his conclusion was predictably ominous: “we’re moving from the perception that this is late-cycle to a belief that it’s end of cycle.”

In retrospect, the topic of Wilson’s note was not a coincidence, and as JPM’s Nick Panagirtzoglou wrote at roughly the same time in his own weekly periodicaly, Flows and Liquidity, “one question we are often asked by our clients is about the similarities and differences to last year”, now that “a year has passed since last year’s correction in risky markets such as equities and credit began into the fourth quarter of 2018.” Similar to Wilson, Panigirtzoglou asks “could last year’s correction be repeated into the fourth quarter of this year?” To answer this question, the JPM quant look at similarities and differences to last year across a range of macro, flow and position indicators.

So, without further ado, in terms of similarities to last year, JPMorgan – just like Morgan Stanley – sees several:

1) Continued weakness in global manufacturing and elevated uncertainty as trade war risks and concerns about late cycle dynamics in the US continue to hit business confidence. This is shown by Figure 1 which depicts a global uncertainty proxy constructed by Baker, Bloom and Davis (www.policyuncertainty.com). To a large extent, their proxy quantifies newspaper coverage of policy-related economic uncertainty as well as disagreement among economic forecasters. Not only does this uncertainty proxy remain elevated but its current level is even higher than that seen in September 2018.

2) US economic growth outperformance relative to the rest of the world. This is shown by Figure 2 which depicts JPM’s Economic Activity Surprise Index (EASI) for the US. This index captures the difference between US economic activity releases and the consensus expectation over a six-week rolling window. The level of the index stands at pretty high levels at the moment, very similar to the highs seen a year ago in September 2018, suggesting that US economic activity indicators have been surprising consensus expectations predominantly positively over the past weeks. But similar to last year, the very high level currently creates the risk of mean reversion, i.e. the risk that US economic activity surprises turn less positive into year end.

3) A strong dollar helped not only by US economic growth outperformance by also a shortage of dollar cash. This shortage is reflected by the reserves balance at the Fed. This reserves balance remains low at close to $1.4tr despite the temporary injections of liquidity via overnight and 14-day operations by the Fed. In particular, the temporary $105bn injection of liquidity via the Fed’s repo operations in the two weeks from Sep 11th to Sep 25th has only partially offset the increases in the Treasury’s General Account, with reserves declining from $1459bn to $1427bn (Figure 3).  This tightening, along with the relative macro surprises, has likely helped to push the dollar higher over the past two weeks.

4) While China has delivered stimulus through a number of channels to mitigate the impact of the trade conflict, it has also exported some of slowdown to the rest of the world via currency depreciation. The depreciation seen in the Chinese currency over the summer months is similar in magnitude to the depreciation seen in the summer of 2018 preceding the Q4 2018 risky market correction. This is shown in Figure 4 via the CFETS trade-weighted index for the Chinese renminbi as produced by the People’s Bank of China. This trade-weighted index was introduced at the end of 2015 in an attempt by the central bank to discourage investors from exclusively focusing on the yuan’s fluctuations against the dollar. The CFETS index lost close to 5% since the end of April, similar in magnitude to the 6% correction seen between June and September 2018.

5) US equity futures positions by Asset Managers and Leveraged funds are as high as they were in September 2018 leaving equities vulnerable. This is shown by Figure 5.

6) JPM’s short interest proxy for the SPY US Equity ETF, the biggest equity ETF in the world and a popular vehicle to express short positions by institutional investors, is currently far from very high or capitulation levels, as it was the case in September 2018 (Figure 6). But Figure 6 shows that there is also a difference. Relative to September 2018, the current level of this short interest proxy is more elevated than its level seen in September 2018 suggesting that there is currently a higher short base in US equities than the one existing in September 2018, even if this metric is far from the capitulation levels of December 2018.

7) Momentum traders such as CTAs are long equities enough to amplify a potential down move in equities as they did in Q4 2018. JPM’s momentum signal for US equity futures is not as high as it was in September 2018, when the z-score stood at 1.0 stdev (Figure 7). But at 0.5 stdevs currently this momentum signal is still positive enough to amplify any potential downmove triggered by other types of equity investors as in Q4 2018. Figure 7 shows that at the time the momentum signal for the S&P500 index swung from +1 stdev in September to -1 stdev by December. A similar 2 stdevs swing could happen in the current conjuncture.

* * *

That said, there are also differences between then and now.

One key difference with September 2018 is that trend-following investors such as CTAs are long equities across all regions while in September 2018 they were long in US and Japanese equities but neutralish in European and EM equities. At the time, this had helped EM and European equities to outperform US equities during the Q4 2018 correction. This time such differentiation across regions looks less likely if an equity correction takes place into the end of the year.

What about other differences beyond the two differences mentioned above in sections 6) and 7)? One other difference is in the currency space. Figure 8 shows that risky currencies such as EM and commodity currencies look oversold relative to safe currencies, i.e. JPY, CHF and Gold. This implies that any downside in risky currencies and any upside in safe currencies would be more limited this time relative to the experience of Q4 2018.

Another apparent difference to last year is the equity exposure of daily reporting hedge funds. This is shown by Figure 9 which depicts the 21-day rolling equity beta of HFRX Global Hedge Fund index. At face value, this suggests that hedge funds are pretty underinvested in equities relative to a pretty overweight positions in September 2018. But there are two problems with this interpretation.

The first problem is that the HFRX Global Hedge Fund index of daily reporting hedge funds is less global than is often perceived and is dominated by daily reporting Equity Long/Short hedge funds. Indeed, Figure 9 shows that the equity betas of the HFRX Global and HFRX Equity Long/Short hedge fund indices have exhibited very similar patterns over the past years. Therefore, the JPM quant believes that the picture in Figure 9 is more representative of Equity Long/Short hedge funds rather than the overall hedge fund universe.

A second problem is that, as mentioned in our previous reports, this year there has been significant divergence between the HFRX index of daily reporting Equity Long/Short hedge funds and the HFRI index of monthly reporting Equity Long/Short hedge funds. The daily reporting Equity Long/Short hedge funds exhibited low equity betas for most of the year as shown in Figure 9. However, the much bigger in terms of AUM universe of monthly reporting Equity Long/Short hedge funds is sending a different message. By delivering a loss of 1.6% in August vs. a loss of 2.5% for the MSCI AC World index, these monthly reporting Equity Long/Short hedge funds exhibited in August a beta of above the historical average of 0.5. In other words, their most recent performance for August implies an above average rather than below average equity exposure casting doubt to the message implied by Figure 9.

But there is no doubt that the most important difference to last year is that central banks are now easing policy via both rate cuts and quantitative measures rather than tightening which was the case during 2018. And this is an important difference as it suggests that central banks are supporting equity and credit investor sentiment rather than acting as a headwind. This supportive central bank policy also means that bond yields are much lower today that they were a year ago making investors more OW fixed income and thus less OW equities than they were last year.

This is shown by Figure 10, Figure 11 and Figure 12 which show the implied bond, equity and cash allocations of non-bank investors globally. Figure 10 implies that investors are currently very OW bonds, the most OW since the beginning of 2016, a big contrast to the very UW bond position they held in September last year. There are two implications from this big bond OW. The first implication is that investors are less OW equities currently than in September 2z018 (Figure 11). The second implication is that investors are the most UW cash they have been since 2007 (Figure 12), suggesting that at the aggregate level there is little cash sitting on the sidelines.

But the picture above faces challenges: although lower that in September 2014, the current implied equity allocation of investors globally is still pretty high relative to the post Lehman history. This is especially true for retail investors which at 60%, their equity fund share globally is not far from previous record highs (Figure 13). This big equity OW  explains why retail investors have been heavy sellers of equity funds and heavy buyers of bond funds this year, as they  struggled to prevent their equity OWs from rising too much due to the 15% rally in global equities.

Finally, and perhaps most controversially is Panigirtzoglou’s assertion that “the idea that central bank policy will prevent an equity correction faces challenges also.” As he further explains, if central banks’ rather reluctant easing disappoints demanding market expectations going forward, “there is a risk that investors begin to cover their cash UWs depressing both equity and bond prices.” And then there is the nuclear scenario: if investors’ concerns over the marginal efficacy of further central bank stimulus in the absence of any significant fiscal stimulus grow from here, particularly in the face of further escalation in trade conflicts, central bank easing may fail to bolster investors’ confidence that a more serious cyclical downturn can be prevented. Also, central bank easing may turn out to be too little too late to if the dynamics of a more serious cyclical downturn or recession are already taking hold: “After all, economic variables alone continue to point to persistently high probability of a US recession at close to 45%, higher than it ever got in 2016 both in terms of magnitude and persistence”, the JPM quant ominously writes.

In conclusion, while the JPMorgan strategist acknowledges that at the moment investors equity exposures are overall lower than in September 2018, “they are not low enough to prevent an equity correction from happening.” And while central banks are easing this year relative to the tightening they inflicted in 2018, “the idea that central banks easing can prevent an equity correction form taking place is facing several key, and increasingly growing challenges.”

Authored by James Howard Kunstler via Kunstler.com,

Someone in Impeachmentville is not paying attention. Of course, diverting the rubes is exactly the point of the latest CIA operation to negate the 2016 election. Has nobody noticed that there is treaty between Ukraine and the USA, signed at Kiev in 1998 and ratified by the US Senate in 2000. It’s an agreement on “Mutual Legal Assistance in Criminal Matters.” Here, read the cover letter for yourself:

What part of the following do Nancy Pelosi and the news media not understand?

The Treaty is self-executing. It provides for a broad range of cooperation in criminal matters. Mutual assistance available under the Treaty includes: taking of testimony or statements of persons; providing documents, records, and articles of evidence; serving documents; locating or identifying persons; transferring persons in custody for testimony or other purposes; executing requests for searches and seizures; assisting in proceedings related to restraint, confiscation, forfeiture of assets, restitution, and collection of fines; and any other form of assistance not prohibited by the laws of the requested state… ([etc].

How does this not permit Mr. Trump asking the president of Ukraine for “assistance” in criminal matters arising out of “collusion with Russia,” as specified within the scope of Robert Mueller’s special prosecutor activities? For instance, the matter of CrowdStrike. The cybersecurity firm was co-founded by Russian ex-pat Dmitri Alperovitch, who also happens to be a senior fellow at the Atlantic Council, an anti-Russian think tank funded by Ukrainian billionaire, Viktor Pinchuk, who donated at least $25 million to the Clinton Foundation before the 2016 election. Crowdstrike was the company that “examined” the supposedly hacked DNC servers, while somebody in the Obama administration prevented the FBI from ever seeing them. Does this sound a little like part of the origin story of RussiaGate? Is that not exactly the potential criminal matter that the current attorney general, Mr. Barr, is officially investigating?

Perhaps, under the year 2000 treaty, Mr. Trump was within his rights to ask the new President of Ukraine, Volodymyr Zelensky, for assistance on that. And also, the question of former vice-president Joe Biden’s levering US aid to Ukraine in his demand to fire the prosecutor investigating the company, Burisma Holdings, that just happened to hire his son, Hunter, to a $64,000-a-month seat on the board of directors, not long after the younger Mr. Biden was kicked out of the US Navy reserve for cocaine use — what a sterling fellow!

The foregoing ought to be self-evident. Speaking of failures to pay attention, Director of National Security (DNI) Joseph McGuire testified in Rep. Adam Schiff’s House Intel Committee last Thursday that the “Whistleblower” and his or her allies in the Intelligence Community who fomented the latest crisis “acted in good faith.” Admiral McGuire omitted to mention that the IC’s Whistleblower complaint rules were surreptitiously changed sometime around August 2019 to allow second-hand hearsay in Urgent Matter” complaints, where formerly it had been prohibited. The change was only posted on an IC website on Sept 24. Did Admiral McGuire not get the memo on that? Was he out of the loop? After all, he is merely in charge of the entirety of US Intelligence operations. Who kept him in the dark?

Now there is yet another new “bombshell” out of the CBS 60-Minutes show (reported by Scott Pelley) alleging that the “Whistleblower” had been placed under federal protection due to “threats” made against him or her. We’re to infer that the “Whistleblower” is in a safe space— perhaps hiding out in the CIA’s Diversity and Inclusion offices, with some teddy bears, crayons, and chips ahoy to keep the heebie-jeebies away. Only, one of the “Whistleblower’s” own lawyers, Mark S. Zaid released a letter today saying that the 60-Minutes report was “not accurate and misinterpreted the contents of our [earlier] letter.” Mr. Zaid added in a tweet that CBS was “literally making stuff up.”

Well, let CBS and the “Whistleblower’s” pro bono lawyers slug that one out in some safe space. More to the point, how long do you suppose the charade of protecting the “Whistleblower’s” identity will go on? If impeachment moves to a trial in the senate, Mr. Trump will enjoy the right of being faced by his accuser. But I don’t think we will have to wait that long. Rep. Schiff (D-CA) has already declared that this person will be called into a closed session of his committee. The chance is about zero that his or her identify will remain unknown. By and by, the “whistleblower’s” confederates in the CIA will also become known and the perfidy of this latest CIA operation in the ongoing coup will be understood.

UkraineGate is the equivalent of Fort Sumter in Civil War 2.0. Charges have been flying and tempers flaring for three years now, much as they did between 1858 and 1861. Once again, what seems to be at stake is the integrity of the Union. As in the previous enactment, one side is dangerously deluded, and that is liable to lead to its destruction.

WSJ this past week exposed the shadowy ‘banker surveillance state’ in a story that centers on the former head of wealth management at Credit Suisse, Iqbal Khan, and a deep-seated beef with CS CEO Tidjane Thiam.

After reportedly getting into an argument with Thiam over purportedly being passed over for promotion, Khan quit the firm, and was swiftly poached by cross-town rival UBS. Apparently fearful that Khan would try and poach staff, Credit Suisse hired private security firm Investigo to monitor Khan and track all of his interactions.

But the plan, apparently ‘standard procedure’ in the buttoned-up world of international wealth management, backfired on Credit Suisse when Khan noticed that he was being followed while driving with his wife in downtown Zurich. The story gets a little murky at this point, but there was some kind of confrontation between Khan and his pursuers. Khan reported the issue to police, resulting in three Investigo employees being arrested.

In response, prosecutors have launched a criminal investigation, and Credit Suisse’s board has started a probe.

Khan’s decision to report the issue to police could bring about the end of Thiam’s four-year tenure as CEO of Credit Suisse – the issue is one of the biggest scandals to rock Thiam in that time.

Those who have called for Thiam’s ouster include Oswald Gruebel, who ran both Credit Suisse and UBS, as Bloomberg reports.

“Such behavior is unworthy of a large Swiss bank,” Gruebel told a Swiss publication.

Of course, this isn’t the first time a bank has gotten caught spying on employees suspected of getting ready to leave the company. The phenomenon of spying is “probably as old as banking itself,” BBG said.

Deutsche Bank, Spain’s BBVA and Barclays have all endured scandals involving botched attempts to gather “corporate intelligence” in recent years. But sometimes, the line between safeguarding intellectual property, and carrying out a vendetta against a formerly trusted associate, can be blurry.

“Surveilling employees who are getting ready to leave the company is a dog-eared page in the playbook,” said Mary Inman, a partner with law firm Constantine Cannon in London who specializes in employee whistleblower cases. “What’s remarkable about the current situation is that it got so heated.”

Even CS investors, who are less than thrilled with the bank’s lagging share price, acknowledged that the situation between Khan and Thiam “is quite a soap opera.”

“It’s quite a soap opera, and a distraction,” said David Herro, international chief investment officer of Chicago-based Harris Associates LP. Harris is Credit Suisse’s biggest shareholder, with a holding of 8.1%

Though here are a few examples of similar scandals at other banks (text courtesy of BBG).

• A decade ago, German prosecutors investigated potential data protection violations at Deutsche Bank after bank officials on several instances hired private eyes to spy on board members, a shareholder and a private individual. The lender fired two executives over the matter.
• In 2014, HSBC Holdings Plc was fined by a Brazilian court for using private investigators to spy on 152 employees on medical leave. The investigators entered some employees’ houses without permission to film and take pictures, attempting to corroborate suspicions among some at the bank that they were fraudulently collecting medical-leave benefits. The court said those actions invaded people’s privacy.
• Spanish bank BBVA is currently investigating reports that bank officials hired a detective agency in 2005 to tap the phones of senior managers, regulators, politicians and journalists as part of a high-stakes power struggle in the executive suite.

The takeaway: Banks spy on their employees all the time. CS just happened to get caught.

Authored by The American Institute for Economic Reseaerch,

The U.S. Treasury yield curve, depicted by maturities on a horizontal axis and corresponding interest rates (yields) on a vertical axis, is normally upward sloping, with yields on bonds (10-year maturity and beyond) and notes (intermediate term) lying above yields on bills (short term). Infrequently – but importantly, for economic and investment forecasting – the yield curve becomes inverted, with long-term bond yields lying below short-term bill yields. 

Over the past half century in the U.S., yield-curve inversions have been important because they’ve reliably predicted all seven U.S. recessions, beginning roughly a year in advance (see table). Those recessions, of course, have been closely associated with bear markets in stocks and bull markets in bonds. It matters a lot – or it should, for those who care about portfolios.

The yield curve’s forecasting record since 1968 has been perfect: not only has each inversion been followed by a recession, but no recession has occurred in the absence of a prior yield-curve inversion. There’s even a strong correlation between the initial duration and depth of the curve inversion and the subsequent length and depth of the recession.

Having conducted substantial research and issued scores of reports in recent decades on the yield curve’s meaning and forecasting power, I’ve found that the curve is best measured as the spread between the 10-year Treasury bond yield and the 3-month Treasury bill rate – what I call the “yield-curve spread” (YCS). A negative YCS depicts inversion. 

Many analysts discount or dismiss the yield curve’s forecasting power, whether because they adopt measures over shorter time periods, or in pre-1968 periods, or use less relevant yields (like the 2-year yield). Inferior models invalidate not the yield curve’s predictive power but these modelers’ methods.

The figure below depicts the U.S. bond yield, bill yield, and yield-curve spread since 1968. Notice that negative spreads preceded all recessions. Observe also that it hasn’t mattered whether yields generally have been high or low, nor whether the yield curve’s inversion has resulted mainly from short-term (bill) yields rising above long-term (bond) yields (due mainly to Fed rate hiking) or instead (and less frequently) from bond yields falling below bill yields.

Despite the yield curve’s remarkable predictive history, many economists still doubt it or deny it, to the extent they’re eclectics (uneasy about relying on any one factor) or skeptics (uneasy about ever exhibiting certitude). Most officials and economists at the Fed are likewise eclectic skeptics; their favorite refrain is that “it’s different this time.” They said as much when the yield curve inverted before the “Great Recession,” which began in December 2007. That recession was fully predictable – indeed, was predicted by this YCS model– a year in advance.

The U.S. yield curve is again inverted – indeed, it has been since May. That signals trouble ahead for the U.S. economy and equities. The trouble isn’t necessarily imminent, but no one need become complacent; remember, there’s a lag. Yet it’s unlikely that no trouble will ensue. 

A few good reasons explain the undeniable forecasting power of an inverted yield curve.

First, a sharp decline in bond yields means a sharp rise in bond prices, which suggests a big demand for a safe security, reflecting a desire by investors to immunize against trouble ahead. 

Second, the longer the maturity at which one lends, the greater (normally) is the yield one receives (due to credit risk and/or inflation risk), so if bond yields are below bill yields it signals materially lower short-term yields in the future (i.e., Fed rate cutting), which occurs during recessions. 

Third, the essence of financial intermediation is institutions “borrowing short (term) and lending long (term).” If longer-term yields are above shorter-term yields, as is the normal case, there’s a positive interest-rate margin, which means lending-investing is fundamentally profitable. If instead longer-term yields are below shorter-term yields, there’s a negative interest-rate margin and lending-investing becomes fundamentally unprofitable or is conducted (if at all) at a loss. When market analysts observe credit markets “seizing up” before (and during) recessions, it reflects this crucial aspect of financial intermediation.

If the U.S. yield curve exhibited predictive power only in the U.S., it would still be an important thing to know and use. But it also contributes to reliable forecasts of economic-financial results abroad, especially when coupled with signals from local yield curves. 

Economists, investors, and policy makers would do well to take seriously the predictive power of the yield curve, to study and comprehend not only its empirical but also its causal features.

On Monday the US Treasury unleashed a range of new and tightened sanctions on nearly a dozen Russian companies and individuals, including the influential businessman and political operative dubbed “Putin’s Chef” as part of a continuing attempt to “punish” the country for alleged interference in the 2018 elections. 

Two of the Russians were said to be involved in the Internet Research Agency, which was at the center of reports claiming online meddling and interference — especially billionaire restaurateur Yevgeny Prigozhin, who often served as personal chef and close confidant to Putin stretching back through the Russian president’s lengthy political career. 

Prigozhin is believed the main financial backer to the Internet Research Agency and has long been at the center of wide-ranging corruption allegations and shadowy political dealing abroad, even including overseeing Russian mercenaries covertly deployed to places like Syria and Libya. Special Counsel Robert Mueller had named him as central to online interference related to fake social media accounts geared toward getting Trump elected. 

The US Treasury’s Office of Foreign Assets Control (OFAC) announced Monday that a number of companies directly linked Prigozhin have been targeted including Autolex Transport, Beratex Group and Linburg Industries, all of which have now been added to the Specially Designated Nationals list. 

While Prigozhin along with the Internet Research Agency had already been named in prior US Treasury sanctions, the latest measures constitute the most aggressive attempt to date to curtail his expansive Moscow-based business empire as an alleged arm of the Russian state. 

Interestingly, as part of its statement, Treasury featured photos of one of “Putin’s chef” Prigozhin’s private jets and his multi-million dollar yacht. 

Despite the explosive headlines, the Treasury statement still admitted that in 2018, “there was no indication that foreign actors were able to compromise election infrastructure that would have prevented voting, changed vote counts, or disrupted the tallying of votes.”