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Having stated in the past that the only reason Turkish forces are on Syrian soil is to combat Islamic State terrorists, today Turkish president Recep Tayyip Erdogan made a dramatic diplomatic reversal and said that the Turkish Army has entered Syria to end the rule of President Bashar Assad, whom he accused of terrorism and causing the deaths of thousands.

“We entered [Syria] to end the rule of the tyrant al-Assad who terrorizes with state terror. [We didn’t enter] for any other reason,” the Turkish president was quoted by Huyrriyet as saying at the first Inter-Parliamentary Jerusalem Platform Symposium in Istanbul. Erdogan said that Turkey has no territorial claims in Syria, but instead wants to hand over power to the Syrian population, adding that Ankara is seeking to restore “justice.”

“Why did we enter? We do not have an eye on Syrian soil. The issue is to provide lands to their real owners. That is to say we are there for the establishment of justice,” he said, taking a page out of the US playbook, which however in recent weeks has been muted following substantial advances by Syrian and Russian forces which as reported last night, have made material gains in the fight against Syrian rebels in east Aleppo.

Turkish Army tanks driving to the Syrian Turkish border town of Jarabulus

Erdogan went on to say that “in his estimation” almost 1 million people have died in the conflict in Syria, although no monitoring group has provided any similar figures according to RT. 

The Turkish moral arbiter of all that is right also said that Turkey could not “endure” the unending killing of civilians and “had to enter Syria together with the Free Syrian Army.”

The Turkish leader also accused the UN of inability to influence the situation in Syria and said that the organization is ineffective in its current state. “The world is bigger than five,” he said, referring to the number of permanent members on the UN Security Council, as reported by Hurriyet.

As readers will recall, Turkish troops entered Syria on August 24, launching operation Euphrates Shield. Turkey deployed ground troops and air power to northern parts of its neighboring country, with what then was a stated goal of retaking areas held by Islamic State. However, many observers have said that Ankara aims to suppress Kurdish forces in Syria and prevent them from connecting three de facto autonomous Kurdish areas into one enclave south of the Turkish border.

In October, Turkey’s air forces killed between 160 and 200 fighters of the Kurdish YPG militia group in 26 airstrikes conducted in just one night. The Turkish military campaign in Syria has also led to increasingly strained relations with Assad’s government.

Ankara was forced to halt air support for its ground incursion into Syria on October 22, after Damascus vowed to shoot down Turkish Air Force planes in Syrian skies, accusing Turkey of violating its national sovereignty. Turkey in turn accused the Syrian Army of attacking FSA fighters in the northern Aleppo province.

In light of today’s latest statement, which according to some is tantamount to a declaration of war by Turkey against a sovereign state, it is unclear what the Syrian response will be to the NATO member. It is also unclear how Russia – which is alligned with the Assad regime – will respond in light of recent overtured by both Erdogan and Putin to bring relations between the two nations closer.

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Submitted by Lance Roberts via RealInvestmentAdvice.com,

Due to the holiday, I did not write my normal weekend missive, so I have a few things to catch up on from last weeks “Technically Speaking” which discussed the entrance into a market melt-up. To wit:

“As I have noted, there are many similarities in market action between the “post-Trexit” bounce, “Brexit” and last December’s Fed rate hike. I have highlighted there specific areas of note in the chart.”

“As with ‘Brexit’ this past June, the markets sold off heading into the vote assuming a vote to leave the Eurozone would be a catastrophe. However, as the vote became clear that Britain was voting to leave, global Central Banks leaped into action to push liquidity into the markets to remove the risk of a market meltdown. The same setup was seen as markets plunged on election night and once again liquidity was pushed into the markets to support asset prices forcing a short squeeze higher.”

And, as I noted then:

“So, with that breakout, I am increasing equity risk exposure to portfolios. “

However, as I also noted, I tempered that increase in equity increase with interest-rate sensitive exposure. This exposure will act as a hedge against a sudden reversal in rates, and the dollar, as economic realities eventually collide with the “Trump rally” fantasy.

Despite the rally from the election lows, which has been ebullient, to say the least, we need to remain cognizant of the underlying risks currently developing in the market. That is the focus of today’s analysis which takes a look at the different between what we “see” versus what “really is.”

Market Strength Not What It Seems

First, despite all of the media chatter of the markets hitting “all-time highs,” such lofty attainment has not been uniform across markets and sectors. As shown in the charts below, relative performance has been bifurcated between domestic and international exposure. As such, any portfolio which has been “diversified” in recent weeks has lost ground to the broad market domestic indices.

So, despite all of the rhetoric about the benefits of “indexing,” such has not worked given the recent state of the markets.

More importantly, since individuals are consistently told to only “buy and hold” within their portfolios, there has been little gained in recent months as the index is only slightly higher (0.75%) than it was prior to the election

However, in the short-term, there are bullish arguments to certainly be made for the market.

1. We are entering into the “seasonally strong” period of the year which typically generates the bulk of returns for stocks.
2. The “hope” for a massive infrastructure spending package, combined with tax cuts, from the “Trump” administration has not only bolstered hopes for a stronger domestic economy, but a global recovery as well. Such was noted by the OECD recently:

“GDP is projected to return to a moderate growth trajectory in 2017 and strengthen in 2018, mainly due to the projected fiscal stimulus, which takes effect particularly in 2018. Indeed, projected fiscal support will boost GDP growth by just under ½ and 1 percentage point in 2017 and 2018 respectively.”

Such an outlook is certainly encouraging, but there is a long way to go between President-elect taking office, drafting bills and getting them passed. There is even a further period of time before any actions actually passed by the Trump administration actually create perceivable effects within the broader economy. In the meantime, there are many concerns, from a technical perspective, that must be recognized within the current market environment.

First, the market has moved from extremely oversold conditions to extremely overbought in a very short period. This is the first time, within the last three years, the markets have pushed a 3-standard deviation move from the 50-day moving average. Such a move is not sustainable and a correction to resolve this extreme deviation will occur before a further advance can be mounted. Currently, a pullback to the 50-day moving average, if not the 200-dma, would be most likely.

Secondly, as discussed above, the advance to “all-time highs” has been narrowly defined to only a few sectors. As shown the number of stocks participating, while improved from the pre-election lows, remains relatively weak and does not suggest a healthy advance.

As with the discussion of the 3-standard deviation of the market above, the current deviation from the long-term average is also consistently with a late stage move that will need to be corrected. As discussed many times previously, a moving average only exists at a point where previous prices have traded both above, and below, certain levels. Therefore, moving averages exert a “gravitational force” on prices which grows in strength as prices deviate further away from the average. As shown below, despite beliefs that prices can only move higher, there is an extreme regularity of “reversions back to the mean” over time.

Currently, with prices pushing a 5% deviation from the longer-term average, it is only a function of time until a reversion occurs back to, if not beyond, the 200-dma which currently resides around 2105.

Furthermore, the rally from the pre-election lows has been a massive short-covering squeeze as markets were hedging a “Trump” win as bad for the markets. The ramp up in the market caused shorts to be frantically covered as Wall Street quickly reversed their message from “Trump The Horrible” to “Trump The Great.”

As shown below the current put/call ratio has quickly reverted to levels that have historically been associated with at least short-term market peaks as well as major market corrections. 

Lastly, as I addressed last Tuesday, the combined rise in the US dollar and 10-year interest rates is a combination that has historically not worked out great for investors but is currently being ignored. To wit:

“The chart below is the 60-day moving average of total 60-day change of both interest rates and the dollar.  In other words, I have used a 60-day moving average to smooth out the volatility of the 60-day net change in the dollar and rates so a clearer trend could be revealed. I have then overlaid that moving average with the S&P 500 index.”

“Not surprisingly, since stronger rates negatively impacts economic growth due to increased borrowing costs, and a stronger dollar reduces exports and ultimately corporate earnings, markets tend not to like the combination of two very much.”

As shown in the last chart below, whenever LIBOR, and the 10-year rate has increased, it has led to an economic, currency or market-related shock. These shocks have tended to negatively impact investors on both a short and intermediate-term basis.

While such an event has not occurred as of yet, it does not mean the impact of a strong dollar and higher rates should be summarily dismissed. The negative impacts to both corporate earnings, as well as economic forecasts, can quickly spoil the “bull market party” particularly given the level of valuations that currently exist. 

As I stated last week:

“Importantly, with next week (Thanksgiving) being a light trading week, it would not be surprising to see markets drift higher.

 

However, expect a decline during the first couple of weeks of December as mutual funds and hedge funds deal with distributions and redemptions. That draw down, as seen in early last December, ran right into the Fed rate hike that set up the sharp January decline.”

I still expect such could very well be the case with a “Santa Claus” rally into the end of the year as fund managers scramble to add performance before the year-end reporting period comes to an end. This would certainly coincide with the “hope” that investors have currently built into the market during the recent advance.

“The greatest streak of stock market gains in almost 28 years may have some wondering if it is sustainable, but, according to AAII, this objective spike in valuations following Donald Trump’s victory has sparked overwhelming bullishness among investors.

 

15 straight days of gains in Small Caps (only bettered by 1988’s streak) has sent AAII bullishness soaring to its highest since January 2015 (following the end of QE3) with the biggest 3-week spike since September 2010.”

You don’t have to look back very far to begin to get an idea of what happens when investors have come to grips with reality versus “hope.”

This analysis does not necessarily suggest a major market crash is imminent. However, it also does not suggest a major advance directly to 2400 is in the offing either. The point to be made is the risk of a corrective action, which could provide a buying opportunity provided important support levels hold, is likely in the short term.

Given that most individuals have not even gotten “back to even,” given the drag from interest rate sensitive investments, this may be a good opportunity to rethink allocations and make some decisions about the inherent level of risk in portfolios.

In other words, if you are supposed to “sell high,” and “buy low,” there are certainly many short-term indications which suggest this may be an apropos opportunity to take some profits and rebalance risks accordingly.

Or, you can just “hope” it will all turn out okay.

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It is probably a coincidence that one day after we commented on what is emerging as “the market’s next headache”, namely China’s (not so) stealth tightening, which in the last few weeks has led to a creep higher across the curve, the yield on China’s sovereign 10Y bond jumped 6.5bps to 2.94% on what Bloomberg dubbed were “liquidity fears.” This was the biggest one day spike for the benchmark bond since Jan. 25, according to ChinaBond data.

As a result of the selloff, the most actively traded 10-year govt bond futures were down 0.72%, while five-year futures dropped 0.74%.

The tightening was broad-based, with 1-year rate swaps rising 13bps to 19-month high at 3.17%; additionally the overnight repo rate also rose to 2.31%, the highest level this month.

Quoted by Bloomberg, Wu Sijie, bond trader at China Merchants Bank said “tightening interbank liquidity and the expectation of even higher short-term borrowing costs are driving up swap costs and affecting sentiment on the cash bond market.”

Meanwhile, signalling no change at all in its posture, overnight the PBOC drained funds in open-market operations for the fourth consecutive day, bringing the total withdrawal to 130 billion yuan.

Why is all of the above relevant? Because while so far the global capital markets have been immune to the substantial tightening in financial conditions resulting from the sharp rise in the US Dollar and US interest rates, a similar tightening in China – which is now clearly taking place – will be far more difficult for global risk assets to ignore.

As we reported yesterday, “since Oct 21, yield of 10Y Chinese Government Bond (CGB) has risen by 20bps, from 2.65% to 2.85%, partly in response to the strong global rates and USD move since the US election.” Bank of America expects Chinese yields to rise further to 3.40% by the end of 2017. Furthermore, with credit spreads near all-time lows, the bank warns that there is a risk that the move can widen sharply in the near future.

Judging by the biggest jump in yields in over a year taking place the very next day, this appears to be playing out as expected.

As Cui wrote, the local equity market reacted progressively less favorably to rising rates the last four times as investors turned ever less optimistic about growth outlook. The bank believes that “the rising rates this time may put pressure on equities in general as it would occur in an environment of lackluster growth.” In other words, while the US stock market may be ignoring the signal sent by rapidly rising yields, China may not have that luxury.

The biggest concern: if rising rates are caused by no-growth factors, such as inflation and the government’s desire to control debt growth (which seemed to be the case with Episodes 3 and 4), the market reacted sharply lower. This time, the pressure appears to be mainly driven by a less accommodating monetary policy as a result of housing bubble risk, debt control need and exchange rate pressure, despite a fairly lackluster economic growth outlook. In this case, Cui concludes, “the rising rate should not be a net positive to the equity market, in our view.”

Finally, what is most troubling for China, is that should financial conditions continue to grind tighter, the PBOC may have little recourse in response: as the Yuan has tumbled on the back of the stronger dollar, the central bank has been forced to tighten conditions to avoid an even steeper descent. This has eliminated the possibility of engaging in further aggressive easing as the alternative would be an even sharper drop in the Yuan, leading to even greater capital flight – something Beijing has been grappling with since early 2015.

Ultimately, the sharp move higher in Chinese yields may mean that just as “international conditions” prevented the Fed from hiking any time after the December 2015 rate hike, so this time too it may be global tightening conditions, and the stronger dollar that cause the next round of capital markets pain in a repeat of the market’s reaction to the last time the Fed hiked to telegraph the economy was “strong enough” that it could sustain a tightening cycle.  It wasn’t.

So while traders have gotten used to tracking the daily fixing of the Yuan, keep a close eye on Chinese yields too. At this point it may be they that crack first.

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"The press has been routinely creating fake news reports to start a war," exclaims Armstrong Economics' Martin Armstrong, pointing to a recent report exposing The BBC allegedly faking news over chemical attacks in Syria…

What follows is shocking evidence that crisis actors, green screens, CGI, and paid propagandists are being used to fake worldwide events in order to scare people into giving up liberties and sending us into war. To say this was shocking would be to put it lightly.

 

From video proof showing “dead soldiers” killed by “chemical weapons” walking around after they thought the videos stopped recording, to digitally altering sounds to add in “explosions” that never happened, this segment demonstrates some of the most damming evidence against the media ever shown on television.

 

Armstrong continues… "This is a serious issue for the press is conspiring against the people to create war, sell climate change, and rig elections. This is by no means something new."

They taught me in high school history class about how the press started the Spanish-American War by reporting that the Spanish attacked a US ship, which never happened.

We have fallen into a cycle of yellow journalism that Pulitzer began. Pulitzer created the Spanish-American War by making up shit to sell newspapers. The famous Pulitzer Prize given by Columbia University is named after the father of yellow journalism – go figure! This is why the press and the Republican elite supported Hillary. They need to rig the game.

 

The most fascinating aspect of war has been the government’s consistent lies to the American people to move the nation to war with every single event. This has won them the ability to wage every single war up until Obama’s attempt to invade Syria. It did not fly. This was really the beginning of the collapse in public confidence for the peak in government on our 224-Year Cycle of Political Change was 2013 — the second swearing in of Obama.

The sinking of the Lusitania is very disturbing. The U.S. was smuggling arms to Europe on passenger ships, and putting civilian lives in harm’s way for political reasons. The Germans even took an advertisement in the NY newspapers warning civilians DO NOT TRAVEL on the Lusitania. When they sank that ship, the U.S. turned and said how cruel the Germans were to attack a passenger ship.

Then there was the Operation Northwood, which was a proposal of the Department of Defense. The Joint Chiefs of Staff would have employed CIA operatives to commit acts of terrorism against American civilians. They would then blame the Cuban government to justify a war against Cuba. The proposals were rejected by the Kennedy administration and have long been part of the reason people support the theory that the CIA is responsible for the killing of Kennedy.

Obama, who has made a mockery out of the Nobel Peace Prize, attempted the standard lie to invade Syria, but the American people rejected it because they became tired of the lies. There were no weapons of mass destruction in Iraq, and Iraq had nothing to do with the 9/11 attack even in fake allegations. The failure of Obama to “sell” the Syrian war to the American people noted the shift in confidence from public (trust everything) to private (trust nothing).

Wherever there is military action involved, there are lies to further another agenda. The benefit of a private wave is that people begin to distrust government. However, when the war cycle turns up it warns of a rise in civil unrest that can go as far as a new age of revolution if government does not stop trying to manipulate the people for nonsense.

Make no mistake, the political manipulations for wars and elections are pervasive. The EU staged a coup in Italy to get rid of Berlusconi because he wanted to take Italy out of the EU. Not only is the press is conspiring with government, of course the bankers are as well. The bankers all said they would leave Scotland if it voted to exit the UK. Republicans were trying to rig the primary to stop Trump. The evidence has poured in how Hillary manipulated the Republican primary to ensure Trump would win because she thought she could beat him and ran a very divisive campaign.

The movie “Wag the Dog” was based on how things really operate. They used the press as a co-conspirator to manipulate the public. This is also why this election has resulted in the collapse in public confidence in the mainstream press. True, the New York Times has admitted they were biased, but they have protected the bankers and reported fake news on Syria.

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The Daily Bell 
Abolish Corporations  

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In a not entirely shocking statement, it appears ISIS has claimed responsibility for yesterday’s OSU attacks by Abdul Razak Ali Artan….

1)BREAKING: #ISIS’ ‘Amaq News Agency reports that #OhioState attacker Abdul Razak Artan was an ISIS “soldier” http://pic.twitter.com/1XQAQJXcSR

— Rita Katz (@Rita_Katz) November 29, 2016

Ironically, this tweet arrived minutes after White House press Secretary Josh Earnest explained…

OSU attacker “may have been motivated by extremism” & “a desire to carry out an act of terrorism.”

Seemingly dismissing the attackers own warnings of US interventionism being to blame…

“I am sick and tired of seeing my fellow Muslim brothers and sisters being killed and tortured EVERYWHERE. … I can’t take it anymore. America! Stop interfering with other countries … [if] you want us Muslims to stop carrying lone wolf attacks.”

And instead blaming Russia…

Earnest warns Russia: “This kind of violence and chaos in Syria only fuels extremism in Syria and around the world.”  

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With the last day of OPEC pre-negotiations almost over, the latest from Vienna is that Iran and Iraq appear to have softened their positions ahead of a crucial OPEC meeting on Wednesday, however as the WSJ reports, “it may not be enough to satisfy Saudi Arabia’s demands for a broad-based oil-production cut.”

The two main wildcards remains Iran and Iraq, the latter of which has agreed to use independent estimates of its output at 4.55 million barrels a day, however Iraq has said it would only freeze from that level, not cut. 

Iran meanwhile has said it would be willing to freeze its production in early 2017 at a level of 3.797mmbpd, to claw back the market share it lost during years of Western sanctions. The negotiations continue as part of a push to reach an agreement that cuts total output by 1.2 million barrels from October levels. The latest draft of the Vienna agreement would ask 10 OPEC members to make a 4.5% oil production cut, with Libya and Nigeria exempted because they are increasing output after civil unrest disrupted their oil industries. 

Earlier in the day, the Ecuador Foreign Minister said that OPEC still disagrees on individual production quotas.

The discussions continue amid a skeptical climate of as OPEC members have expressed pessimism ahead of the gathering. As reported earlier today, Indonesia’s oil minister Ignasius Jonan said his country hadn’t decided yet whether to join production cuts. Asked if Iraq and Iran remained obstacles to a deal, he made a face and declined to comment. “It’s a mixed feeling,” he said of his expectations for Wednesday’s meeting of 14 oil ministers.

Making matters worse is confusion about the role, willingness and ability of Saudi Arabia to engage in fruitful discussions. Citing one OPEC source, the WSJ notes that “there seems to be a disconnect among the Saudis,” the OPEC official said. “Their guys in Vienna have no mandate to negotiate anything.” Another OPEC official said the Saudis in Vienna were fully empowered. “The Saudi policy is consistent,” this official said. In an amusing interlude, Saudi Arabia oil minister Khalid al Falih is said to have entered through a hotel side door, to avoid speaking to the press.

According to a Reuters headline, the negotiations are set to continue tomorrow, with OPEC ministers set to meet informally at 7am on Wednesday before the formal talks begin. Additionally, the formal talks have been pushed back by an hour to start 10:00 GMT, providing the last minute discussions some additional space.

So where does that leave us? According to the latest Bloomberg matrix, there are three possible scenarios ahead of tomorrow:

• Fudged deal: Output cuts with exemptions for Iran, Iraq, possibly without any clear production targets for those cutting.
• Full agreement: Clear quotas and no exemptions beyond those already granted to Nigeria and Libya. Deal would probably boost prices to >$50/bbl with market switching focus to compliance with individual targets
• No deal: OPEC fails to agree any kind of deal, probably triggering price crash to $40 or below.

All of the above  remains highly fluid, and changes with every incremental headline.

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