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Authored by Erin Cooke via Campus Reform,

An employee of the University of Georgia (UGA), is suing the state’s university system over what he claims are “discriminatory health insurance policies for transgender employees.”

Plaintiff Skyler Jay enrolled at UGA in 2009 as a woman and was later hired by the university in 2013. During this time, Jay came out as a man and began the transition process to become a male, including a transition surgery in 2017, according to The Atlanta Journal-Constitution.

Jay, who recently appeared in an episode of the Netflix series Queer Eye, says he was refused coverage for a surgery to treat gender dysphoria in May of 2017, and alleges that this amounts to discrimination by the university.

According to the publication, Skylar appealed the denial to the insurer, Blue Cross Blue Shield (BCBS), which refused his appeal by noting that the plan is self-insured and provides no room to override the plan exclusion. 

Jay’s attorneys, however, argue that this transformational surgery is necessary care and that non-trans employees get their necessary medical care covered. 

Noah Lewis, Jay’s attorney, told the Journal-Constitution that some other institutions of higher education and major companies do not deny coverage for transition surgeries.

“The fact that transgender employees are not able to access medically necessary care while non-transgender employees have their medically necessary care covered evidences a disparate impact on a protected class,” Jay’s legal team asserts.

Likewise, the website LGBTQ Nation suggests that the language of the Board of Regents Equal Opportunity Clause should require coverage of gender reassignment surgery. 

According to the language of the clause, “no person shall, on the grounds of race, color, sex, religion, creed, national origin, age, disability, or veteran status be excluded from employment or participation in, be denied the benefits of, or otherwise be subjected to discrimination under any program or activity conducted by the Board of Regents of the University System of Georgia.”

After his insurance claim for roughly $8,300 was denied by BCBS, Jay sought to meet with USG leaders to discuss the situation, but claims that he was rebuffed.

Jay shared his story when he appeared on Queer Eye, and subsequently created a GoFundMe page in response to an outpouring of offers from people wanting to help him after seeing the show.

“This fundraiser will go directly toward my medical debt and some funds I will donate to couple of community organizations that could also use the help,” Jay explains, noting that the transgender community had previously come to his aid by donating $8,200 toward the cost of his surgeries.

He plans to repay that assistance by donating the same amount to five LGBTQ organizations, saying that once he has done so, all further donations will go directly toward his medical expenses.

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Hours before renewed sanctions on Iran are set to snap back tonight at 12:01 a.m. US Eastern time, Iranian President Hassan Rouhani has announced his country is “open to negotiations” while also calling on the European Union to urgently step up with practical action to save the 2015 nuclear deal. 

His words, however, were generally couched in terms of a rebuke against “untrustworthy” Washington, saying Monday in a televised interview carried on state television: “Negotiations with sanctions doesn’t make sense. They are imposing sanctions on Iranian children, patients and the nation.”

Rouhani referred to items like medicines and other basic living necessities, while the first round of sanctions are also set to target primarily automobiles, currency, and gold.

Basic civilian safety related supplies will be impacted too as export or re-export commercial airplanes as well as services and parts will be banned. The second round of renewed sanctions are set to take effect on November 5, for which the US has pressured EU countries to cease receiving oil exports by this date. 

Rouhani said Iran had “always welcomed negotiations” but that Washington would have to take clear steps to prove they can restore trust after reneging on the 2015 JCPOA.

“If you’re an enemy and you stab the other person with a knife and then you say you want negotiations, then the first thing you have to do is remove the knife.”

“How do they show they are trustworthy? By returning to the JCPOA.”

And in an apparent reference to recent protests that initially arose in early summer primarily over a collapsing economy, he lashed out: “They want to launch psychological warfare against the Iranian nation and create divisions among the people,” Rouhani said.

Rouhani’s words, which could be taken as an ultimatum, are likely to leave the White House unmoved, which has ratcheted up the pressure in hopes that Iran will initiate renegotiations on Washington’s terms. 

In early August Trump’s National Security Advisor John Bolton said in a Fox News interview, “They could take up the president’s offer to negotiate with them, to give up their ballistic missile and nuclear weapons programs fully and really verifiably not under the onerous terms of the Iran nuclear deal, which really are not satisfactory.”

“If Iran were really serious they’d come to the table. We’ll find out whether they are or not,” Bolton said. 

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Strong economic growth and low unemployment rates signal – as explained by President Trump at least – that you’ve never had it better America. Top that package of awesome off with an ever-increasing stock market bow and only a fool would argue that these are not the best of times and that we have reached a nirvana-like plateau of ongoing prosperity… right?

Of course the picture of a full employment economy is tarnished a little by the lack of participation…

 

And while hope-filled economic growth forecast for the year push on to cyclical highs, ‘real’ economic data is gravely disappointing…

But as fast as the economy is supposed to be growing, the stock market is outpacing it – sending Warren Buffett’s favorite stock market indicator to pretty much its highest levels ever…

And as disappointing as the economic data becomes, high-flying tech stocks remain impervious…

Ignoring the bond market’s long-term view that all is not well in the US economy…

And the short-dated rates market’s view that recessionary pressures are building (as the eurodollar curve has now inverted) – but cyclical stocks continue to buck that trend relative to defensives, ignoring the growth fears increasingly priced into credit markets…

So to summarize – stocks know better than the bond and eurodollar market, have seldom been so expensive and refuse to fear anything in the ‘real’ economy, or price in the potential for anything negative to ever happen anytime ever again.

*  *  *

There’s just one thing… as stocks continue higher, supportive breadth is utterly collapsing.

As Morgan Stanley notes, and is extremely evident in the chart above, the percentage of Nasdaq numbers making new 52-week highs versus the Nasdaq composite price level.

We know there are issues with comparing stationary to non-stationary series, but nevertheless we make two simple observations:

1) Since we started our defensive rotation call in June, the number of stocks making new highs has been in a clear downward channel with lower lows and lower highs and

2) the index price level has continued to press to near new highs. 

In other words, fewer and fewer stocks are carrying the burden of lifting the market, a sign of exhaustion and, in our view, a bad signal for further price gains.

*  *  *

So the simple question is – who do you believe? Which market do you trust? The increasingly narrow ‘basket of stocks’ that are maintaining the illusion of prosperity for the masses – or the hard economic data and beliefs of the bond market?

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The British government has prepared an extradition request to Moscow for two Russians they claim carried out the Salisbury nerve agent attack, according to The Guardian, citing Whitehall and security sources. 

Former Russian double-agent Sergei Skripal and his daughter Yulia were found unconscious on a public bench in Salisbury in early March – which UK authorities believe was due to a nerve agent called Novichok.

Months later on June 30, nearby residents Charlie Rowley and Dawn Sturgess, a 44-year-old mother of three, were subsequently treated for exposure to the nerve agent. Rowley recovered while Sturgess died.

Authorities are operating on the assumption that the Skripals were poisoned using a novichok-laced perfume bottle or a door handle smeared with the nerve agent, while Rowley may have picked up said bottle and given to Sturgess, who applied it to her wrists. 

Sturgess received a much higher dose than the other three after apparently smearing the substance on her wrists, having sprayed it from the bottle. Rowley’s recovery was helped, according to a source, by one of the first responders being familiar with the nerve agent, having been involved in helping the Skripals.

The Porton Down military defence laboratory near Salisbury has examined the novichok found on the Skripals’ doorknob and the perfume bottle, but police have not yet said whether they are from the same batch. –The Guardian

UK authorities believe they have pieced together the movements of the two Russians, from their entry into the UK to their departure after the alleged assassination attempt. 

Following the attack on the Skripals, European and US allies took Britain’s side on the attack, ordering the largest expulsion of Russian diplomats since the height of the Cold War, reports Reuters. In response, Russia retaliated by expelling Western diplomats, while the Kremlin has repeatedly denied involvement in the attacks – while accusing the UK intelligence agencies of staging the attack in order to inflame anti-Russia tensions. 

Oddly, Sergei Skripal was linked by The Telegraph to a consultant with former UK spy Christopher Steele’s Orbis Business Intelligence, who he reportedly had repeated contacts with. 

The motive for trying to assassinate the 66-year-old skripal is unknown. Skripal moved to the UK in a Kremlin-approved “spy swap” in 2010, causing many to question why they would suddenly try to take him out a decade later. 

In July, journalist Rob Slane compiled 10 questions for the UK authorities on the ever-confusing Skripal case: 

***

The two most basic claims made by the Government and investigators regarding the method and the mode in the Salisbury poisoning are these:

1. That military grade nerve agent was used to poison Mr Skripal
2. That it was applied to the door handle of his house

These claims raise a number of very obvious questions. For example, how did the assassin(s) apply such a powerful chemical without wearing protective clothing? How did the people who are said to have come into contact with the substance not die immediately, or at the very least suffer irreparable damage to their Central Nervous Systems? How did this military grade nerve agent manage not only to have a delayed onset, but also managed to affect a large 66-year-old man and his slim 33-year-old daughter, both of whom would have vastly different metabolic rates, at exactly the same time?

These are perfectly reasonable questions that deserve reasonable answers. I am aware, however, that no matter how obvious and rational such questions might be, doing so places one – at least in the eyes of the authorities – in the camp of the conspiracy theorist. This is disingenuous. One of the marks of a true conspiracy theorist is that he is someone who refuses to accept an explanation for an event, even after being presented with facts which fit and explain it coherently. But when the “facts” presented in a case do not fit the event they are supposed to explain, and are neither rational nor coherent — as in the Salisbury case — then calling the person who raises legitimate questions a “conspiracy theorist” is a bit rich, is it not?

Nevertheless, for the purposes of this piece, what I’d like to do is work on the assumption that the “Military Grade Nerve Agent on the Door Handle” claim is correct. And working from this assumption, I want to ask some questions about how the authorities have handled the case. The point is this: These questions are not really intended to challenge the official claims; rather the intention is to ask whether the authorities have handled the case correctly on their own terms.

---

1.  Prior to the investigation’s focus on the door handle, for a period of almost three weeks there were at least nine other theories proposed by the authorities as to where the Skripals came into contact with the poison. These included the restaurant, the pub, the bench, the cemetery, the car, the flowers, the luggage, the porridge and even a drone. During that time, police officers and investigators were entering and leaving the house, by the door, since it was not known to be the place where the poison was located.

Can the authorities explain how these officers and investigators were not poisoned?

2.  Once the door handle theory was established, those who had been in and out of the property during the previous three weeks would naturally have been concerned about the possibility that they had been contaminated.

Can the authorities tell us what steps were taken to reassure these officers?

3.  Every officer who entered the house after 4th March, and before the door handle became an object of interest, should have been given a medical examination to check for signs of poisoning.

Can the authorities confirm that this took place for every officer?

4.  Initial reports about Detective Sergeant Nick Bailey stated that he was poisoned at the bench, after coming to the aid of Mr Skripal and Yulia. However, on 9th March, Lord Ian Blair stated that D.S. Bailey had actually become poisoned after visiting Mr Skripal’s house. Since he was thought to have been poisoned with a military grade nerve agent, and since it was thought that this had occurred at Mr Skripal’s house, the immediate next step should have been to seal off the house and set up a mobile decontamination unit outside. However, numerous photographs show officers in normal uniforms standing close to the door long after Lord Blair’s claim.

Can the authorities confirm why the house was not sealed off and a decontamination unit set up immediately after it became known that D.S. Bailey had been there, and why officers with no protective clothing on were allowed to continue standing guard outside the house for the next few weeks?

5.  Can the authorities explain how these decisions did not put the health and even the lives of those officers in jeopardy?

6.  Before the door handle theory was settled on, the majority of competing theories put out by the authorities tended to assume that Mr Skripal was poisoned long before he went to Zizzis. For example, the flowers, the cemetery, the luggage, the porridge and the car explanations all assume this to be the case. What this means is that according to the assumptions of police at that time, when Mr Skripal fed the ducks near the Avon Playground with a few local boys, at around 1:45pm, he was already contaminated. Yet although this event was caught on CCTV camera, it was more than two weeks before the police contacted the parents of these boys.

Can the authorities explain why it took more than two weeks to track down the boys, who – as the CCTV apparently shows – were given bread by Mr Skripal?

7.  Can the authorities comment on why they did not air the CCTV footage on national television, in an effort to appeal to the boys or their parents to come forward, and whether the delay in tracking them down might have put them in danger?

8.   If the door handle was the place of poisoning, it is extremely likely that the bread handed by Mr Skripal to the boys would have been contaminated. Certainly, areas that he visited after this incident were deemed to be so much at risk that they were either closed down (for example, The Mill and Zizzis, which are both still closed), or destroyed (for instance, the restaurant table, the bench and – almost certainly – the red bag near the bench have all been destroyed).

Can the authorities comment on how the boys, who were handed bread by Mr Skripal, managed to avoid contamination?

9.   It has been said that one of the reasons the Government is/was so sure that the ultimate culprit behind the poisoning was the Russian state, is the apparent existence of an “FSB handbook” which, amongst other things, allegedly features descriptions of how to apply nerve agent to a door handle. Given that the Prime Minister first made a formal accusation of culpability on 12th March in her speech to the House of Commons, the Government must therefore have been in possession of this manual prior to that day. However, claims about the door handle being the location of the poison did not appear until late March (the first media reports of it were on 28th March). What this means is there was a delay of several weeks between the Government making its accusation, based partly on the apparent existence of the “door handle manual”, and the door handle of Mr Skripal’s house being a subject of interest to investigators.

Can the authorities therefore tell us whether the Government’s failure to pass on details of the “door handle manual” put the lives of the officers going in and out of Mr Skripal’s house from 5th March to 27th March in jeopardy?

10.   On 17th March, Metropolitan Police Assistant Commissioner Neil Basu said:

“We are learning more about Sergei and Yulia’s movements but we need to be clearer around their exact movements on the morning of the incident. We believe that at around 9.15am on Sunday, 4 March, Sergei’s car may have been in the areas of London Road, Churchill Way North and Wilton Road. Then at around 1.30pm it was seen being driven down Devizes Road, towards the town centre. We need to establish Sergei and Yulia’s movements during the morning, before they headed to the town centre. Did you see this car, or what you believe was this car, on the day of the incident? We are particularly keen to hear from you if you saw the car before 1.30pm. If you have information, please call the police on 101.”

Now that Sergei and Yulia Skripal have been awake and able to communicate for around four months, these details are presumably now all known to investigators. In the normal course of such a high profile investigation, details such as these would be relayed to the public in the hope of jogging memories to prompt more information. And in fact, many such details have been released to the public in this case. Yet, confirmation of Mr Skripal’s and Yulia’s movements that day remain conspicuous by their absence.

Can the authorities confirm that the movements of the Skripals that day are now understood, and that they will be made known shortly, in order that more information from the public might then be forthcoming?

These questions have nothing to do with any conspiracy theory. On the contrary, they are all based on the assumption that the two central claims made by the authorities regarding the mode and the method used in this incident are correct. They are, however, very serious and perfectly legitimate questions about the way the authorities have dealt with this incident, on their own terms and on the basis of their own claims.

We await their explanations.

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Authored by Michael Snyder via The Economic Collapse blog,

Major changes are happening to our planet, and the experts are groping for answers. 

In recent days some have suggested that what we are witnessing is the natural progression of “man-made climate change”, but that explanation has generally been received with a lot of skepticism.  Something truly dramatic appears to be happening to the globe, and it isn’t just because the amount of carbon dioxide in the air suddenly reached some sort of magical “tipping point”.  But without a doubt, temperatures are getting warmer. 

In July, Death Valley experienced “the hottest month ever recorded on the planet”.  Over in Europe, Saturday was being billed as Europe’s “hottest day ever”, and temperatures in Lisbon, Portugal were expected to top 107 degrees both Saturday and Sunday.  On the other side of the planet, the crippling drought in Australia is devastating farms “like a cancer”, and things are so hot in North Korea that the government has declared “an unprecedented natural disaster”…

This week, the North Korean government called record-high temperatures in the country “an unprecedented natural disaster” and said that country was working together to fight the problem.

An editorial published Thursday in Rodong Sinmun, the newspaper of the ruling party, highlighted the difficulties that the long stretch of high temperatures would cause for North Korea’s agricultural sector, specifically crops such as rice and maize. The newspaper called for North Koreans to act as one and “display their patriotic zeal in the ongoing campaign for preventing damage by high temperature.”

In California, extreme heat and bone dry conditions continue to fuel some of the worst wildfires in the history of the state…

Crews battling deadly Northern California wildfires prepare for another day of hot and dry conditions that could drive the flames into new areas and threaten more homes.

According to Cal Fire, more than 15,000 personnel are on the lines of 18 large blazes across California on Saturday. So far, the fires since June have killed 8, burned more than 559,000 acres and damaged or destroyed over 1,800 structures. Roughly 17,000 homes continue to be threatened by these fires, and about 45,000 residents are under evacuation.

Ultimately, this may turn out to be the worst year for wildfires that California has ever seen.

Of course there have been bad years for wildfires before.  But what we haven’t seen before are “firenadoes” that pack 143 mph winds…

On Thursday, NWS researcher combed through the wreckage left behind and determined a fire whirl — commonly known as a fire tornado — roared through the area between 7:30 p.m and 8 p.m. on July 26th.

It was packing 143 mph winds, turning heavy-duty high tension power line towers into twisted pieces of metal, uprooting trees and ripping the bark off other trees.

When I first heard about this fire tornado, I was absolutely stunned.

I had never heard of a fire tornado anywhere near that size in the United States, and apparently the experts hadn’t either…

“This is historic in the U.S.,” Craig Clements, director of San Jose State University’s Fire Weather Research Laboratory, told BuzzFeed News. “This might be the strongest fire-induced tornado-like circulation ever recorded.”

Known as a pyrocumulus cloud, the ominous red weather formations usually occur over volcanic eruptions or forest fires when intensely heated air triggers an upward motion that pushes smoke and water vapor to rapidly rise. They can develop their own weather patters, including thunderstorms with severe winds which then further fan the flames.

Elsewhere in the Southwest, drought continues to intensify, and this is starting to produce absolutely enormous dust storms.

For example, check out what just happened to the city of Phoenix…

A huge wall of dust enveloped the Phoenix metro area on Thursday in the second monsoon storm in a four-day span.

Officials at Phoenix Sky Harbor International Airport said flights were delayed or held until visibility improved.

National Weather Service (NWS) meteorologists said blowing dust in the Phoenix area brought near-zero visibility for drivers Thursday evening.

Certainly a dust storm is less destructive than a “fire tornado” in the short-term, but as we saw in the 1930s, a consistent pattern of giant dust storms can absolutely cripple a nation.

And let us not forget all of the shaking that has been happening to the crust of our planet.

On Sunday, Indonesia was shaken by a magnitude 7.0 earthquake…

The death toll rose to 82 after a magnitude 7.0 earthquake rocked the Indonesian island of Lombok and on nearby Bali on Sunday, damaging buildings, sending terrified residents and tourists running into the streets and triggering a brief tsunami warning.

Social media posts from the scene showed debris piled on streets and sidewalks. Hospital patients, many still in their beds, were rolled out onto streets as a safeguard against structural damage to the hospital buildings.

So why is all of this happening?

Yes, the amount of carbon dioxide in the air is increasing, and it has been increasing for a very long time.  Ultimately, the amount that humans contribute to the overall level of carbon dioxide in the atmosphere is marginal, and even if we took the most extreme measures possible there is very little that we could do to significantly affect the balance.

And scientists assure us that our planet once had much, much higher levels of carbon dioxide in the atmosphere in the air then we do today, and our planet appeared to have thrived under those conditions.

But the narrative won’t change.  The mainstream media will continue to tell us that the Earth changes that we are witnessing are due to global warming and that if we reverse course that we can go back to how things were before.

No, we can’t go back, because the changes that are happening are way outside of our control.

Fundamental changes are happening to our planet, and this is just the beginning.  For now these Earth changes are a minor nuisance to a lot of people, but pretty soon nobody will be able to ignore them.

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Last Monday, Morgan Stanley made quite a splash with its contrarian call, when in the aftermath of a handful of poor tech results, most notably from Facebook which lost as much as $150BN in market cap due to slowing user growth, the bank’s chief equity strategist Michael Wilson boldly predicted that “the selling has just begun and this correction will be biggest since the one we experienced in February.”

Worse, Morgan Stanley cautioned that a liquidation in tech/growth “could very well have a greater negative impact on the average portfolio if it’s centered on Tech, Consumer Discretionary and small caps” due to the disproportional ownership of this group of stocks by professional and retail investors, as well as due to their outsized contribution to overall market performance since the financial crisis.

In retrospect, Wilson may have inadvertently led to just the latest short squeeze for growth stocks, because as disenchanted longs rotated into tech shorts, the Nasdaq has since surged to new all time highs, largely thanks to AAPL crossing the $1 trillion market cap threshold.

So has the market’s action since Morgan Stanley’s controversial call dampened the bank’s bearish sentiment? Not all at all, and in a note released today, Wilson doubled down on his short tech reco, writing that “we continue to stress our defensive rotation/Tech underperformance call.”

But why continue to press the downside case when price action suggests that the upward momentum remains intact? In three words: “Market on Edge” – that’s how Wilson describes the price action, which he believes could go either way from here, but he is sticking with his call for Tech underperformance – while conceding that he will watch price action closely – “as we think that rolling relative earnings revisions in some areas of Tech, continued defensive leadership, breadth/price divergences, and rolling PMIs.”

Meanwhile, “a breakdown in both legs of momentum” augurs poorly for Tech, growth, momentum, and the market.

Taking a step back, Wilson explains the fundamental driver behind his recent bearish shift, which he says has been shaped by the idea that “the continued tightening of global liquidity, a peak rate of change on economic and earnings growth, and a continued rise in inflation would be a difficult combination for risk assets to handle without some pain.”

Markets globally (LIBOR-OIS, VIX, EM equities and debt, BTP spreads, derating in equity sectors like Fins, Industrials, Homebuilders, Transports, etc.) have been flashing yellow lights at different times this year, something which we have dubbed a “rolling bear market.” Different parts of the risk complex have been hit, but at different times, leading to overall modest returns as we are still in a strong growth environment.

Meanwhile, with most sectors having been hit at least once, US Tech and Discretionary equities have remained as the holdouts – with several notable exceptions – persistently holding or expanding their multiples over the last 12 months while risk assets globally repriced.

That persistence of performance seems out of place to us and creates an obvious potential pain point for markets. If we  are right, and Tech gets its turn on the volatility roller coaster, its market weighting, crowded positioning and overweight in growth and momentum strategies mean the pain will likely spread beyond just the Tech sector.

But what about continued strong earnings?

Here Wilson notes that while he previously thought that earnings might be the catalyst for the tech trade to unwind, the message there has been mixed, with management saying little to nothing about tariff risks other than that:

1. it is too early to see an impact,
2. impacts are still not really known as the bigger tariff implementations are still ahead, or
3. that tariffs will not be a problem as prices will be passed along or absorbed by increased efficiencies.

Wilson believes statements 1 and 2 are accurate, but is skeptical that statement 3 – price/cost absorption – will be as easy to carry out as is being represented. He also adds that regardless of what he believes, “it is clear the market has, for the most part, not treated tariff risks as a negative catalyst” at least not in the US: after all China’s stocks are just a fraction away from 2018 lows, and already deep in a bear market.

At the same time, the message on fundamentals has been more mixed after Facebook and Netflix showed that strong earnings results “were not written in stone in the FAANG complex, and seemed to validate our thesis.” However, what failed to materialize was contagion. This was helped by Amazon, which had a stellar quarter that surpassed even bullish expectations on profitability, but even here Morgan Stanley saw warning signs and notes that “the poor price follow through after such a strong print was a sign of exhaustion and stretched positioning, in line with our call that the upside drivers from here are not clear.“

What about Apple? Here, not even Wilson can find anything to criticize, noting that ASPs rising and strong services growth gave us the world’s first $1Tr company. Well, he did find something to criticize, pointing out that “while the message from Apple will be interpreted by many to mean that all is right with Tech, and that we should just pack it up and move on from our Tech underperformance call. However, we believe there is still more to the story and can’t help but think that Apple hitting $1 Trillion could be a meaningful historical marker for a tradable top when we look back at this period.”

As a result of the above skepticism, Wilson and Morgan Stanley double down on their call for further tech pain:

We are sticking with our underweight Tech call as we think that rolling relative earnings revisions in some areas of Tech, continued defensive leadership, breadth/price divergences, rolling PMIs, and a breakdown in both legs of momentum all augur poorly for Tech, growth, momentum, and the overall market.

To support his point, Wilson then lays out several recent observations in the sector, starting with:

Software/Services Relative Earnings Revisions Have Turned Lower.

While the Tech sector has continued to deliver solid results, the relative revisions have rolled over quite hard for the sector, led by Software & Services, which includes internet stocks like Facebook and Google but not Netflix and Amazon (Exhibit 1).

Defensive Leadership Is Continuing.

Defensive leadership has still been dominant in the market. Apple helped Tech lead last week but the defensive leadership trend we have been commenting on was on full display last week with REITs, Staples, Utilities, and Health Care leading the market (Exhibit 2). While Tech rebounded last week, it is being supported by fewer stocks.

Breadth Is Diverging From Price.

Tech/Growth breadth continued to deteriorate. Exhibit 3 shows the percent of Nasdaq numbers making new 52-week highs versus the Nasdaq composite price level. We know there are issues with comparing stationary to nonstationary series, but nevertheless we make two simple observations: 1) Since we started our defensive rotation call in June, the number of stocks making new highs has been in a clear downward channel with lower lows and lower highs and 2) the index price level has continued to press to near new highs. In other words, fewer and fewer stocks are carrying the burden of lifting the market, a sign of exhaustion and, in our view, a bad signal for further price gains.

PMIs Rolling.

The big misses in PMIs this week, which were among the worst in several years. July was only the 2nd time in the history of the ISM Services report (1997+) that Business Activity, New Orders, and Backlog Orders all dropped 5 or more points m/m. We have to go back to the print following 9-11 for the last such occurrence. We have been warning that Tech is more exposed to PMI weakness than what has been priced in and the substantial turn lower this month does not bode well for next month or the rest of the year as the comparisons get considerably more difficult.

Momentum – Hard to Walk With Two Broken Legs: Wilson saved his greatest concern for last. In it, he shows how a sector neutral index of 12-month long short momentum has been performing over the last year. Tech and other growth stocks have been persistent drivers of the  long side of this index given their remarkably steady performance.  This is the same concern as Nomura voiced two weeks ago when the bank warned that “the most important trade of the past decade is now reversing.” “

What makes us cautious on this uptrend now are the drivers of the two recent moves lower. The first leg lower was defensives outperforming – the performance laggards and short leg of the index. The second leg down has been led by weakness in Tech and growth – the performance leaders and the long side of the index.

Given the exposure of both discretionary and quant investors to the momentum factor, Wilson thinks that lingering weakness here “could feed on itself and invite further rotations, which will not be good for price momentum leaders –i.e. Tech and other leading growth stocks exhibiting strong price momentum on a trailing 12-month basis – or the market, given these stocks’ dominant weighting in the overall index.”

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Authored by Andrew Korybko via Oriental Review,

The US Congress has revived the so-called “NOPEC” bill for countering OPEC and OPEC+.

Officially called the “No Oil Producing and Exporting Cartels Act”, NOPEC is the definition of so-called “lawfare” because it enables the US to extra-territorially impose its domestic legislation on others by giving the government the right to sue OPEC and OPEC+ countries like Russia because of their coordinated efforts to control oil prices.

Lawsuits, however, are unenforceable, which is why the targeted states’ refusal to abide by the US courts’ likely predetermined judgement against them will probably be used to trigger sanctions under the worst-case scenario, with this chain of events being catalyzed in order to achieve several strategic objectives.

The first is that the US wants to break up the Russian-Saudi axis that forms the core of OPEC+, which leads to the second goal of then unravelling the entire OPEC structure and heralding in the free market liberalization of the global energy industry.

This is decisively to the US’ advantage as it seeks to become an energy-exporting superpower, but it must neutralize its competition as much as possible before this happens, ergo the declaration of economic-hybrid war through NOPEC. How it would work in practice is that the US could threaten primary sanctions against the state companies involved in implementing OPEC and OPEC+ agreements, after which these could then be selectively expanded to secondary sanctions against other parties who continue to do business with them.

The purpose behind this approach is to intimidate the US’ European vassals into complying with its demands so as to make as much of the continent as possible a captive market of America’s energy exporters, which explains why Trump also wants to scrap LNG export licenses to the EU.

If successful, this could further erode Europe’s shrinking strategic independence and also inflict long-term economic damage on the US’ energy rivals that could then be exploited for political purposes. At the same time, America’s recently unveiled “Power Africa” initiative to invest $175 billion in gas projects there could eventually see US companies in the emerging energy frontiers of Tanzania, Mozambique, and elsewhere become important suppliers to their country’s Chinese rival, which could make Beijing’s access to energy even more dependent on American goodwill than ever before.

If looked at as the opening salvo of a global energy war being waged in parallel with the trade one as opposed to being dismissed as the populist piece of legislation that it’s being portrayed as by the media, NOPEC can be seen as the strategic superweapon that it actually is, with its ultimate effectiveness being dependent of course on whether it’s properly wielded by American decision makers.

It’s too earlier to call it a game-changer because it hasn’t even been promulgated yet, but in the event that it ever is, then it might go down in history as the most impactful energy-related development since OPEC, LNG, and fracking.

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An eleven person office pool at a Wells Fargo branch in San Jose has won the largest single lottery jackpot in California history. The group claimed their $543 million ‘Mega Millions’ prize two weeks ago, and opted for the lump sum of $320.5 million, which amounts to $29,140,281 for each. 

After a hefty federal tax, at 37 percent (the highest bracket), each will take home over $18 million. That’s right… Uncle Sam will take home roughly $10.7 million for each of the eleven winners. 

The financial employees range in age from 21 to 60, and the group’s spokesman, Roland Reyes, said he pitched in his $2 “on a whim” before walking into Ernie’s Liquor to buy the lotto tickets. 

The owner of Ernie’s Liquors, who sold the winning ticket, identified by The Mercury News as Kewal Sachdev, will himself receive a check for $1 million according to lottery rules. 

When the winners were initially reported it was unknown that they were financial employees, something it appears they tried to conceal for fear it would negatively impact their careers:

Reyes, who said they work at a finance company but decline to identify it out of fear of losing their jobs, was shocked by the news, saying, “If I could win, anybody could win. We’re just normal people!”

However in recent reporting journalists uncovered the Wells Fargo branch they work for, which was closed last Saturday morning as the news hit. 

“This branch is closed,” read a sign on the locked doors of a Wells Fargo branch office in a strip mall on busy Branham Ave. in south San Jose, while its staff spent the day thinking about things more thrilling than other people’s money.

The group’s spokesman told the AP that they all plan to keep their jobs at Wells Fargo: “We love that company,” Roland Reyes said. “We love what we’ve built there. We have a good time and want to stay together.”

But it appears they took the first Saturday off work as confused customers showed up to their local branch to find it unexpectedly closed. 

Though a number of jackpot winning office pools in recent history have quickly divided when a member of the group refused to share, or when disputes over distributing the money arises, resulting in lawsuits, it appears this group is cooperating thus far and keeping cool heads. 

Since the half-billion dollar jackpot draw began on May 8, it took the group 22 rolls before striking it rich with the winning numbers of 19-2-4-1-29 and the Mega number 20.

The group says it sought out a mom-and-pop run store because it seemed like the luckier bet. 

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Via Nordea,

…with the US expansion now the second longest ever, energy-price base effects on inflation about to turn less positive, dollar-negative comments from the White House, and front-loaded contributions to benefit plans of mid-September maybe it’s time to back up of the truck and load up (on EM)?

CHART 3: AND US’ ISM SENTIMENT SURVEYS TO WEAKEN

The Fed’s latest missive is not conducive to that view: “information received since the Federal Open Market Committee met in June indicates that the labor market has continued to STRENGTHEN and that economic activity has been rising at a STRONG rate. Job gains have been STRONG, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown STRONGLY. … The stance of monetary policy remains accommodative, thereby supporting STRONG labor market conditions and a sustained return to 2 percent inflation.” 

Sounds like the Fed wants to tell us something. Sure enough, both the ISM manufacturing and the non-manufacturing gauge have been more than just a little resilient this year.

However, both should face downside pressure based on e.g.:

i) the past rise in mortgage rates (denting consumption), and

ii) the recent rise in the dollar (denting the profit-outlook in local currency). In July, ISM non-manufacturing weakened the most in a year, bringing down the ISM non-manufacturing gauge to its weakest level since August 2017.

This is a sign of what’s to come, we believe.

If ISM starts to weaken (as we expect), then the rate market is correct in pricing a flat ED$ curve for 2020 (the ED10 vs ED6 spread is currently showing the Dec20 vs Dec19 ED$ spread). The equity markets’ pricing of cyclical equities is likely to be wrong, in our view.

CHART 4: THE EURODOLLAR CURVE IS MORE LIKELY TO BE RIGHT THAN CYCLICAL EQUITIES

The Fed poses a short-term risk to this view. Despite Fed tightening, US financial conditions are as expansive as a year ago. Maybe some officials could discuss a quicker hiking pace? Or maybe a hike in the R-star could be in the offing? We have earlier argued that the Fed’s signal of a low neutral rate via its dot-plot likely serves as a ceiling for forward rates, helping keep rates and yields lows via depressed term premiums but that “…going forward not only could the dollar’s [2017] depreciation inform the Fed that neutral rates are now higher. A pick-up in core inflation, in productivity growth would also point in this direction…”

CHART 5: HOWEVER, HIGHER US YIELDS COULD FOLLOW IF THE DOT-PLOT IS REVISED

Higher US yields, posing a threat to EM, may follow if the dot-plot is revised. Higher US yields would also follow if the FI market stopped being so negative on the economic outlook for the US. Incidentally, the time is ripe for a turn-around in the US economic surprise index… US data usually improves during the autumn. But this time should be different (see chart 4).

CHART 6: WILL US DATA START TO SURPRISE POSITIVELY(!?)

To sum up this esoteric part, we do think that the flattening of the US curve means that longer-term investors should start to “back up of the truck and load up (on EM)”, though we would stay far away from currencies such as the TRY (Turkey is stuffed) and the ZAR (Zimbabwefication)… For all that, we would consider going long EM assets vs cyclicals, given the likely trajectory of ISM (lower).

ANOTHER SUMO SOMA DAY HAS PASSED

We have earlier concluded that the USD tends to gain on days when the Fed’s balance sheet shrinks due to maturing bonds & notes. We call these days “SOMA days”, since the maturing bonds are held in the Fed’s System Open Market Account. US markets recently experienced the largest SOMA liquidity shrink so far (July 31), when bonds worth 28.5bn came due. The negative impact on US excess liquidity was -24bn, which was the monthly maximum as set by the Fed.

CHART 7: EUR/USD INTRADAY ON SOMA DAYS

While EUR/USD initially rose on July 31 due USD selling for month-end reasons and a disappointing core PCE inflation reading, it eventually came under downside pressure in line with the now-usual pattern. Indeed, of the SOMA days since February 28, it has been a good idea to sell EUR/USD at CET14:30 and close the position a few hours later. The hit ratio of going long DXY at CET09:00 on SOMA days, and closing the position CET17:30 is 100% since February…

While the hit ratio for being long dollars on SOMA day is more than respectable, being short the S&P500 future on SOMA days has not worked out as well. While the SOMA days of February through May corresponded to equity market weakness, this was not the case in June and July.

TABLE 1: BEING LONG DOLLARS ON SOMA DAYS OFTEN A GOOD IDEA

The next large liquidity withdrawal due to a SOMA day takes place on August 15 when USD23.1bn comes due (causing a net liquidity withdrawal of USD12.6bn) followed by a 20.9bn maturity on August 31 (causing a net liquidity withdrawal of USD11.4bn). Mark your calendars.

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