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Crude prices had slipped back into the red ahead of Baker Hughes rig count data (after topping $48.50 Sept 16 overnight). For the 8th straight week (and 11 of last 12) the US oil rig count rose (up 10 to 406), tracking the lagged recovery of WTI Crude prices and up 28% from cycle lows.

The us oil rig count is now up 90 from the late-May lows at 316 (and based on the lagged oil price, is set to keep rising for another month)

 

The reaction… NOTHING

 

Charts: Bloomberg

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Submitted by Patrick Buchanan via Buchanan.org,

“I did it my way,” crooned Sinatra.

Donald Trump is echoing Ol’ Blue Eyes with the latest additions to his staff. Should he lose, he prefers to go down to defeat as Donald Trump, and not as some synthetic creation of campaign consultants.

“I am who I am,” Trump told a Wisconsin TV station, “It’s me. I don’t want to change. … I don’t want to pivot. … If you start pivoting, you are not being honest with people.”

The remarks recall the San Francisco Cow Palace where an astonished Republican, on hearing the candidate speak out in favor of “extremism in the defense of liberty,” blurted out, “My God, he’s going to run as Barry Goldwater!”

And so he did. And Goldwater is remembered and revered by many who have long forgotten all the trimmers of both parties who tailored their convictions to suit the times, and lost.

Trump believes populism and nationalism are the future of America, and wants to keep saying so. Nor is this stance inconsistent with recapturing the ground lost in the weeks since he was running even with Hillary Clinton.

The twin imperatives for the Trump campaign are simple ones.

They must recreate in the public mind that Hillary Clinton who 56 percent of the nation thought should have been indicted for lying in the server scandal, and who two-thirds of the nation said was dishonest or untrustworthy.

 

Second, Trump must convince the country, as he had almost done by Cleveland, that he is an acceptable, indeed, a preferable alternative.

While the assignment is simple, as Ronald Reagan reminded us, there may be simple answers, but there are no easy ones.

What is the case against Clinton his campaign must make?

She is a political opportunist who voted for a war in Iraq, in which she did not believe, that proved ruinous for her country. As secretary of state, she pushed for the overthrow and celebrated the assassination of a Libyan dictator, resulting in a North African haven for al-Qaida and ISIS.

Her reset with Russia was a diplomatic joke.

Her incompetence led to the death of a U.S. ambassador and three brave Americans in Benghazi, and she subsequently lied to the families of the dead heroes about why they had died.

Her statements about her server and emails were so perjurious they almost caused FBI Director James Comey to throw up in public.

She speaks of Bill, Chelsea and herself as leaving the White House in 2001 in roughly the same conditions of immiseration that the Joads left Dust Bowl Oklahoma in “The Grapes of Wrath.”

But on leaving State, Hillary Clinton was pulling down $225,000 a pop for 20-minute speeches to Goldman Sachs. It’s a long way, baby, from her Children’s Defense Fund days, the recalling of which almost caused Bill Clinton to lose it and break down sobbing at the Philly convention.

What America has in Hillary Clinton is a potential president with the charisma but not the competence of Angela Merkel, and the ethics of Dilma Rousseff.

However, here is the problem for the Trump campaign.

While exposing the Clinton character and record is essential, among the primary rules of presidential politics is that you do not use your candidate to do the wet work.

Eisenhower had Vice President Nixon do it for him. President Nixon had Vice President Agnew, who was good at it, and enjoyed it.

Yet, still, on the mega-issue, America’s desire for change, and on specific issues, Trump holds something close to a full house.

The country wants the border secured and immigration vetting toughened to keep out the kind of terrorists who committed the atrocity in San Bernardino.

The country wants an end to the trade deficits with China and the endless export of U.S. factories and manufacturing jobs.

On Americanism versus globalism, the country is with Trump. On an America First foreign policy that keeps us out of trillion-dollar, no-win Middle East wars, the country is with Trump.

On Teddy Roosevelt’s “Speak softly, and carry a big stick,” Ike’s “Peace through strength,” and JFK’s “Let us never fear to negotiate,” the country is with Trump.

Americans may not love Vladimir Putin, but they do not wish to go to war with Russia, which we avoided in half a century of Cold War.

Americans do not want to go nation-building abroad, but to start the nation-building at home. On coming down with both feet on rioters, looters, arsonists and Black-Lives-Matter haters who call cops “pigs,” America is all in with Donald Trump.

As for going after Clinton, the media hysteria surrounding the Donald’s new hire, Steve Bannon of Breitbart News, suggests that this may be a fellow who is not without redeeming social value.

Moreover, outside events could conspire against Clinton.

The coming economic news — we had 1 percent growth in the first half of 2016 — could cause a second look at Trumponomics. And whoever is out there strategically dropping Democratic emails may be readying an October surprise for Hillary Clinton, a massive document dump that buries her.

As Yogi Berra reminded us, the game “ain’t over, till it’s over.”

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At the same time that Russia is condicting its latest massive military drill on the border with Ukraine, and one day after the latest stark warning by Ukraine’ president Poroshenko that the simmering conflict with Russia may be set to explode again when he said on national TV that “the probability of escalation and conflict remains very significant” adding that “we don’t rule out full-scale Russian invasion”, Russian president Putin made a not so subtle point that Crimea will not be relinquished when he flew into contested territory on Friday, one day after staging war games there, and said he hoped Ukraine would see “common sense” when it came to resolving a diplomatic crisis over the peninsula.

Officially, Putin arrived on a working visit in Crimea, where he held a briefing with members of the Russian Security Council and visited the Tavrida international youth forum, a RIA Novosti correspondent reported Friday. The schedule of Putin’s visit to Crimea, at least his fifth in the past two years, also involves meetings with local officials, according to local media reports that broke news of the visit this week.

Putin chairs a meeting with permanent members of the Russian Security Council
at the Belbek airport near the Black sea port of Sevastopol, Crimea.

Crimea, which has been the topic of contention since early 2014, became a part of Russia after almost 97 percent of those who voted in a local referendum on the issue in 2014 supported the move. Ukraine did not recognize the outcomes of the referendum in Crimea and accused Russia of annexation; while many European nations have likewise not recognized the new territory, they have avoided escalating the debate with Russia.

In any case, two years after Russia and Ukraine came close to a state of war over the territory, it is again the focus of international tension, after the Russian president accused Kiev last week of sending saboteurs who clashed with Russian troops. Kiev, which has also fought a two year war against pro-Russian separatists in two eastern provinces, denies the border incident ever took place and calls it a fabrication that could be used as a pretext for a new Russian invasion.

As Reuters reports, the Russian leader has used threatening rhetoric, promising unspecified “counter-measures”, and has built up troops ahead of a big military exercise next month. He addressed the crisis again on Friday, opening a meeting of his Security Council at an air base near the naval port of Sevastopol on his first visit to Crimea since he made the initial accusations.

“It is clear that we have gathered for a well known reason after the infamous incident, after we thwarted attempts by groups of Ukrainian army saboteurs to break into (our) territory,” he said.

“Judging by all accounts, our partners in Kiev have decided to escalate the situation. We are all familiar with this method of escalation. It goes back a long way and has sometimes been used successfully but not always.

“I hope that this won’t be a final choice … and that common sense will prevail,” he added.

Just to underscore that point, on Thursday Russian naval and land forces practiced swiftly moving military hardware and troops to Crimea, already one of the world’s most militarised areas, in a logistics exercise that foreshadows larger war games planned for next month. Russia’s Black Sea Fleet, around 2,500 troops and up to 350 armored vehicles were involved in the exercise, which unfolded as tensions have also flared in eastern Ukraine, where a truce that curbed fighting is looking increasingly shaky.

Meanwhile, as noted above, in the latest sharp escalation in rhetoric, Ukrainian President Petro Poroshenko said on Thursday he did not rule out introducing martial law and a new wave of military mobilization if the east Ukraine conflict worsened.

Putin on Friday accused the Ukrainian government of trying to destabilize Crimea to distract attention from its failure to implement a peace deal covering the conflict in eastern Ukraine, a region known as the Donbass.

While fighting that killed thousands of people in the Donbass has ebbed since early 2015, pro-Russian separatists there regularly exchange fire with Ukrainian government forces, and both sides accuse each other of failing to implement terms of the truce, known as the Minsk peace process.

And while Kiev believes Putin is preparing for more fighting, most rational experts believe he is simple interested in gaining diplomatic leverage, seeking to use the latest crisis to prod the West to press Ukraine into doing more to uphold the accords.

That is indeed the case; in fact, over the past week all of Putin’s attention has been focused not on Ukraine, which is seen as the latest attempt by NATO to provoke the Kremlin, but on Turkey which as we reported yesterday, is “considering military cooperation” with Russia, in a pivot that if executed, could be NATO’s biggest strategic loss in history, as Ankara exits the Western sphere of influence and enters The Russian one.

That, however, will not come without a fight, both literally and figuratively, and that is what the current distraction with Ukraine may be all about.

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Submitted by Charles Hugh-Smith via OfTwoMinds blog,

The Fed has not only failed to fix what's broken in the U.S. economy–it has actively made those problems worse.

The Federal Reserve claims its monetary interventions saved America from economic ruin in 2009, and have bolstered growth ever since. Don't hurt yourself patting your own backs, Fed governors past and present: it's bad enough that the Fed can't fix the economy's real problems–its policies actively make them worse.

After seven long years of politicos and the financial media glorifying the Federal Reserve's policies as god-like in their power and efficacy, let's take a quick look at the results of these vaunted policies: ZIRP (zero interest rates), (QE) quantitative easing, both of which are ways of shoving nearly-free money ( a.k.a. liquidity) into the banking sector, where all this free money is supposed to filter into the global economy, working miracles of prosperity.

The stated goal of the Fed's zero-interest rate policy (ZIRP) and quantitative easing (QE) was to make borrowing easier for both corporations and consumers, the idea being that companies would borrow to invest in new productive capacity and consumers would buy the new goods and services being produced with the Fed's cheap credit.

The secondary publicly stated goal was to spark a rally in stocks, bonds and real estate that would spark a wealth effect: as households saw their net worth rise, they would feel wealthier and thus more likely to borrow money to buy more goods and services.

Let's start by stipulating that the Fed's policies are unprecedented. Keeping interest rates near-zero for over seven years and pumping up its balance sheet from $800 billion to over $4 trillion are both completely off the scale of central bank policy in the U.S.

The most charitable assessment we can make of Fed policy is that the "prosperity" it created is concentrated in the most parasitic and politically powerful sector: finance. Why should we be surprised that the Fed, itself a servant of the banking sector, should devise policies that enrich financiers?

The Fed's policies have been an unqualified success for financiers and an abject failure for everyone who has to work for a living. The Fed has not just failed to rectify the nation's obscene inequality in wealth and income; it has actively widened it by handing guaranteed returns to the banks and financiers while stripmining what's left of the middle and working classes' non-labor income, i.e. interest on savings.

So let's see what corporations and financiers did with the Fed's free money for financiers:

They borrowed billions to buy back their own stocks:

Which boosted the the value of the stocks, enriching the corporate managers and big shareholders:

Did corporations share the wealth with their employees? The top 5% have done very well, the bottom 95%–well, their real incomes stagnated or declined:

Did corporations and financiers create more breadwinner jobs? That is, full-time jobs that pay enough to support a household (i.e. the employee doesn't have to live in his/her parents' basement).

Nope. Breadwinner jobs have declined. The "growth" measured by GDP is mostly increases in prices, not growth in full-time jobs or wages for the bottom 95%.

Did they invest the Fed's free money for financiers in new productive capacity? No, productivity has tanked:

But the Fed's near-zero interest rates and easy credit must have encouraged investors and entrepreneurs to launch a tsunami of new businesses, right? Wrong — new business growth has collapsed since the Fed's policies were put in place:

But certainly the Fed's policies have kept inflation low, correct? No–not if you pay rent, college tuition or healthcare:

But surely the Fed's vaunted wealth effect has trickled down to all households? Not even close–wealth/income inequality has soared:

95% Of Income Gains Since 2009 Went To The Top 1%:

Berkeley economics professor Emmanuel Saez put out an update to his estimates of income inequality, and the headline figure has everybody outraged: 95% of income gains since 2009 have accrued to the top 1%.

The Fed has not only failed to fix what's broken in the U.S. economy–it has actively made those problems worse. The first step in solving these problems is to eliminate whatever is making them worse–i.e. the Federal Reserve.

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Nobody has “suffered” more under central planning than billionaire hedge fund managers, and as 2016 went on, the suffering continued.

It is no secret to regular readers that over the past decade, hedge funds have not only underperformed the market, but have failed to generate “alpha” since 2011.

As we have shown year after year, the centrally-planned “New Paranormal” has been a total disaster for traditional alpha generation, since with all traditional fundamental relationships flipped upside down thanks to the Fed, the only way to generate outsized returns for one’s investors (and one’s offshore bank account) is to be massively levered beta, or merely wrong.

Unfortunately for the 2 and 20 crowd, in the second quarter this distressing trend continued, with Goldman’s latest Hedge Fund Trend Monitor reporting that in 2016, the hedge fund industry generated a 3% return, underperforming the broader market’s 9% YTD return. Worse, the average equity long/short fund and Goldman’s own VIP basket have each returned just 2% YTD, both lagging the S&P 500 substantially.

As Goldman’s Ben Snider points out, “even with the recent rally in the most popular long positions, the average hedge fund has returned just 3% YTD, lagging the S&P 500 for the eighth year in a row. Many active managers continue to struggle in 2016, with the average large-cap core mutual fund also lagging the S&P 500. Among hedge fund styles, although most have posted similar returns, event-driven funds have fared best (+5%) while equity long/short funds trail (+2%).”

 

There is some good news: during the last six weeks Goldman’s Hedge Fund VIP basket of popular long positions has led the S&P 500 by 470 bp, ending the basket’s record 1500 bp stretch of  underperformance since August 2015. However, even with the recent rebound, as the chart below shows, any hedge fund that merely bought the most popular stocks, or otherwise copied what everyone else was doing, is now back to a level last seen in 2008.

Sadly, little of this came from actual stock-picking: as Goldman explains, “VIPs benefitted from a surge in net leverage.” After months of declining market exposure, the sharp increase in hedge fund leverage in recent weeks has helped drive VIP outperformance. Goldman Sachs Prime Brokerage reports a surge in net long exposure to 63%, approaching the highest levels in 12 months, from below 50% in 2Q. After declining during 2015 and 1H 2016, leverage bottomed at the end of 2Q, and in subsequent weeks funds boosted market exposure as stocks rallied. In addition to adding leverage through cash equities, call option volume rose to record levels, hedge fund S&P 500 futures exposures climbed by $15 billion, and the share of S&P 500 market cap held short fell to a 1-year low.

To be sure, there was some sector rotation as well, with exposure moving toward cyclical sectors and factors that hedge funds have continued to prefer despite the early 2016 outperformance of bond-like equities such as Utilities and low volatility stocks.

One interesting note comes from a deeper dive into hedge fund holdings, where crowding has declined modestly from recent record highs (as a reminder, BofA recently found that the most preferred stocks by HFs have underperformed the market, while those most neglected have been a consistent source of alpha) but more surprisingly, aggregate portfolio position turnover returned to a record low in 2Q, confirming the ongoing contraction in actual trading, as very few hedge funds rotate in or out of new and existing positions.

Goldman adds that the six-year trend of declining position turnover continued in 2Q, with overall portfolio turnover settling back at its all-time low of 27%. The largest positions, which account for the majority of fund portfolios, experienced just 14% turnover.

 

In short: hedge funds are stuck trying to disaggregate their holdings from each other, even as they continue to underperform the market in the process while trading increasingly less, instead merely adding even more debt to capture beta and pretend it is alpha.

Finally, for those curious what are the most widely held hedge fund stocks (ostensibly to short them), here are the stocks indicating the largest number of hedge fund investors.

Narrowing down the universe to just the woefully underperforming Goldman hedge fund VIP basket, which consists of stocks in which fundamentally-driven hedge funds have large positions, and consists of stocks that “matter most” as the positions that appear most frequently among the top 10 holdings within hedge fund portfolios, here are the top 50 names.

Finally, for those eager to go long, few lists beat the 50 companies most shorted by the “smart money.”

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U.S. Customs and Border Protection agents working with Mexican immigration officials have found thousands of non-Hispanic illegal immigrants crossing Mexico’s southern border to make their way to Texas. As Breitbart details, the so-called "extra-continental" immigrants enter countries as far south as Brazil and make their way to the United States, often with forged travel documents.

“The reality is that the vast majority of the people that Mexico encounters [on its southern border] that are extra-continental will eventually end up on our border,” a U.S. Customs and Border Protection (CBP) official told Reuters this week. The Reuters article confirmed the Syrian nationals reported at the Mexican border with Laredo last year by Breitbart Texas’s Brandon Darby and Ildefonso Ortiz are part of this growing pattern of illegal migration.

Since that time, the federal government has been largely silent on the numbers of what they call “Special Interest Aliens” (SIA) being captured in Texas and other border states. DHS assistant secretary for international affairs Alan Bersin told a House committee in March,

"While many citizens of these countries migrate for economic reasons or because they are fleeing persecution in their home countries, this group may include migrants who are affiliated with foreign terrorist organizations, intelligence agencies, and organized criminal syndicates."

The new information obtained by Reuters shows that 6,342 SIAs were apprehended at Mexico’s southern border. That number is up significantly from a 2015 total of 4,261 SIAs. Only 1,831 were reported for all of 2014 when Breitbart Texas’ Brandon Darby reported a leaked intelligence document from CBP official showing countries from all over the world were exploiting the porous southern border between the United States and Mexico. Most of those SIA tend to enter the U.S. through Texas.

That document revealed large numbers of illegal aliens being apprehended in the United States from China, Pakistan, Egypt, Yemen, North Africa, and other Middle Eastern countries.

The problem is so large in Mexico, officials have set up a detention camp in Tapachula, near Mexico’s southern border with Guatemala. CBP officials have been training the Mexican immigration officials on interview techniques. They have also been using U.S. databases to investigate the background of these immigrants to Mexico, Reuters reported.

“The Tapachula area is along a permeable border. DHS (Department of Homeland Security) views it as one of the areas where a terrorist group that wants to do harm on U.S. soil would be most likely to come in,” Adam Isacson, a security and border policy analyst at The Washington Office on Latin America, a non-profit human rights advocacy group, told Reuters.

Read more here…

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