US Braces For ICBM Test As North Korean Holiday Begins

It is now Sept. 9 in North Korea, meaning the country’s celebration of the 69th anniversary of the creation of the North Korean state has officially begun. Last year, the country celebrated its 68th anniversary with its fifth nuclear test. This year, the US and South Korea are anticipating another demonstration of military strength from the isolated country – most likely another missile test.

According to the Associated Press, Seoul's Unification Ministry spokeswoman Eugene Lee said Friday that Pyongyang could potentially conduct its next ICBM tests this weekend or around Oct. 10. On the previous North Korean holiday, which took place in April, Kim Jong Un paraded what appeared to be an arsenal of ICBM’s through the center of Pyongyang to celebrate the birthday of Kim Il Sung, Kim’s grandfather and the founder of North Korea.

Any missile test would be the country’s first since it fired a medium-range missile over the Northern Japanese island of Hokkaido, an escalation that alarmed US and Japanese officials and briefly sent stocks reeling before the dip was immediately bought. A few days before, the North fired three short-range missiles into the Sea of Japan.

However, the North hasn’t tested a missile with intercontinental range since July, when it twice tested its developmental Hwasong-14 ICBMs. Analysts say the flight data from the launches indicate the missiles could cover a broad swath of the continental United States, including major cities such as Los Angeles and Chicago, when perfected, according to the AP.

While the North has previously fired the ICBMs at highly lofted angles to reduce ranges and avoid other countries, South Korean officials say the next launches could be conducted at angles close to operational as the North would seek to test whether the warheads survive the harsh conditions of atmospheric re-entry.

As the AP notes, Kim, a third-generation dictator in his 30s, has conducted four of North Korea's six nuclear tests since taking power in 2011. The North Korean military has maintained a torrid pace in testing weapons, which also include solid-fuel missiles built to be fired from road mobile launchers or submarines.

Kim, as Russian President Vladimir Putin has recently reminded us, believes obtaining nuclear weapons is his best chance at securing his family’s hold on power by enabling them to keep “US imperialists” at bay.

Both Chinese and Russian officials have called for talks between the US and North Korea. The two countries even offered a “roadmap” to peace requiring that the US and South Korea cease their military exercises, which the North views as dress rehearsals for an invasion, while the North would halt its nuclear program.

However, in an unfortunate coincidence, any plans the Kim regime might have could be foiled by a severe geomagnetic storm raging from the sun, according to Express. The storm could interfere with the missile’s functionality, even if they’re outfitted to protect against the sun’s radiation.

If that’s the case, Kim might opt to bide his time. Maybe he’ll hold another parade like he did in April? Meanwhile, in the US, President Donald Trump yesterday reiterated that the US hasn’t ruled out a military response to the North’s provocations, adding that it’ll be a “sad day” for the North if the US is forced to attack.

At the very least, we’re sure Kim will take a few minutes to lob a few threats at the imperialists who’ve strangled his country’s economy with sanctions, and are hoping to further tighten the screws.

In one sign of the creeping military escalation occurring on the Korean peninsula, the US intends to train its 25,000 troops in the South how to respond to an attack from a weapon of massive destruction, presumably launched by the North. The US is also moving its third THAAD missile-defense system to South Korea, which, as we noted yesterday, has a 100 percent success rate in test interceptions. However, the system has proven controversial among South Koreans who live nearby, many of whom are fearful its presence has transformed their home into a target for the North.
 

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This Is What Miami Could Look Like On Sunday Morning

An analysis by Climate Central shows that the Florida storm surge from hurricane Irma could endanger millions, and result in hundreds of billions in property damage.

According to Climate Central, it has created the following resources to help anyone remaining in the area visually understand how dangerous the flooding will be in their neighborhood and take safety measures accordingly.

These simulations are based on the Coastal Emergency Risks Assessment (CERA) storm surge and wave model using data from the National Hurricane Center forecast track from Friday morning (Advisory 37). CERA partners include multiple leading universities and federal agencies.

The videos use Google Earth to simulate what the these storm surge forecasts would appear like in different South Florida neighborhoods. The height  above mean sea level for each simulation is shown in the titles. As local topography varies, these values translate to approximately 7-10 feet of water above ground in many areas according to the Storm Surge Warming forecasts from the National Weather Service.


Downtown Miami (13.5 feet)

 

Coconut Grove (15.5 feet)

 

Coral Gables (12.5 feet)

 

South Miami (12 feet)

 

Palmetto Estates (14.5 feet)

 

Kendall (11.5 feet)

 

Miami International Airport (7.5 feet)


Another resource to use approximates the forecast surge level — threatened neighborhoods are shown in blue

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Antifa in Europe: New at Reason

People in Europe have faced the threat to their liberty from well-organized anti-fascist groups for decades, Fredrik Segerfeldt writes.

The Antifa, or anti-fascist movement of Charlottesville, Portland and Berkeley fame did not come out of nowhere. It is a carbon copy in name, tactics and ideology of groups that have been active in Europe for decades. The website of the Swedish organization is www.antifa.se.

Originally an anti-Nazi body in a pre-WWII Germany, organizations resurfaced in various European countries in the 1980s and 1990s, attracting plenty of attention during the anti-globalization protests at the turn of the millennium. Since then, Antifa have systematically used violence as a political tool. Victims are in no way limited to Nazis or the alt-right. Mainstream center-right politicians, leftist mayors and government bureaucrats have been targeted. Apart from the usual assaults, Antifa members have made arson and gas attacks.

An original Antifa specialty is rioting, making up the Black Bloc of more mainstream leftist demonstrations, not least in protests against summits of international organizations such as the International Monetary Fund and the World Trade Organization. The most recent example was the G20 meeting in July, when large parts of Hamburg, Germany were under siege and private property worth millions of dollars was vandalized. “Welcome to hell” was the message.

The American outfit copycats its elder siblings from across the pond, blending in with democratic leftist groups (acting as self-appointed bodyguards), creating Lenin-style united-front coalitions to gain legitimacy (who is not an anti-fascist?) and applying a very wide definition of the term fascist (most people they don’t agree with).

View this article.

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Weekend Reading: The “Real” Vampire Squid

Authored by Lance Roberts via RealInvestmentAdvice.com,

First, it was Hurricane “Harvey” and an expected $180 billion in damages to the Texas coastline. Now, “Irma” is speeding her way to the Florida coastline dragging “Jose” in her wake. Those two hurricanes, depending on where they land will send damages higher by another $100 billion or more in the weeks ahead.

The immediate funding needed for relief to Americans is what you would truly deem to be “emergency measures.”

But that is not what I am talking about today.

Nope, I am talking about Central Banks.

On Thursday, Mario Draghi, of the ECB, announced their latest monetary policy stance:

“At today’s meeting, the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

 

Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases are made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.”

Ladies and Gentlemen, these are “emergency measures.” According to the Bank for International Settlements:

“Policy tools that involve the active use of central bank balance sheets – both the assets and the liabilities – can help monetary authorities to navigate the policy challenges during times of financial stress and when interest rates are close to zero.

But wait, this is what Draghi said next:

“The economic expansion, which accelerated more than expected in the first half of 2017, continues to be solid and broad-based across countries and sectors.”

So, what is it?

If you actually have “solid and broad-based” economic growth across countries and sectors, why are you still flooding the system with “emergency measures,” and keeping interest rates near zero?

That’s a rhetorical question.

The reality is that Central Banks are keenly aware of the underlying economic weakness that currently exists as evidenced by the inability to generate inflationary pressures. They also understand that if the financial markets falter, the immediate feedback loop into the global economic environment will be swift and immediate.

This is why there continue to be direct purchases of equities by the ECB and the BOJ. Which is also the reason why, despite nuclear threats, hurricanes, geopolitical tensions and economic disconnects, the markets remain within a one-day striking distance of all-time highs. (Charts courtesy of Yardeni Research)

Of course, the question becomes just exactly what will Central Banks do when economies on a global scale slip back into the next cyclical recession? There is a “limit” to the amount of “assets” that can be held by the Central banks unless the markets are to become entirely centralized by the tentacles of the real “vampire squid.”

As the BIS concludes:

“Let me remind you too about the considerable fiscal risks that many countries face – risks that could at some point confront central banks with extremely difficult choices.”

In the meantime, here is what I am reading this weekend.


Politics/Fed/Economy


Video

Ray Dalio’s recent TED Talk – “How To Build A Company Where The Best Ideas Win”


Markets


Research / Interesting Reads


“Sometimes the market does something so stupid it takes your breath away.” – Jim Cramer

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Central Banks Have Purchased $2 Trillion In Assets In 2017

In his latest “flow report”, BofA’s Michael Hartnett looks at the “Disconnect Myth” between rising stocks and bonds and summarizes succinctly that there is “no disconnect between stocks & bonds.”

Why? The best, and simplest, explanation for low yields & high stocks is simple: so far in 2017 there has been $1.96 trillion of central bank purchases of financial assets in 2017 alone, as central bank balance sheets have grown by $11.26 trillion since Lehman to $15.6 trillion. Hartnett concedes that the second best explanation is bonds pricing in low CPI (increasingly a new structurally low level of inflation due to tech disruption of labor force) while equities price in high EPS (with little on horizon to meaningfully reverse trend), although there is no reason why the second can’t flow from the first.

The result is an era of lower yields & higher stocks, or as the chart below shows, an era in which the alligator jaws of death are just waiting for their moment to shine. Here are the three phases:

  • 1981-2009 (disinflation/Fed put), 10-year Treasury yields down from 15.8% to 3.9% = 10.7% annualized S&P 500 returns;
  • 2009-2016 (Fed QE/global ZIRP) yields down from 3.9% to 2.4% = 14.9% SPX ann. return;
  • 2017 YTD (ECB/BoJ QE) yield down to 2%, SPX annualizing 17.5%.

BofA then gives a list of how to time the endgame, or when bonds become bad for stocks:

  1. yield curve inverts,
  2. lower yields lead to higher credit spreads (particularly high yield & EM bond spreads…watch tech spreads in coming months),
  3. The deflation bonds discounting starts to negatively impact EPS,
  4. flip side is never good sign to see rising yields coincide with falling bank & housing stocks;

The good news is that none of these 4 conditions are being met, for now.

Some other observations from BofA, which points out this week’s ZIRPy Flows:

  • markets now see Sep’18 as earliest FOMC with >50% chance of Fed hike;
  • 2-10-year UST yield curve at 78bps (3bps from 9-year lows);
  • US IG & HY bonds at highs;
  • 4 straight weeks of outflows from floating-rate bank loan funds (after 31 straight weeks of inflows post-Trump);
  • IG on pace for record year of inflows ($179bn YTD);
  • biggest inflows to Treasury funds in 61 weeks (most since Brexit).

Putting these together, signal that consensus is once again discounting the “Japanification” of Wall Street.

Speaking of flows this week, $6.6bn went into bonds, $3.7bn into equities, and $1.3bn into gold. Speaking of the latter, this was the biggest inflows in 30 weeks as XAU pushing gold to the highest in 1 year, and the USD to the lowest since Jan’15.

One thing still hasn’t changed though: BTD, or investors still buying each and every risk dip. Tuesday saw largest daily inflow to equities ($5.1bn – mostly US & Japan) in 6 weeks on day SPX down 0.8% on North Korea/Irma. One day, Buy-The-Dip will spectacularly stop working, but until then…

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At Least Have the Basic Courage and Decency to Call an ‘Amnesty’ an ‘Amnesty’

Barack Obama insists DAPA is not an amnesty. ||| Whitehouse.govThis week, Katherine Mangu-Ward argued (in this space, on Tucker Carlson Tonight, and during our weekly Reason Podcast) that as policy goes, the Deferred Action for Childhood Arrivals, which President Donald Trump slapped a six-month expiration date on, is worthy of being adopted, especially by act of legislation rather than sweep of the president’s pen. In today’s Washington Post, I also take issue with the way an otherwise sensible deprioritization was initially sold—namely by carefully avoiding and even denying the radioactive word amnesty. Excerpt:

“Now, let’s be clear,” [President Barack Obama] said [in 2012], leading with the classic politician tell for impending opacity, “this is not amnesty, this is not immunity.”

Yeah, no.

The whole point of DACA is immunity: from deportation, and the existential uncertainties that flow from the possibility that at any moment you could be detained, cuffed, then dropped off in a country you might not even know. When there are millions of people living outside of any given law, not only is that an excellent moment to ask whether the problem is prohibition rather than criminality — as George H.W. Bush observed during the Republican presidential primary debate in 1980, “we’re creating a whole society of really honorable, decent, family-loving people that are in violation of the law” — but the situation also requires that the federal government prioritize scarce law enforcement resources.

It’s “amnesty,” however, that’s the real linguistic third rail here, and it is well past time that we stomped on it.

You can read the whole thing here.

Also, from November 2014: “Obama Waterboards the Definition of Amnesty in Immigration Speech.”

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Caribbean Islands Devastated By Irma, Bernie Sanders Plans to Unveil Medicare For All Bill, and House Passes Debt Ceiling Increase: P.M. Links

  • Caribbean islands are devastated by Hurricane Irma as it makes its way toward Florida. Dutch troops are deployed in St. Martin to prevent looting.
  • Fortunately Richard Branson was able to ride out the storm in his fortified wine cellar. (The cellar was fortified, not the wine.)
  • Sen. Bernie Sanders (I – Vt.) is going to unveil his Medicare for All bill on Wednesday.
  • The House passes a three-month debt ceiling limit increase, tied to Hurricane Harvey aid. All 90 of the no votes came from Republicans. You can read Reason‘s take on this display of bi-partisanship here.

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Kim, Don, Gary, & Irma Spark Dollar Exodus As Gold Gains Most Since Brexit

Catastrophic storms, worst week for macro data since July, debt ceiling to be cancelled, Gary Cohn off the list for Fed Chair (amid resignation chatter) and Korean hydrogen bombs… gold spikes, dollar dumps, bond yields plunge, and… stocks limp less than 1% lower…

 

Bonds (red) & Bullion (orange) surged on the week, stocks (blue) and the dollar (USDJPY green) tumbled…

 

Trannies were the only major index in the green on the week…Nasdaq was the week's biggest loser…

 

 

Financials were the week's biggest loser (rates lower and flatter and Gary Cohn) with the worst week in almost 6 months, along with Tech…

 

Financials in fact broke below their 50-, 100- and 200-DMA…

 

FANG Stocks tumbled today, erasing any gains on the week…

 

Insurers bounced today as Irma was downgraded to a mere Cat-4 and a slight trajectory shift…Today was the best day for S&P Insurers Index since Feb 2016

 

VIX rose on the week – the first time in 4 weeks – but hovered, like the S&P, in a very narrow range after the initial Korea reaction on Tuesday…

 

Treasury yields tumbled on the week (with a bounce today)…

 

The bounce started at 10Y broke to a 2.01% handle…

 

The Dollar Index suffered its worst weekly drop since July 2016…

 

Yen gained the most against the greenback on the week…

 

Yuan was crushed today…after tagging 6.45 it appeared like someone stepped in…

 

After spiking to 18 month highs overnight… and the best week in over a decade

 

While WTI tumbled (biggest daily drop in 2 months) on China refinery cutbacks (WTI broke below its 50- and 100-DMA), it managed to hold on to gains for the week (the first weekly gain in the last six weeks) as RBOB slipped lower…

 

Gas prices remain high – but judging by the reversion in wholesale prices, may be peaking…

 

Bitcoin took another nosedive today after headlines about China closing local exchanges…

 

OJ Futures jumped mopst since October on the week…

 

And Finally, Gold extended gains on the week – to complete the best 2-week rally since Brexit (June 2016)

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Penn Law Professor on Her Controversial ‘Return to Cultural Norms’ Editorial: New at Reason

One professor expressed her opinion on what cultural norms have to do with societal problems. You can guess what happened next.

Samantha Harris writes:

University of Pennsylvania law professor Amy Wax argued in an editorial that many of the problems plaguing American society—opioid abuse, unemployment, inner-city violence—can be traced to “the breakdown of the country’s bourgeois culture.”

Wax and her co-author suggested the “re-embrace” of cultural norms such as education, marriage before children, and respect for authority by Americans would “significantly reduce society’s pathologies.”

The firestorm that followed the editorial’s publication culminated in 33 members of the Penn Law faculty publicly denouncing Wax in an open letter published in The Daily Pennsylvanian. The professors did not engage Wax’s arguments on the merits, but instead spoke of their concern for an ideal educational experience in which people “respect one another without bias or stereotype.”

The letter concluded with a thinly veiled invitation to students to report Wax or anyone else who doesn’t toe the company line when it comes to matters of diversity: “To our students, we say the following: If your experience at Penn Law falls substantially short of this ideal, something has gone wrong, and we want to know about it.”

View this article.

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Friday Humor: Hillary Working On Second Book Casting Blame For Failure Of First

Fact or Fiction:

CHAPPAQUA, NY – Saying it would provide a candid account of her experiences writing an unsuccessful tell-all, sources confirmed Thursday that Hillary Clinton is already working on a follow-up book casting blame for the failures of her previous memoir What Happened.

 

 

“From my agent negotiating that underwhelming deal with Simon & Schuster, to the graphic designer’s lackluster cover art, to my so-called supporters who couldn’t be bothered to drop $17.99 for the hardcover copy – everyone had a hand in undermining my last book’s success,” reads a passage from the introduction to Clinton’s What Also Happened, which repeatedly decries her prior book’s “indecipherable” font and dedicates an entire chapter to lashing out at her copy editor for making her look like “an idiot third-grader.”

 

“I’ll never forget how Amazon buried me and how Barnes & Noble completely sabotaged me by displaying my book way in the back in that no man’s land by the CDs. Frankly, it’s obvious I got screwed on all sides.”

 

 

Accusing them of stealing her spotlight, the book reportedly concludes with a long list of every other celebrity who published a memoir in the past year.

Source: The Onion

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