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By Jack Matlock, the 4-year U.S. Ambassador to the Soviet Union from 1987-1991, at the time that the USSR fell.   Before that, Matlock served as the Director of Soviet Affairs in the State Department, the U.S. Ambassador to Czechoslovakia, and the Special Assistant to the President for National Security Affairs and Senior Director for European and Soviet Affairs on the National Security Council Staff.  Originally posted at JackMatlock.com. Posted with permission of the author.

Click here to see who Matlock is and what he's said in the past about U.S.-Russian relations.

Our press seems to be in a feeding frenzy regarding contacts that President Trump’s supporters had with Russian Ambassador Sergei Kislyak and with other Russian diplomats. The assumption seems to be that there was something sinister about these contacts, just because they were with Russian diplomats. As one who spent a 35-year diplomatic career working to open up the Soviet Union and to make communication between our diplomats and ordinary citizens a normal practice, I find the attitude of much of our political establishment and of some of our once respected media outlets quite incomprehensible. What in the world is wrong with consulting a foreign embassy about ways to improve relations? Anyone who aspires to advise an American president should do just that.

Yesterday I received four rather curious questions from Mariana Rambaldi of Univision Digital. I reproduce below the questions and the answers I have given.

Question 1: Seeing the case of Michael Flynn, that has to resign after it emerged that he spoke with the Russian ambassador about sanctions against Russia before Trump took office, and now Jeff Sessions is in a similar situation. Why is so toxic to talk with Sergey Kislyak?

Answer: Ambassador Kislyak is a distinguished and very able diplomat. Anyone interested in improving relations with Russia and avoiding another nuclear arms race—which is a vital interest of the United States—should discuss current issues with him and members of his staff. To consider him “toxic” is ridiculous. I understand that Michael Flynn resigned because he failed to inform the vice president of the full content of his conversation. I have no idea why that happened, but see nothing wrong with his contact with Ambassador Kislyak so long as it was authorized by the president-elect. Certainly, Ambassador Kislyak did nothing wrong.

Question 2: According to your experience, are Russians ambassadors under the sight of the Russian intelligence or they work together?

Answer: This is a strange question. Intelligence operations are normal at most embassies in the world. In the case of the United States, ambassadors must be informed of intelligence operations within the countries to which they are accredited and can veto operations that they consider unwise or too risky, or contrary to policy. In the Soviet Union, during the Cold War, Soviet ambassadors did not have direct control over intelligence operations. Those operations were controlled directly from Moscow. I do not know what Russian Federation procedures are today. Nevertheless, whether controlled by the ambassador or not, all members of an embassy or consulate work for their host government. During the Cold War, at least, we sometimes used Soviet intelligence officers to get messages direct to the Soviet leadership. For example, during the Cuban missile crisis, President Kennedy used a “channel” through the KGB resident in Washington to work out the understanding under which Soviet nuclear missiles were withdrawn from Cuba.

Question 3. How common (and ethic) is that a person related with a presidential campaign in the US has contact with the Russian embassy?

Answer: Why are you singling out the Russian embassy? If you want to understand the policy of another country, you need to consult that country’s representatives. It is quite common for foreign diplomats to cultivate candidates and their staffs. That is part of their job. If Americans plan to advise the president on policy issues, they would be wise to maintain contact with the foreign embassy in question to understand that country’s attitude toward the issues involved. Certainly, both Democrats and Republicans would contact Soviet Ambassador Dobrynin during the Cold War and discuss the issues with him. As the person in charge of our embassy in Moscow during several political campaigns, I would often set up meetings of candidates and their staffs with Soviet officials. Such contacts are certainly ethical so long as they do not involve disclosure of classified information or attempts to negotiate specific issues. In fact, I would say that any person who presumes to advise an incoming president on vital policy issues needs to understand the approach of the country in question and therefore is remiss if he or she does not consult with the embassy in question.

Question 4: In a few words, What’s your point of view about Sessions-Kislyak case? Is possible that Sessions finally resigns?

Answer: I don’t know whether Attorney General Sessions will resign or not. It would seem that his recusal from any investigation on the subject would be adequate. He would not have been my candidate for attorney general and if I had been in the Senate I most likely would not have voted in favor of his confirmation. Nevertheless, I have no problem with the fact that he occasionally exchanged words with Ambassador Kislyak.

In fact, I believe it is wrong to assume that such conversations are somehow suspect. When I was ambassador to the USSR and Gorbachev finally allowed competitive elections, we in the U.S. embassy talked to everyone. I made a special point to keep personal relations with Boris Yeltsin when he in effect led the opposition. That was not to help get him elected (we favored Gorbachev), but to understand his tactics and policies and to make sure he understood ours.

The whole brou-ha-ha over contacts with Russian diplomats has taken on all the earmarks of a witch hunt. President Trump is right to make that charge. If there was any violation of U.S. law by any of his supporters—for example disclosure of classified information to unauthorized persons—then the Department of Justice should seek an indictment and if they obtain one, prosecute the case. Until then, there should be no public accusations. Also, I have been taught that in a democracy with the rule of law, the accused are entitled to a presumption of innocence until convicted. But we have leaks that imply that any conversation with a Russian embassy official is suspect. That is the attitude of a police state, and leaking such allegations violates every normal rule regarding FBI investigations. President Trump is right to be upset, though it is not helpful for him to lash out at the media in general.

Finding a way to improve relations with Russia is in the vital interest of the United States. Nuclear weapons constitute an existential threat to our nation, and indeed to humanity. We are on the brink of another nuclear arms race which would be not only dangerous in itself, but would make cooperation with Russia on many other important issues virtually impossible. Those who are trying to find a way to improve relations with Russia should be praised, not scapegoated.

via http://ift.tt/2nQGwSS George Washington

With Americans now “stuck with Obamacare for the foreseeable future“, attention shifts to Trump’s next agenda item: tax reform.

This was confirmed by none other than the President himself who moments ago said that “Republicans will probably work on tax reform now.” To be sure, following today’s embarrassing fiasco, Trump will be eager to move on to a law which will be easier to pass, and according to market consensus, tax reform is precisely that. Alas, consensus may once again be wrong.

Ignoring the fact that work on tax reform in earnest won’t start for 6-8 weeks as House Ways and Means member Merchant said moments ago, and may not even take place until fiscal 2018 (after August), the reality is that since Obamacare and tax reform are both parts of the Reconciliation process, as a result of not freeing up hundreds of billions from the deficit that the CBO estimated repealing Obamacare would do, it means that Trump’s tax cuts have been hobbled – by as much as $500 billion – before even starting.

Furthermore, with the Freedom Caucus flexing its muscle and openly defying Trump, another major headache for Trump’s tax reform is that the Bordere Adjustment Tax – an aspect of the reform that the Caucus has been vocally against – is likely off the table. And since BAT was expected to generate over $1 trillion in government revenues, it means that a matched amount in tax cuts is also now off the table.

In summary, between Obamacare repeal and BAT being scrapped, roughly $1.5 trillion in budget “buffers” are wiped out.

And yet, when news hit that Obamacare repeal has failed, stocks surged, arguably on traders’ belief that this will accelerate tax reform. Alas, in addition to the above, Axios lists another four reasons why today’s healthcare debacle spells trouble for tax reform.

• We now know that Congressional Republicans are willing to buck Trump and leadership on big-ticket legislative items.
• Republicans will need to keep working on healthcare reform, even though Trump says that he’s done with it. They’ve campaigned for years on killing Obamacare, and can’t head into the mid-terms without giving it another go. Particularly when they keep insisting that the current scheme is collapsing?
• CBO said that the Republican healthcare bill would shrink long-term budget deficits by hundreds of billions of dollars. Without it, filling the tax revenue hole becomes harder.
• Sean Spicer today said repeatedly that Trump had talked to “everyone” and listened to “all” ideas, which reflects zero consideration of Congressional Democrats. If such sentiment persists ? it just raises the degree of difficulty for tax reform, particularly if the White House doesn’t change its position on keeping corporate tax reform tied to personal tax reform.

Finally, here is Goldman’s timeline: “Our current expectation is that tax reform will be enacted in Q4 2017, with a clear risk that it slips to early 2018.”

If today’s events are any indication, don’t hold your breath for a law being concluded this calendar year.

via http://ift.tt/2nQVd8x Tyler Durden

During his 1928 election campaign, President Herbert Hoover defined the ‘American Dream’ as “a chicken in every pot and a car in every garage.”  And while the chickens and cars (courtesy of a massive subprime auto loan bubble) don’t seem to be much of a problem these days, for Americans in over half of the largest cities in the country, owning a home is.

According to a new report from Bloomberg, 52 of the 100 largest U.S. cities were majority-renter in 2015 with 21 of those cities having shifted from majority-owner markets since the ‘great recession’ resulted in a wave of foreclosures starting in 2009.  These include such hot housing markets as Denver and San Diego and lukewarm locales, such as Detroit and Baltimore, better known for vacant homes than residential development.

 

And while a report from the “Urban Institute” implies that the sudden lack of home ownership in the U.S. is directly attributable to “demographic trends,” we’re fairly certain there may be other dynamics at play…

A 2015 report from the Urban Institute predicted that rentership would keep rising through 2030, thanks to demographic trends that include aging baby boomers who downsize into rentals.

 

Those shifts are likely to present new challenges for cities unequipped to handle high rental populations. Detroit Future City, a nonprofit that highlighted Detroit’s shift in a report earlier this month, argues that the city needs an intentional strategy for dealing with the rising population of such households.

 

That could include providing new protections for renters or creating resources to help landlords keep properties in good repair. On a grander scale, the Center for Budget Policy & Priorities, a Washington-based research institute, published a proposal this month calling for a new tax credit for low-wage workers, seniors, and people for disabilities.

 

Most low-income families don’t rent by choice, said Nela Richardson, chief economist at Redfin. And plenty of higher-income households rent because they can’t afford to buy. “We don’t have enough affordable supply in either rental or for-sale markets,” said Richardson, adding that cities interested in promoting renter-friendly policies can rethink their zoning policies to encourage more construction.

…like maybe the fact that millions of people just suffered a foreclosure on their credit report and aren’t even eligible for an FHA loan for at least 3 years.  Or, perhaps that silly little rule whereby banks are now requiring a cash down payment when purchasing a home is tripping some folk up…fascists.

Or, maybe Americans finally just realized that owning a home was never “The American Dream” in the first place after, at least for many folks, it wiped out their entire life savings. 

via http://ift.tt/2oeFNXO Tyler Durden

Going back to the ‘USA is Exceptional’ meme- yes this is true!  But it’s not necessarily a good thing (just like, being positive isn’t always good, for example it’s not good to be HIV positive).  USA has the highest per capita prison population – and is exceptional in a number of areas.  USA is number one in terms of real GDP, and last in many other terms.  One thing that the USA is last in – FX.  As we explain in Splitting Pennies – there is a paradoxical situation that in the land of the world’s reserve currency, knowledge about currency is reserved to the few.  It is a specific USA issue – in other countries, even Canada – yes even in Canada – there is a real FX market.  Only in USA is there a big black hole.  Let’s summarize what this means:

• We have 2 choices of Forex brokers, Oanda and Gain.  In the entire world, there are more than 10,000 Forex brokers.
• There is no Forex regulation system (NFA ‘polices’ FX but the NFA is a FUTURES regulator, hence the name “National Futures Association”)   Foreign Futures, by the way – is not Forex. 
• Only one bank, Everbank, offers a non-USD account.  (Anyone who did business in another country knows that the first question a banker asks when you open a new account is ‘what currency do you want as your denomination’)
• The American knowledge of FX is so close to zero it’s indistinguishable from zero.

Practically, if you want to open an account at a non-US broker that offers normal options for trading and investing, you have to meet ECP criteria which for an individual, means you have about $10 Million cash in the markets.  But that’s not all – you’re going to need to involve your accountant (which as an ECP you probably have) to write a letter, and you’re going to need to get ready for the FBAR, that’s IF the foreign broker will accept you.  Going through that, you’ll then need to wire your funds to the foreign broker – hopefully they will offer USD accounts (most do), but if they don’t, unless you use an FX payment service, you’ll be exit-taxed at a whopping rate of 8% (that means, if you want 100,000 USD to arrive at your foreign broker, you have to send 108,000 to overcome the massive spread charged by the US banks).  Multiple class actions have been settled by these banks and they continue raping their customers on foreign transfers, mostly because they don’t know there are alternatives.  The alternative is a payment service that sits in between your bank in the US and the broker’s bank overseas that will do the FX ‘deliverable’ transfer for you, at a really small spread, like .25% or 25 basis points compared to the potential 800 basis points charged by the big Wall St. banks.   But here again, why does this situation exist at all?  

Going back to our ECP process, now that the ECP investor has jumped through all these hoops, prepared to fill out the FBAR, setup the FX payment service – now we hope after all this they’re willing to invest at least $1 Million just to pay for all this nonsense.  There’s a huge upside of course, that by being ‘internationalized’ as Simon Black would say, the ECP investor can tap into a world of FX algorithms that aren’t available in the US which provide huge advantages over what’s offered in the US.  To be clear on the point of the US black hole, 99% of FX strategies don’t work with the US rules and the 2 choices of broker, are not good choices.  So trading FX in the US with the rules and the 2 available choices is really playing a game to lose.  That doesn’t mean it is impossible to make money trading FX in the US, it’s just very difficult, when compared with the plethora of options overseas.  Exiting orders in the same order that you entered (FIFO rule) as one example prohibits 90% of algorithms from working at all.

Money doesn’t grow on trees, but the Federal Reserve creates fresh US Dollars on a daily basis, making investing a game of hot potato.  Don’t be left without a chair when the music stops.

Want to know more?  Checkout Splitting Pennies – Understanding Forex.  Get a copy today at Barnes & Noble.

via http://ift.tt/2nwRtYO globalintelhub

Authored by Lance Roberts via RealInvestmentAdvice.com,

In this past weekend’s missive I wrote:

“Speaking of low volatility, the market has now gone 108-trading days without a drop of 1% for both the Dow and the S&P 500. This is the longest stretch since September of 1993 for the Dow and December of 1995 for the S&P 500.

 

The issue becomes, of course, which way the market breaks when volatility returns to the market. Over the course of the last three years, in particular, those breaks have been to the downside as shown below.”

 

 

“Given the particularly extreme overbought condition that currently exists, the strongest odds suggest the next pickup in volatility will be in the form of a corrective action to reverse some of that condition.”

Of course, on Tuesday afternoon that long streak of complacency came to an end as all major U.S. markets tumbled by more than 1% by the close.

While such an event has been expected, it still seemed to catch investors by surprise. Of course, given such a long period of upwardly trending prices with exceptionally low volatility, investors had been lulled into very high levels of complacency. The media had also fallen into the trap, as noted by the graphic above, suggesting the one-day correction had been a major mean reverting event.

It wasn’t.

As shown in the chart above, updated through Thursday, all indicators remain extremely overbought. While the markets may indeed rally into Friday’s close, it is quite likely the correction that began on Tuesday is not complete as of yet.

Furthermore, after such a long period of low volatility, the sharp decline in asset prices is one day FELT much worse than it actually was. 

This is the important, and often missed point about “passive indexing.”

While a 10% decline in the market certainly does SOUND that bad, with a 2000 point loss on the Dow, or a 230 point loss on the S&P 500, FEELS entirely different. This is where investors start making emotionally bad investment decisions where “passive investing” ultimately becomes “panic selling.”

It is the “lack of perspective” by investors that eventually lead them into the myriad of investment mistakes which destroys investment capital. Think about it this way. If a 1% decline causes this much angst in the market, what happens when you multiply that by 10?

While it is often said it is only “time IN the market” that matters, investors must remember “time” is the one commodity we can not replace. 

Just some things I am thinking about this weekend as I catch up on my reading.

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Trump/Fed/Economy

• The American Dream: An Endangered Ethos by Danielle DiMartino-Booth via Money Strong
• Time To Kill “Obamacare Lite” by David Stockman via Daily Reckoning
• Fed Rosengren Is Worried About CRE by Wolf Richter via Wolf Street
• Economy Sounding An Alarm by Pedro Da Costa via BI
• Trumps Plans May Need Foreign Help by Evelyn Cheng via CNBC
• How A Rate Hike Affects Borrowers & Savers by Jeff Cox via CNBC
• What You Should Know About The Fed by William Greider via The Nation
• The Surge In America’s “Animal Spirits” by Mohamed El-Erian via Project Syndicate
• Why The Fed Paid Banks NOT To Lend by Caroline Baum via MarketWatch
• Yellen Ignoring TBTF Is Dangerous by Craig Wilson via The Daily Reckoning
• 4-Political Risks Keeping Goldman Up At Night by Tyler Durden via Zero Hedge
• Why Trump Thinks Passing AHCA Bill Is Sensible by Jonathan Chait via New York Magazine
• Rate Hikes + Low Growth = Recession by Mark DeCambre via MarketWatch
• 2% Growth As Good As It Gets by Jason Furman via Peterson Institute

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Markets

• Field Of Stock Market Dreams by Eric Parnell via Seeking Alpha
• Age Old Adages For The Bull Market by Ed Yardeni via Dr. Ed’s Blog
• Credit Suisse: Signs Of A Top by Akin Oyedele via BI
• Return Of The Risk Off Trade by James Picerno via Capital Spectator
• Forget The Health Bill, Damage Is Done by Tyler Durden via Zero Hedge
• Big Money Eyeing Stock Market Exit by Brett Arends via MarketWatch
• Here’s Why Oil Prices Are Crashing by Jeff Bukhari via Fortune
• Has OPEC Underestimated U.S. Shale by Tsvetana Paraskova via Oil Price.com
• Animal Spirits Not Fueling The Markets, Yet. by Jeffrey Bartash via MarketWatch
• A Return To The Permanent Portfolio by David Merkel via Aleph Blog
• Black Swan Gauge Suggests Caution by Mark DeCambre via MarketWatch
• Why You Should Be Short Financials by Doug Kass via Real Clear Markets
• Stock Market Is Too Quiet by Anthony Mirhaydari via Fiscal Times
• Record Number Of Investors Think Market Overvalued by Jeff Cox via CNBC
• U.S. Stock Market Is An Anomaly by Wesley Gray via Yahoo Finance

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Research / Interesting Reads

• Housing “Supply Shortage” Is #FakeNews by Mark Hanson via MHanson.com
• Ray Dalio: The Rise Of Populism by Ray Dalio via BridgeWater
• 7-Traits Of Successful Investors by Jim O’Shaughnessy via Tumblr
• The Incredible Shrinking Universe Of Stocks by Credit Suisse
• Robots: The 4th Industrial Revolution by David Kelnar via Medium
• The Man Behind The Trump Presidency by Jane Mayer via The New Yorker
• 4-Depressing Reasons Americans Don’t Save by Maria Lamagna via MarketWatch
• The Battle Of Personal Assistants On Your Phone by Hayley Tsukayama via Washington Post
• Why Wall Street’s Decline Won’t End by Nicole Gelinas via NY Post
• You Should Worry About Falling Car Prices by Edward Harrison via Credit Writedowns
• Does Anybody Eat Cereal For Breakfast? by Paul La Monica via CNN Money
• Bonds Will Outperform Stocks Over Next Decade by John Hussman via Hussman Funds
• Traders Aggressively Trim Their Hedges by Dana Lyons via Tumblr
• Bogle’s 4% Return Estimate May Be Optimistic by Jesse Felder via The Felder Report

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“Successful preservation of capital must overcome the handicaps of socialistic governments to supposedly help the masses.” – Gerald Loeb

via http://ift.tt/2nNt81q Tyler Durden

"Good Day Sir…"

 

Another day, another headline-algo game… Dow is down over 600 points from record highs

• 1210 Drop – *GOP LEADERS NOT CONFIDENT THEY HAVE VOTES TO PASS HEALTH BILL
• 1228 Rally – REP MULLIN: "WE'RE TRENDING YES ON THE VOTE": RTRS
• 1235 Drop – Freedom Caucus "things are not good"
• 1247 Drop  – Good chance vote may be postponed
• 1249 Drop – Ryan "we don't have the votes"
• 1350 Drop – Spicer sounding downbeat
• 1450 Drop – REP. COLE: IF HEALTH BILL FAILS, IT MAKES TAX REFORM HARDER
• 1515 Drop – U.S. HOUSE SPEAKER RYAN HAS TOLD TRUMP THE HEALTHCARE BILL WILL NOT PASS THE HOUSE -CNN: RTRS
• 1529 Rally – Vote Pulled (retarded narrative that now they can focus on tax reform!)
• 1545 Drop – Market suddenly wakes up to realization no health bill means smaller tax reform

  1527 Rally –

Just look at the panic selling in VIX as headline shit that the vote was being pulled!!!

 

The Dow's longest losing streak since right before the election (7 days)

VIX soared above 14 to 2017 highs… up 6 days in a row and above its 200DMA – then collapsed in the last few minuest to close red!

 

On the week:

• Small Caps worst week since Feb 2016
• Trannies down 3 weeks in a row – worst week since June 2016
• Dow worst week since September
• S&P worst week since November
• Nasdaq worst week since 2016 (from record high to one-month lows)

Financials were a bloodbath on the week, with only Utes in the green –

 

Financials suffered the worst week since Jan 2016

 

The Bloomberg Dollar Index fell again today – the 8th losing day in a row – USD Index down 2nd week in a row – biggest 2-week drop in 12 months

 

The longest losing streak since April 2011… (the dollar has not had a longer losing streak since Dec 2006)

 

Treasury yields tumbled on the week – this is the best 2 weeks for Bonds since July 2016 – 

 

NOTE that both times The Fed hiked rates, yields tumbled…30Y back to 3.00%, 10Y back to 2.40%

 

Gold up for 2 weeks in a row – best 2 weeks since Brexit – back to unchanged for March

 

Crude managed to scramble back to a $48 handle into the close but red on the week, RBOB rallied into the close back above $1.60

 

Gold topped $1250, Silver topped $17.50 on the week…

 

Gold is 2017's biggest winner…

 

Time for some mean reversion – in 'soft' data…

 

And stocks to earnings…

via http://ift.tt/2nlsYNT Tyler Durden

Following two days of utter chaos in Washington D.C., the Republicans in the House have finally called it quits and laid to rest, at least for now, efforts to repeal and replace Obamacare.  The bill was pulled shortly before voting was set to begin at 3:45PM EST.

• TRUMP ASKED U.S. HOUSE LEADERS TO CANCEL VOTE ON REPUBLICAN HEALTHCARE BILL – HOUSE LEADERSHIP AIDE
• TRUMP SAID TO TELL WASH. POST JUST PULLED HEALTH CARE BILL
• TRUMP SAYS “WE JUST PULLED IT”- WASHINGTON POST REPORTER IN TWEET
• REPUBLICAN LEADERS POSTPONE VOTE ON HEALTHCARE BILL
• TRUMP SAID TO TELL WASH. POST `I DON’T BLAME PAUL’ RYAN

BREAKING: Trump suggested pulling House healthcare bill and House Speaker Ryan has agreed – networks. https://t.co/oa0NEKRNdP

— Reuters Top News (@Reuters) March 24, 2017

After a last ditch effort by Paul Ryan and Mike Pence to rally support from conservative members of the House and save the bill, at the end of the day, they simply didn’t have the votes.

Not. Pretty. http://pic.twitter.com/VrgG3K0u7v

— Bob Bryan (@RobertBryan4) March 24, 2017

 

Tune in below to watch a dejected Paul Ryan take questions from the press:

via http://ift.tt/2nwDW3C Tyler Durden