As Turkey Turns Totalitarian, EU Officials Move to Accelerate EU Membership Bid

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The EU is turning a blind eye to an opposition crackdown in Turkey that’s polarizing society and complicating efforts to find a political solution to the nation’s Kurdish conflict, Demirtas said in an impromptu interview en route to Brussels. European leaders are expected to ink an agreement with Turkey on Monday that will offer faster EU membership negotiations and visa-free travel in exchange for stopping refugees from crossing the country to enter Europe.

Demirtas was speaking two days after Turkish government trustees took over one of Turkey’s primary opposition newspapers in a dramatic raid that sparked clashes between protesters and police. The seizure reflects a broader intolerance of dissent that has also undermined the HDP, who are now largely excluded from mainstream media coverage.

On the same day that authorities took control of the Zaman newspaper, European Council President Donald Tusk, who was in Istanbul, tweeted a picture of himself with Erdogan in front of a pair of golden throne-like seats.

It was almost identical to a photo-op with German Chancellor Angela Merkel last year, which was around the same time that the EU agreed to Erdogan’s request to withhold a critical report on Turkish democracy until after the general election a few days later.

– From the Bloomberg article: EU Making `Big Mistake’ in Turkey Deal

European Union bureaucrats like to portray themselves as enlightened, competent technocrats who nobly represent humanity’s grandest political and economic experiment. Meanwhile, the stark reality is the EU is little more than a bunch of self-interested frauds willing to do “whatever it takes” to preserve their own status and power. When you peel back the EU’s facade of disingenuous humanitarian pledges, what you discover is a putrid cadre of incompetent, corrupt and deeply unethical politicians. A perfect example of this truth was just revealed as EU officials moved to strike a deal with an increasingly authoritarian Turkey in a desperate attempt to stem the refugee flow.

It’s been known for quite some time that Turkey is using the refugee crisis as leverage to pressure on the EU and other “allies,” which makes panicked attempts by EU bureaucrats to strike a deal with Erdogan equivalent to negotiating with terrorists. Too harsh you say? Let’s revisit some recent articles highlighting Turkey’s recent spiral into totalitarianism.

First, from the post So Who’s Really Sponsoring ISIS? Turkey, Saudi Arabia, and Other U.S. “Allies”:

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The Sabine Slam: Court Decision Threatens Midstream Sector

Submitted by Charles Kennedy via OilPrice.com,

A federal bankruptcy judge ruled that Sabine Oil & Gas could withdraw from its contract obligations with pipeline companies to ship a certain volume of oil and gas through their pipelines.

The court decision may seem arcane, but it could have major ramifications for both producers and midstream companies. Under the contracts, a company like Sabine Oil & Gas promises to ship a certain volume of hydrocarbons through the pipeline at a set fee. If they fail to do so, they still have to pay the pipeline company for the use of the pipeline capacity.

Sabine Oil & Gas, a struggling producer, says that it can no longer ship enough volume to meet the contractual agreement and it wanted to be let out of the contract. The company went to a bankruptcy judge in Manhattan, who ruled in Sabine’s favor.

The pipeline contracts are very attractive to investors in midstream companies, who love the secure and stable revenue streams that such arrangements offer. The ruling could lead to a lot of uncertainty for the midstream sector. The Alerian MLP Index, an index fund that tracks pipeline companies, fell by more than 6 percent on March 8.

 

Still, the judge ruled that Texas law was not clear enough to make the ruling binding. That likely means more litigation will be forthcoming. “One could see this ruling as something favorable for producers, but it’s something that’s going to play out further in the courts,” Ed Longanecker, president of the Texas Independent Producers and Royalty Owners Association, told The Wall Street Journal. 

More and more oil and gas producers are falling into bankruptcy, and even for those that avoid such a fate, meeting obligations with pipeline companies is becoming more difficult. The cloudy legality around how to get out of these contracts is creating uncertainty not just for drillers, but also for pipeline companies. The latest decision on Sabine Oil & Gas will do little to remove that uncertainty.


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“Some Folks Were Test-Firing Nuclear Missiles…”

Hillary Clinton is “deeply concerned” about Iran’s missile tests, but President Obama proclaims this act does not violate the treaty? With The White House today saying it will “redouble” its efforts to limit Iran’s nuclear ability and noting that the US wouldn’t be surprised to see more test-fires this week, we wonder just what it takes to “violate” the treaty?

 

Source: Investors.com


Of course, test-firing missiles in Iran is totally different from test-firing missiles in North Korea…


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EIA Inventory Report and Oil Market Analysis 3 9 2016 (Video)

By EconMatters

Gasoline demand is driving the oil complex higher, relatively strong gasoline numbers on the refinery input side and the gasoline demand side of the equation. Brent should test $44 a barrel pretty soon, unless something dramatically happens that is unforeseen as of today.

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“Dust Off The Tail-Risk Hedges” MKM Warns US Equities Are Entering A “High Volatility Regime”

"Dust off the systematic hedging strategies, and get re-acquainted with the concept of tail-risk," is the ominous conclusion from MKM Partners' Jim Strugger's latest report. Despite every effort from central banks to maintain a low-volatility environment, the magnitude of the August 2015 'shock' not just for U.S. equities but across asset classes, was great enough for Strugger to conclude that a transition into a high-volatility regime had begun. Given the length of the economic cycle, bull market, and the rise in financial stress globally, Strugger warns a transition to a high-vol regime leaves ultimate damage in the &P 500 averaging 53%.

There have been seven distinct volatility regimes since the inception of the Chicago Board Options Exchange (CBOE) VXO implied volatility index in the mid-1980s, Strugger points out. The average duration of a volatility regime has lasted five years, with the most recent regime from late 2012 to August of 2015 lasting just 2.75 years.

 

Low volatility regimes have been positive for stocks. Periods such as 1991-1997, 2003-2007, 2013-current were historically a time of positive equity market gains, with low implied correlation, flat skew and stable upward-sloping term structure. On average, SPX monthly returns were positive 67% of the time, while spot VIX average 14, which appears a key resistance point today.

Since inception of VIX there have been five prior 40-magnitude VIX shocks, all during periods of structurally elevated volatility.. August was the trigger…

Crucially, U.S. Equities Are Not In a Vacuum…

A major gap has opened up between global financial stress and VIX which is unusual as they have historically tracked each other extremely closesly…

It’s a Global High-Vol Regime

GFSI measures risk via 41 sub-components across a range of asset classes and geographies. It inflected in earlier in 2015 actually preceding the shift in U.S. equity implied volatility…

 

In a worst case scenario, Strugger adds:

Implications are significant since the last two bear markets saw equities cascade lower for 1.5-2 years with ultimate damage in SPX averaging 53%

High volatility market environment calls for a different approach to tail risk

Contrast this with high volatility regimes. Strugger notes that since 1990 the two bear markets and every major equity market drawdown have occurred within high-volatility regimes, of which we have now entered. This points to what is currently a higher-risk environment with deeper equity market pullbacks. Is this a bear market? This “remains inconclusive from a volatility perspective,” Strugger says

“Even if a late-1990s type scenario unfolds and the bull market that began in March 2009 continues for another couple or few years, pullbacks relative to the 2012-2015 period will be sharper and equities will remain vulnerable to higher-magnitude shocks,” he wrote.

He notes fat tail risk and kurtosis can sometimes have an ugly correlation factor and advises institutional investors to “dust off the systematic hedging strategies, get re-acquainted with the concept of tail-risk” and consider volatility strategies that extract profits from elevated implied vol levels. This could include covered call and even put writing under certain circumstances.

“Our starting point for systematic hedging is to own 3-month index puts or put spreads partially financed by the sale of 1-2 month covered calls on individual stocks in the portfolio,” he advises, a strategy that resembles the CBOE S&P 500 95-110 Collar Index (CLL). Strugger also likes covering tail risk through VIX and volatility-linked ETPs (VXTH) in this environment.

Source: MKM Partners

Full report below:

Volatility Regime In Pictures – MKM


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“Are You Not Entertained” By This Close: Dow Back At 17K After Last Minute VIX Slam

Seriously!!!! That Close!!!

 

Your day in the "market"…

 

The "stable" oil market…

 

Following yesterday's noisy drop, today was the echo with a noisy choppy low volume rally as Oil sparked the momentum in the pre-open, but stocks decoupled lower from both JPY and Oil (smashed lower on weak wholesale trade data and a realization that US crude production rose)…

 

Trannies outperformed as The Dow couldn't get too far away from unch… and then everyone panicced to buy at the close..

 

On the week, The Dow clung to unchanged thanks to the panic close, but Trannies lag…

 

No bounce at all in financials – even as Treasury yields rose – but energy obviously bounced (even though energy credit risk rose 6bps to 1262bps)

 

Today saw two legs down – the first from a delayed reaction to the fact that crude production rose in the US and the second as Carson Block commented on the "dead cat bounce" – all that mattered today was defending the short-squeeeze trendline at 1980… What a total f##king joke that close was…

 

And the ramp was all about getting The Dow above 17000!!!

 

But VIX remains totally decoupled once again from global financial stress…

 

Treasury yields rose all day pushing all but 30Y higher for the week…with Fischer's inflation sightings the catalyst

 

Notably the USD Index tumbled as US Inventories data hit – pointing clearly at recessionary pressures building. But JPY plunged…

 

Crude was the day's big winner for absolutely no good reason, PMs were modestly lower and copper gained back half of yesterday'slosses…

 

Gold was triple-slammed overnight… but bounced back…

 

Charts: Bloomberg


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What Matters Most?

Via ConvergEx's Nick Colas,

Today we engage in a simple thought experiment: what 3 pieces of information would you need to confidently call the 2016 end-of-year level on the S&P 500?

 

A brief survey of senior Convergex traders yielded this list: year-end worldwide central bank rates, Chinese GDP growth in 2016, actual 2016 US corporate earnings, the winner of the U.S. presidential race, and the pace of increases in the Fed Funds rate for the year. 

 

When we posed the questions to analyst friends, they added: 2016 U.S. wage growth, 2017 consensus corporate earnings (in December 2016) and any information about a significant geopolitical event.  Everyone agreed oil prices were on the list.

 

All this pushes two other questions to the fore.  First, what’s on your list, and why?  And second, what’s not on any of these lists?  Because maybe that’s what will actually move markets…

The 1920s were a period of immense technological innovation, but that didn’t stop many prominent thinkers of the age from believing that the living could speak to the dead.  Sir Arthur Conan Doyle, creator of the deeply rational Sherlock Holmes, wrote more than a dozen books on the topic.  French Nobel Prize winning physiologist (awarded 1913) Charles Richet was the original “Ghostbuster”, coining the term “ectoplasm” decades before Bill Murray ever got slimed.   Even Thomas Edison thought about building a telephone to reach into the next world.

As a result of this air of respectability, tens of thousands of mystics plied their trade in Europe and the U.S., including one Mary Carter of Cincinnati Ohio.  She had an especially powerful shtick in her repertoire.  During a séance an assistant would place a small clean chalkboard in a box on the table where participants sat.  They would ask their questions of people in the afterlife, and when the box was opened the slate would reveal the answer.  A neat bit of magic, if nothing else.

In the mid-1940s, her son Albert Carter borrowed the idea to create a toy that is still popular today: the “Magic 8 ball”.  Essentially, it was two dice with words (‘Yes’, ‘don’t count on it’, ‘it is certain’, etc.) printed on them, suspended in can of oil with a clear top.  Ask a question, shake the container, and wait for one of the die to float to the surface with your answer.  After he passed on, his partners licensed the idea to Brunswick Billiards as a give-away item to promote the brand.  The container became the now well-known black sphere resembling an 8-ball.

Predicting capital markets action can, at times, feel much like using a Magic 8 ball.  You ask a question, wait, and the market returns with an answer. Sometimes you like the answer, and sometimes you don’t.

But what if that plastic black ball became a crystal one instead?  Those are far older, by the way.  They date back to the first century A.D. – although they came into widespread use during the Victorian age just as the precursor to the Magic 8 ball was a bit of 1920s occult stagecraft.  Something about periods of rapid technological advancement seems to give mankind false notions of grandeur, it appears.

Here is a quick thought experiment I gave to a handful of colleagues and friends this afternoon:

  • I possess a crystal ball that can accurately foresee any future event or financial market asset price except the price of the S&P 500.
  • If your task were to predict where the S&P 500 will close this year, what three things would you want to know from the ball?
  • Since everyone would want to know the price of oil, I offered that up as a freebie. In this game, the price of crude oil will run between $30 and $40/barrel through the end of 2016.

I first asked the senior traders on the Convergex equity desk.  Their replies:

  • The contours of central bank monetary policy between now and year end (timing and magnitude of rate moves).
  • Chinese GDP growth rates.
  • Actual year-end 2016 earnings per share for the S&P 500.
  • If Donald Trump wins the general election.

Then I posed the same question to some analysts. Their answers obviously overlapped with the traders’, but they added:

  • What will be the consensus 2017 earnings estimate for the S&P 500 at the end of this year?
  • Where will junk corporate bond spreads be at the end of the year?
  • What is the Q4 2016 GDP growth rate for the U.S.?
  • What will U.S. wage growth be at the end of 2016?
  • Will there be any major shocks in global geopolitics this year?

 

For what it’s worth, here are my three and a bit of the reasoning behind them.

#1: Is the VIX over 30 for more than 5 consecutive days in 2016?

 

Reasoning: The first quarter of 2016 has seen an unvirtuous circle of negativity on basically everything that matters to equity investors – worries over the global banking system, worldwide deflation, the efficacy of central bank policy, etc.  And yet the CBOE VIX Index never closed above 30.  If things stay quiet – or there’s just a small bout of volatility at some point – equities will likely end the year up or down small (5-10%) from here.

 

Now, if there is any event – geopolitical or otherwise – that pulls the VIX over 30 and holds it there for a week, all bets are off.  The most important lesson of 2016 thus far is that markets now openly question the ability of central banks to create specific economic outcomes.  Negative rates, QE, jawboning, every implement that fills the tool box in a central banker’s work vehicle is being questioned.  And that’s not good for markets. We’re walking a tightrope here, and any large external shock will raise far more questions than answers in the minds of investors.

 

#2: What is the Labor Force Participation Rate in December 2016?

 

Reasoning: This ratio of people in the workforce to total adult population has been declining since 1999, although it stabilized from 2005 to 2008. The drop since, to its current 62.9% from a peak of 67.3%, is a combination of demographic and other factors.  Received wisdom has it that this number will continue to decline for the foreseeable future.

 

The funny thing is that LFPR is at one year highs, right now.  So what will the Federal Reserve make of this number if it continues to rise through the year?  Likely, it will interpret that as an indication that wages are rising fast enough to pull marginally attached workers back into the labor market.  And that will inform their commentary on the trajectory of Fed Funds in 2017 more than just the ‘Jobs Added’ data or the unemployment rate.

 

#3: Where are used car prices at year end?

 

Reasoning: Yes, seriously, this is a thing.  Demand for cars and light trucks have been the single brightest star in the U.S. economy since the Financial Crisis. Buying a light vehicle is the second most expensive purchase most households ever make, so good demand here means the rest of the economy is likely OK.  And the February 2016 selling rate was one of the best of the last decade.  Used car prices are proxies for trade-in values (the higher the better) as well as an indicator of income/spending levels for the 50-70% of American consumers who don’t buy new cars and trucks.

 

We use the Manheim Used Vehicle Value Index as our guide (see here http://ift.tt/1Dcp2hk).  It has been rock solid since 2011, although it’s begun to look a little shakier (down 1.4% in the most recent reading).  There is a huge amount of chatter about the subprime component of new car sales, and I’ve seen enough cycles to know that fear plus negative catalyst equals reality. Yes, the U.S. auto industry is no longer as important to the overall economy as it once was.  But how many cars GM can sell is still a better indicator of the economy than, say, how many Uber rides take place.

As a closing thought (or two):  First, what would your three questions be?  And second, what question is no one asking that will prove to be decisive?

Time to ask the Magic 8 ball.


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This Is Jeff Gundlach’s Favorite (& Scariest) Chart

According to DoubleLine’s Jeff Gundlach, this is his favorite chart – backing his persepctive that equity markets have “2% upside and 20% downside) from here.

In his words: “These lines will converge…”

Chart: Bloomberg

It should be pretty clear what drove the divergence, and unless (and maybe if) The Fed unleashes another round of money-printing (or worse), one can’t help but agree with Gundlach’s ominous call.


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Dear Ms. Merkel, Be Careful What You Wish For

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

“Those are my principles, and if you don’t like them… well, I have others.”

 

– Groucho Marx

What is perhaps most remarkable about the deal the EU is trying to seal with Turkey to push back ALL refugees who come to Greece is that the driving force behind it turns out to be Angela Merkel. Reports say that she and temp EU chairman Dutch PM Mark Rutte ‘pushed back’ the entire EU delegation that had been working on the case, including Juncker and Tusk, and came with proposals that go much further than even Brussels had in mind.

Why? Angela has elections this weekend she’s afraid to lose.

It’s also remarkable that the deal with the devil they came up with is fraught with so many legal uncertainties -it not outright impossibilities- that it’s highly unlikely the deal will ever be closed, let alone implemented. One thing they will have achieved is that refugees will arrive in much larger numbers over the next ten days, before a sequel meeting will be held, afraid as they will be to be pushed back after that date.

They may not have to be so scared of that, because anything remotely like what was agreed on will face so many legal challenges it may be DOA. Moreover, in the one-for-one format that is on the table, Europe would be forced to accept as many refugees from Turkey as it pushes back to that country. Have Merkel and Rutte realized this? Or do they think they can refuse that later, or slow it down?

Under the deal, Turkey seems to have little incentive to prevent refugees from sailing to Greece. Because for every one who sails and returns, Turkey can send one to Europe. What if that comes to a million, or two, three? The numbers of refugees in Turkey will remain the same, while the number in Europe will keep growing ad infinitum.

*  *  *

Sweet Jesus, Angela, we understand you have problems with the refugee situation, and that you have elections coming up this weekend, but what made you think the answer can be found in playing fast and loose with the law? And what, for that matter, do you expect to gain from negotiating a Faustian deal with the devil? Surely you know that makes you lose your soul?

You said yesterday that history won’t look kindly on the EU if it fails on refugees, but how do you think history will look on you for trying to sign a deal that violates various international laws, including the Geneva Conventions? You have this aura of being kinder than most of Europe to the refugees, but then you go and sell them out to a guy who aids ISIS, massacres Kurds, shuts down all the media he doesn’t like and makes a killing smuggling refugees to Greece?

Or are we getting this backwards, and are you shrewdly aware that the elections come before the next meeting with Turkey, and are you already planning to ditch the entire deal once the elections are done, or have your legal team assured you that there’s no way it will pass the court challenges it will inevitably provoke?

It would be smart if that’s the case, but it’s also quite dark: we are still talking about human beings here, of which hundreds of thousands have already died in the countries the living are fleeing, or during their flight (and we don’t mean by plane), and tens of thousands -and counting, fast- are already stuck in Greece, with one country after the other closing their borders after the -potential- deal became public knowledge.

So now Greece has to accommodate ever more refugees because all borders close, something Greece cannot afford since the bailout talks left it incapable of even looking after its own people, while over the next ten days it can expect a surge of ‘new’ refugees to arrive from Turkey, afraid they’ll be stuck there after a deal is done. Greece will become a “holding pen”, and the refugees will be the livestock. A warehouse of souls, a concentration camp.

The circumstances under which these human beings have been forced to flee their homes, to travel thousands of miles, and now to try and stay alive in Greece, are already way below morally acceptable. Just look at Idomeni! You should do all you can to improve their conditions, not to risk making them worse. Where and how you do that is another matter, but the principle should stand.

You should be in Greece right now, Angela, asking Tsipras how you can help him with this unfolding mayhem, how much money he needs and what other resources you can offer. Instead, Athens today hosts the Troika and Victoria “F**k the EU” Nuland. That is so completely insane it can’t escape the protagonists themselves either.

*  *  *

Refugees from war -torn countries are per definition not ‘illegal’. What is illegal, on the other hand, is to refuse them asylum. So all the talk about ‘illegal migrants’ emanating from shills like Donald Tusk is at best highly questionable. The freshly introduced term ‘irregular migrants’ is beyond the moral pale.

As is the emphasis on using the term ‘migrant’ versus ‘refugee’ that both European politicians and the international press are increasingly exhibiting, because it is nothing but a cheap attempt to influence public opinion while at the same time throwing desperate people’s legal status into doubt.

What their status is must be decided by appropriate legal entities, not by reporters or politicians seeking to use the confusion of the terms for their own personal benefit. And numbers show time and again that most of the people (93% in February GRAPH) arriving in Greece come from Syria, Iraq and Afghanistan, all war-torn, and must therefore be defined as ‘refugees’ under international law. It is really that simple. Anything else is hot air. Trying to redefine the terminology on the fly is immoral.

In that same terminology vein, the idea that Turkey is a ‘safe third country’, as the EU so desperately wants to claim, is downright crazy. That is not for the EU to decide, if only because it has -again, immoral- skin in the game.

All this terminology manipulation, ironically, plays into the hands of the very right wing movements that Angela Merkel fears losing this weekend’s elections to. They create a false picture and atmosphere incumbent ‘leaders’ try to use to hold on to power, but it will end up making them lose that power.

*  *  *

The funniest, though also potentially most disruptive, consequence of the proposed deal may well be that the visa requirements for the 75 million Turks to travel to Europe are to be abandoned in June, just 3 months away, giving them full Schengen privileges. Funny, because that raises the option of millions of Turkish people fleeing the Erdogan regime travelling to Europe as refugees, and doing it in a way that no-one can call illegal.

There may be as many as 20 million Kurds living in Turkey, and Erdogan has for all intents and purposes declared war on all of them. How about if half of them decide to start a new life in Europe? Can’t very well send them back to ‘safe third country’ Turkey.

Be careful what you wish for, Angela.

via GIPHY


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Kiwi Plunges As New Zealand Announces “Surprise” Rate Cut

They don’t call it a “currency war” for nothing. 

Moments ago, the RBNZ cut rates by 25 bps to 2.25% in the latest shot across the bow in what is now a years-long race to the bottom.

Here are the bullets: 

  • NEW ZEALAND CUTS KEY INTEREST RATE TO 2.25% FROM 2.50%
  • RBNZ SAYS FURTHER EXCHANGE RATE DEPRECIATION IS APPROPRIATE
  • RBNZ SEES INFLATION REACHING 2% IN 1Q 2018 VS 4Q 2017
  • RBNZ SEES 4Q 2016 ANNUAL INFLATION AT 1.1% VS 1.6%

Cue the kiwi plunge:

RBNZ governor Graeme Wheeler apparently made up his mind last week:

  • WHEELER: DECIDED TO CUT RATES LAST FRIDAY

But someone forgot to tell the PhD’s because 15 out of 17 economists surveyed by Bloomberg expected New Zealand to stand pat.

We don’t blame them. After all, who could have foreseen competitive easing in this environment?


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