- Photos Show Greek Fighter Jet 'Locked On' To Turkish Warships Near Cyprus
Photos Show Greek Fighter Jet ‘Locked On’ To Turkish Warships Near Cyprus
A Greek fighter jet allegedly obtained ‘missile lock’ on a Turkish frigate that was traveling off the coast of Cyprus on December 8, 2019, the Aviationist reported.
Citing photos from the Twitter profile of journalist Yannis Nikitas, the Aviationist reported that a Greek Mirage 2000 jet targeted the Turkish frigate with Exocet anti-ship missiles during a show of force over the weekend.
“In the photos we can see the HUD of a Mirage 2000, recognizable also by the characteristic Mirage refueling probe, as it gets a lock on a ship which, according to the caption, could be a Turkish frigate. On the left side of the HUD we can see a ‘M39’ label, showing that the pilot selected the AM-39 Exocet anti-ship to perform the lock on the ship,” the publication said.
Relations between Greece and Turkey have been rocky this year after Ankara began drilling for oil off the coast of Cyprus.
This move by Ankara prompted Cyprus, Greece, and Egypt to issue a joint statement condemning Turkey for violating international law.
They specifically pointed out that in the statement that Turkey was operating in Cyprus’ Exclusive Economic Zone and territorial waters.
Turkey continues to maintain that their activities are within the framework of international law, despite the joint statement from Egypt, Greece, and Cyprus.
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More on the alleged “missile lock” from the original Aviationist report:
The images in question first appeared on the Twitter profile of Yannis Nikitas, an embedded journalist of the Hellenic Ministry of Defense.
Η Τουρκική φρεγάτα στοχοποιημένη από τα Mirage της #HellenicAirForce σε αποστολή ναυτικής κρούσης στο #Αιγαιο Αυτή είναι η γλώσσα που καταλαβαίνει ο Τούρκος. Καμία υποχώρηση στα εθνικά συμφέροντα. Καμία έκπτωση στην εθνική κυριαρχία. Υπέρ βωμών και εστιών σε ξηρά, θάλασσα κ αέρα. pic.twitter.com/H4qynMZrlv
— Ioannis Nikitas (@Ioannis_Nikitas) December 8, 2019
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Discussing the possibilities, the analysis describes:
Even if the caption states that the target is a Turkish frigate, we can’t confirm it yet due to the distance the image was taken from, as it’s impossible to discern useful features of the ship for an identification. However, if we extract an approximate shape from the ship in the photo and we consider only frigates, the target could be either a Turkish Barbaros-class frigate or a Greek Hydra-class frigate. We can’t still rule out the possibility of a Greek frigate as the HUD shows the PRAC label, which means that the missile was not armed and ready to be fired but rather set in training mode, or better as practice mode as shown in the image. If that’s the case, the photo could have been taken during TASMO training with the Hellenic Navy.
The other possibility in addition to the photos perhaps showing a Greek naval exercise in progress (and not a threatening missile lock on a Turkish frigate), is that it does indeed show an encounter with a Turkish ship, but from a prior incident:
While searching online for more info about the photos and the background of the specific mission of the Mirage from which they were taken, we found the same photos in an article published by Nikitas in September 2018 on his website DefenceReview.gr with two additional shots. If the additional photos are from the same mission (although the weather is different…), the top one shows a closer look at the ship that allows us to confirm that this is indeed a Barbaros-class frigate belonging to the Turkish Navy and the photos were not taken recently but last year during a show of force (i.e. flying low and fast close to a foreign warship in international waters).
Yet the photo set is still driving angry exchanges between Greek and Turkish commentators online, at a moment of heightened tensions over Turkish oil and gas exploration inside Cyprus’ exclusive economic zone.
Tyler Durden
Tue, 12/10/2019 – 01:00 - The Woke Media: Apologists For The State
The Woke Media: Apologists For The State
Authored by William Anderson via The Mises Institute,
In an earlier article, I looked at the rise of “Woke Capitalism” and the challenges that this development presents for a free society (or, to be accurate, a somewhat free society). For the time being we probably do not need to worry about the establishment of the People’s Republic of Google, but a much greater problem than left-wing business corporations has invaded our body politic: The Woke Mainstream Media.
It is one thing for Nike to discontinue a line of sneakers because the Betsy Ross flag offended someone or for PayPal to refuse to serve as a pay conduit for a conservative organization. One may decry the narrow-minded thinking from company executives, but they are private outfits that have — and should have — the privilege of refusing to do business with certain people — and if they make a bad economic choice, the company will pay financially. And, as I pointed out in the article, corporations are not governments, which really can kill and cage people who are helpless against state-sponsored predations.
Private sector Wokeness is not limited to profit-making businesses, however, as the giants of American media now are subscribing to the same hard-left political and social theories, and this development has become a much greater problem to American society and American liberty because of the symbiotic relationship between media and government. While Google’s squelching of libertarian speech within its ranks might make it unpopular with libertarians, nonetheless, the company has taken no one’s freedom away.
However, a media campaign against someone, even someone who is innocent of a crime, can result in imprisonment or worse. As one who for more than a decade has written about prosecutorial misconduct and unjustified pursuit of innocent people, I have yet to find a case in which the worst kind of prosecutorial behavior was not aided by irresponsible and dishonest journalists.
Furthermore, the rise of Woke Media presents a problem in this country, one in which the progressive news media becomes a partner with government to strip people of their rights and to impose authoritarian rule. While that is not the picture of the media that the media itself tries to present or is the dominant theme in journalism school, it is much closer to the truth than anyone tied to the media will admit. On top of that, almost all of the national media (with the exception of Fox News) is closely linked to the Democratic Party, and most journalists now being on the left. In the years of the Donald Trump presidency, that has meant that much of the media now acts in concert with the Democrats to weaken and even end his term in office.
With the upcoming movie “Richard Jewell” to be released soon, we see the spotlight on misconduct by American media outlets that helped to falsely accuse an innocent person of the infamous Olympic bombing in Atlanta in 1996. But media problems hardly begin and end with the saga of Richard Jewell.
When the New York Times calls for curtailing free speech or when its reporters actively work to promote a corrupt prosecutor in order to frame innocent people for rape, as the NYT did in the infamous Duke Lacrosse Case, when the press wrongly accused the high school boys from Covington Catholic School of harassing a Native American, which led to active death threats against the students, or when media outlets recklessly repeat false statements by government officials, as was done in the Jewell case, such transgressions are open attacks on a free society.
When these things happen, a media outlet then becomes an advocate for oppressive government, which seems to openly conflict with the media’s self-declared label of “government watchdog.” As I wrote a decade ago:
Despite that fact that every student in J-school is taught that the press is a “watchdog” of government, the truth is that journalists are the lapdogs of the state. From the local police beat reporter to the top journalist at the New York Times, journalists pretty much repeat what government officials tell them. When journalists actually do pressure government, it is either for the authorities to pass laws that are stricter than what they are at the present or to demand that governments regulate businesses in a draconian fashion.
In other words, modern journalism emphasizes a vastly-expanded role of state power, which is at odds with why a supposed free press exists in the first place, and certainly at odds with the First Amendment, which has been the bedrock of free speech and freedom of the press, not to mention freedom of religion. Unfortunately, the NYT and other Woke Media outlets have not stopped with attacking the First Amendment; they also have played a major role in promoting academic fraud in history and economics. Like the Bolsheviks which the NYT lionized in its series on the 1917 Russian Revolution and its murderous afterlife (which might as well have been named “Paradise Lost,” given how the NYT gave near-uncritical support to the revolution and the growth of the USSR), the journalists and editorial writers at the “Newspaper of Record” seem hellbent on recreating a new world in which truth takes a backseat.
While ideology plays a role in establishing the left-wing narratives that American journalists seem to embrace, that is not the only reason that modern journalism is statist at its core. First, and most important, the modern media is a product of the Progressive Era in which journalists sought respectability through the Canons of Journalism issued in 1923 by the American Society of Newspaper Editors.
As was often the case during the Progressive Era, there were advocates in various lines of work seeking to “professionalize” their craft. From medicine to teaching to journalism, these advocates attempted to make their occupations more “respectable” by requiring or strongly encouraging formal education in their fields. For example, following the Flexner Report of 1910, authorities — encouraged by the American Medical Association and, of course, the progressive media — began to close medical schools (and especially those medical schools educating black doctors) to limit practice of medicine to a relatively-small number of physicians ostensibly to raise the quality of care by ensuring that only the “top students” can be practitioners.
Professional journalists sought to do the same thing with their vocation, starting journalism schools and trying to turn journalism into an academic endeavor. During the 1920s, very few journalists had college degrees and organizations like the Society of Professional journalists (formerly Sigma Delta Chi), tried both to present the profession as respectable people engaged in “muckraking” in order to “reform” America. (When I was in journalism school during the Watergate years, many students and faculty wore “Rake Muck” buttons to proclaim solidarity with every Woodward and Bernstein wannabe.)
The Canons of Journalism stressed that newspapers (which in 1923 were by far the most dominant form of mass media) should be “independent” in their coverage, not being tied to political parties or political movements. Whether or not the press ever held to such lofty standards is debatable, as the media always seemed to take the side of state power, be it the promotion of Franklin Roosevelt’s New Deal, U.S. victory in World War II, or the Kennedy-Johnson years in power.
For example, President Lyndon Johnson in his 1964 presidential campaign against Sen. Barry Goldwater, used the CIA to infiltrate the opposition and engaged in numerous political dirty tricks, yet the media was happy to aid the president in large part because much of Goldwater’s campaign centered around reducing the role of state power in the ordinary lives of people. (While Goldwater also advocated aggressive war against North Vietnam — the press painting him as an unstable cowboy ready to irresponsibly unleash nukes at any time – it was Johnson who escalated the war, which ultimately proved to be his undoing.)
At least the media turned on Johnson after he no longer could hide the lies about the Vietnam War and the war became unpopular. One senses today that the Woke Media won’t even question politicians that they favor. For example, there has been much news coverage about the policy in which immigration authorities separate children from their parents when picked up at the country’s southern border, a policy that the press tends to tie to President Trump.
However, Trump was continuing the policy that first was set by the Obama administration. The New York Post recently wrote about how Reuters, a news agency, and a French news agency suddenly killed stories they had earlier published “exposing” the high rate of child detention in the country. However, to their surprise, they were quoting numbers that generated from the Obama administration, not that of Donald Trump. The Post writes:
So the United States has “the world’s highest rate of children in detention.”
Is this worth reporting? Maybe, maybe not.
Nevertheless, Agence France-Presse, or AFP, and Reuters did report it, attributing the information to a “United Nations study” on migrant children detained at the US-Mexico border.
Then the two agencies retracted the story. Deleted, withdrew, demolished.
In other words, since the offending actions occurred during the Obama years, they didn’t happen at all. While that seems to be an extreme case, one senses that the Trump phenomenon has pushed the American media into a much more partisan mode than ever before, which is even more stark given the media’s reluctance to be critical of the Obama administration.
The hard-left move of much of the U.S. media can be seen in comparing coverage of events over the past few decades.
In the Jewell case, the FBI leaked material to friendly reporters to implicate Richard Jewell in the Olympic bombing, and there was the usual feeding frenzy early in the case. The frenzy wore itself out, however, when it became clear via pure logistics that Jewell could not have done what the FBI had claimed. In their defense, media figures said that they were just following the FBI’s lead, which was true.
However, perhaps it should logically have followed that maybe, just maybe, the FBI is full of untrustworthy and incompetent, dishonest, and vindictive employees that have not earned the trust that journalists had given them. Perhaps, just perhaps, government is not full of brilliant and deducting G-Men that are worthy of the heroic treatment the media often gives them. (One excellent exception is James Bovard, who has been an independent warrior exposing government malfeasance — and has been the bane of politicians from both parties.)
But at least the media listened to reason in the Jewell case and ultimately turned in their coverage.
A decade later in the infamous Duke Lacrosse Case, most of the U.S. media was craven from the start. By then, the infamous “narratives” that now drive political thinking were in full force.
The media latched onto the dual themes of racism and sexual assault and even when the earliest evidence cast serious doubt on the truth of the story, American journalists continued to run in one direction until they fell over the cliff and earned a well-deserved rebuke from American Journalism Review.
(In noting the deterioration in thinking with the elite factions of the media, the Columbia Journalism Review never did an assessment of the Duke case, despite the obvious media failures and breakdowns. And while CJR did provide an assessment for Rolling Stone in the wake its disastrous story, “A Rape on Campus,” which turned out to be wholly fiction, the publication stuck to the original sexual assault narratives which drove the whole thing in the first place.)
The Covington Boys story, which dominated the media for several days in January 2019, is an account of how “Wokeness” has so infected the major media that even when the truth was right in front of them, American journalists ran with the left-wing narratives instead. Besides making life a living hell for the Covington students and their families, the elite U.S. media from the New York Times to the Washington Post to CNN proved themselves nearly incapable of being able to separate facts from narratives and created their own fiction of white racist teenage boys in MAGA caps terrorizing and disrespecting minorities. While even a cursory glance at the original video of the so-called incident was enough to make an honest person question the popular story, elite American journalists were unwilling to do even that small task.
What makes things even worse is that the NYT’s editorial page now is being used as a conduit to promote questionable historical narratives, promote huge confiscatory taxation schemes, and a very dark history of American capitalism that claims that capitalism here entirely owes its existence to the worst aspects of black chattel slavery. Yes, these are opinion pieces that ostensibly represent independent thought from intellectuals, political figures, and academic leaders, but when these writers are dishonest or terribly misleading, a newspaper as influential as the NYT should not be promoting them.
Because so many American journalists today are squarely joined to the radical left, one wonders what is going to happen to journalism here in the next decade. The so-called watchdogs of state power today are advocating for government to grab authority that would end many aspects of historical American liberty. The next step seems to be the media becoming the TASS of a future Democratic Party administration, and if we reach that stage, it is doubtful we ever can roll back those levels of state power, and we will see Woke journalism not being a barrier to state-sponsored oppression, but rather its enabler.
Tyler Durden
Mon, 12/09/2019 – 23:40 - In Bizarre Twist Of Events, Vern Unsworth's Lawyer Capitulates To Elon Musk And Retires From Jury Trials
In Bizarre Twist Of Events, Vern Unsworth’s Lawyer Capitulates To Elon Musk And Retires From Jury Trials
Just when you thought the “pedo guy” story couldn’t get any stranger than a high priced lawyer striking out on what many believed to be a layup of a case against a billionaire, we get tonight’s stunning Tweet and letter to the editor of Law.com from L. Lin Wood, Vern Unsworth’s (former) lawyer.
After losing at trial to Elon Musk, lawyer L. Lin Wood took to Twitter to explain – not why his client was wronged by the verdict – but rather, why the verdict against him was correct. It’s an admission that, even if he believed it, would be a stunning slap in the face to his client and would have many questioning why Wood would take the case to begin with. Late on Monday night, Wood tweeted:
Some reflections from lake. The verdict in Unsworth v. Musk spoke the truth. While written as possible libel, Elon Musk only intended an insult. Thus, no factual statements were intended. Truth removes any question marks as to Vern’s reputation. Truth wins. So do both parties.
— Lin Wood (@LLinWood) December 10, 2019
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To add insult to injury, Wood also published a letter to the editor at Law.com, congratulating Elon Musk and the lawyers on his team for winning the case.
Wood opened the letter by saying:
I congratulate Elon Musk and the lawyers on his team at Quinn Emanuel Urquhart & Sullivan for their efforts to achieve a verdict for their client that spoke the truth. Alex Spiro and Bill Price are exceptional lawyers. Their efforts contributed greatly to the verdict that spoke the truth: Musk’s July 15, 2018, comments about Vernon Unsworth were nothing more and nothing less than an insult. Insults by definition do not convey fact. And truth, even in the hands of skilled lawyers, does not change.
He then called Musk’s lawyers “skilled legal adversaries”:
And after a textbook trial between skilled legal adversaries, the verdict was rendered and the truth was revealed, Musk won. So did Unsworth. Musk only had to use his checkbook to pay his lawyers their well-earned fee.
Before then announcing his retirement from being a trial lawyer.
As for me, I promised my family on Thanksgiving Day that the trial for Unsworth would be my last jury trial. I will fade away with my silver hair wisdom ready to help only if needed. I have had the privilege of training a group of skilled young lawyers in this trial to take over the reins and be in the next generation of trial lawyers who purse truth with the best interests of the client at the forefront of their efforts. Lawyers who will never let our profession degenerate to being about money, but who will practice law knowing that it is about the pursuit of truth.
Twitter immediately blew up with outrage at Wood, with some speculating he was paid off by Musk, blackmailed or is simply just an incompetent lawyer looking to make excuses for his poor performance.
Regardless, the acknowledgment that the verdict against him “spoke the truth” is a bizarre statement for any attorney to make after losing at trial in such a public forum.
Many on Twitter asked Wood to consider the feelings of his client:
Imagine how Vern feels right now? You’ve embarrassed yourselves in more ways than one. What a disgrace to the legal profession.
— mdubs (@mdubs17) December 10, 2019
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Others speculated that he was simply making excuses:
Omg – way to rationalize losing – I bet Vern would have appreciated this great insight before he went thru this whole ordeal if u knew (and u should have known) this was a loser given whatever defense u planned – shameful.
— Scott J, CFA (@RyeNotBerben) December 10, 2019
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Some asked about the obvious potential impact this could have on Unsworth’s pending litigation, should he decide to appeal in the U.S. or pursue a case in the U.K.:
Am confused. Doesn’t your statement hurt your client’s prospects in litigation that is outstanding in other jurisdictions on the same underlying facts? Do you have (need?) your client’s approval for this statement? .@LLinWood
— Pets and Politics (@amarlevine) December 10, 2019
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Others suggested ethics violations and malpractice:
Am confused. Doesn’t your statement hurt your client’s prospects in litigation that is outstanding in other jurisdictions on the same underlying facts? Do you have (need?) your client’s approval for this statement? .@LLinWood
— Pets and Politics (@amarlevine) December 10, 2019
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While some speculated that there were perhaps more nefarious forces at work:
This is what money changing hands looks like. https://t.co/FTbH43sdzz
— PlainSite (@PlainSite) December 10, 2019
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Regardless, L. Lin Wood now joins the long line of those who have elected to – for one reason or another – continue to enable Elon Musk’s behavior, behind his entire board of directors, the Securities and Exchange Commission and the NHTSA.
And with the Federal Reserve doing everything it can to prevent a market pullback or recession, the normal market forces that would sever the head off such an obvious money losing disaster no longer exist to correct these types of malinvestment.
Has the Tesla boondoggle finally reached escape velocity?
Tyler Durden
Mon, 12/09/2019 – 23:27 - Trump Beats Border-Crisis: Illegal Crossings Crash To Lowest Since 2013
Trump Beats Border-Crisis: Illegal Crossings Crash To Lowest Since 2013
There is a reason that you have not seen more clips of AOC et al. sobbing uncontrollably at a fenced car park, or Nancy Pelosi and Chuck Schumer exclaiming “what about the children” in recent months.
The Left’s favorite talking point of the first half of 2019 – Trump is caging kids at the border because of his worse-than-Hitler, racist and inhumane immigration policies – has somehow evaporated in recent months…
As The Wall Street Journal reports, arrests of people crossing the southwestern border have plummeted by 75% since May, marking one of the most dramatic drops in recent history.
U.S. Customs and Border Protection said Monday that 33,510 people were arrested after illegally crossing the border in November, marking the sixth straight monthly decline since May, when 132,000 such apprehensions marked a 13-year high.
In fact, The Journal notes that the May-November decline is the biggest in absolute numbers and second biggest by percentage of any six-month period this century.
The question is why?
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Did the desperate immigrants seeking refuge in America’s welfare state suddenly figure out things are not so bad at home after all?
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Did Soros’ (alleged) caravan-creating funds suddenly dry up?
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Or did President Trump’s immigration policy changes – ‘building the wall’, increasing spending on border security, and negotiating (tariff threats) with Mexico on immigrant flows – actually work?
The answer is simple…
“This is a direct result due to this president’s strategies to address the historic flood of Central Americans, families, illegally crossing the border,” acting CBP Comissioner Mark Morgan said at a press conference Monday.
“The network of initiatives have worked and continues to work.”
The program, often called Remain in Mexico, is one of the biggest contributors to the decline of border arrests, immigration experts say. It has deterred some people from coming into the U.S., due to knowledge that they are likely to be stranded in Mexico for months while their cases are decided.
“I think the big factor has been the Trump administration policies,” said Randy Capps, director of research of U.S. programs at the nonpartisan Migration Policy Institute.
Just as notably, Capps points out that other factors that often alter migration flows, including crime rates and unemployment in the migrants’ home countries, haven’t dramatically changed in recent months.
In Tucson, Ariz., a migrant shelter has seen arrivals drop from more than 100 a day last year to fewer than 40 recently, according to its operator, Teresa Cavendish.
In McAllen, Texas, a recently opened shelter intended for migrants had so many empty beds last month that it began to serve other members of the community.
The López Obrador government has pledged that the security efforts will be permanent.
Mission accomplished? Too soon?
Tyler Durden
Mon, 12/09/2019 – 23:20 -
- Contrary To Conventional Wisdom, US Farmers Are Having Their Best Year Since 2013
Contrary To Conventional Wisdom, US Farmers Are Having Their Best Year Since 2013
Skimming through the mainstream media websites, one would find numerous articles decrying the plight of US farmers caught in the middle of the US-China trade war, such as these: “Farmers’ Despair Pushes States to Act“, “Farm Bankruptcies Rise Again“, “Amid Trump Tariffs, Farm Bankruptcies And Suicides Rise.” However, there may be more here than meets the conventional eye.
As Commodore Research managing director Jeffrey Landsberg writes, US farm income in 2019 is on pace for the highest income seen in six Years. This, Landsberg continues, “is very significant as US farmers are not faring nearly as poorly as many pundits and media outlets continue to state. As a result, US farmers collectively have not been in any real uproar and are not jeopardizing Trump’s re-election chances.“
The surging farm net income stands in stark contrast with the documented spike in bankruptcies, which has prompted some to whether this is a case of a handful of farmers pocketing the majority of the upside, or merely more farmers taking advantage of the political climate and filing bankruptcy for insurance or other tangential purposes.
We present Commodore‘s full note below:
Extremely noteworthy to us is that the United States Department of Agriculture recently announced that US net farm income this year will climb to its highest level since 2013. This is very significant as US farmers are not faring nearly as poorly as many pundits and media outlets continue to often report. As a result, US farmers collectively have not been in any real uproar and are not jeopardizing Trump’s re-election chances.
US net farm income this year is on pace to total $92.5 billion. This would mark a year-on-year increase of $8.5 billion (10%) and would mark the highest income since 2013’s record $123.7 billion.
Federal government direct farm program payments are contributing to a large amount of the income. Federal government direct farm program payments are expected to end this year at a very robust $22.4 billion, which is $8.7 billion (64%) more than was issued in 2018.
This includes the Market Facilitation Program payments, which is the official name for President’s Trump tariff payments that are going to farmers to make up for the weakness in exports. The $22.4 billion in federal government direct farm program payments marks a record for this decade (and includes $14.5 billion in Trump’s Market Facilitation Program payments).
Tyler Durden
Mon, 12/09/2019 – 22:40 - Platts: 5 Commodity Charts To Watch This Week
Platts: 5 Commodity Charts To Watch This Week
Via S&P Global Platts Insight blog,
Oil markets are digesting the latest OPEC announcement on production cuts this week, while regional LNG prices converge and nickel continues on a bearish streak, in S&P Global Platts editors’ pick of energy and commodity trends.
1. OPEC, allies agree to new oil output cuts at eleventh hour
What’s happening? OPEC, Russia and nine other allies delivered a new production cut deal November 6, just hours after it appeared their pact was close to unravelling. OPEC+ will deepen collective output cuts by 503,000 b/d to 1.7 million b/d from January through March, with Saudi Arabia voluntarily slashing another 400,000 b/d of production beyond its new quota. “We already believed market fundamentals warrant $66/b Brent in January, even assuming the existing agreement simply rolled over through end-2020,” said S&P Global Platts Analytics following the decision. “Needless to say, a lower supply forecast provides more support.”
What’s next? The coalition’s inability to agree on extending the deeper cuts beyond March sets the stage for another potentially tough meeting three months from now. OPEC members Iraq and Nigeria have been serial violators of their quotas, and Russia has also had patchy compliance, though its condensate exemption should help it improve its performance. Whether these producers deliver could be pivotal to the current deal and the pact’s ability to bring down oil stocks in a period of weak demand.
2. Nickel continues to slide as supply concerns recede
What’s happening? The nickel price has been riding high throughout 2019, on supply fears related to an export ban from the world’s number one producing nation Indonesia. It was detached from other base metals, which suffered from the US/China trade spate. Nickel hit a high of $18,850/mt in September. However, the ban suddenly seemed to be less of a concern than poor demand, and the price rapidly corrected, reaching a low of $13,115/mt, December 4. It seems the metal was a target for the old trading tactic, “buy the rumour, sell the fact.”
What’s next? With the price now trading in a range of $13,000-$14,000/mt, and year-end on the horizon, it is doubtful there will be any return to stellar form for nickel in 2019. Physical traders seem to be neutral on the metal, with no new bookings being fielded even with the price crash. Eyes will be on what Indonesia actually does in 2019, what it means for supply and how bad demand really is from the stainless steel sector.
3. As regional hub prices converge, Europe attracts US LNG
What’s happening? The JKM-TTF spread has narrowed again, making Europe a more attractive destination for US LNG amid subdued Asian demand. About half of the cargoes that were delivered last month from US LNG export facilities landed in Europe, reflecting a shift in trade flows that appears to favor proximity, liquidity, and the ability to hedge, over traditionally more robust end-user markets in Asia.
What’s next? That Europe has become a home for US LNG beyond just a means to balance the global supply market has taken on added importance amid the ongoing trade dispute between Washington and Beijing. A continued wave of US LNG coming to European shores could help keep a lid on European gas prices through the winter.
4. Nordic hydro concerns ease in a bearish European power market
What’s happening? German and French generation tend to set European power prices, but Nordic hydro can be a big winter swing factor too. A few colder, drier weeks in Norway have taken stocks down below norms, with the hydro “deficit” put at over 10 TWh. Nordic hydro matters: peak regional stocks of over 100 TWh equate to all coal generation in Germany to end-September this year, while annual inflow in Norway alone can vary by 65 TWh.
What’s next? A material change in the Nordic weather forecast looks set to reverse the recent above-average decline in stocks. Milder, windier conditions could see net outflows decrease on reduced demand and strong wind production. Nordic spot prices are trending down below Eur40/MWh, having been over Eur45/MWh in late November.
5. US refinery restarts put pressure on gasoline crack spreads
What’s happening? Crack spreads for NYMEX RBOB, an indicator of profitability for gasoline production, have weakened since late November, as the return of refineries from fall maintenance is adding barrels of gasoline to storage. The RBOB crack spreads for February 2020 against ICE Brent ended Thursday at around $4.86/b, down $3.16/b on week. The decline followed a surprisingly large US gasoline stock build. Stocks rose by 12 million barrels between the first and last week of November, based on US Energy Information Administration data. US refiners are restarting after maintenance season. At its peak, the week ended October 11, a combined 3.36 million b/d of distillation and FCC capacity was down in the US Gulf Coast and Midwest, according to S&P Global Platts Analytics.
What’s next? By end-November, outages had fallen to 847,000 b/d, and by end-December they are expected to decline to just 372,000 b/d. Refineries are also returning from maintenance in Europe and parts of Asia, which should add to global gasoline supplies in December.
Tyler Durden
Mon, 12/09/2019 – 22:20 - Major Freight Carrier Bankrupted, Leaving 3,000 Truckers Jobless, Many Stranded On Highways
Major Freight Carrier Bankrupted, Leaving 3,000 Truckers Jobless, Many Stranded On Highways
As the manufacturing recession gains momentum, the largest U.S. truckload carrier filed for bankruptcy Monday morning, leaving 3,000 truck drivers and 500 administrative positions without a job two weeks before Christmas.
Indianapolis-based Celadon filed for voluntary Chapter 11 bankruptcy in the early hours on Monday morning.
Around 1:43 am est., headlines via Reuters confirmed the bankruptcy and how all domestic and international operations have been halted.
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CELADON GROUP, INC. AND AFFILIATES COMMENCE VOLUNTARY CHAPTER 11 CASES
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CELADON GROUP INC – CELADON ALSO ANNOUNCED THAT IT WILL SHUT DOWN ALL OF ITS BUSINESS OPERATIONS EFFECTIVE AS OF TODAY, MONDAY, DECEMBER 9, 2019
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CELADON GROUP INC – THIS SHUT DOWN DOES NOT INCLUDE TAYLOR EXPRESS BUSINESS HEADQUARTERED IN HOPE MILLS, NORTH CAROLINA
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CELADON GROUP – CELADON INTENDS TO USE ITS CHAPTER 11 PROCEEDINGS TO WIND DOWN ITS GLOBAL OPERATIONS
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CELADON GROUP INC – HAVE FILED VOLUNTARY PETITIONS FOR RELIEF UNDER CHAPTER 11 OF BANKRUPTCY CODE IN U.S. BANKRUPTCY COURT FOR DISTRICT OF DELAWARE
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CELADON GROUP INC – TO SUPPORT WIND DOWN OF OPERATIONS, CELADON’S LENDERS HAVE AGREED TO PROVIDE INCREMENTAL DEBTOR-IN-POSSESSION FINANCING
Celadon CEO Paul Svindland told WTHR Indianapolis that the entire company would shut down business operations except for the “Taylor Express” subsidiary in Hope Mills, North Carolina, on Monday.
Svindland said the company will guarantee delivery of their last loads and will instruct drivers where to leave trucks.
“We have diligently explored all possible options to restructure Celadon and keep business operations ongoing, however, a number of legacy and market headwinds made this impossible to achieve,” Svindland said in a press release.
“Celadon has faced significant costs associated with a multi-year investigation into the actions of former management, including the restatement of financial statements. When combined with the enormous challenges in the industry, and our significant debt obligations, Celadon was unable to address our significant liquidity constraints through asset sales or other restructuring strategies. Therefore, in conjunction with our lenders, we concluded that Celadon had no choice but to cease all operations and proceed with the orderly and safe wind down of our operations through the Chapter 11 process.”
A source told WTHR that 3,000 truckers across the country are jobless on Monday morning, and many are stranded on highways with no money for fuel as gas cards have been shut off.
Over the weekend, rumors of Celadon’s collapse spread on Facebook like wildfire. Reports of truckers stranded on highways as their gas cards and maintenance contracts to service trucks were shutoff.
Some Facebook users offered their homes, a hot meal, and transportation for stranded truckers, considering Christmas is several weeks away.
The collapse of Celadon comes after a grand jury indicted two former executives for cooking the books.
Last week, U.S. Attorney Josh Minkler announced the indictment of former COO William Meek and former CFO Bobby Peavler. Both are facing wire fraud, securities fraud, and conspiracy to commit fraud.
As previously reported, the manufacturing recession triggered a freight slowdown in 2019.
With the overall economy rapidly decelerating through Q4 and likely into 1Q20, the trucking bust will likely get more severe.
As for the stranded Celadon truck drivers — some might not make it home for the holidays.
Tyler Durden
Mon, 12/09/2019 – 22:00 -
- Never-Trumper Rick Wilson Suggests Putting Anti-Vaxxers In "Re-Education Camps"
Never-Trumper Rick Wilson Suggests Putting Anti-Vaxxers In “Re-Education Camps”
Authored by Paul Joseph Watson via Summit News,
Neo-Con Republican strategist and Never Trumper Rick Wilson has suggested that anti-vaxxers should be put in re-education camps and have their children taken away.
Yes, really.
Wilson was responding to an NBC News story about how people who question the safety of vaccines are now taking their fight “offline” due to mass censorship by the likes of Facebook and are “harassing doctors and private citizens.”
“Anti-vaxxers are a scourge and a strong argument for re-education camps, the immediate seizure of their property, and putting their children into protective custody,” responded Wilson.
Anti-vaxxers are a scourge and a strong argument for re-education camps, the immediate seizure of their property, and putting their children into protective custody. https://t.co/9vHPeEl9hf
— Rick Wilson (@TheRickWilson) December 6, 2019
https://platform.twitter.com/widgets.js
The tweet received nearly 8,000 likes.
One could make the argument that anti-vaxxers are pushing harmful misinformation, but to suggest they should have their kids seized and put in gulags is clearly demented.
Respondents to the tweet were not impressed.
“Like China is doing to the Uyghur?” asked one.
“You should definitely visit the @AuschwitzMuseum because a place like that was only possible thanks to people who think like you,” remarked another.
While Wilson purports to be a conservative, he is in reality a deep state neo-con who has trashed President Trump for 3 years solid.
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Tyler Durden
Mon, 12/09/2019 – 21:40 - The Last Time We Had Such A Dramatic Improvement In Sentiment Was… Early 2008
The Last Time We Had Such A Dramatic Improvement In Sentiment Was… Early 2008
New record highs in stocks, VIX testing multi-year lows, consumer-confidence soaring, PMIs rebounding… and a Nirvana-like jobs number. The last couple of weeks have provided everything the passive investor could want to confirm all those fears of “recession” were just the typical doomsayers spoiling the party for the ‘smart’ investors who so cleverly are able to see through collapsing earnings, manufacturing recessions, and a global liquidity shortage (saying nothing of repo panic and CLO chaos).
One look at the chart below “proves” everything is awesome again…
Source: Bloomberg
There’s just one thing…
As Bloomberg’s John Authers notes, the last time we saw a peak in recession searches followed by a sudden wave of relief like we saw over the summer was…in early 2008.
Source: Bloomberg
In case you needed your memory jogged, Authers explains that fears were high at the beginning of the year as subprime lenders went to the wall, but the headline macro data stayed the right side of recession as the Fed eased aggressively. By mid-summer, even after the fire sale of Bear Stearns and the nationalization of Fannie Mae and Freddie Mac, recession fears were as low as they are now.
Additionally, the “use it or lose it” surge in spending into fiscal year-end is very similar to what occurred during the crisis, both of which left a sudden gaping hole that invited the recession fears – before rebounding (everything is fine, don’t worry)…
Source: Bloomberg
Of course, we all know what happened next… all the worst parts of the bible.
There is of course a vast difference between then and now (as every asset-gatherer and commission-taker will tell you). Here’s one big difference: The Fed’s balance sheet was less than $1 trillion in 2008 (before exploding higher on QE1 etc…) whereas now it is over $4 trillion and accelerating at its fastest rate since the crisis…
Source: Bloomberg
Crucially, the depth of the fear this summer dramatically increase the risk that the market will now get too far ahead of itself in its complacent confidence that The Fed has its back (and besides a trade deal is imminent right?)… And that should really frighten everyone, because, as Authers so ominously notes, history tells us that over enthusiasm at times like these can take us to some dark places.
Even the vol market is starting to get a little worried about next week’s tariff deadline…
Source: Bloomberg
Trade accordingly.
Tyler Durden
Mon, 12/09/2019 – 21:20 - China's Central Bank To Lead Real-World Pilot Of Digital Yuan: Report
China’s Central Bank To Lead Real-World Pilot Of Digital Yuan: Report
Authored by William Suberg via CoinTelegraph.com,
China is at last planning to conduct the first real-world test of its central bank digital currency (CBDC), fresh reports claim.
According to local news outlet Caijing on Dec. 9, the initial pilot for the CBDC is set for the city of Shenzhen before the end of 2019, and may possibly include the city of Suzhou.
image courtesy of CoinTelegraph
Banks in a digital currency “horse race”
Under the auspices of China’s central bank, the People’s Bank of China (PBoC), four major banks and major economic participants such as China Telecom will test digital currency payments.
“One step will be to rationally select the pilot verification area, scenario and service scope, and steadily promote the introduction and application of digital form of fiat currency,” Caijing explains.
The article continues:
“Compared with the previous pilot, this time the central bank’s legal digital currency pilot will go out of the central bank system and enter real service scenarios such as transportation, education, and medical treatment, reaching C-end users and generating frequent applications.”
In Shenzhen, the PBoC is encouraging what it describes as a “horse race” — each bank will manage the digital currency differently, competing against each other in order to secure its model’s wider adoption in the future.
It added that other locales could be included in the testing, but the exact details remain unspecified.
PBoC beats world competition
The debut will nonetheless make the PBoC the world’s first central bank to issue a digital currency, capitalizing on China’s efforts to embrace financial technology this year.
As Cointelegraph reported, the currency itself has been under development for several years, and was already at an advanced stage when Beijing officially endorsed the use of blockchain technology in October.
Criticism of the CBDC plans meanwhile continues, with analysis noting interoperability as a potential major sticking point in the plans.
Last week, Cointelegraph launched a dedicated subsidiary publication, Cointelegraph China, to cover developments in the Chinese space.
Tyler Durden
Mon, 12/09/2019 – 21:00 - Bannon Says Hillary Will Run In 2020 To 'Save Democratic Party From Michael Bloomberg'
Bannon Says Hillary Will Run In 2020 To ‘Save Democratic Party From Michael Bloomberg’
Steve Bannon thinks that Hillary Clinton is waiting for just the right moment to enter the 2020 race and “save the Democratic Party” from billionaire Michael Bloomberg.
According to Bannon, Clinton’s recent interview with Howard Stern – under the guise of promoting her book – signals that she’s absolutely running.
“Hillary Clinton is waiting for her shot to come in and say, ‘I’m going to save the Democratic Party,’ that Michael Bloomberg is a liberal or moderate Republican. He’s not a Democrat,” Bannon told Fox News‘ “Sunday Morning Futures.”
Steve Bannon says Hillary Clinton is definitely entering the presidential race pic.twitter.com/BORsrYXAfB
— Acyn Torabi (@Acyn) December 8, 2019
The former Trump strategist added that he doesn’t think any of the current Democratic candidates are strong enough to beat Trump, and that Clinton is “waiting in the wings” to take him on again.
That said, if Hillary is going to run, she better do so quickly as filing deadlines to be included on Super Tuesday primary ballots in several key states are rapidly approaching or have passed.
Tyler Durden
Mon, 12/09/2019 – 20:40 - 10 Grey Swans For 2020
10 Grey Swans For 2020
Authored by Bilal Hafeez via MacroHive.com,
Black swan events are the unknown unknowns that no one can even envisage, let alone predict.
But their close cousin – grey swans – can enter our imaginations. These are low probability, high impact events that few expect. They aren’t even our base cases. But by imagining these risk scenarios, we can at least prepare for them should they erupt. Here are ten to think about for 2020:
1. US Introduces Capital Controls
2. Markets Are Shut For A Long Bank Holiday
3. Euro-area Inflation Surge
4. Japan Intervenes in FX Markets
5. Apple Buys Disney
6. Fed Disintermediates Banks Through Digital Currency
7. Tesla Partners with Hyundai
8. Drone Attacks on US installations in Middle East
9. Virtual Reality (VR) Kills Auto Sector
10. England Win the Euro 2020
Grey Swan #1: US Introduces Capital Controls
While everyone has been talking about trade wars, the next battle may be fought over capital flows. Under President Trump, the US has battled very publicly to advantage US goods in international trade, especially with China. We’ve now got new tariffs being introduced that have the effect of throwing sand into the gears of global trade. But why stop there?
The US’s real strength is its intellectual property and corporate prowess. Foreign companies have forever been trying to acquire US companies to leapfrog an internal development process. Notably, in recent years, China has been an active investor in Silicon Valley and an acquirer of US companies. But we are seeing signs that the US may try to put a stop to that.
The Foreign Investment Risk Review Modernization Act (FIRRMA) was signed into law by President Trump in 2018. It gives the Committee on Foreign Investment in the United States (CFIUS) – the body that approves foreign takeovers of US companies – sweeping new powers. For example, the body can now stop certain real estate transactions and even acquisitions of minority stakes in companies.
Recent deals being blocked include Singapore-based Broadcom acquiring US Qualcomm. And Chinese gaming company Beijing Kunlun Tech had to reverse its purchase of dating app Grindr. All were blocked on national security grounds.
But this could just be the beginning. A lack of progress by the Chinese to open up its markets, a failure to protect US intellectual property in China and any CNY weakness could see the US ratchet up the pressure in 2020. On top of using CFIUS, the US could also delist Chinese companies from US exchanges – currently over 150 companies are listed including Alibaba and PetroChina, and the US could stop US investors buying Chinese securities. Both Peter Navarro, trade advisor to Trump, and Senator Marco Rubio have advocated such moves.
Together these measures would amount to capital controls. So why not go all the way and introduce formal capital controls against all countries? Remember that from after the Second World War until the early 1970s the US had formal capital controls under the Bretton Woods system. You heard it here first.
Market implication: Chinese stocks underperform, US VC markets come under pressure.
Grey Swan #2: Markets Are Shut For A Long Bank Holiday
The festive season seems to arrive sooner every year. And yes, I do realise that each year represents a dwindling percentage of my mortal whole (long may it continue!); but it’s not just me who’s complaining this year. Christmas 2019 has come early for almost everybody who invests in everything – it’s been truly an annus mirabilis.
But as we look forward to 2020, surely we should look back, too. Even in a ‘fake news’, MMT, post-QE financial world, context is a rather important lens when considering long term investment cycles.
Let us just compare 2019 to its predecessor, when according to DB research the percentage of assets with negative total returns in terms of USD was… 93%. So, I’d wait and see where we end 2019. But why just look back one year?
Yes, yes. I agree. The past is a different country; they do things differently there. But we mustn’t forget our history lessons, nor the ghosts of our past. For me, I love a macabre story around this time of year. A creepy tale of horror, a bit of a fright. And sometimes a thing in plain sight is source of such a ghoulish frisson.
When I read the latest sage observations from the CIO of PIMCO (paragons of logic and thoughtful investment) that ‘year-end volatility is possible, not probable’. I know it’s a reasonable and fair assessment. I want a fright for Christmas. Not even statements like ‘volatility is going to treble’, ‘equities are going down 20%’, or ‘PE is a roach motel and going down 25%’ have the slightest effect on me anymore. My fear muscle is jaded. The market has climbed the wall of worry too many times, both with and without ropes. But like the evil in the ghost stories of M.R. James, there is a dark shape at the very corner of my eye.
Much of our enjoyment around 25 December is due to the Bank Holiday(s). We all look forward to them. So I am sure it would come as a huge surprise to practically all market participants that there is something much worse than lower prices. It’s no prices. No market at all. No liquidity. Zero.
Don’t believe it’s possible? Let me just share this with you as a creepy Christmas present, a treat, a gift wrapped in shimmering goodwill.
For one whole week in March of 1933, every single banking transaction in the US was suspended by President Roosevelt issuing Proclamation 2039 in an attempt to stem a tide of bank failures and restore a semblance of confidence in the financial system.
So, the next time somebody asks, ‘what is the worst that could happen?’, remind them of Bank Holidays. Remind them of March 1933. And try not to lose too much sleep, but ask yourself this question: if it can happen for one week, why not one month?
As much as I hate to unwind the thread of this ghostly narrative, I’m afraid I must. Because anybody is entitled to ask: ‘but how?’ In other words, you’ve loaded the weapon, now explain how the trigger gets pulled.
The usual way is to try to imagine a sequence of events that could cause the triggering of unseen market tripwires; classic, logical path dependency. I think the best places to look are, in no particular order:
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Passive participants becoming forced liquidators following an aligned rapid momentum shift.
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Funding channels, i.e. CB plumbing springs a leak.
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Any significantly out-of-sample, rapid rise in inflation in US & Europe (etc., etc.).
We all have our favourites, from China shadow banking to rising credit default, or even collapsing recovery rates. All are valid. And in extremis they might be capable of triggering generalised carnage.
There is another way to explain how the trigger might come to be pulled – but I’ll leave that to another note. It involves understanding quantum phase transitions and complexity. It would be too much to digest here. But don’t be surprised if you get an early Christmas gift of quantum proportions.
Grey Swan #3: Euro-area Inflation Surge
Following the election of left-wingers as its leaders in November 2019, the Social Democratic Party (SDP), could end its coalition with the Christian Democratic Union (CDU). With the economy sliding, waiting out the full Bundestag term until 2021 seems unlikely to arrest the SPD’s own slide in the polls. Germany could go to the polls in 2020.
Just like voters in other countries facing income stagnation and large immigration, those in Germany reject mainstream parties. The main beneficiaries of this anti-establishment feeling however have been the Greens rather than the extreme right. While the latter has made some gains, these have been limited to the states of what was formerly East Germany. As a result, the CDU and Greens could each win about a third of the votes.
The CDU and the Greens would then enter a coalition government as equal partners. If so, the Greens would likely launch a wide-ranging investment program targeting infrastructure and environment. These moves could prove much more popular than commonly assumed as the environment has become the number one concern of German voters. If the coalition was not able to overturn Germany’s constitutional limit on budget deficits, it could rely on issuance of debt not included in the debt break. Germany’s budget balance could swing to for instance a deficit of 1% of GDP in 2020 from a surplus of 1% of GDP in 2019 with larger deficits expected over the medium term.
Emboldened by Germany’s example, France, Italy, Spain, and the more profligate smaller Euro area countries would launch their own fiscal expansions. Without German support, the European Commission would be powerless to stop the breach of fiscal discipline. The average Euro area budget deficit could rise to for instance 3% of GDP in 2020 from less than 1% of GDP in 2019.
In addition 2020 would see a further intensification of union activism. In 2019 labor strikes took place across Europe, but mainly in sectors such as transportation where workers’ ability to paralyze the economy gives them more bargaining power. In 2020, with the economy supported by expansionary fiscal policy, strikes could broaden to the whole European economy and bring about a further acceleration of wage growth.
With less austerity and faster wage growth, the Euro area would boom and inflation would make a come back. For instance, growth could climb to 2.5% in 2020, up from 1% in 2019, and core inflation could move close to 2%, from 1% in 2019. That scenario could see the EUR appreciate to 1.40, the yield curve steepen, and the ECB starts normalizing policy. Euro area equity markets would outperform the US, where a split Congress in the runup to the 2020 elections is unlikely to bring about supportive policies.
Market implication: euro yield curve steepens, euro higher, euro stocks outperform.
Grey Swan #4: Japan Intervenes in FX Markets
Japanese growth is fast losing steam. In 2019, GDP growth was just under 1%, and in 2020 it is projected to fall to a meagre 0.3%.The US-China trade war and associated global decline in manufacturing has clearly impacted Japan. But Japan hiking sales tax in late 2019 hasn’t helped, either. Indeed, previous sale tax hikes in 1997 and 2014 saw significant declines in growth (3.1% to 1.1% in 1997; 2% to 0.4% in 2014). So what’s their plan of action?
The Japanese government has announced a fiscal stimulus package to arrest the decline, but much of it appears to be rehashed versions of existing promises. Perhaps for this reason, markets have shrugged off the announcement.
Meanwhile, the Bank of Japan has hit the limits of monetary policy. They have negative policy rates, they are holding long-term interest down through yield-curve control, they are buying bonds, equities, and real estate, and they altered their inflation target to allow an overshoot.
That leaves Japan with one option: currency intervention, an action it has taken in almost every decade since the beginning of the free float period in the 1970s. Most recently it engaged in its largest intervention ever in 2011. So Japanese policymakers could dust off this well-tested tool and intervene heavily to weaken the yen. This would certainly help boost Japanese exports, which have plunged of late.
Of course, the move may well draw criticism from other countries, notably from President Trump. But with the US failing to reward Japan many additional benefits for being conciliatory, Japan may be willing to take a more aggressive path. Moreover, the US needs a reliable ally in its attempts to contain China.
Get ready for the return of the BoJ in FX markets.
Market implication: USD/JPY rises
Grey Swan #5: Apple buys Disney
Apple’s earnings have been stagnating in recent years (Chart 1). They are reliant on iPhone sales and upgrades in a maturing smartphone market, and a slowdown in China hasn’t helped. It’s no wonder Apple has focused on expanding its Services and Wearables, Home and Accessories revenues. The trouble is that this will take time and comes with risks.
The clearest case of this has been Apple’s continued forays into TV – whether as a platform (Apple TV), or more recently into content (Apple TV+). Its strategy on the content side was to work with well-known actors and directors to produce a small set of high-quality shows that would signal Apple’s intent. The trouble is that rival streaming services such as Netflix and Disney+ already have a comparable quality; but they also have the quantity.
While Apple has famously been reluctant to make large acquisitions, perhaps 2020 could see them lose patience and take that path instead. And what better target than Disney? The financials could work. Apple’s market cap of $1.2 trillion dwarves that of Disney ($265bn). In fact, Apple has over $200bn in cash on its balance sheet, which alone could almost fund the purchase. The acquisition would give a large library of high-quality content including the Marvel, Star Wars, and Pixar properties. It would also give Apple another entry point into the Chinese consumer market.
Chart 1: Apple Earnings are Stagnating
Source: Macro Hive, Apple
We should also remember that Apple founder Steve Jobs was the majority shareholder of Pixar, which was later acquired by Disney. That resulted in Jobs becoming Disney’s largest shareholder. And until recently, Disney’s CEO, Bob Iger, was on the board of Apple. He stepped down just as Apple was launching a TV streaming product. In fact, Iger writes in his autobiography that ‘if Steve were still alive, we would have combined our companies, or at least discussed the possibility very seriously.’
And if the above arguments are not enough, was it a coincidence that both Apple and Disney ended their streaming service products with a plus: Apple TV+ and Disney+?!
Market implication: Disney shares would rise
Grey Swan #6: Fed Disintermediates Banks Through Digital Currency
The financialization of the US economy, which started in the early 1980s, massively increased the size of the financial sector relative to the size of the banking industry upon which it depends for funding/passing liquidity from the Fed.
The first cracks in the credit/money transmission mechanism already showed up in the late 1980s with the S&L crisis. The Basel I banking regulations, which came as a response to that crisis, were to severely restrict the use of depository institutions’ balance sheets. The problem was that the financial sector kept growing and needed financing so the shadow banking system (off-balance sheet financing) sprang up in the mid-1990s and quickly overtook traditional bank financing. Basel II, which was first enacted in 2004, eventually contributed to putting a spectacular end to this activity with the crisis of 2008.
Chart 2: Banks as Share of Financial Sector (ex Fed)
Source: Fed Flow of Funds Accounts, BeyondOverton
The total assets of depository institutions now comprise about 20% of total assets of the US financial sector, which is half of what it was before the 1980s (Chart 1). On top of that, a side effect of Basel III over-reach in response to the 2008 financial crisis is further restricting banks’ ability to put their balance sheets to use for the economy as a whole.
The bottom line is that the credit transmission mechanism is even more clogged up now than it has been at any point in the past. That is becoming obvious with repo rates staying elevated despite plentiful Fed liquidity: banks cannot expand their balance sheet after being placed in regulatory fetters by Basel III.
Figure 1
It’s not negative rates or fintech that the banks should be scared of; it’s what comes after.
The 2008 financial crisis was ultimately triggered by a broker-dealer which had no access to the Fed’s balance sheet for funding. The next financial crisis is likely to be similar but probably triggered by a financial institution higher up the inverted pyramid above (Chart 2). This could be an ETF or passive fund provider, for example. But the curve ball here is what is going to happen after the crisis. These events will force the Fed to open up its balance sheet to the whole economy, eventually even to retail through central bank digital currency (CBDC), thus overstepping the banking industry.
Losing their power of money creation may not provide the death knell for the banking industry, but it would be such a massive hit to their model that they may continue to exist only as mere ‘utilities’.
Market implications: US financials underperform
Grey Swan #7: Tesla Partners with Hyundai
The global auto industry is in the doldrums. Chinese growth is weaker and the shift towards electric cars is upending the traditional industry order. European manufacturers – notably German automakers like BMW and Volkswagen – are adapting their model ranges, while Japanese automakers like Toyota are already well advanced in their transition. Tesla, of course, is leading the charge on the US side.
The obvious laggard is Korean automaker Hyundai. Its valuations are among the lowest of the major manufacturers (Chart 1), and investors are clearly questioning the company’s long-term future. Therefore, it may need to find a partner. And fast. But what could it offer? Well, for a start its long experience in manufacturing and its healthy cashflows.
Meanwhile, the auto company that exemplifies the future, Tesla, has the mirror image of Hyundai’s problems. Investors love the vision and value the company at close to ten times book value, but Tesla struggles with production and cashflows. So perhaps a marriage made in heaven would be Tesla partnering with Hyundai.
Chart 3: Poor Valuation of Hyundai
Source: Macro Hive, Reuters
Admittedly, this could be an outlandish call – there’s been no indication from either side of any interest. But with Hyundai struggling to gain traction in the luxury car market and Tesla’s well-known cashflow issues, you never know.
Market implication: Hyundai and Tesla stock rises
Grey Swan #8: Drone Attacks on US installations in Middle East
The unmanned warfare capabilities of insurgents in the Middle East have increased markedly over the past few years:
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During the battle against ISIS in Mosul in 2016, insurgents were able to use hobbyist drones carrying bomblets to disable Abrams tanks.
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For the past 2 years, Houthi rebels in Yemen have been using suicide drones to attack UAE and Saudi Patriot missile batteries.
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In January 2018, Russia reported an attack by a swarm of 13 improvised drones on its Syrian airbase of Tartus.
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In December 2018, the US military reported than one of its Afghan bases was under regular observation by insurgent drones.
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And in addition, the Iranian navy is believed to have developed unmanned fast speed boats for asymmetric naval warfare.
Unmanned warfare arguably reached a new level of threat with the September attack on Saudi oil facilities. The attack shattered the myth of impregnable air defence systems, no matter how costly or sophisticated. Saudi Arabia, after all, has access to the most advanced US military technology as well as to US intelligence and surveillance support.
But in fact, the sophisticated weaponry that advanced military powers typically deploy is largely helpless when it comes to very large numbers of unsophisticated, low cost weapons such as drones. In response, the US and other militaries are scrambling to develop counter measures. But these will take time to prepare and subsequently deploy.
Meanwhile, further high visibility targets in the Middle East remain vulnerable in 2020. The likely sponsor of these attacks, Iran, is unlikely to want an open conflict with the US; rather it will wish to demonstrate its retaliation capacity. This suggests that the most exposed targets could be the economic or military assets of US allies or non-military US assets as opposed to the US military itself. For instance, US Navy supply ships crewed by civilians and bringing supplies to the US aircraft carrier strike force deployed in the region could find themselves the target of swarms of unmanned high-speed boats and drones.
Markets quickly recovered from the September attack on Saudi facilities. The price of oil is now lower than before the September attack. But a new, high-visibility drone attack in the Middle East could see more oil supply risk priced in. It could also lead to a rethink of US military spending priorities as drones are changing the cost benefit analysis of traditional military hardware such as aircraft carriers and fighter jets.
Market implication: oil prices move higher
Grey Swan #9: Virtual Reality Kills Auto Sector
The history of humankind is one of gradually reducing mobility. We generally travel for three reasons: resources, work, and entertainment. And with advances in technology, the need to travel for each of these decreases. As we start to move into the digital medium through VR, the need to travel may completely disappear. With VR on the cusp of mass adoption, betting on the autonomous car – whether electric vehicles (EV) or solar powered – to be the next ‘big thing’ in mobility may not be the smartest idea.
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We stopped travelling for resources after the Agricultural Revolution: when we first acquired a surplus of resources required survival. We moved from hunter-gathering to a more sedentary lifestyle.
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The Industrial Revolution instigated a widespread need and ability to travel for work. But that need probably reached a peak sometime after WW2.
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Mobility for entertainment picked up thereafter, but probably reached a peak in 2007 with the invention of the smartphone and the dawning of the Digital Society.
Chart 4: US Vehicle Miles Travelled Per Capita
Source: FRED
The wide adoption of VR will put the final nail in the coffin of human mobility. Until just a few years ago, at least we used to go ‘shopping for resources’ to our corner grocery store. Now, Amazon and a bunch of other companies bring food and necessities to our doorstep. Travelling for work is also decreasing as internet/network connectivity improves. VR brings the decline of ‘mobility for entertainment’: the need to go to a concert, the movies, etc., or even travelling across the world on vacation, is reduced.
It’s not the EV that will bring down the auto industry, but VR.
It’s only a question of how long it takes for ‘haptics’ to become more sophisticated. People will not, of course, stop travelling completely, but physical mobility will be confined to either a thing of absolute necessity or one of luxury. As such, the auto industry may not disappear, but looks likely to be pushed into the niche corner of luxury travel or transporting discretionary physical goods.
Market implication: global autos underperform
Grey Swan #10: England Win the Euro 2020
England reached the semi-finals of the Football World Cup in 2018. They reached the final of the Rugby World Cup in 2019. And they won the Cricket World Cup in 2019. Notice a pattern? I do, and I think the 2020 European Football Championships could be the next tournament for England to win.
The team topped their qualifying group to enter the tournament and scored the most goals per match of any group (almost five on average). Betting markets have England as favourites to win followed by some mix of Belgium, France, Spain, and the Netherlands.
The England squad is also unusually strong. ESPN recently released their rankings of the world’s best players by position. English players Trent Alexander-Arnold and Raheem Sterling were ranked world number one for the right back and wing positions, respectively. Meanwhile, Harry Kane was ranked as the second-best striker (after Sergio Aguero). And the estimated market value of the England squad at EUR1.25bn is the highest in the world (followed by Spain and France).
So, don’t let the haters talk England down. In 2020, football will be coming home.
Tyler Durden
Mon, 12/09/2019 – 20:20 -
- China Launches 'Competitor' Pipeline Mega-Company In Gambit To Double Oil & Gas Infrastructure
China Launches ‘Competitor’ Pipeline Mega-Company In Gambit To Double Oil & Gas Infrastructure
Still leading the globe in new oil and natural gas demand for its population of 1.4 billion people and aggressive economic expansion program, China has established a new multi-bullion dollar state-owned national oil and gas infrastructure to “boost competition” according to state media headlines.
The country’s oil and gas infrastructure is currently predominantly operated by three state energy giants China National Petroleum Corporation (CNPC), Sinopec and CNOOC — with the new addition of the state “competitor” expected to manage most of the national infrastructure, which includes underground natural gas storage and liquefied natural gas terminals as well.
File image Beijing’s goal is to separate the cost of pipeline transportation from the sale of oil and gas, as Xinhua News Agency announced early Monday: “The new company will separate (oil and gas) transportation, production and sales, and open (transportation) to third-party entities, which will benefit market competition.”
Beijing’s State-owned Assets Supervision and Administration Commission (SASAC) will reportedly have a 40% share in the new entity, along with CNPC holding 30%, Sinopec 20% and CNOOC owning 10%.
“The company will break up the country’s oil and gas pipeline transportation, from upstream production and downstream sales, and will facilitate third-party access to oil and gas infrastructure, helping boost market competition and efficiency of resource allocation,” an industry official said, according to S&P Global Platts.
China will announce the creation of its long-planned national oil and gas pipeline company on Dec. 9 https://t.co/pEeZuGfEbz pic.twitter.com/X93XRiIIxy
— BBG Energy News (@BloombergNRG) December 6, 2019
https://platform.twitter.com/widgets.js
Risk consultancy group Wood Mackenzie comments that the new company may be worth between $80 billion and $105 billion, and observes further:
As China aims to double its pipeline infrastructure to over 240,000 km by 2025, PetroChina’s midstream spend could hit up to US$20 billion a year. Pipeline reform means the company will no longer be liable for this spend, freeing up funds for domestic investment and overseas expansion.
China has a long term plan of seeking to double its pipeline infrastructure to over 240,000km by 2025, part of President Xi Jinping’s broader initiative to rapidly modernize and streamline industrial capacity across the country.
Last week China and Russia jointly launched the major unprecedented cooperative project that had been years in the making called the ‘Power of Siberia’ gas pipeline — an east-route pipeline from Siberia now providing China with Russian natural gas, which according to Chinese state media is expected to reach 5 billion cubic meters in 2020 and increase to 38 billion cubic meters annually from 2024.
Xi had hailed the pipeline’s inauguration as signaling a new start in future China-Russian cooperation and partnerships. Western leaders have received it as an alarming indicator of the two Washington ‘enemies’ seeking to transform the East into the globe’s new energy powerhouse.
Tyler Durden
Mon, 12/09/2019 – 20:00 - Former Ukrainian Prosecutor Exposes Yovanovich Perjury, George Kent's Motive To Impeach Trump
Former Ukrainian Prosecutor Exposes Yovanovich Perjury, George Kent’s Motive To Impeach Trump
Authored by Sundance via the Conservative Treehouse
In a fantastic display of true investigative journalism, One America News journalist Chanel Rion tracked down Ukrainian witnesses as part of an exclusive OAN investigative series. The evidence being discovered dismantles the baseless Adam Schiff impeachment hoax and highlights many corrupt motives for U.S. politicians.
Ms. Rion spoke with Ukrainian former Prosecutor General Yuriy Lutsenko who outlines how former Ambassador Marie Yovanovitch perjured herself before Congress.
What is outlined in this interview is a problem for all DC politicians across both parties. The obviously corrupt influence efforts by U.S. Ambassador Yovanovitch as outlined by Lutsenko were not done independently.
Senators from both parties participated in the influence process and part of those influence priorities was exploiting the financial opportunities within Ukraine while simultaneously protecting Joe Biden and his family. This is where Senator John McCain and Senator Lindsey Graham were working with Marie Yovanovitch.
Imagine what would happen if all of the background information was to reach the general public? Thus the motive for Lindsey Graham currently working to bury it.
You might remember George Kent and Bill Taylor testified together.
It was evident months ago that U.S. chargé d’affaires to Ukraine, Bill Taylor, was one of the current participants in the coup effort against President Trump. It was Taylor who engaged in carefully planned text messages with EU Ambassador Gordon Sondland to set-up a narrative helpful to Adam Schiff’s political coup effort.
Bill Taylor was formerly U.S. Ambassador to Ukraine (’06-’09) and later helped the Obama administration to design the laundry operation providing taxpayer financing to Ukraine in exchange for back-channel payments to U.S. politicians and their families.
In November Rudy Giuliani released a letter he sent to Senator Lindsey Graham outlining how Bill Taylor blocked VISA’s for Ukrainian ‘whistle-blowers’ who are willing to testify to the corrupt financial scheme.
Unfortunately, as we are now witnessing, Senator Lindsey Graham, along with dozens of U.S. Senators currently serving, may very well have been recipients for money through the aforementioned laundry process. The VISA’s are unlikely to get approval for congressional testimony, or Senate impeachment trial witness testimony.
U.S. senators write foreign aid policy, rules and regulations thereby creating the financing mechanisms to transmit U.S. funds. Those same senators then received a portion of the laundered funds back through their various “institutes” and business connections to the foreign government offices; in this example Ukraine. [ex. Burisma to Biden]
The U.S. State Dept. serves as a distribution network for the authorization of the money laundering by granting conflict waivers, approvals for financing (think Clinton Global Initiative), and permission slips for the payment of foreign money. The officials within the State Dept. take a cut of the overall payments through a system of “indulgence fees”, junkets, gifts and expense payments to those with political oversight.
If anyone gets too close to revealing the process, writ large, they become a target of the entire apparatus. President Trump was considered an existential threat to this entire process. Hence our current political status with the ongoing coup.
Ambassador Marie Yovanovitch, Senator Lindsey Graham and Senator John McCain meeting with corrupt Ukraine President Petro Poroshenko in December 2016. It will be interesting to see how this plays out, because, well, in reality all of the U.S. Senators (both parties) are participating in the process for receiving taxpayer money and contributions from foreign governments.
A “Codel” is a congressional delegation that takes trips to work out the payments terms/conditions of any changes in graft financing. This is why Senators spend $20 million on a campaign to earn a job paying $350k/year. The “institutes” is where the real foreign money comes in; billions paid by governments like China, Qatar, Saudi Arabia, Kuwait, Ukraine, etc. etc. There are trillions at stake.
[SIDEBAR: Majority Leader Mitch McConnell holds the power over these members (and the members of the Senate Intel Committee), because McConnell decides who sits on what committee. As soon as a Senator starts taking the
bribeslobbying funds, McConnell then has full control over that Senator. This is how the system works.]The McCain Institute is one of the obvious examples of the financing network. And that is the primary reason why Cindy McCain is such an outspoken critic of President Trump. In essence President Trump is standing between her and her next diamond necklace; a dangerous place to be.
So when we think about a Senate Impeachment Trial; and we consider which senators will vote to impeach President Trump, it’s not just a matter of Democrats -vs- Republican. We need to look at the game of leverage, and the stand-off between those bribed Senators who would prefer President Trump did not interfere in their process.
McConnell has been advising President Trump which Senators are most likely to need their sensibilities eased. As an example President Trump met with Alaska Senator Lisa Murkowski in November. Senator Murkowski rakes in millions from the multinational Oil and Gas industry; and she ain’t about to allow horrible Trump to lessen her bank account any more than Cindy McCain will give up her frequent shopper discounts at Tiffanys.
Senator Lindsey Graham announcing today that he will not request or facilitate any impeachment testimony that touches on the DC laundry system for personal financial benefit (ie. Ukraine example), is specifically motivated by the need for all DC politicians to keep prying eyes away from the swamps’ financial endeavors. WATCH:
This open-secret system of “Affluence and Influence” is how the intelligence apparatus gains such power. All of the DC participants are essentially beholden to the various U.S. intelligence services who are well aware of their endeavors.
There’s a ton of exposure here (blackmail/leverage) which allows the unelected officials within the CIA, FBI and DOJ to hold power over the DC politicians. Hold this type of leverage long enough and the Intelligence Community then absorbs that power to enhance their self-belief of being more important than the system.
Perhaps this corrupt sense of grandiosity is what we are seeing play out in how the intelligence apparatus views President Donald J Trump as a risk to their importance.
FUBAR !
Tyler Durden
Mon, 12/09/2019 – 19:40 - Apple "Deeply Concerned" That Chinese-Born Staff Who Allegedly Stole Trade Secrets Will Try To Flee
Apple “Deeply Concerned” That Chinese-Born Staff Who Allegedly Stole Trade Secrets Will Try To Flee
Given the international brouhaha surrounding the ongoing Huawei CFO extradition hearings in Canada to face fraud charges in the US, reports from Reuters that Apple has “deep concerns” that two Chinese-born former employees accused of stealing trade secrets from the company will try to flee before their trials if their locations are not monitored – could well throw yet another cog in the gears of any imminent US-China trade deal.
As detailed earlier in the year, the two former Apple employees worked in the company’s secretive self-driving car program. As CNBC reported earlier in the year, Apple’s review found about 100 photos taken inside Apple’s building that housed the project on his personal devices along with “over two thousand files containing confidential and proprietary Apple material, including manuals, schematics and diagrams,” according to the affidavit.
Chen allegedly told Apple he backed up the work to his personal devices “as an ‘insurance policy’ to support his job applications after being placed on a PIP,” referring to the Performance Improvement Plan the agent claims Apple placed Chen on in December 2018. Apple allegedly found confidential and proprietary information on Chen’s devices collected prior to his placement on the improvement plan.
And now, after eleven months, Reuters reports that, during a hearing in U.S. District Court for the Northern District of California, prosecutors argued that Xiaolang Zhang and Jizhong Chen should continue to be monitored because they present flight risks… which seems reasonable since both men were arrested on criminal trade secrets theft charges while heading to airports to fly back to China and have been monitored after being released on bail.
Their defense attorney reportedly said Monday that both men had family reasons to visit China and had shown no signs of violating their pre-trial conditions so far.
But, once again echoing the Huawei executive case, Assistant U.S. Attorney Marissa Harris argued that if either man fled to China, it would be difficult if not impossible for federal officials to secure their extradition for a trial.
“Apple’s intellectual property is at the core of our innovation and growth,” the statement said.
“The defendants’ continued participation in these proceedings is necessary to ensure a final determination of the facts, and we have deep concerns the defendants will not see this through if given the opportunity.”
Given Tim Cook’s recent cozy relationship with President Trump, we can’t help but wonder if a quiet call will be made to ensure this IP (allegedly stolen by these two Chinese-nationals) is not allowed to leave the country?
Additionally, the irony is not lost on us at the potential for Chinese officials to be angered by US attempts to surveil the every move of these two Chinese-born citizens.
Tyler Durden
Mon, 12/09/2019 – 19:20 - Morgan Stanley: Central Banks Are Injecting $100 Billion Per Month To Crush Vol And Spike Markets
Morgan Stanley: Central Banks Are Injecting $100 Billion Per Month To Crush Vol And Spike Markets
One week ago, in response to the recurring question whether the Fed’s latest direct intervention in capital markets is QE or is NOT QE, we answered by looking directly at how the market itself was responding to the Fed’s liquidity injections.
The answer was clear enough: just like during the POMO days of QE1, QE2, Operation Twist, and QE3, stocks have risen in every single week when the Fed’s balance sheet increased, following the three weeks of declines that led to the October 11 announcement. What about the one week when the Fed’s balance sheet shrank? That was the only week in the past two months since the launch of “NOT QE” when the S&P dropped.
And yet, some doubts still remains.
As Morgan Stanley’s Michal Wilson writes today in his Weekly Warm Up piece, “in recent marketing meetings, several clients have asked if we think theFed’s $60B/month balance sheet expansion is QE or not.” In response, Wilson gives the podium to MS interest rates strategist Matt Hornbach who says that it’s “Q” but not “QE.” In other words, “there is little debate that the Fed is increasing the quantity of money, or Q. However, they are not taking duration out of the market so the additional money lacks a direct transmission mechanism to the equity markets or other long duration risk assets.”
While semantically Wilson and Hornbach are correct, the outcome is obvious: whether it is Q, QE, or NOT QE, the money is clearly making its way to the market when the Fed’s balance sheet expands, and vice versa.
And quite a bit of money it is, because it’s not just the Fed.
As Wilson further elaborates, “we continue to see the 3 largest central banks in the world expand their balance sheets at the rate of $100B per month ($60B from the Fed, $25B from the ECB and $15B from the BOJ).” As a reminder, several years ago, Citi’s fixed income guru Matt King said that it takes $200 billion in quarterly liquidity injections across all central banks to prevent a market crash, and lo and behold we are now well above that bogey.
But wait, there’s more: in case $300 billion per quarter was not enough, last week there was also an announcement that Japan would enact a new fiscal stimulus of approximately $120 billion which could be as much as $230 billion when you include the private economy incentives. That, as Wilson puts it, “is a lot of money.” It’s also an issue for the traditionally bearish Wilson, who as a reminder in mid November got a tap on the shoulder and, kicking and screaming, was “urged” to raise his S&P bull case target to 3,250.
It could go even higher.
As Wilson notes on Monday, “as part of our year ahead outlook published a few weeks ago, we cited this excessive liquidity as a reason why we thought the S&P 500 could trade well above our bull case year end target of 3250 while this policy action persists. As of right now, it appears that the Fed, ECB and BOJ will continue at this pace through the first quarter of next year.”
But wait, didn’t Wilson just say moments earlier that the liquidity injection by central banks “lacks a direct transmission mechanism to the equity markets?”
Well, yes and no. Wilson connects the two, by explaining that in his view, “the central bank transmission mechanism is via suppressed volatility”, to wit:
The recent actions by the Fed were intended to reduce volatility in the repo market but it’s also had the effect of reducing the volatility in risk markets. Exhibit 1 and Exhibit 2 show 30 day realized volatility for the S&P 500 for two periods. The first period is the post crisis financial repression era, and the second is the longer term. As you can see, we recently reached one of the lowest readings of this era when we hit 5.7% at the end of last month after a brief spike in September when repo markets became disrupted.
To put this in context, this reading is in the first percentile of the past 7 years, a time when QE and financial repression has been very active…
… almost as if QE is active once more.
Now, the reason why the Fed is directly targeting volatility – assuming MS’ thesis is right – is that vol also happens to be the key signal for two of the dominant market investors active today: CTAs and vol-targeting strategies. As shown in Exhibit 3and Exhibit 4, one can see that the flow of funds from these strategies is quite volatile and rather significant in size.
Morgan Stanley’s Quantitative Derivative Strategies (QDS) team estimates that since September, inflows to global equities are close to $175B of which ⅔ ended up in the US. The charts also show the two major downdrafts last year around the volatility shock in January/February 2018 and then the end of the year liquidity squeeze from QT and economic growth deterioration. All that changed in 2019, and this year’s flows have been quite positive with over $300B into global equities cumulatively with a few shocks in May and August to the downside as market volatility increased around escalating trade tensions and then recession fears. With both of those concerns fading recently along with central bank balance sheet expansion those outflows have reversed sharply to inflows.
More importantly, since these two strategies are directly driven by vol, and specifically the lower the volatility, the greater the leveraging, the inflows and the bullish impact on stocks, the more the Fed depresses volatility, the higher stocks rise.
And so, with central banks remaining stimulative with aggressive balance sheet expansion, Wilson notes that vol should remain suppressed in the absence of a breakdown in trade negotiations or hard evidence that the economic cycle is turning down again. (of course we will know as soon as this Sunday if trade negotiations will indeed not suffer a breakdown).
The question then turns to how high Morgan Stanley can reasonably expect the S&P 500 to rise from here if these trends remain stable. The next chart shows how realized volatility is related to the equity risk premium (ERP). Unsurprisingly, the MS equity strategist finds a positive relationship between the two – i.e. falling/rising vol is relative to falling/rising ERP.
However, there have been some important divergences between the two over the past several years. First, in 2016, the ERP remained somewhat sticky to the upside despite very low realized volatility. This can be attributed to the high political uncertainty during that year due to the US Presidential election and Brexit. There was also a large gap in early 2018 when we experienced a sharp spike in realized vol but the ERP remained quite low. This divergence can be attributed to the observation that the vol shock was more technical in nature and not fundamentally induced. Therefore, the ERP remained low.
Fast forward to today, when we currently observe a third major divergence between the two – the ERP remains more elevated than one might expect based on its relationship with realized vol. So what’s going on now?
Here, Morgan Stanley thinks this makes sense given what is likely to be another heightened year of political uncertainty much like 2016. Trade tensions are also likely to remain even with a phase one deal getting signed. Finally, the bank’s core bearish view is that corporate margins/profitability will continue to be a drag on earnings growth even in the muddle through late cycle scenario our economists forecast for the US.
And yet, this is where the upside “risk” to Morgan Stanley’s bullish forecast lies, because the ERP could certainly fall further, which is why Wilson has been highlighting the near term upside risk for the S&P 500 to trade above his bull case target (3250) so long as the Fed and other central banks keep vol suppressed below “normal” levels. Looking at Exhibit 5, it’s fair to argue ERP could fall another 50bps toward 325-50bps if vol stays suppressed. Using the bank’s ERP/Rates framework in Exhibit 6 and assuming 10 year Treasury yields remain close to current levels, the forward P/E multiple could expand another couple of turns. Using the currently consensus forward EPS of $177.42 this means that the S&P 500 might be able to overshoot to the upside in this suppressed volatility environment.
Of course, all of the above was written by a Michael Wilson who is merely covering his (bearish) ass in case the S&P does hit 3,400 which as emerged earlier today, is JPMorgan’s as well as Goldman’s 2020 target. In an ideal world, where the Fed had not launched QE, Wilson’s tone would have been decidedly different. Which is also why he adds the footnote that “this is not our base case assumption, mainly because we think the ERP should remain at current levels, or higher, given the uncertainties around politics, policy and earnings growth for next year.”
A little more of Wilson’s bearishness shines through when he says that he is confident the current consensus forecasts for earnings next year remain 5-10 percent too high. However, he concedes that the market will use the consensus numbers as its best guess/most likely outcome at least until their are proven wrong. Here, just like this year, the reduction in forward EPS is bound to be slow as companies are loathe to reduce forecasts until they absolutely have to, and analysts rarely deviate far from company guidance.
Having offered the market his bull – and even mega-bull – case, Wilson is then allowed to revert back to his normal, bearish self, and pointing to last week’s jobs data and consumer confidence data which “were well received by equity investors,” he notes that “the action in the bond market and our cyclicals / defensives ratio left a lot to be desired.”
Specifically, the strategist notes that despite what has been a series of better data points on the economy and forward looking indicators, both the 10 year Treasury Yield and his cyclicals/defensives stock ratio remain well below key resistance levels. In fact, both are still close to their lows in 2016 and below levels reached last December!
This makes sense and in in fact confirms Wilson’s view that “downside risks to growth remain higher than upside risks”, especially since the S&P 500 is a very defensive equity market and could be viewed as its own asset class that received a unique allocation in passive portfolios. Meanwhile, the greatest risk in the equity market remains in growth stocks where expectations are too high and priced. From a sector standpoint, this is consumer discretionary broadly and expensive software and secular growth stocks. Since then, Wilson notes that these groups have underperformed and Morgan Stanley thinks that this will continues. Indeed, while consumer discretionary group had a decent day on Friday but its relative performance was still slightly negative remaining well below its 200 day moving average and appearing to be completely broken technically. Broadly, software had an even weaker day on Friday relative to the market capping a poor week and leaving its relative performance in a precarious position technically.
Looking at the chart above, one can argue that the consumer discretionary line – which is now far below its 200DMA -is now in a breakdown. Why is this notable? Because as Wilson concludes, “consumer discretionary is an early cycle sector and we are clearly late cycle.” While the stocks had a good 2018 and first half of 2019 because US consumers have benefited from the tax cuts and have been spending well above trend, “this above trend spend however is likely coming to an end.” So, even though the consumer is healthy and likely to continue to spend, he is unlikely to spend at the pace of the past few years, Wilson concludes.
Which brings us to his bearish punchline (at least as much as he is allowed to be bearish), to wit: “stocks are now beginning to discount that slowdown and we think there is likely more downside given the early cycle properties of these stocks in what is a late cycle environment.”
Of course, the materialization of this worst-case scenario would just mean even more QE from the Fed, which would then bring up the last -for this cycle – scenario we discussed over the weekend in “When We Fall Back Into A Recession And Real QE Returns, Watch Out.“
Tyler Durden
Mon, 12/09/2019 – 19:07 - Fireworks Erupt As Matt Gaetz Goes Off On 'Non-Partisan' Democrat Impeachment Lawyer
Fireworks Erupt As Matt Gaetz Goes Off On ‘Non-Partisan’ Democrat Impeachment Lawyer
Rep. Matt Gaetz (R-FL) took the Democrats’ ‘non-partisan’ impeachment attorney to task on Monday afternoon in a clip which quickly went viral.
Gaetz first asked GOP impeachment attorney Stephen Castor if he’d ever made political donations, to which he replied “I don’t remember any.”
The Florida Republican then asked Democratic attorney Daniel Goldman the same question, to which Goldman replied “I do sir.“
Gaetz took it from there – saying “matter of fact, you’ve given tens of thousands of dollars to Democrats, right?”
“Have you given over $100,000?” Gaetz asked. “Do you think if you’d given more money, you might have been able to ask questions – and answer them like Mr. Berke did?” referring to an incident earlier in the day in which House Judiciary Committee attorney Barry Berke was able to directly question Castor – despite him testifying just minutes earlier.
Gaetz then trots out Castor’s anti-Trump tweets – asking him if he regrets tweeting “Nothing in the dossier has proved to be false (including your pee tape)” last August, then outlining all the things the dossier got wrong.
Castor was speechless – mostly because Gaetz wouldn’t let him get a word in edgewise.
Watch:
Tyler Durden
Mon, 12/09/2019 – 18:40 - Schlichter: A 'Safe Space' Society Is A Totalitarian Nightmare
Schlichter: A ‘Safe Space’ Society Is A Totalitarian Nightmare
Authored by Kurt Schlichter, op-ed via Townhall.com,
As the undisputed star of the new film No Safe Spaces – the hit documentary on academia’s descent into Orwellian tyranny features a quick shot of a lawyer letter I wrote to some collegiate gulag apparatchiks – I wholeheartedly recommend that you go see it.
Adam Carolla and Dennis Prager take you on a guided tour of the insanity and evil that has gripped academia, and it’s utterly terrifying. You need to see it not merely to gape at the freak show but to learn what’s coming for society as a whole. The dreary conformity factories that pretend to be providing our next generation of leaders with a higher education have instead embarked on a campaign of indoctrination designed to manufacture a generation of goose-stepping creeps who use their bizarre collection of buzzwords and fetishes as weapons to suppress any kind of dissent.
And the problem is that this PC Nazism is not just limited to academia. Eventually, these daddy-issue cadres are going to get out into the world and contaminate all of our institutions even worse than they are contaminated now. We’ve seen weeks of pretentious ruling caste losers presuming to lecture us on how we should fix the messes they and their pals made. Imagine if they compounded their failure with the desire to burn you at the stake for refusing to concede that a dude can get pregnant.
A dude can’t get pregnant, not ever. And there’s a whole generation of future elitists who would want to cancel you permanently for daring to state this indisputable fact.
The key to understanding what is happening on campuses, and increasingly in society as a whole, is to discard your bourgeois notions of reason and the presumption of good faith. What’s kind of funny is to watch people shake their heads at the incoherence of the leftist lies – what these people say is manifestly false and usually both contradictory and hypocritical. They have no evidence to support their claims, and they ignore contrary evidence. This freaks out the squares because normal people approach disputes with the understanding that facts and evidence and arguments can change one’s positions. But with these people, that doesn’t happen. It can’t happen, because they are not engaged in argument. Rather, they simply assert whatever nonsense they believe will increase their own power.
That’s all it is. This PC leftist garbage is simply about power.
You can’t prove your innocence or change their minds because actual facts are beside the point. The point is to generate a narrative that results in you being deprived of the moral capacity to assert your own rights and interests. You are disenfranchised, totally, by the moral failure that is your race or your sex or your religion or your sexual preference or whatever has been designated as bad this week. That is why we get evil concepts like “white privilege,” “mansplaining” and “heteronormativity” tossed around as if they are conceptual trump cards that instantly silence you merely by being asserted.
Now, as someone of good faith who strives to operate in a universe that makes sense, you might observe that these kinds of prejudgments based on race and sex and so forth seem an awful lot like prejudice based on race and sex and so forth, and you would be right because that is exactly what they are. And you would scratch your head because aren’t these adolescent inquisitors supposedly really upset about prejudice based on race and sex and so forth?
Except they aren’t, because they don’t care about prejudice, except to the extent they can use it as a weapon to get what they want. The left is not against prejudice or bigotry. It is actively in favor of both. It’s just that the targets change and morph based on necessity. Go on social media, if you dare, and find a black conservative or a gay conservative or a conservative woman and see what crap they take from the loving left. The crude hatred would shock and appall even the Democrats who invented and filled the ranks of the KKK. The left is supposed to be in favor of black people and gay people and women people and it takes only a few seconds to realize that this is utterly false. They don’t care about bigotry or prejudice. They care about leftist power, and if bigotry and prejudice help them get more of it then the left is all in.
On the upside, they often turn on each other in internal power struggles where the radicals attempt to out-woke each other to become the king/queen/non-binary monarch of the hill. “You’re a person of color? I’ll see your race card and raise you the fact that I was born Dennis but now I’m Denise.”
Today on campus, these creeps have power because the administrators tend to be cowed by the left when not in active cahoots with it. The left can even LARP violent revolution because the schools hold back the cops who ought to be beating down and hooking up these black-masked punks. The scary thing is that someday, some of these quad gestapo types are going to be in real positions of power in real society, and they do not believe in rules and they do not believe in rights for anyone who opposes them. Their sole goal is their own power. And to increase their power, they need to take power from someone else. You are the someone else.
In a society they control, you will have no rights, no voice, and no future. Leftism always ends in tyranny and murder, which is why we’re blessed to have the Second Amendment. And if you are ever disarmed and at the mercy of these aspiring monsters, the only safe space will be a mass grave.
* * *
The nightmarish end state the left seeks is on full display in Collapse, my hard-hitting yet hilarious sequel to People’s Republic, Indian Country and Wildfire. My novels have been hailed by Bill Kristol as “Appalling,” so that kind of vouches for them!
Kurt will be doing a live video chat tonight (Dec. 9) w/ PJ’s Stephen Kruiser at 8:15pm ET for VIP Gold members. Join quickly to be able to take part in the fun.
Tyler Durden
Mon, 12/09/2019 – 18:20 - 'A Clear Abuse': Barr, Durham Object To IG FISA Probe Findings In Stunning Statements
‘A Clear Abuse’: Barr, Durham Object To IG FISA Probe Findings In Stunning Statements
Following the highly anticipated release of the DOJ Inspector General’s so-called FISA report, Attorney General Bill Barr and his hand-picked US Attorney, John Durham, have issued statements disagreeing with the IG’s conclusions.
The report found that while the FBI made serious errors investigating the Trump campaign, and relied heavily on the discredited Steele dossier, that the agency was ultimately justified in launching a counterintelligence operation, dubbed Crossfire Hurricane.
“The Inspector General’s report now makes clear that the FBI launched an intrusive investigation of a U.S. presidential campaign on the thinnest of suspicions that, in my view, were insufficient to justify the steps taken,” Barr said in a statement released shortly after the FISA report.
“It is also clear that, from its inception, the evidence produced by the investigation was consistently exculpatory,” he continued. “Nevertheless, the investigation and surveillance was pushed forward for the duration of the campaign and deep into President Trump’s administration.”
Barr added that the FISA report reveals a “clear abuse” of the surveillance court.
“In the rush to obtain and maintain FISA surveillance of Trump campaign associates, FBI officials misled the FISA court, omitted critical exculpatory facts from their filings, and suppressed or ignored information negating the reliability of their principal source.”
“The Inspector General found the explanations given for these actions unsatisfactory. While most of the misconduct identified by the Inspector General was committed in 2016 and 2017 by a small group of now-former FBI officials, the malfeasance and misfeasance detailed in the Inspector General’s report reflects a clear abuse of the FISA process.”
Statement from U.S. Attorney General Bill Barr:
“The Inspector General’s report now makes clear that the FBI launched an intrusive investigation of a U.S. presidential campaign on the thinnest of suspicions that, in my view, were insufficient to justify the steps taken… pic.twitter.com/xVNfOJxzCP
— Trump War Room (Text TRUMP to 88022) (@TrumpWarRoom) December 9, 2019
Durham, meanwhile, said “Based on the evidence collected to date, and while our investigation is ongoing, last month we advised the Inspector General that we do not agree with some of the report’s conclusions as to predication and how the FBI case was opened.”
“I have the utmost respect for the mission of the Office of Inspector General and the comprehensive work that went into the report prepared by Mr. Horowitz and his staff,” Durham also said. “However, our investigation is not limited to developing information from within component parts of the Justice Department. Our investigation has included developing information from other persons and entities, both in the U.S. and outside of the U.S.“
https://platform.twitter.com/widgets.jsFull Durham statement:
“I have the utmost respect for the mission of the Office of Inspector General and the comprehensive work that went into the report prepared by Mr. Horowitz and his staff. However, our investigation is not limited to developing information from within component parts of the Justice Department. Our investigation has included developing information from other persons and entities, both in the U.S. and outside of the U.S. Based on the evidence collected to date, and while our investigation is ongoing, last month we advised the Inspector General that we do not agree with some of the report’s conclusions as to predication and how the FBI case was opened.”
Tyler Durden
Mon, 12/09/2019 – 18:00
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