Dec 11

Today’s News 11th December 2017

  • FRee BiTCoiN ORNaMeNT
  • Greenwald: The U.S. Media Just Suffered Its Most Humiliating Debacle in Ages

    Authored by Glenn Greenwald of The Intercept,

    Friday was one of the most embarrassing days for the U.S. media in quite a long time. The humiliation orgy was kicked off by CNN, with MSNBC and CBS close behind, with countless pundits, commentators and operatives joining the party throughout the day. By the end of the day, it was clear that several of the nation’s largest and most influential news outlets had spread an explosive but completely false news story to millions of people, while refusing to provide any explanation of how it happened.

    The spectacle began on Friday morning at 11:00 am EST, when the Most Trusted Name in News™ spent 12 straight minutes on air flamboyantly hyping an exclusive bombshell report that seemed to prove that WikiLeaks, last September, had secretly offered the Trump campaign, even Donald Trump himself, special access to the DNC emails before they were published on the internet. As CNN sees the world, this would prove collusion between the Trump family and WikiLeaks and, more importantly, between Trump and Russia, since the U.S. intelligence community regards WikiLeaks as an “arm of Russian intelligence,” and therefore, so does the U.S. media.

    This entire revelation was based on an email which CNN strongly implied it had exclusively obtained and had in its possession. The email was sent by someone named “Michael J. Erickson” – someone nobody had heard of previously and whom CNN could not identify – to Donald Trump, Jr., offering a decryption key and access to DNC emails that WikiLeaks had “uploaded.” The email was a smoking gun, in CNN’s extremely excited mind, because it was dated September 4 – ten days before WikiLeaks began promoting access to those emails online – and thus proved that the Trump family was being offered special, unique access to the DNC archive: likely by WikiLeaks and the Kremlin.

    It’s impossible to convey with words what a spectacularly devastating scoop CNN believed it had, so it’s necessary to watch it for yourself to see the tone of excitement, breathlessness and gravity the network conveyed as they clearly believed they were delivering a near-fatal blow on the Trump/Russia collusion story:

    There was just one small problem with this story: it was fundamentally false, in the most embarrassing way possible. Hours after CNN broadcast its story – and then hyped it over and over and over – the Washington Post reported that CNN got the key fact of the story wrong.

    The email was not dated September 4, as CNN claimed, but rather September 14 – which means it was sent after WikiLeaks had already published access to the DNC emails online. Thus, rather than offering some sort of special access to Trump, “Michael J. Erickson” was simply some random person from the public encouraging the Trump family to look at the publicly available DNC emails that WikiLeaks – as everyone by then already knew – had publicly promoted. In other words, the email was the exact opposite of what CNN presented it as being.

    How did CNN end up aggressively hyping such a spectacularly false story? They refuse to say. Many hours after their story got exposed as false, the journalist who originally presented it, Congressional reporter Manu Raju, finally posted a tweet noting the correction. CNN’s PR Department then claimed that “multiple sources” had provided CNN with the false date. And Raju went on CNN, in muted tones, to note the correction, explicitly claiming that “two sources” had each given him the false date on the email, while also making clear that CNN did not ever even see the email, but only had sources describe its purported contents:

    All of this prompts the glaring, obvious, and critical question – one which CNN refuses to address: how did “multiple sources” all misread the date on this document, in exactly the same way, and toward the same end, and then feed this false information to CNN?

    It is, of course, completely plausible that one source might innocently misread a date on a document. But how is it remotely plausible that multiple sources could all innocently and in good faith misread the date in exactly the same way, all to cause to be disseminated a blockbuster revelation about Trump/Russia/WikiLeaks collusion? This is the critical question that CNN simply refuses to answer. In other words, CNN refuses to provide the most minimal transparency to enable the public to understand what happened here.

    Why does this matter so much? For so many significant reasons:

    To begin with, it’s hard to overstate how fast, far and wide this false story traveled. Democratic Party pundits, operatives and journalists with huge social media platforms predictably jumped on the story immediately, announcing that it proved collusion between Trump and Russia (through WikiLeaks). One tweet from Democratic Congressman Ted Lieu, claiming that this proved evidence of criminal collusion, was re-tweeted thousands and thousands of times in just a few hours (Lieu quietly deleted the tweet after I noted its falsity, and long after it went very viral, without ever telling his followers that the CNN story, and therefore his accusation, had been debunked).

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    Brookings’ Benjamin Wittes, whose star has risen as he has promoted himself as a friend of former FBI Director Jim Comey, not only promoted the CNN story in the morning, but did so with the word “Boom” – which he uses to signal that a major blow has been delivered to Trump on the Russia story – along with a gif of a cannon being detonated:

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    Incredibly, to this very moment – almost 24 hours after CNN’s story was debunked – Wittes has never noted to his more than 200,000 followers that the story he so excitedly promoted turned out to be utterly false, even though he returned to Twitter long after the story was debunked to tweet about other matters. He just left his false and inflammatory claims uncorrected.

    Talking Points Memo’s Josh Marshall believed the story was so significant that he used an image of an atomic bomb detonating at the top of his article discussing its implications, an article he tweeted to his roughly 250,000 followers. Only at night was an editor’s note finally added noting that the whole thing was false.

    It’s hard to quantify exactly how many people were deceived – filled with false news and propaganda – by the CNN story. But thanks to Democratic-loyal journalists and operatives who decree every Trump/Russia claim to be true without seeing any evidence, it’s certainly safe to say that many hundreds of thousands of people, almost certainly millions, were exposed to these false claims.

    Surely anyone who has any minimal concerns about journalistic accuracy – which would presumably include all the people who have spent the last year lamenting Fake News, propaganda, Twitter bots and the like – would demand an accounting as to how a major U.S. media outlet ended up filling so many people’s brains with totally false news. That alone should prompt demands from CNN for an explanation about what happened here. No Russian Facebook ad or Twitter bot could possibly have anywhere near the impact as this CNN story had when it comes to deceiving people with blatantly inaccurate information.

    Second, the “multiple sources” who fed CNN this false information did not confine themselves to that network. They were apparently very busy eagerly spreading the false information to as many media outlets as they could find. In the middle of the day, CBS News claimed that it had independently “confirmed” CNN’s story about the email, and published its own breathless article discussing the grave implications of this discovered collusion.

    Most embarrassing of all was what MSNBC did. You just have to watch this report from its “intelligence and national security correspondent” Ken Dilanian to believe it. Like CBS, Dilanian also claimed that he independently “confirmed” the false CNN report from “two sources with direct knowledge of this.” Dilanian, whose career in the U.S. media continues to flourish the more he is exposed as someone who faithfully parrots what the CIA tells him to say (since that is one of the most coveted and valued attributes in US journalism), spent three minutes mixing evidence-free CIA claims as fact with totally false assertions about what his multiple “sources with direct knowledge” told him about all this. Please watch this – again, not just the content but the tenor and tone of how they “report” – as it is Baghdad-Bob-level embarrassing:

    Think about what this means. It means that at least two – and possibly more – sources, which these media outlets all assessed as credible in terms of having access to sensitive information, all fed the same false information to multiple news outlets at the same time. For multiple reasons, the probability is very high that these sources were Democratic members of the House Intelligence Committee (or their high-level staff members), which is the committee that obtained access to Trump Jr.’s emails, although it’s certainly possible that it’s someone else. We won’t know until these news outlets deign to report this crucial information to the public: which “multiple sources” acted jointly to disseminate incredibly inflammatory, false information to the nation’s largest news outlets?

    Just last week, the Washington Post decided – to great applause (including mine) – to expose a source to whom they had promised anonymity and off-the-record protections because they discovered that she was purposely feeding them false information as part of a scheme by Project Veritas to discredit the Post. It’s a well established principle of journalism – one that is rarely followed when it comes to powerful people in DC – that journalists should expose, rather than protect and conceal, sources who purposely feed them false information to be disseminated to the public.

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    Is that what happened here? Did these “multiple sources” who fed not just CNN but also MSNBC and CBS completely false information do so deliberately and in bad faith? Until these news outlets provide an accounting of what happened – what one might call “minimal journalistic transparency” – it’s impossible to say for certain. But right now, it’s very difficult to imagine a scenario where multiple sources all fed the wrong date to multiple media outlets innocently and in good faith.

    If this were, in fact, a deliberate attempt to cause a false and highly inflammatory story to be reported, then these media outlets have an obligation to expose who the culprits are – just as the Washington Post did last week to the woman making false claims about Roy Moore (it was much easier in that case because the source they exposed was a nobody-in-DC, rather than someone on whom they rely for a steady stream of stories, the way CNN and MSNBC rely on Democratic members of the Intelligence Committee). By contrast, if this were just an innocent mistake, then these media outlets should explain how such an implausible sequence of events could possibly have happened.

    Thus far, these media corporations are doing the opposite of what journalists ought to do: rather than informing the public about what happened and providing minimal transparency and accountability for themselves and the high-level officials who caused this to happen, they are hiding behind meaningless, obfuscating statements crafted by PR executives and lawyers.

    How can journalists and news outlets so flamboyantly act offended when they’re attacked as being “Fake News” when this is the conduct behind which they hide when they get caught disseminating incredibly consequential false stories?

    The more serious you think the Trump/Russia story is, the more dangerous you think it is when Trump attacks the U.S. media as “Fake News,” the more you should be disturbed by what happened here, the more transparency and accountability you should be demanding. If you’re someone who thinks Trump’s attacks on the media are dangerous, then you should be first in line objecting when they act recklessly and demand transparency and accountability from them. It is debacles like this – and the subsequent corporate efforts to obfuscate – that have made the U.S. media so disliked and that fuel and empower Trump’s attacks on them.

    Third, this type of recklessness and falsity is now a clear and highly disturbing trend – one could say a constant – when it comes to reporting on Trump, Russia and WikiLeaks. I have spent a good part of the last year documenting the extraordinarily numerous, consequential and reckless stories that have been published – and then corrected, rescinded and retracted – by major media outlets when it comes to this story.

    All media outlets, of course, will make mistakes. The Intercept certainly has made our share, as have all outlets. And it’s particularly natural, inevitable, for mistakes to be made on a highly complicated, opaque story like the question of the relationship between Trump and the Russians, and questions relating to how WikiLeaks obtained DNC and Podesta emails. That is all to be expected.

    But what one should expect with journalistic “mistakes” is that they sometimes go in one direction, and other times go in the other direction. That’s exactly what has not happened here. Virtually every false story published goes only in one direction: to be as inflammatory and damaging as possible on the Trump/Russia story and about Russia particularly. At some point, once “mistakes” all start going in the same direction, toward advancing the same agenda, they cease looking like mistakes.

    No matter your views on those political controversies, no matter how much you hate Trump or regard Russia as a grave villain and threat to our cherished democracy and freedoms, it has to be acknowledged that when the U.S. media is spewing constant false news about all of this, that, too, is a grave threat to our democracy and cherished freedom.

    So numerous are the false stories about Russia and Trump over the last year that I literally cannot list them all. Just consider the ones from the last week alone, as enumerated by the New York Times yesterday in its news report on CNN’s embarrassment:

    It was also yet another prominent reporting error at a time when news organizations are confronting a skeptical public, and a president who delights in attacking the media as “fake news.”

     

    Last Saturday, ABC News suspended a star reporter, Brian Ross, after an inaccurate report that Donald Trump had instructed Michael T. Flynn, the former national security adviser, to contact Russian officials during the presidential race.

     

    The report fueled theories about coordination between the Trump campaign and a foreign power, and stocks dropped after the news. In fact, Mr. Trump’s instruction to Mr. Flynn came after he was president-elect.

     

    Several news outlets, including Bloomberg and The Wall Street Journal, also inaccurately reported this week that Deutsche Bank had received a subpoena from the special counsel, Robert S. Mueller III, for President Trump’s financial records.

     

    The president and his circle have not been shy about pointing out the errors.

    That’s just the last week alone. Let’s just remind ourselves of how many times major media outlets have made humiliating, breathtaking errors on the Trump/Russia story, always in the same direction, toward the same political goals. Here is just a sample of incredibly inflammatory claims that traveled all over the internet before having to be corrected, walk-backed, or retracted – often long after the initial false claims spread, and where the corrections receive only a tiny fraction of the attention with which the initial false stories are lavished:

    • Russia hacked into the U.S. electric grid to deprive Americans of heat during winter (Wash Post)
    • An anonymous group (PropOrNot) documented how major U.S. political sites are Kremlin agents (Wash Post)
    • WikiLeaks has a long, documented relationship with Putin (Guardian)
    • A secret server between Trump and a Russian bank has been discovered (Slate)
    • RT hacked C-SPAN and caused disruption in its broadcast (Fortune)
    • Crowdstrike finds Russians hacked into a Ukrainian artillery app (Crowdstrike)
    • Russians attempted to hack elections systems in 21 states (multiple news outlets, echoing Homeland Security)
    • Links have been found between Trump ally Anthony Scaramucci and a Russian investment fund under investigation (CNN)

    That really is just a small sample. So continually awful and misleading has this reporting been that even Vladimir Putin’s most devoted critics – such as Russian expatriate Masha Gessen, oppositional Russian journalists, and anti-Kremlin liberal activists in Moscow – are constantly warning that the U.S. media’s unhinged, ignorant, paranoid reporting on Russia is harming their cause in all sorts of ways, in the process destroying the credibility of the U.S. media in the eyes of Putin’s opposition (who — unlike Americans who have been fed a steady news and entertainment propaganda diet for decades about Russia — actually understand the realities of that country).

    U.S. media outlets are very good at demanding respect. They love to imply, if not outright state, that being patriotic and a good American means that one must reject efforts to discredit them and their reporting because that’s how one defends press freedom.

    But journalists also have the responsibility not just to demand respect and credibility but to earn it. That means that there shouldn’t be such a long list of abject humiliations, in which completely false stories are published to plaudits, traffic and other rewards, only to fall apart upon minimal scrutiny. It certainly means that all of these “errors” shouldn’t be pointing in the same direction, pushing the same political outcome or journalistic conclusion.

    But what it means most of all is that when media outlets are responsible for such grave and consequential errors as the spectacle we witnessed yesterday, they have to take responsibility for it by offering transparency and accountability. In this case, that can’t mean hiding behind PR and lawyer silence and waiting for this to just all blow away.

    At minimum, these networks – CNN, MSNBC and CBS – have to either identify who purposely fed them this blatantly false information, or explain how it’s possible that “multiple sources” all got the same information wrong in innocence and good faith. Until they do that, their cries and protests the next time they’re attacked as “Fake News” should fall on deaf ears, since the real author of those attacks – the reason those attacks resonate – is themselves and their own conduct.

    (Update: hours after this article was published on Saturday – a full day-and-a-half after his original tweets promoting the false CNN story with a “boom” and a cannon – Benjamin Wittes finally got around to noting that the CNN story he hyped has “serious problems”; needless to say, that acknowledgment received a fraction of re-tweets from his followers as his original tweets hyping the story attracted).

  • After $150 Billion Buying Binge, 'Tokyo Whale' Seen Paring Back ETF Purchases In 2018

    A few months ago, we noted that the Bank of Japan had decided to throw every textbook out of the window and crank their plunge-protection to ’11’after reports surfaced that they owned a staggering 75% of Japan’s ETFs.

    The BOJ first started their buying spree in December 2010 – when they held no ETFs at all – and have since accumulated some $150 billion in aggregate holdings.  The buying was all as part of unprecedented “economic stimulus” which has undoubtedly contributed to the Nikkei 225 Stock Average surging roughly 125% since December 2010.

    Here’s a quick graphical recap of the program courtesy of Bloomberg…

    …and another look which shows the central bank owns three quarters of ETFs by market value…

     

    …all of which has resulted in the following bubble stock market appreciation…

    Not surprisingly, since the program started, everyone from the head of the country’s stock exchange to the chairman of the Japanese Bankers Association has questioned the ETF program’s size and whether it artificially depresses volatility.

    Now, with the Nikkei surging to 25 year highs, analysts are increasingly saying it’s time for the BOJ to put this specific component of their many controversial bubble-blowing policies to rest.  Per Bloomberg:

    Sometime next year, the BOJ will cut its annual buying target for domestic exchange-traded funds by as much as a third from the current 6 trillion yen ($53 billion), says Toru Ibayashi, head of Japanese equities at UBS Wealth Management in Tokyo. Soichiro Monji of Daiwa SB Investments Ltd. expects a similar reduction, but by the end of March.

     

    “Four trillion yen,” UBS’s Ibayashi predicted. “And everybody will understand.”

     

    “Fear of deflation was behind the 6 trillion yen target,” Daiwa SB’s Monji said in an interview. “We’re no longer in that kind of environment. Risks are now skewed toward the upside, rather than the downside. It’s hard for the central bank to justify its buying spree.”

     

    “Given the circumstances at this point in time, it is difficult for the BOJ to keep buying ETFs at six trillion yen per year,” Ibayashi said.

    Jonathan Garner, chief Asia and emerging markets equity strategist at Morgan Stanley in Hong Kong, described the ETF purchases as “perhaps the most controversial part” of the bank’s stimulus program which includes everything from negative interest rates and yield-curve control to buying tens of trillions of yen of bonds each year, on top of its stock purchases. 

    Of course, not everyone agrees as Naoki Kamiyama, chief strategist for Nikko Asset Management Co. in Tokyo, and Hisao Matsuura, a strategist at Nomura Holdings Inc., both saying the BOJ won’t cut its ETF target anytime soon as “it would hurt investor confidence and make a pickup in inflation much less likely…”

    You know, because every central bank’s primary objective is to boost “investor confidence” by creating massive asset bubbles that make the masses feel richer…at least until the marginal stimulus fails and the whole ponzi comes crashing down…

  • A Gift From The Oldies

    By Chris at www.CapitalistExploits.at

    I bumped into a friendly bloke at my local gym last week. Jim is his name.

    Jim tells me he just started because, and I quote, “my doctor says I’m going to die unless I do something”.

    Now, I assure you it doesn’t take a doctor to figure this out.

    One glance in Jim’s direction and you can tell that underneath all that weight there’s a big struggling heart in there… just ready to explode. He was surprisingly frank and tells me it’s so bad that he can only do little bits of exercise because if he pushes it too hard, there is a very serious risk that his ticker just says, “You know what… f*ck it,” and gives up.

    Jim’s 52, which is really a ripe old age and about normal life expectancy — if we lived in the 1700’s. But we don’t.

    I feel for Jim, told him so, and naturally we all hope that he can bring himself back from the brink. But the fact is many people aren’t like Jim. As mentioned in a previous article on pensions, they’re living longer and stronger.

    Years ago it seemed that when you hit 65 you’d retire, receive a gold watch, and proceed to spend your pension money on a rocking chair and pot plants. Ten years later you’d be in a box and, since pot plants are cheap, the cost of keeping you alive wasn’t prohibitive.

     

    Not anymore. Today things are different. My wife belongs to a running club and there are a bunch of octogenarians there who put us both to shame. Nope, today you retire and spend your pension on kickboxing classes and second wives, with no plan of dying anytime soon.

    Now, this second group (our kickboxing oldies) pose a grave problem.

    You see, unlike Jim, these folks, who’ve spent their life exercising, go on and on and on.

    70 is spring chicken young for them, and many make it well into their 80’s and 90’s when inevitably they need nappies, nursing care, accommodation, and mushy food to eat. And then finally machines on wheels need to be wheeled in and they end up with tubes in their noses. Don’t laugh. We’re all going to get there, unless we’re fortunate enough to just drop dead quick and fast. The point is this all costs a boatload of money.

    Now, I’m aware that this topic isn’t rosy Friday red or shampoo advert fresh and clean, but there are some serious implications that I think you’ll thank me for so hear me out.

    Demographics and Pensions

    Demographics is an elephant in the room we shouldn’t ignore. It’s stomped around, defecated in the corner, and is now proceeding to knock over all the furniture. Ignore it at your peril. Rather, there are a number of ways to invest.

    Let’s explore a few…

    Old people (Mabel and Bob) pay for their retirements with pensions, and those pensions are held in pooled accounts at the DTC and managed by folks with pointy shoes and Tom Ford suits.

    And because old Mabel and Bob are closer to the box than younger folks, the pointy shoed gents are extremely risk averse (as they should be), and this is where it gets exciting because you know what?

    They’re presently engaged in the worst possible leveraged speculation you can think of.

    Nope, it’s not Bitcoin.

    First, to understand the insanity we have to take a step back and examine how these pointy shoed gents think.

    They like fixed income because it’s far less volatile and ostensibly less risky than equities.

    They hate small caps and frankly can’t invest in them due to their size, and they have a disdain for commodity markets. That volatility thing again…

    In fact, volatility is like a barometer in their world by which everything else is measured.

    The problem is with central banks shatbit crazy interest rate policies none of them have been able to make any money in a yield starved world and so they’re, wait for it, selling volatility.

    Either through tailor made products from the investment banks or by buying any number of the low volatility ETPs out there.

    Volatility isn’t even an asset.

    In fact, the VIX is an index of volatility on 1 month to expiry ATM puts and calls on stocks in the S&P 500.

    But now the geniuses on Wall Street have figured that they can actually package this animal, which as you can see, is a derivative of a derivative, and treat it like a bond. Fun, heh?

    In all fairness, hats off to the asset managers who’ve had the balls to do this. They believed in the central banks’ liquidity machine, and they backed their belief and for that they deserve to be paid. I sure wouldn’t have been able to do it.

    Now, I’m not some miserable jealous git here to tell you that armageddon is coming and I’ve the answers.

    God knows there’s enough of that nonsense in the financial publishing blogosphere for you to get your fill elsewhere. What we do know, however, is that this entire game: the selling of vol, the passive indexing — all of it is predicated on one thing. The central banks keeping rates low and pumping liquidity into the market. It’s why BTFD has become a meme.

    The problem that I have with it, other than the distortions made, is that when so many are on one side of the boat like right now and that boat has many moving pieces, then I begin to wonder.

    I’m reminded that markets change at the margin, where the slightest hiccup can act like a spark to light the fire of volatility, and these poor suckers who’ve managed to earn steady incomes selling puts find out what “unlimited risk” actually looks like as they’re forced to cover in a market that’s gapping the other way.

    I’ve thought about this a lot and, in fact, we recently published how we are going “long vol” for members. And no, it’s not buying puts on VIX because that is, in my humble opinion… how do I say this politely, like begging to be stabbed in the eyes. repeatedly.

    In any event that’s just one angle to this market. Here’s another.

    Redemptions

    I would be remiss in mentioning that as retirees retire, these pension funds will be drawn down.

    It’s what Mabel and Bob do to pay for their mushy food, viagra, and bingo nights.

    Now, I’m sure you’re all sharp enough to figure out what can happen to the assets these guys have been buying when they have to go from flat out full throttle, to stall, to reverse.

    How big is this problem?

    Well, for some context global institutional pension fund assets in 22 major markets stood at US$36.4 trillion at year end 2016, amounting to 62% of global GDP.

    That is a staggeringly large amount of money.

    Pension funds are big cumbersome dumb money. And they’re all allocated in equally dumb indexes, passive strategies, and bonds. So what happens when pensioners draw down on their funds?

    You tell me…

    Talking of staggeringly large amounts of money, the passive bubble grows bigger as I write this because this beast is fuelled not just by our pointy shoed friends but by Joe Sixpack himself.

    Bloomberg just ran a piece:

    BlackRock and Vanguard Are Less Than a Decade Away From Managing $20 Trillion

    Two towers of power are dominating the future of investing.
    Dominating indeed. Here’s how come the pointy shoed crowd can afford Tom Ford suits.
    The article goes on to say:
    Investors from individuals to large institutions such as pension and hedge funds have flocked to this duo, won over in part by their low-cost funds and breadth of offerings. The proliferation of exchange-traded funds is also supercharging these firms and will likely continue to do so.

    Sometimes when everyone is zigging and you zag, you just get run over. But think about it…

    We don’t need to go the other way. All we need to do is look where others are no longer.

    These behemoths don’t do battle in the little unloved sectors or with stocks that don’t make it into an index. They can’t because they’re too big.

    This means that there are a lot of orphans out there and here’s the good news. If it’s not in an index, passives aren’t buying it. And if passives aren’t buying it, it’s only active money that’s even looking at it.

    Which brings me to the double helping of good news.

    Here’s your competition in active with the accompanying passive.

    Right now, it’s a mosh pit food fight to grab and create the next index or ETF so that more capital can be attracted, earning more fees, buying more suits.

    This is all well and good.

    Markets do what markets do, and I’m not here to grumble about it. I’m here to make money. And indeed if I was in the passive business, I’d be enjoying the steady stream of fees and hoping like hell the market keeps going up.

    QE more? Yes, please.

    But I’m not.

    I’m a humble squirrel searching for nuts in the forest. And gosh, with all this moshing going on it’s wonderful how few other squirrels there are about. The same Bloomberg article makes a good point on this.

    While bigger may be better for the fund giants, passive funds may be blurring the inherent value of securities, implied in a company’s earnings or cash flow.

    Nah. You think?

    Stocks in the index funds no longer trade on fundamentals but rather on asset flows, which sucks the oxygen out of the small guys who don’t make it into the indexes where brain dead passive money is playing.

    It means we can gladly play in a sandpit with all the toys and there are very few we have to share them with.

    The Cracks Have Already Appeared

    Nothing lasts forever, and as I argued when discussing the impact of the incoming strong men on the global economy, there are 3 critical points worth thinking about:

    1. Political cohesion and stability can no longer be relied upon as politics becomes inward looking with everything from trade deals to central bank swap lines being renegotiated or cancelled altogether.
    2. Global coordinated central bank action. The era of global coordinated monetary policy which we’ve been experiencing since the GFC, especially with the three largest players (ECB, FED and BOJ), will be looked back upon with nostalgia by the current clutch of central bankers who muddy the halls of power. Policy will increasingly be driven with greater sensitivity to nationalist rather than international concerns, which brings me to…
    3. Liquidity in the financial system which has stemmed from easing monetary policy is already contracting. In a world where derivatives traverse borders, connecting financial systems like never before, a liquidity crisis presents enormous tail risk in a leveraged world.

    Invest accordingly, and thank you for reading.

    – Chris

    “If you can’t take a small loss, sooner or later you will take the mother of all losses.” — Ed Seykota

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    Liked this article? Then you’ll probably like my other missives on

    this topic as well. Go here to access them (free, of course).

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  • These Are The 30 Biggest Risks Facing Markets In 2018

    Once upon a time, Wall Street analysts had just two things to worry about: interest rate risk and corporate profits – virtually everything else was derived from these.  Unfortuantely, we now live in the new normal, where central banks step in every time there is even a whiff of an imminent market correction (as BofA explained last week), and the result is that nobody know what is and what isn’t priced into the market any more, simply because the market in the conventional sense of a future discounting mechanism no longer exists (as Citi explained earlier this summer).

    Which is why, paradoxically, even as the VIX slides to record lows, the number of things to worry about on Wall Street grows longer and longer. In fact, according to Deutsche Bank’s Torsten Slok, there are no less than 30 material risks investors should beware in the coming year, ranging from a U.S. equity correction to a reversal of Brexit to Irish presidential elections, to a “Bitcoin crash,” rising inflation, danger from North Korea and results from special counsel Robert Mueller’s probe.

    The risks should be thought of “not only as potential VIX-boosters but also as potential sources of faster or slower growth than what we have in our baseline forecast,” Slok explained in his note, which also shows that even without a major risk materializing, the GDP rebound of 2017 is unlikely to persist.

    As for the recent surges and drops in Bitcoin, “you wonder where prices will even be by the end of 2017,” Slok said during an appearance on CNBC’s Trading Nation broadcast.

    Predicting that price swings of the cryptocurrency will remain an issue in 2018, Slok said questions about Bitcoin regulation, transparency and disclosure issues remain unanswered. “It’s mainly because it is something that I think financial markets so far have been discounting as a small issue,” Slok said. “We do worry a bit that it could become more systemic, in particular, if the current trends continue into 2018.”

    But the Deutsche Banker’s biggest worry is understandably a spike in inflation in the coming months. Low national unemployment, growth projections for the nation’s gross domestic product, and other financial measures signal a potential rise, Slok said. As we have reportedly previously, virtually every bank from BofA to Goldman to Barclays has warned that their optimistic forecasts are null and void if inflation in the coming months spikes, forcing the Fed to tighten monetary conditions at a faster pace.

    On the geopolitical front, U.S. and global uncertainty about North Korea’s test launches of ICBMs capable of reaching the U.S. mainland and other potential targets could roil financial markets. Slok cited fear that we could have a “further escalation of the situation.”

    The bank’s worry list, in random order and featuring both upside and downside concerns for financial markets, questioned whether Jerome Powell, the incoming Federal Reserve chairman, will be “politically driven or driven by the incoming data.”

    Other risks include tests for the Fed’s near chair, the potential replacement of BOJ’s head Haruhiko Kuroda, the ECB announcing its QE exit in Q2, housing bubble bursts in Canada, Australia, Sweden or Norway, a correction in the U.S. stock market where there is a mismatch between valuation and fundamentals, a harder landing than expected for China as economic growth there slows, and many other risks which would all weigh on financial markets.

    “Are markets ready for even a small correction?” the Deutsche Bank strategist asked rhetorically, reminding his reads that there has not been one for “a long time.”

    The full list of 30 risk factors is below.

  • California Is Running Out Of Prisoners To Fight Its Deadly Wildfires

    While many on the left have celebrated California’s push to legalize marijuana as a victory for a progressive, harm-reduction approach to combating addiction and crime, the pullback in the number of low-level prisoners entering the state’s penal system is leaving the California Department of Forestry and Fire Protection.

    Court mandates to reduce overcrowding in the state’s prisons – combined with the legalization of marijuana, the most commonly used drug in America (aside from alcohol, of course) – have led to a sharp drop in the number of prisoners housed at state facilities in recent years. Interestingly, one byproduct of this trend is it’s creating headaches for the state officials who are responsible for coordinating the emergency wildfire response just as California Gov. Jerry Brown is warning that the severe fires witnessed this year – the most destructive in the state’s history – could become the new status quo.

    To wit, since 2008, the number of prisoner-firemen has fallen 13%.

    As the Atlantic reports, California has relied on inmates to help combat its annual wildfires since World War II, when a paucity of able-bodied men due to the war effort forced the state to turn to the penal system for help. More than 1,700 convicted felons fought on the front lines of the destructive wildfires that raged across Northern California in October.

    While communities from Sonoma to Mendocino evacuated in the firestorm’s path, these inmates worked shifts of up to 72 straight hours to contain the blaze and protect the property residents left behind, clearing brush and other potential fuel and digging containment lines often just feet away from the flames. Hundreds more are on the fire line now, combatting the inferno spreading across Southern California.

    But over the course of the last decade, their ranks have begun to thin. As drought and heat have fueled some of the worst fires in California’s history, the state has faced a court mandate to reduce overcrowding in its prisons. State officials, caught between an increasing risk of wildfires and a decreasing number of prisoners eligible to fight them, have striven to safeguard the valuable labor inmates provide by scrambling to recruit more of them to join the force. Still, these efforts have been limited by the courts, public opinion, and how far corrections officials and elected leaders have been willing to go…

    With dry conditions expected to persist for the foreseeable future, California will need to adjust to this new reality. Meanwhile, the fate of the inmate-firefighting program lies in the balance between two trends: the increasing need for cheap labor, and the pending decline in incarceration.

    The push to reduce overcrowding is a reaction to the rising incarceration rates of the 1990s, when President Bill Clinton declared gangsters and criminals “superpredators” and authorized stiff penalties for relatively minor drug offenses.

    For inmates, the reduction in state prison populations that first nudged that balance was long overdue. In the 1990s and 2000s, increasingly severe overcrowding in California prisons compromised medical services for prisoners and led to roughly one preventable death each week. A federal court ruled in 2009 that the inadequate health care violated the Eighth Amendment’s embargo against cruel and unusual punishment, and ordered the state to reduce its prison population by just shy of 27 percent – a cut of nearly 40,000 prisoners at the time of the ruling. California appealed the decision, but the Supreme Court upheld it in May 2011.

    As one might expect, the push to reduce overcrowding has had the greatest impact on the population of inmates in minimum security prisons. Typically, state officials prefer to recruit minimum security inmates who are already serving relatively light sentences and thus have the most incentive to cooperate and not cause problems (like disappearing into the wilderness).

    Also, state guidelines prohibit the recruitment of certain violent criminals and, of course, sex offenders.

    The pool of potential recruits was limited long before the courts’ mandate. It comprises only inmates who earn a minimum-custody status through good behavior behind bars and excludes arsonists, kidnappers, sex offenders, gang affiliates, and those serving life sentences. To join the squad, inmates must meet high physical standards and complete a demanding course of training. They also have to volunteer.

     

    “But,” cautioned David Fathi, the director of the ACLU’s National Prison Project, “you have to understand the uniquely coercive prison environment, where few things are clearly voluntary.” In the eyes of criminal-justice reformers, corrections officials recruit inmates under duress. “In light of the vast power inequality between prisoners and those who employ them,” Fathi continued, “there is a real potential for exploitation and abuse."

    Aside from the shrinking inmate population, a handful of inmate deaths this year while battling the NorCal wildfires is causing some low-level offenders to reconsider whether the incentives being offered by the state – credit toward parole, and a generous wage (at least by prison standards) – are really worth the risks.

    Many inmates join the force to escape unpalatable prison conditions. In doing so they take on great personal risk, performing tasks that put them in greater danger than most of their civilian counterparts, who work farther from the flames driving water trucks and flying helicopters, among other activities. By contrast, inmates are often the first line of defense against fires’ spread, as they’re trained specifically to cut firebreaks—trenches or other spaces cleared of combustible material—to stop or redirect advancing flames. The work can be fatal: So far this year, two inmates have died in the line of duty, along with one civilian wildland-firefighter. The first, 26-year-old Matthew Beck, was crushed by a falling tree; the second, 22-year-old Frank Anaya, was fatally wounded by a chainsaw.

     

    “Obviously this is not something that everyone is willing to volunteer for,” said Bill Sessa, a CDCR spokesman. “We’ve always been limited by the number of inmates who were willing to volunteer for the project.” Even when state prisons were at their most crowded, the camps where inmate firefighters live weren’t filled to capacity. And as the pool of qualified prisoners has contracted, he said, corrections officials have had to “work harder now than we did before to bring the camp to the inmates’ attention."

    In an effort to entice more recruits to join up, state officials are trying to emphasize the benefits of volunteering to fight the blazes: Volunteer firefighters can receive visits from family out in the open, instead of behind a thick pane of glass. It also allows them to escape the confines of the prison – for a brief time at least.

    But with legal marijuana rapidly draining the ranks of low level offenders, a sizable shortfall will likely to persist in the years to come.

    And after the death and devastation wrought by this year’s fires, many inmates have good reason to reconsider.

    After all, you can’t enjoy visits with family and friends when you’re dead.
     

  • Eric Peters: Today's Opportunities Include Negative Convexity, Complexity, Illiquidity, Leverage, Or All The Above

    From the latest Weekend Notes by Eric Peters, CIO of One River Asset Management

    Anecdote

    “What are the odds we come across an opportunity in the coming 4yrs to earn 20%?” the investor asked his team.

    “High,” they answered. “The odds are 100%,” he said, having seen this movie a few times. “So our cost of capital is 5% per year (20% divided by 4yrs), plus the 1% we earn on cash,” he said. His team nodded.

    “Under no circumstances should we deploy capital unless it earns well more than 6% per year from here on out.” It made sense.

    “What do we see that earns more than this hurdle?” he asked. His team’s list was as short today as it was long in 2016, 2011, 2009, 2003, 1998, 1997, 1994, 1992, 1990, 1987, etc. Today’s few opportunities have much in common with previous peaks: negative convexity, complexity, illiquidity, leverage, and/or all the above.

    “Investors confuse a 7.5% average annualized return target with a 7.5% annual return target,” he explained. “They’re entirely different things.”

    Targeting average annualized returns allows you to accept what the market gives you, while targeting annual returns forces you to leverage investments near peak valuations to hit your bogey. “Typical pension and endowment boards want incoming investment returns to consistently exceed outgoing flows.”

    So most investors attempt to produce the highest return every year, no matter what it takes. “But that’s the wrong objective. Never underestimate the value of cash and patience in achieving the real goal; superior returns over the complete cycle,” he explained.

    “Markets tell you what to do if you listen,” he said. “Near the highs, few opportunities exist to earn substantial returns, so you should take little risk. Near the lows, opportunities to earn attractive returns are abundant.” You should take a lot of risk. “This sounds simple because it is. It’s obvious. But obvious is not easy.”

  • "You Grow Up Wanting To Be Luke Skywalker, Then Realize You've Become A Stormtrooper For The Empire"

    Authored by US Army combat veteran Daniel Crimmins via Upriser.com,

    You grew up wanting so bad to be Luke Skywalker, but you realize that you were basically a Stormtrooper, a faceless, nameless rifleman, carrying a spear for empire, and you start to accept the startlingly obvious truth that these are people like you.

    Question: How do you Americans as a people walk around head held high, knowing that every few months your country is committing a 9/11 size atrocity to other people. Imagine if the 9/11 terror attacks were happening in America every few months. Again and again, innocent people dying all around you. Your brothers and sisters. For no reason.

    Daniel Crimmins from U.S. Army 3rd Infantry Division answered:

    Many of us are unable. Many of us watched 9/11, and accepted the government and media’s definition of the attack as a act of war rather than a criminal action. A smaller portion, drifting along passively thought a major war was coming, that people we knew were going to fight and die. Some of us maybe worried about our younger brother being drafted, despite being in college. Now, it seems stupid, but in the 72 hours after 9/11, some Americans, maybe suffering from depression, certainly with a mind shaped by comic books and action movies, ate up the “us vs. them” good vs. evil rhetoric spouted by the cowboy in chief. After all, he was the president, and no matter how bright you might think yourself, you can still be swayed by passion and emotion, led to terrible decisions.

    Some of us, therefore, left our dorm rooms, and walked down Main Street to the recruiter’s office. Some of us were genuinely surprised the office wasn’t full to bursting of young men eager to avenge their fallen countrymen. Some of us were genuinely surprised when we had to push the recruiter to stop trying to sell desk jobs and just let us join the damn Infantry.

    Image via Upriser.com

    Some of us got enlisted, then, and went down to Georgia, head high to mask the anxiety and fear they might have helped. Perhaps some number of Americans in this situation discovered that maybe it hadn’t been the best idea, but would be goddamned if they were going to admit it, and let everyone back home smuggly remark on how right they were.

    So they persevere. They learn to work as a unit, to look past personality issues, to see each other as Soldiers rather than as a race, or economic status, or any of the other things people hate about each other. They learn to kill.

    Then some of these people, perhaps while sitting hungover in the platoon area in the Republic of Korea hear that we have invaded Iraq. They have “Big Scary Bombs”, and Saddam Hussein, the secular Arab dictator had somehow colluded with the devoutly religious Osama Bin Laden to attack the US. They hated our freedom, you see.

    Then some of these young American men might transfer back to Georgia and be assigned to the 3rd Infantry Division, and end up in Iraq in January of 2005. And maybe these kids, still drunk on Fox News and fantasies of glory and renown being enough to win their ex-girlfriends back, are excited to go to Iraq. Sure, we hadn’t found any WMDs yet, and we had Hussein in custody, but they were still somehow a threat and had to be dragged kicking and screaming into Jeffersonian democracy. Inside every dirka is a good American, yearning to be free.

    So you fight. You kill. Watch friends die. Its usually quick, almost never quiet, but for the rest of your life, when you remember sitting at the bar with them, they’re blown open. You picture the nights you spent downtown at Scruffy Murphy’s, but instead of the stupid hookah shell necklace, your boy’s jaw is blown off, and his left eye is ruined, and he’s screaming.

    You fight, you kill, you watch friends die, and you notice a distinct lack of change. You kick in doors and tell terrified women to sit on the floor while you and your friends ransack their home, tearing the place apart, because they might be hiding weapons. There is no reason to believe this house in particular is enemy, same for the next one, and the one after that, or the seven before; they just happened to be there, and maybe they had weapons. Probably not, they almost never did. There were a few times when we had deliberate raids based on solid intel and we’d turn up some stuff, but generally we were just tossing houses because we could.

    Then maybe your FISTer [field artillery forward observer] forgets to carry the remainder, and drops a mess of mortars on the village your supposed to protect. Maybe the big Iraqi running at you screaming was just mentally ill. Of course, you won’t know this until after you’ve put seven rounds through his rib cage, and his wailing, ancient mother is cradling his body, spitting at you.

    Maybe when you get back to the FOB [Forward Operating Base], the Platoon Sergeant tells you you did the right thing; next time, it might be a suicide bomber. They tell you it was an honest mistake, it wasn’t your fault. They tell you to go get some chow, take a shower if the water works, and sleep it off. You did good work that day, apparently.

    Chris Hondros' well-known "One Night in Tal Afar" photograph (Getty Images) showing the aftermath of a checkpoint shooting – Samar Hassan, 5, screams after her parents were killed after their car unwittingly approached a US Army checkpoint at dusk in Tal Afar, Iraq.

    During chow, the TV is on AFN, and they are rebroadcasting some Fox News show, and you’re hearing about drone strikes, and all the great things we’re doing, and you can’t help but see that poor dumb assholes face, looking past his mother as he bleeds to death. He’s in pain, obviously, but he has the most perfectly confused look on his face. He doesn’t comprehend what’s happening. Little more hot sauce on your eggs doesn’t really help.

    Then you realize you haven’t seen anything to support the idea that these poor fuckers are a threat to your home. You look around and you see all he contractors making six figure salaries to fix your shit, train Iraqis, maintain the ridiculous SUVs the KBR dicks ride around in. You consider the fact that every 25mm shell costs about forty bucks, and your company has been handing those fuckers out like shrapnel flavored parade candies. You think about all the fuel you’re going through, all the ammo and missiles and grenades. You think about every time you lose a vehicle, the Army buys a new one. Maybe you start to see a lot of people making a lot of money on huge amounts of human suffering.

    Then you go on leave, and realize that Ayn Rand has no idea what the fuck she’s talking about. You realize that Fox News and Limbaugh and John McCain don’t respect you or your buddies. They don’t give a fuck if you get a parade or a box when you get home, you’re nothing to them but a prop.

    Then you get out, and you hate the news. You hate the apathy, and you hate the murder being carried out in your name. You grew up wanting so bad to be Luke Skywalker, but you realize that you were basically a Stormtrooper, a faceless, nameless rifleman, carrying a spear for empire, and you start to accept the startlingly obvious truth that these are people like you.

    Maybe your heart breaks a little every time some asshole brags about a “successful” drone strike.

    Your statement is correct enough; if all of America was one dude, that dude would not give a shit about the little brown people we’re burning and crushing and choking to death. We aren’t all like that, but it makes me incredibly, profoundly sad to see what my country actually is.

    Some of us care, and I think there are more every day.

  • 49 Countries Have Violated Sanctions On North Korea

    A new report from the Institute for Science and International Security has found that 49 countries violated sanctions on North Korea to varying degrees between March 2014 and September 2017.

    Infographic: 49 Countries Have Violated Sanctions On North Korea | Statista

    You will find more statistics at Statista

    13 governments including Cuba, Egypt, Iran and Syria were involved in military violations, which as Statista's Martin Armstrong notes, includes either receiving military training from North Korea or being involved in the import and export of military equipment.

    The range of nations involved in breaching non-military sanctions is much broader.

    Those violations include importing and exporting sanctioned goods and minerals or aiding shipments by re-flagging vessels. Other instances include the involvement of front companies as well as other business activities like financial transactions. The list of nations violating sanctions non-militarily includes China, France, Germany and Japan.

    13 other countries violated sanctions in a manner that seems completely inadvertent.

    North Korea targeted countries including the Canada, Switzerland and the U.S. in an attempt to buy equipment which could potentially have military applications. This strategy has proven successful in the past, with the most famous example occurring in the 1980s when Pyongyang duped U.S. aerospace manufacturer McDonnell Douglas in order to illegally obtain 87 civilian MD-500 helicopters. The North Korean military later modified them to carry Susong-Po anti-tank missiles and these aircraft are still in active service today.

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