May 20

Today’s News 20th May 2018

  • Why The Soaring Dollar Will Lead To An "Explosive" Market Repricing: A Flow Chart

    Something curious took place one month ago when the PBOC announced on April 17 that it would cut the reserve requirement ratio (RRR) by 1% to ease financial conditions: it broke what until then had been a rangebound market for both the US Dollar and the US 10Y Treasury, sending both the dollar index and 10Y yields soaring…

    … which led to an immediate tightening in financial conditions both domestically and around the globe, and which has – at least initially – manifested itself in a sharp repricing of emerging market risk, resulting in a plunge EM currencies, bonds and stocks.

    Adding to the market response, this violent move took place at the same time as geopolitical fears about Iran oil exports amid concerns about a new war in the middle east and Trump’s nuclear deal pullout, sent oil soaring – with Brent rising above $80 this week for the first time since 2014 – a move which is counterintuitive in the context of the sharply stronger dollar, and which has resulted in even tighter financial conditions across the globe, but espetially for emerging market importers of oil.

    Meanwhile, all this is playing out in the context of a world where the Fed continues to shrink its balance sheet – a public sector “public Quantitative Tightening (QT)” – further tightening monetary conditions (i.e., shrinking the global dollar supply amid growing demand), even as high grade US corporate bond issuance has dropped off a cliff for cash-rich companies which now opt to repatriate cash instead of issuing domestic bonds, with the resulting private sector deleveraging, or “private sector QT”, further exacerbating tighter monetary conditions and the growing dollar shortage (resulting in an even higher dollar).

    And while the latest incarnation of the dollar’s “impossible trilemma” – rising dollar, rising oil, rising yields (not to be confused with its more conventional Chinese variant) makes a short, if perplexing appearance, ultimately it’s all about the value of the dollar, and its impact on downstream assets and volatility.

    This is the point made by Deutsche Bank’s derivatives expert Aleksandar Kocic, who in his latest report writes that in the context to the Fed’s normalization and monetary policy fine tuning, the “USD is emerging as the key variable — it presents a compact summary of the underlying macro risks that could destabilize the current Fed path.” In other words, the last thing the Fed wants right now as it accelerates its balance sheet normalization, is a sharp spike in the dollar. And yet, that’s precisely what is happening. Kocic explains:

    A strong USD corresponds to generally hawkish Fed in an environment where the US is recovering fast while the rest of the globe is still too slow or recessionary, or that the Fed is pushing rates above the neutral and causing excessive tightening of financial conditions and potentially triggering recession. A weak USD path, on the other hand, can materialize either as an inflation or credit (twin deficits) risk, a troubling possibility to which there is no adequate policy response.

    For Kocic, the relative strength of the dollar is the exogenous event that could awake markets from their peaceful slumber, resulting in a violent reassessment of monetary conditions as the Fed quietly undoes the biggest monetary experiment in history, or as he puts it, “although unwind of stimulus and Fed exit continue without disrupting the markets, the underlying stability remains local, threatened potentially by the tail risk.”

    For now, the DB strategist notes, “the current market configuration appears to be cooperating with the Fed’s efforts in either scenario” and “market positioning and flows are likely to cause offsetting pressure to each macro risk and therefore help stability of the system.”

    In particular, strong USD, which is bullish for bonds, in terms of global sponsorship, is also bearish for EM currencies and reserve managers there are likely to defend local currencies by selling US assets, which goes against macro. Similarly, their response to weaker USD would stabilize bear steepeners on the back of defending their exports through stabilization of EM currencies and support for the US long end.

    The bigger problem, one discussed by Kocic previously, and which also takes the shape of the yield curve in consideration, is that with every passing day of normalization manifesting itself in bear flatteners, the market gets closer to the tipping point of duration decrease in which a rotation from risk assets into the short-end of the curve threatens a forced “price discovery” of the new “Fed put” (which Kocic recently calculated was in the 2,300-2,400 range).

    So in this context of a creeping bear flattener, Kocic observes that together with the stronger USD, these two discrete trends have a potential to create more volatility and discomfort across all market sectors than bear steepeners if they both remain localized and do not trigger tail risk.

    How does this look schematically? Luckily, the Deutsche Banker has come up with a handy flowchart showing the next steps in how the stronger dollar could lead to an “explosive” move in not only the front end of the curve, but across all markets:

    Causality chain of strong USD and its potential knock-on effect is shown in the chart. We start at the lower left corner. Fed hikes and strong USD open up the EM dilemma: Facing the outflows or defending the currency at expense of stifling the growth. This implies both, more volatility and potential sell off in EM, and bearish pressure on the long end of the UST that would offset the underlying bid for US bonds (strong USD is bullish). Turbulence in EM could have a knock-on effect on risk assets in the US.

    Why is the above critical? Because if the cycle were to play out, it would result in the same set of conditions which led to a global bear market back in 2015 in the aftermath of China’s devaluation (odd, there’s China again precipitating a global market crisis):

    An example is the 2015 episode where asset managers faced redemptions due to EM losses and had to sell the best performing assets (US equities) to cover those costs. This means more turbulence in developed markets and possible tightening of financial conditions, which could question the strength of the USD and possibly push Fed to take a pause.

    But the real punchline is just how trapped the Fed now is, because should Powell “relent” and hint that the Fed may take a break in order to spare EMs and stocks, well the result would be an avalanche of short covering in the Eurodollar market, one which would lead to an even more dramatic, or as Deutsche calls it “explosive” move in the short end:

    Given record shorts on the Eurodollar curve (Figure), Fed pause is likely to trigger unwind of these position which could be explosive and the front end of the curve could rally hard.

    The punchline: the dollar surge, catalyzed by the April 17 PBOC RRR cut, has launched a feedback loop which, very much like the Chinese 2015 devaluation, culminates in one of two possible unpleasant – for the Fed – outcomes: a collapse in EMs should dollar strength not be arrested, which then morphs into a broad-based liquidation of all risk assets (the most likely result of this is Fed intervention, in the form of sharp rate cuts and/or more QE) or if the Fed verbally relents again, as it did in 2016 with the Shanghai Accord, and suggests that financial conditions are now too tight, it threatens to crush the biggest ED spec short position ever, leading to trillions in paper losses, and an unprecedented collapse in the short end:

    The EPFR data reflecting the ETF and Mutual Funds Flows show continued outflows from the emerging markets and inflows into the short end of the UST curve, which is only increasing the stress in this sector. So, although we should see continued stability at the long end of the curve due to offsetting pressures between macro and flows, a slow grind of the front end, if persists, could morph into a volatile whipsaw. Further strength in the USD and the front end sell off on the back of more hawkish Fed could be potentially bearish for risk assets and act as a trigger for rates reversal.

    In short, while the Fed has found itself trapped before, it was only the recent spike in the dollar (thanks China) that has forced the Fed to act, with either decision – either further hawkishness or a dovish relent – leading to major market pain. And the longer the Fed delays making the key decision, the more painful the outcome will eventually be.

  • "May The Better Liar Win" – How Democracy Ended

    Authored by Eric Zuesse via The Strategic Culture Foundation,

    What killed democracy was constant lying to the public, by politicians whose only way to win national public office is to represent the interests of the super-rich at the same time as the given politician publicly promises to represent the interests of the public — “and may the better liar win!” — it’s a lying-contest.

    When democracy degenerates into that, it becomes dictatorship by the richest, the people who can fund the most lying. Such a government is an aristocracy, no democracy at all, because the aristocracy rule, the public don’t. It’s the type of government that the French Revolution was against and overthrew; and it’s the type of government that the American Revolution was against and overthrew; but it has been restored in both countries.

    First here will be discussed France:

    On 7 May 2017, Emmanuel Macron was elected President of France with 66.1% of the vote, compared to Marine Le Pen’s 33.9%. That was the second round of voting; the first round had been: Macron 24.0%, Le Pen 21.3% Fillon 20.0%, Melenchon 19.6%, and others 15%; so, the only clear dominator in that 11-candidate contest was Macron, who, in the second round, turned out to have been the second choice of most of the voters for the other candidates. Thus, whereas Le Pen rose from 21.3% to 33.9% in the second round (a 59% increase in her percentage of the vote), Macron rose from 24.0% to 66.1% in the second round (a 275% increase in his percentage of the vote). In other words: Macron didn’t just barely win the Presidency, but he clearly dominated both rounds; it was never at all close.

    But once in office he very quickly disappointed the French public:

    On 11 August 2017, Le Figaro bannered (as autotranslated by Google Chrome) “A hundred days later, Macron confronted with the skepticism of the French”, and reported that 36% were “satisfied” and 64% were “dissatisfied” with the new President. 

    On 23 March 2018, Politico bannered “Macron’s approval ratings hit record low: poll” and reported that, “Only 40 percent of the French population said they have a favorable opinion of Macron, a drop of 3 percentage points from last month and 12 percentage points from December, while 57 percent said they hold a negative opinion of the president.” 

    On 22 April 2018, Europe 1 reported that 44% were “satisfied” with Macron, and 55% were “dissatisfied” with him; and that — even worse — while 23% were “very dissatisfied” with him, only 5% were “very satisfied” with him.

    So, clearly — and this had happened very quickly — the French public didn’t think that they were getting policies that Macron had promised to them during his campaign. He was very different from what they had expected — even though he had won the Presidency in a landslide and clearly dominated both rounds. That plunge in support after being elected President required a lot of deceit during his campaign.

    Second, is US:

    The situation in the US was very different in its means, but similar in its outcome: it was a close election between two candidates, each of whom had far more of the electorate despising him or her than admiring him or her. Neither of the two candidates in the second round was viewed net-favorably by the public.

    The key round of elimination of the more-attractive candidates, was in the primaries; and, after that, it became merely a choice between uglies in the general election. Any decent (or even nearly decent) person had already been eliminated, by that time. Consequently, the ultimate winner never had the high net-favorable rating from the US public, that Macron did from the French public.

    America’s system of ‘democracy’ is very different than France’s:

    Throughout the primaries-season — America’s first round — the most-preferred of all candidates in the race was Bernie Sanders, who, in the numerous one-on-one polled hypothetical choices versus any of the opposite Party’s contending candidates, crushed each one of them except John Kasich, who, throughout the primaries, was the second-most preferred of all of the candidates (and who performed far better than did Trump did in the hypothetical match-ups against Clinton). In the hypothetical match-ups, Sanders beat Kasich by 3.3%, whereas Kasich beat Clinton by 7.4% — that spread between +3.3% and -7.4% is 10.8%, and gives a pretty reliable indication of what the Democratic National Committee threw away when rigging the primaries and vote-counts for Hillary Clinton to win the Party’s nomination. Sanders beat Trump by 10.4%, whereas Clinton beat Trump by 3.2%. That spread was only 7.2% in favor of Sanders over Clinton; but, in any case, the DNC cared lots more about satisfying its mega-donors than about winning, when they picked Clinton to be the Party’s nominee.

    (Ms. Clinton’s actual victory over Mr. Trump in the final election between those two nominees turned out to be by only 2.1% — close enough a spread so as to enable Trump to win in the Electoral College (which is all that counts), which counts not individual voters but a formula that represents both the states and the voters. Sanders would have beaten Trump in a landslide — far too big a margin for the Electoral College to have been able to go the opposite way, such as did happen with Clinton. This fact was also shown here and here. That’s what the DNC threw away.) 

    Hillary Clinton received by far the biggest support from billionaires, of all of the candidates; Sanders received by far the least; and this is why the Democratic Party, which Clinton and Barack Obama (two thoroughly billionaire-controlled politicians) effectively controlled, handed its nomination to Clinton. On 7 June 2016, the great investigative journalist Greg Palast headlined and documented “How California is being stolen from Sanders right now”, and four days later a retired statistician’s review of other statisticians’ statistical analysis of data from all of the primaries and caucuses, reaffirmed their findings, that the Democratic nomination had been stolen by the Democratic National Committee, and he concluded that “the whole process has been rigged against Bernie at every level and that is devastating even though I don’t agree [politically] with him.” A more detailed study was published on 1 August 2016, titled “Democracy Lost: A Report on the Fatally Flawed 2016 Democratic Primaries”.

    Basically, what had happened is that the most-preferred of all the candidates got deep-sixed by Democratic Party billionaires, who ultimately control the DNC, just as Republican billionaires control the RNC. The US Government is squabbles between billionaires, and that’s all. That’s what’s left of American ‘democracy’, now.

    On 12 August 2016, Julian Assange noted: “MSNBC on its most influential morning program, Morning Joe, was defending Bernie Sanders. Then Debbie Wasserman Schultz [head of the DNC] called up the president of MSNBC. Amazingly, this is not reported in the US media. It is reported in the US media that they called up Chuck Todd who’s the host of Meet The Press. Something much more serious is not reported — that Debbie Wasserman Schultz herself personally called up the president of MSNBC to apply pressure in relation to positive coverage about Bernie Sanders on Morning Joe.” That was typical of what went on.

    Hillary Clinton’s favorable rating, by Election Day, was 40.3%, her unfavorable was 55.3%. Donald Trump’s favorable was 39.8%, unfavorable was 53.4%. Bernie Sanders, as of the end of the primaries on 29 June 2016, was 50.8% favorable, 39.6% unfavorable, and it has been getting steadily better afterward. But the suckered Democratic Party voters (the ones who were counted, at any rate) voted slightly more for Hillary than for Bernie. Even despite Sanders’s having had support from few if any billionaires, he almost won the Democratic nomination, and that’s remarkable. He might actually have received more votes during the primaries than Hillary did, but we’ll never know.

    So: America is a dictatorship by the billionaires. And this means that it operates by fooling the public. France is similar, though it achieves this via a different way. And, in both countries, deceit is essential, in order to achieve its dictatorship. Fooling the public is now what it’s all about, in either case. Democracy can never be won by fooling the public; because fooling the public means removing the public’s ability to control the government. So, calling such a nation a ‘democracy’, is, itself, deceiving the public — it’s part of the dictatorship, or else support of the dictatorship.

    In former times, this system was rationalized as ‘the divine right of kings’. Now it’s rationalized as ‘the divine right of capital’. But it’s also become covered-over by yet another lie: ‘democracy’. This is a ‘democratic’ aristocracy; it is an ‘equal opportunity’ aristocracy. In it, each citizen has ‘equal rights’ as every other citizen, no matter how wealthy. It’s just a castle of lies. And its doors are actually open only to the few richest-and-well-connected.

    Here, a former CIA official tries to describe how the American dictatorship works – the enforcement-part of the system, and he does (even if only by implication) also touch upon the financial sources of it.

    He discusses his personal case: why he could no longer tolerate working for the CIA. But his description of how he, as an Agency official, saw the system to function, starts at 3:45 in the video. Key passages start at 12:45, and at 20:15.

    Maybe any American who would email this article to friends who don’t understand how the system functions, will come under increased US surveillance, but that CIA official’s career and family were destroyed by what the system did to him, which was lots worse than just surveillance.

    Remarkably, he nonetheless had the courage to persist (and thus did that video). However, when one sees how politically partisan (and so obtuse) the viewer-comments to that video are, one might be even more depressed than by the account this former CIA official presents. But, even if the situation is hopeless, everyone should at least have the opportunity to understand it. Because, if the aristocracy are the only people who understand it, there can’t be any hope for democracy, at all.

  • Did Putin Just Ask For Iran's Exit From Syria In Meeting With Assad?

    Syrian President Bashar al-Assad paid an unannounced visit to Vladimir Putin on Thursday evening at the Russian president’s summer home in the Black Sea resort city of Sochi where the two leaders discussed the process for winding down the war in Syria, and notably the reduction of foreign troop presence in the country.

    This marks the third such known meeting inside Russia between Assad and President Putin since 2015, and the first since two major instances of external airstrikes on the Syrian government dramatically escalated the prospect for broader war. The first was the April 13th US-led coalition attack involving over one hundred missiles on sites in and around Damascus; and the second was the May 10 Israeli attack on dozens of targets inside Syria in what was the biggest military escalation between the two countries in decades.

    May 17th meeting in Sochi. Image source: SANA

    No doubt the two leaders, both long branded international pariahs by the West, had a lot to discuss after the uptick of external military action in Syria, but likely looming larger was the Iran and Israel question, and Israel’s continued threats of attack should its “Iranian red line” go unenforced.

    Recall that a mere week ago Netanyahu concluded a 10-hour visit with Putin in Moscow just as Israeli jets were in the air beginning strikes against Syrian bases said to house Iranian troops.

    And crucially, Syria’s state-run SANA has confirmed that Putin told Assad during the meeting that “foreign armed forces” would leave Syria.

    The official readout of the meeting quotes President Putin as saying, “We affirm that with the achievement of the big victories and the remarkable successes by the Syrian Arab army in the fight against terrorism and with the activation of the political process, it is necessary for all foreign forces to withdraw from the Syrian Arab Republic territories.”

    This is a reference to the still ongoing but thorny Astana, Kazakhstan centered talks involving Russia, Turkey, and Iran which has been by and large rejected by the vast majority of anti-Assad fighters, especially due to Iran’s contentious role as a main guarantor of the deal. 

    For this reason most media outlets commenting on Putin’s reference to “foreign forces” interpret this as a jab at key Syrian ally Iran; however, a number of Middle East based journalists and analysts point to US occupying forces in Syria’s northeast, as well as Turkey’s military and armed proxy groups in the formerly Syrian Kurdish Afrin canton near Aleppo, and the tens of thousands for foreign jihadists that continue to fight in Syria — many of them state sponsored by Saudi Arabia and other external actors. 

    The Washington Post and CNN, for example, focused on Iran and Hezbollah as key foreign forces that have “helped to prop up the embattled President [Assad].” The Post’s Liz Sly said, “In the context of current debates for a [political] settlement, that’s code for Iran. No indication whether Assad agreed.”

    https://platform.twitter.com/widgets.js

    However former Sunday Times journalist Hala Jaber countered that Putin did not refer to Iran or other Syrian allied forces: “Iran‘s presence is not viewed in the same league as that of the U.S. and as such is not negotiable nor will be used by Syria as an exchange commodity… U.S. presence is viewed as totally illegal…[there’s] no comparison” she wrote.

    Notably, Assad’s statement while meeting with Putin named “illegal foreign forces” compared with Putin’s mention of “foreign forces.” Jaber further argued that “the reference by both Putin and Assad relates to both Turkish and U.S. forces and not Iran, which has a defense agreement with Syria… its current presence is not part of any such deals to be made.”

    https://platform.twitter.com/widgets.js

    As we noted in the aftermath of Israel’s latest massive attack on multiple locations inside Syria, Russia has appeared content to stay on the sidelines while Syria and Israel lobbed missiles at each other; however, Russia is carefully balancing its interests in Syria, eager to avoid an uncontrolled escalation leading to a direct great power confrontation. 

    Though a number of Western analysts have interpreted Russia’s relative silence on the latest Israeli strikes (as well as apparent U-turn on prior indications that it would supply Syria with with S-300 missiles) as signs of a weakening Moscow-Damascus alliance, it is more likely that Russia is pleased with Syria’s current air defense systems, and sees the battlefield as increasingly stabilizing in spite of limited Israeli incursions, hence Putin’s desire of “stepping up the political process” as he confirmed Thursday. 

    As we reported, Syria’s current missile defense seems to have performed well. SANA indicated that the army’s air defenses had “shot down dozens of Israeli missiles, preventing most of them from reaching their targets,” however, some of the rockets managed to hit radars and an ammunition depot. But beyond this, the multiple videos purporting to show direct intercepts by Syrian defenses make for a convincing case that Syria still possesses robust deterrent capabilities. 

    Yet in typical fashion the mainstream media can only interpret all recent events as signs of Syrian-Russian weakness and increased internal tensions. Time will tell.

  • National Economic Disparity Could Spell Political Shifts

    Authored by Ben Isaac via Free Market Shooter blog,

    In the years following the housing crash of 2008, most local housing markets have made a full rebound from the dire straits that befell a huge portion of the population and took the economy with it. Many markets are now even stronger than they were in that time. The recent tax deductions passed by Congress and signed by President Trump in December have put more after tax cash in the pockets of virtually all Americans, yet there is one feature of the bill that has been seen as a detractor for the health of the American economy: State and local tax deductions.

    The major reduction has many high earners in higher tax states and cities in a bit of a panic over their new tax liability which they can no longer write off, which has resulted in some high revenue companies and large income earners looking to other parts of the country where the cost of doing business is much less burdensome.

    The South has been a large beneficiary of its collective policies of low taxes and other barriers to entry over the past couple decades, particularly in the automotive industry. Since 2000 foreign car manufacturers have anchored themselves in various places throughout the South, creating first, second, and third tier supplier jobs in the surrounding localities and reviving small southern towns, and continue to do so.

    Nissan, already based in Smyrna, Tennessee, announced a new $1.8 billion plant in Hunstsville, Alabama. An industry that was once reserved for Detroit and nearby suppliers who could access the Great Lakes has now moved to states filled with blue collar workers and colleges who partner with these manufacturers to produce educated and knowledgeable career employees.

    This phenomenon is not reserved for just the South either. High taxes and unwelcoming political landscapes have chased software developers out of its typical Silicon Valley oasis in California to places in Texas, Arizona, and North Dakota. Even the movie industry which gave California its glamour in the first place has found new roots in Atlanta. Boston’s medical research industry has begun migrating toward North Carolina, while Boeing has focused on growth in their South Carolina plant rather than investing in their Seattle headquarters. Charlotte, NC has become a hub for consumer banking when it used to all be set in New York City.

    The real estate markets have been affected in similar ways. Costs of living have inflated in places like Chicago, Washington DC, NYC, Los Angeles, San Francisco, and plenty of others to the point that you need a hyper inflated income just to maintain an average, ordinary life. A 2 bedroom in a desirable neighborhood of DC could just the same get a 4 bedroom house on an acre in South Carolina, and more and more people are taking notice of that.

    Developers and home builders are flocking to places like the Deep South and Southwest and in many instances own up to 75% of the available housing inventory at a given time, and they’re selling just as fast as they can build. Much of this is related to the vast underdeveloped land in areas surrounding these cities, but it can also be attributed to the desirability of living in an affordable place where the cost of living is reasonable and it’s actually realistic for once to save and start a family. Many people even take pay cuts to move to these places with the understanding that the net value is the same or better.

    By now you may be noticing a pattern: No matter the industry, it seems to spell out the same sentiment – People and businesses are moving from traditionally very blue states to traditionally solid red states. This could be a very good thing in the sense of waking up political leaders to the notion that high taxes have strangled their state and local economies to the point where they are now missing out on billions in revenue and everyday transactions.

    But there’s a second element to this shift: These citizens moving from these blue states to red states aren’t just abandoning political loyalties while they’re at it. They are still going to maintain their same beliefs in their new homes, which has caused some seemingly “safe” red states to come into question.

    This is particularly troubling for places like Georgia and Texas. These higher volumes of people in typically liberal industries such as entertainment and technology have suggested potential political shifting, noted in the 2016 election. And while both states did end up safely red this time around, neither was as comfortable a win as Republicans are used to enjoying. President Trump’s margin of victory in Georgia was 6 points. In Texas it was 9, and in North Carolina it was under 4. Those three states alone account for 59 Electoral Votes and an integral part of any Republican’s strategy for victory.

    President Trump fortunately has an advantage in turning over the typically-blue rust belt states of Ohio, Michigan, Wisconsin, and Pennsylvania, while losing by only a point and a half in Minnesota. However, if Republicans want to maintain any share of that success in future elections it’ll mean delivering on economic promises and maintaining the faith of those disaffected by Democrat neglect.

    A big question that remains is how all this economic migration through these states will affect the 2020 census, which will not be accounted for in the 2020 elections, but the ones thereafter. This subtle blue-shifting of these deep red states could have proportionally larger consequences than expected if they gain more Electoral value. The issue for Republicans is that this affects their states far more than the blue states. Many of these people and jobs are moving from wildly blue states like New York, California, Massachussetts, and Washington, which will not “miss” them, at least politically speaking. Those states will remain safely blue with or without their votes, and so it’s only these states in the South and elsewhere who could fall victim to their best intentions with their attractive economies.

  • Over 80% Of 2017 IPOs Had 'Negative' Earnings – Most Since Dot-Com Peak

    2017 was a banner year for many things – record low volatility, record high complacency, and record amounts of money printed by the world’s biggest central banks, among many others.

    All of which heralded the belief in the super-human, ‘can-do-no-wrong’ venture capitalist… and of course the ‘exit’ cash-out moment.

    108 operating companies went public in the U.S. in 2017 with the average first day return a healthy 15.0% – well above the average 12.9% bump seen since the start of the 21st century.

    But of most note in years to come, we suspect, is the fact that over 80% of IPOs in 2017 had negative earnings… the most since the peak of the dot-com bubble in 1999/2000…

    Source: Jay Ritter, University of Florida

    Put a slightly different way, 2017 was the biggest “money for nothing” year since Pets.com… consider that the next time you’re told to buy the dip. Remember the only reason “the water is warm” is because it has been ‘chummed’ by the the last greater fool ready for the professional sharks to hand their ‘risk’ to…

  • Pakistan And America Are In The Throes Of A Serious Diplomatic Crisis

    Authored by Andrew Korybko via Oriental Review,

    The steady deterioration of relations between these two erstwhile long-time allies is continuing with the latest political crisis between them that was sparked by the US’ decision to limit the distance that Pakistani diplomats in DC could travel outside the city.

    Islamabad imposed reciprocal measures against American diplomats located anywhere in the country, and the situation has since remained frozen, but is nowhere near resolved.

    While American-Pakistani relations have been worsening for the past couple of years now and especially since Trump’s aggressive New Year’s tweet against the country, they hit a low point when an American military attaché who had hit and killed a motorcyclist was originally forbidden from leaving the country aboard a US military plane that had come to retrieve him last week. A Pakistani court had ruled that he didn’t have full diplomatic immunity but he nevertheless left the country on Monday under unclear circumstances.

    It was presumably the legal actions initially pursued against this diplomat that infuriated the US to the point of wanting to humiliate all Pakistani diplomats in the American capital through the imposition of new travel restrictions, but Islamabad had a good reason for broadening its own reciprocal decree to include all American diplomats anywhere in the country.

    It was reported at the end of last month that the CIA failed in its secret plan to stage a jailbreak to free its local agent who was accused of cooperating with American intelligence in its quest to kill Bin Laden, and it’s well-known that US diplomats sometimes clandestinely go beyond their official duties in running spies inside their host nation. That’s probably what the Pakistanis are worried about after the news broke that the CIA was trying to organize a jailbreak, one which probably would have been violent and likely resulted in the deaths of some prison guards.

    All states have the sovereign right to implement what they claim to be national security requirements, whether they really are like in the Pakistani case or are just unbelievably said to be like in the American one, but the reason why this political crisis in particular is so sensitive is because it involves the privilege of diplomatic immunity as established by the 1961 Vienna Convention on Diplomatic Relations as well as the respect given to other countries’ diplomats more broadly. In this instance, Pakistan was right to press for the American diplomat to be brought to justice for brazenly running a red light and killing a young man, even though he was eventually allowed to leave the country, while the US is exploiting its now-irrelevant response in order to humiliate all Pakistani diplomats in the American capital. Given the national security danger that American diplomats pose after the CIA’s failed jailbreak plans, there’s a legitimate reason why Pakistan’s reciprocal response extends to all US diplomats in the country.

    Nevertheless, it can be expected that the US and its global Mainstream Media partners will reframe everything in the reverse by making the world think that the Pakistani victims are really the aggressors and that the Americans are completely innocent of any wrongdoing.  This high-level intensification of the Hybrid War on Pakistan is intended to damage its target’s international reputation, but might counterproductively raise its soft power profile among its newfound multipolar partners such as Russia by proving the sincerity of the game-changing Eurasian geopolitical pivot that it’s recently commenced and which provoked the US’ rage to begin with.

  • Extremely Rare Bottles Of Whiskey Fetch Over $2 Million At Auction

    Just six months after a Leonardo painting sold for $450 million, smashing all auction records, this week the world’s record excess liquidity once again underwent a “non-sterilized intervention”, when two bottles of whiskey sold for a mindboggling $2.11 million at a Hong Kong Bonhams auction on Friday, smashing the record for the most expensive bottles ever sold, according to the South China Morning Post.

    After a rare 60-year-old Macallan whiskey named after British pop artist Peter Blake went for $1.01 million (HK$7.96 million) from a bidder over the phone, a second bottle from the same vintage named after Italian artist Valerio Adami sold for $1.1 million (HK$8.64 million) to a bidder in the room. Only twelve of each Macallan were ever made. 

    The label for one of the bottles was designed by Blake, who is popularly known for co-creating the cover art for the album Sgt Pepper’s Lonely Hearts Club Band by The Beatles. –scmp

    Both were distilled in 1926 and matured in a sherry hogshead cask until they were bottled in 1986.

    They were expected to fetch between $450,000 and $575,000. The previous record at auction for a bottle of whiskey was set in 2014, when a six-liter Macallan went for $624,000. 

    “These bottles are some of the oldest whiskies produced by Macallan in the 20th century,” said Daniel Lam On-tai, head of fine wine and whisky for Bonhams in Hong Kong. “They were not meant for sale. They were given to very important clients of Macallan.”

    The bottles were presented in specially designed cabinets made out of brass and glass, according to Lam. 

    Other highlights from the auction include the oldest Karuizawa whiskey known in existence at 52-years-old, setting a new record for a single bottle of Japanese whiskey at $312,000. It was one of 41 bottles produced in its batch, and was estimated to fetch between $190,000 and $230,000. 

    All 645 items in the auction fetched a total of $5.9 million, or as the Fed would call it, an “non-sterilized intervention” in liquidity conditions.

  • Credit Card Delinquencies Spike Past Financial-Crisis Peak

    Authored by Wolf Richter via WolfStreet.com,

    Subprime is calling…

    In the first quarter, the delinquency rate on credit-card loan balances at commercial banks other than the largest 100 – so at the 4,788 smaller banks in the US – spiked in to 5.9%. This exceeds the peak during the Financial Crisis. The credit-card charge-off rate at these banks spiked to 8%. This is approaching the peak during the Financial Crisis.

    A sobering set of numbers the Federal Reserve Board of Governors releasedthis afternoon.

    But overall, across all commercial banks, including the largest banks with the largest credit-card loan balances outstanding, the delinquency rate was 2.54% (not seasonally adjusted). This overall rate was pushed down by the largest 100 banks, whose combined delinquency rate in Q1 was 2.48%.

    These large banks have been offering appealing incentives to consumers for years, and they’ve been going after consumers with the higher credit ratings, and they’ve been following good underwriting practices – having not yet forgotten the lesson from the last debacle – and this conservative approach is now helping to keep losses down.

    But the thousands of smaller banks couldn’t compete with those offers, and so they got deeply into subprime cloaked in sloppy underwriting. This way, they were able to reel in new credit-card customers that the big banks didn’t want, and those customers needed the money and charged up their new cards in no time, and the interest rates of 25% or 30% looked good on the banks’ income statement and helped maximize executive bonuses, yes even at smaller banks.

    But turns out, those banks had reeled in the most fragile customers and had eagerly doused them in irresponsible levels of debt at usurious interest rates – and now what? These customers won’t ever be able to pay off the balances or even pay the interest. For many of them, there’s only one way out. This caused the delinquency rate to spike from 3.81% to 5.90% in just three quarters.

    This chart shows delinquency rates for the largest 100 banks (blue line) and for the remaining 4,788 banks (red line):

    Credit card balances are deemed “delinquent” when they’re 30 days or more past due. The rate is figured as a percent of total credit card balances. In other words, among the smaller banks, nearly 6% of the outstanding credit card balances are now delinquent.

    The bank tries to collect these delinquent loans, and some customers are able to catch up. Others are not. After recovering what it could, the bank moves the remaining delinquent balance out of the delinquency basket and into the charge-off basket. This is when the loan is “charged off” against loan loss reserves.

    These charge-offs among the largest 100 banks rose to 3.73% in Q1 (not seasonally adjusted), the highest since the first quarter 2013.

    But among the remaining 4,788 banks, the charge-off rate spiked to 7.99%, the highest since Q2 2010. The rate among smaller banks had peaked during the Financial Crisis in Q4 2009 at 8.78%:

    Both charts show that the largest 100 banks had suffered massive losses during the Financial Crisis as their credit card loans blew up, and as consumers, many of whom had lost their jobs, could no longer keep up with their credit card debts.

    The smaller banks had been more conservative leading up to the Financial Crisis, and their delinquency and charge-off rates had been somewhat less catastrophic.

    The difference between then and now is that back then, unemployment was heading toward 10% and millions of people had lost their jobs; now the unemployment rate is near historic lows and the economy is humming. Yet already the smaller banks are booking these losses on their credit card portfolios. What will they do when the economy ever slows down?

    That was a rhetorical question.

    In the overall scheme of things, these 4,788 smaller banks hold only a small portion of all banking assets, including credit card balances. Of the $1 trillion in credit debt outstanding, these small banks hold only a fraction. So they won’t jeopardize the US financial system. And that’s why the Fed, as banking regulator, is relatively sanguine about these dizzying charge-off rates at the smaller banks.

    But the surge in charge-offs at these banks points at something fundamental: Credit problems at the margin. The consumer spending binge in recent years has been funded not by surging incomes at the lower 60% of the wage scale, where real wage stagnation has reigned, but by borrowing – particularly via credit cards and auto loans. Both of them have turned sour at the margins. And these are still the best of times.

    Only about half of retail is under attack from e-commerce, but that half is getting crushed. Read… Brick & Mortar Meltdown Pummels These Stores the Most 
     

  • Russian Supersonic Bombers Head To Arctic Borders, 500 Miles From Alaska

    The Russian military plans on sending Tu-160 supersonic bombers to its sub-Arctic, eastern maritime borders this year, Lieutenant-General of the Russian Aerospace Forces, Sergei Kobylash, said Friday.

    “This year we are planning to fly to Anadyr also with Tu-160 aircraft. Now the Arctic is of strategic importance for us, that’s why we are developing new aerodromes and products for ourselves, which will ensure the country’s security from the maritime borders and in this direction. With the expansion of the spectrum and the scale of the problem are increasing. Accordingly, the requirements for the command of long-range aviation. Therefore, the attention of the leadership of the state to us is appropriate,” Lt.-General Kobylash said in an interview with the Krasnaya Zvezda (Red Star) newspaper.

    Anadyr is Russia’s easternmost Arctic port town. For the first time, Russia recently flew a Tu-22 bomber to Anadyr, according to Lt.-General Kobylash. He said the more advanced Tu-160 would be arriving at the sub-Arctic airfield in Anadyr this year — a 5oo-mile flight from Nome, Alaska.

    He added that the increasing use of these bombers confirms that Russia is expanding its geographical network of military flights.

    “Flights of strategic bomber-rocket-bomber crews to the equator, to Indonesia say that the range of tasks increases along with the range of those directions and airfields on which we are entrusted to designate our presence,” Lt.-General Kobylash emphasized.

    Since 2017, an increasing amount of U.S. warplanes have been intercepting Russian bombers off Alaska’s coast. Last week’s intercept was marked by U.S. F-22 Raptors escorting large Russian bombers in international airspace within 200 miles of Alaska’s coast for roughly 40 minutes.

    “We regularly encounter them, especially during air patrolling,” Kobylash said, “Near the borders of their countries, the aviation of these countries have the same right to escort us as we do to patrol flights.”

    Here is footage of the intercept:

    https://platform.twitter.com/widgets.js

    According to Newsweek, Russian President Vladimir Putin is quickly rebuilding military bases and airfields in Arctic territories, known as the Soviet-era Arctic triangle.

    “President Putin has unveiled two multi-purpose bases in lands adjacent to the Arctic circle since 2015 and four more are planned to follow. Experts have likened Russia’s rebuilding of bases and airfields in Arctic territories to a restoration of the Soviet-era Arctic triangle, spanning the Kola and Kamchatka peninsulas. Whether any of these facilities will be operating near full capacity in times of peace, it is not clear.

    Some of the upgrades have focused on Russia’s northeast, in the direction of the U.S. and Canada, where Moscow has deployed a new radar and sent anti-submarine aircraft to explore a new route through the North Pole —a journey not carried out since the Soviet Union’s collapse. “

    In this regard, it seems as Russia is increasing its military capabilities and capacities in the Arctic region to a much higher degree than the West has ever seen or done in the area before. We ask one question: Why does Russia want to store supersonic bombers 500 miles from Alaska? 

Digest powered by RSS Digest