- Washington Post Spends Thanksgiving Lamenting Over Fake News and the Russian Scare
Craig Timberg from Washington Post must be bored this Thanksgiving, spending his time concocting a rich and imaginative tale of fake news websites swaying the billion dollar Clinton campaign from no brainer win to a horrible loss. Here we are, once again, with the faux claims out of Washpo — spreading their own ironic fake news of Russian hacking conspiracies and a furious — and all of a sudden — flood of fake news websites that worked in concert to elect Donald Trump. After all, how could anyone vote for a man who’s credo was Americanism over globalism. Don’t you like cheap prices at Walmart? To date, hard evidence of Russian interference in our elections has yet to materialize — which was at the vanguard of the democrat response to embarrassing Wikileaks revelations that painted the party as wantonly corrupt and spirit cooking depraved. Since the election results shocked the establishment elite, there has been an absolute fervor across the media, led by Obama and his shills, to place the blame for Hillary’s cosmically hilarious defeat on websites that challenge falsehoods and media cuckery . Washpo chimes in on the issue — fueled by a McCarthy era styled list of Russian propaganda websites — provided by shills at some bullshit website called ProporNot.
The flood of “fake news” this election season got support from a sophisticated Russian propaganda campaign that created and spread misleading articles online with the goal of punishing Democrat Hillary Clinton, helping Republican Donald Trump and undermining faith in American democracy, say independent researchers who tracked the operation. PropOrNot’s monitoring report, which was provided to The Washington Post in advance of its public release, identifies more than 200 websites as routine peddlers of Russian propaganda during the election season, with combined audiences of at least 15 million Americans. On Facebook, PropOrNot estimates that stories planted or promoted by the disinformation campaign were viewed more than 213 million times. “The way that this propaganda apparatus supported Trump was equivalent to some massive amount of a media buy,” said the executive director of PropOrNot, who spoke on the condition of anonymity to avoid being targeted by Russia’s legions of skilled hackers. “It was like Russia was running a super PAC for Trump’s campaign. .?.?. It worked.”
On ProporNot’s list of websites to avoid, due to Russian propaganda risk, includes infowars.com, nakedcapitalism.com, wikileaks.org, zerohedge.com — amongst many others. Propornot even provides their readers with a wonderful chrome browser extension to rout out these evil sites. Instead of reading propaganda, maybe you should read Snopes instead (serious eyeroll action). If you want to continue the discussion, go head on over to their Reddit page — where another 26 people are interested in the complete shit they spew. According to recent Alexa rankings, these butthurt libtards are talking to themselves, literally, except for the moron singular shill from Washpo who wrote this absurd story.
The quintessential picture of failureI can sit here and claim alt-left sites like MotherJones and DailyKos are merely Chinese shills, working in concert with the Democratic Party, in an effort to elect democrats in order to continue to pursue a brand of globalism that favors the hollowing out of America’s middle class, transferring vast amounts of wealth from here to there. In spite of the fact that everything I just said, as a matter of policy, is 100% accurate — the cucks from Daily Kos had little to do with it.
The fake news conspiracy theories being promoted by very low and disingenuous news agencies, who’ve proven to be corrupted and co-opted by the Democratic Party, is embarrassing for the 4th estate. Instead of bucking up and dealing with their short comings, the fact that no one believes their shit anymore, they’ve gone apeshit hysterical over the success of Breitbart and other conservative leaning sites — simply branding them as fake and actively working with Appnexus, Facebook and Google to demonetize them.
Welcome to the Chinafication of the American media.
Content originally generated at iBankCoin.com
- Paul Craig Roberts Asks "What If Trump Fails?"
Authored by Paul Craig Roberts,
Did Donald Trump win the election because he is a racist and misogynist and so are the American people?
No. That’s BS from the Oligarchs’ well-paid whores in the media, “liberal progressive” activist groups, think tanks and universities.
Did Trump win because he stole the election?
More BS. The Oligarchs controlled the voting machines. They failed to steal the election, because the people outsmarted them and told the pollsters that they were voting for Hillary. This led to the presstitutes’ propaganda that Hillary was the certain winner, and the Oligarchs believed their own propaganda and didn’t believe it necessary to make certain of their victory.
Trump won the presidency because he spoke directly and truthfully to the American people, telling them what what they knew to be true and had never before heard from any politician:
“Our movement is about replacing a failed and corrupt political establishment with a new government controlled by you, the American people. The establishment has trillions of dollars at stake in this election. Those who control the levers of power in Washington and the global special interests they partner with, don’t have your good in mind. The political establishment that is trying to stop us is the same group responsible for our disastrous trade deals, massive illegal immigration and economic and foreign policies that have bled our country dry.
“It’s a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities. The only thing that can stop this corrupt machine is you. The only force strong enough to save our country is us. The only people brave enough to vote out this corrupt establishment is you, the American people.”
Trump did not promise voters a bunch of handouts. He didn’t say he would fix this and that. He said that only the American people could fix our broken country and identified himself as an agent of the people.
The people won the election, but the Oligarchy is still there, as powerful as ever. They have already launched their attack using their whores in the media and liberal progressive groups in attempts to delegitimize Trump with protests, petitions, and endlessly false news reports. George Soros, using the money he made by his attack on the British currency, will pay thousands of protesters to attempt to disrupt the inauguration.
What about Trump’s government? As Trump discovered, finding appointees who are not part of the Oligarchy’s economic and foreign policy establishment is very difficult.
Washington is not a home for critics and dissidents. Consider Pat Buchanan, for example. As a White House official in two administrations and a two-time presidential candidate, he is experienced, but Washington has marginalized him.
Moreover, even if there were a stable of outsiders, they would be eaten alive by the insiders. Trump will have to take insiders. But he has to pick insiders who are to some extent their own person. General Michael Flynn as National Security Adviser is not a bad pick. Flynn is the former head of the Defense Intelligence Agency who advised the Obama regime against employing ISIS against Syria. Flynn has publicly stated on television that the appearance of ISIS in Syria was a “willful decision” of the Obama regime. In other words, ISIS is Washington’s agent, which is why the Obama regime has protected ISIS.
Trump’s chief of staff (Priebus) and chief strategist (Bannon) are reasonable choices.
Sessions (Attorney General) and Pompeo (CIA) are disturbing appointments based on their media-created reputations. But in the US where there is no honest media, we don’t know the truth of the reputations. Nevertheless, if Sessions does support torture, he is disqualified as attorney general, because the Constitution prohibits torture. The US cannot afford yet another attorney general who does not support the US Constitution.
If Pompeo actually is so poorly informed that he opposed the Iran settlement, he is not fit to be CIA director. The CIA itself said that Iran had no nuclear weapons program, and with Russia’s help the matter was resolved. Does Trump want a CIA director who neoconservatives could use to restart the conflict?
The views of Sessions and Pompeo could be products of the time and not visceral. Regardless, Trump is a strong and willful person. If Trump wants peace with the Russians and Chinese, appointees who get in the way will be fired. So let’s see what a Trump government does before we damn it.
Presstitute reports of extreme neoconservative John Bolton and former US attorney and NY Mayor Rudy Giuliani being candidates for Secretary of State do not seem credible. If Trump intends to get along with Putin, how can he do that if his Secretary of State wants war with Russia? Trump should find an experienced diplomat who negotiated with the Soviets. Richard Burt, who had a major role in the Strategic Arms Reduction Treaty, is the sort of person it would make sense to consider. Another sensible candidate would be Jack Matlock, Reagan’s Ambassador to the Soviet Union.
If Trump wants peace with Russia, the Secretary of State is the important appointment.
If Trump wants to stop the Oligarchy’s rip off of the American people, the Secretary of the Treasury is the important appointment.
Under the last three presidents, treasury secretaries have been agents for the banks-too-big-to-fail and for Wall Street. It is now a tradition for the financial gangsters to own the Treasury. It remains to be seen if the tradition is too strong for Trump to break.
The Oligarchy is trying to discredit the Trump Presidency before it exists. This effort is discrediting liberal and progressive groups by identifying them with nonenforcement of the immigration laws and with homosexual and transgender rights, issues not on the agenda of an electorate whose economic fortunes have been declining and who are tired of 15 years of war that serves only the hegemony agenda of the neoconservatives and the profits and power of the military/security complex.
According to The Saker, Putin has begun removing the Atlanticist Integrationists, Russia’s Fifth Column, from influence. Let’s see if Trump can remove our fifth columnists—neoconservatives and neoliberal economists—who have sold out the American people and America’s integrity.
If Trump fails, the only solution is for the American people to become more radical.
- Dollar Shortage Goes Mainstream: When Will The Fed Confess?
Last week we posted the report by ADM ISI’s Paul Mylchreest “Dollar Liquidity Threat is Getting Critical and the Fed is M.I.A” which summarized some of the key points in the ongoing, second phase of global dollar shortage, profiled here first in the start of 2015 and validated recently by the BIS. We discussed the bitter (and all too predictable) irony that the Federal Reserve doesn’t “get it”, having recently declared that that liquidity in financial markets was “adequate.”
It isn’t.
More than 68,000 hits later, we suspect that many ZH readers are tracking the dollar liquidity crisis (and Fed ignorance) via the negativity in Cross Currency Basis Swaps (CCBS). The 3-month Yen/Dollar CCBS has made a new low of 81.75 bp (swapping Yen into dollars for 3 months costs 81.75bp annualised above covered interest parity) implying that the structural dollar shortage is deteriorating.
While we’ve been writing about dollar shortages since the GFC, Mylchreest traced the timeline of the current shortage back to the first RMB devaluation in February 2014. He noted that it’s the one thing that even the central banks struggle to control… think Swiss Franc peg (SNB), impact on carry trade and the Yen (BoJ) and the severe weakness that we’re seeing in the RMB (PBoC). Indeed, a “glaring omission” is the failure of the Fed to set-up a dollar swap arrangement with the PBoC.
Mainstream economists and media are playing catch-up. For example, Carmen Reinhart referenced the “dollar shortage” last month, as did Bloomberg, citing a new report by former Fed economist Zoltan Pozsar which summarizes everything we have said for years.
In his latest “Global Money Notes” report, “From Exorbitant Privilege to Existential Dilemma”, Credit Suisse’s Zoltan Pozsar argues that “an FOMC determined to normalise interest rates has no choice but to become a Dealer of Last Resort in the FX swap market and provide qunatitative Eurodollar easing (“QEE”) for the rest of the world through its dollar swap lines.”
According to Pozsar, Basel III and the money market reforms are tightening dollar funding markets causing an “existential trilemma” for the Fed in which “it is impossible to have constraints on bank balance sheets (restraining capital mobility in global money markets), a par exchange rate between onshore dollars and Eurodollars, and a domestically oriented monetary policy mandate. Something will have to give. It’s either the cross-currency basis, the foreign exchange value of the dollar or the hiking cycle. It’s either the Fed’s regulatory and monetary objectives, or control over the Fed’s balance sheet size. It’s either quantities or prices…”
In terms of CCBS, Pozsar expects “Cross-currency bases will have to go more negative before the Fed steps in, and -150bp on the three-month dollar-yen basis is not an unlikely target”, which would probably lead to a severe bout of Yen weakness from here. The three month dollar-euro basis swap has declined to -43.9bp, closing in on its recent low of -58.8bp during the Deutsche Bank panic nearly two months ago. As an aside, it’s telling that fears about European banks still cause a scramble for dollar liquidity in a deja vu all over again.
Pozsar, like Mylchreest, highlights how a dollar funding crisis tightens monetary policy for the rest of the world and could shred the RMB as it means “tighter financial conditions for the rest of the world. In turn, tighter financial conditions point to slow, not faster global growth as foreign banks pass on higher costs to their customers or worse: de-lever their books…If the Fed leaves the intermediation of all of the rest of the world’s marginal dollar needs to American bank’s constrained balance sheets, offshore financial conditions may tighten and the dollar may strengthen to the point where they are no longer consistent with the path envisioned for the funds rate: rounds of RMB devaluation would follow which also won’t help interest rate normalization.”
So, the rest of the world is left to hang around, waiting to see if the Federal Reserve wakes up to what’s happening to dollar liquidity, and the threat it poses to the global economy and to its own (glacially slow) tightening cycle.
And now that they may be finally catching on, we would like to see some economists or journalists sit Janet Yellen down and interrogate her about dollar funding markets. Although we doubt that they could extract a confession, it might be entertaining to watch.
- The Perfect Storm Set To Pop Aussie Apartment Bubble Bringing The Economy Down With It
Submitted by Guy Manno via Crush the Market
The Aussie apartment boom that has turned into an epic bubble with record, sky-high prices, is showing all the signs for the perfect storm which will ultimately pop. With the popping of the apartment boom, it will simultaneously bring down the Australian economy, as the apartment market is set to have a sizeable correction in 2017 and 2018.
A short Look At Australia’s Real Estate Market
Australian real estate prices have been going up for over 25 years with hardly a pause in between since the late 80’s. The last time real estate prices fell considerably was when Australia last had an official economic recession back in 1987, when interest rates skyrocketed to around 17-18%.
The chart below show the price growth of real estate, rents and CPI since mid 1987. Initially the price growth of Australia’s real estate market climbed steadily taking 11 years to double in 1988. From there the price growth continued to accelerate with the next 100% increase in price taking 4.5 years to reach.
An interesting observation on the chart below is that real estate prices have risen by over 700% since 1987, yet rents have risen just under 300% over the same period. This chart clearly shows that the majority of the price growth was not supported by a fundamental increase in rents to support the higher prices, but rather a massive surge in mortgage debt over the same period drove prices higher.
Rising Credit Leads To Booms & Contractions In Credit Lead to Busts
Professor Steve Keen in the interview shown below highlights his own reasons why he sees a recession coming in 2017 for Australia.
Steve highlights a number of reasons for his prediction, including deteriorating terms of trade, the ending of the mining investment boom, the Government’s pursuit to cut spending and a reduction in foreign buyers for real estate, among others. However, the most important reason is a deceleration of credit / mortgage debt. Based on Steve’s research and economic models the deceleration of mortgage debt growth is the leading cause for all economic downturns globally including the US, Japan and Europe economic recessions, with a correlation close to -1. What all his research shows is that the deceleration of mortgage debt growth leads to a collapse in real estate prices which then lead to an economic recession in those countries.
Due to this research, Steve believes Australia will react the same way as other countries based on slowing growth in mortgage debt. Especially, as the conditions have already begun to slow based on the bank’s tightening their standards overall. However, most of the lending restrictions imposed from the banks are for off the plan apartments and existing apartments within most major cities around Australia.
Given Australia was recently ranked number 4 in the world in the UBS global real estate bubble index, see: Australia’s debt addiction fuels record real estate bubble, its easy to see that prices could fall over 20% as lending conditions continue to tighten and their effects take hold.
Why Are Banks Tightening Lending Conditions With Record Real Estate Prices?
The simple reason is that the banks do not want to be caught in a credit crunch like they faced back in 2008 and 2009 where they had to have the RBA and the US FED provide considerable financial assistance to keep them afloat.
Right now the banks can see what everyone else can see if you look at all the data publicly available. Australia will face a major oversupply of apartment dwellings over the next 1 – 3 years from a major ramp up of approvals of apartments. The growth of approvals over the last 7 years which you can see in the chart below, is leading to a big jump in the construction of apartments with a number of them being competed in the next 18 months.
Due to the rapid increase in approvals, there has been a massive spike of cranes currently being deployed in Australia, to handle the apartment boom that is currently taking place. As you can see below in the chart Sydney and Melbourne are leading the way in Australia, dwarfing most major cities in the US including New York and LA.
With all the current construction for apartments taking place from the buildup of approvals, especially in the last 3 years, Australia is facing a glut of new apartments that are about to be completed in 2017 and 2018.
Knowing the upcoming glut of apartment completions is about to come available on the market soon, the banks have taken action to protect their capital by providing most of their tightening around new and existing apartments within the CBD’s of Sydney, Melbourne and Brisbane where most of the construction has taken place.
Highest Housing Completions = Biggest Housing Price Fall
The chart below shows a comparison of house prices in Australia, UK, Spain, US and Ireland with an accompanying housing completions chart.
The most obvious data from the chart is both Ireland and Spain had the biggest fall in prices during the GFC in 2008 relative to the other countries shown. Those 2 countries also had the largest ramp up of new housing completed from 2000 – 2007.
Surging Bond Yields Leads To Higher Mortgage Rates In Australia.
Back in October US Government 10 yr bond yields were sitting at around 1.55%. Fast forward one month and rates are now sitting at around 2.3%. A 0.8% increase from the October levels (see chart below). The reason why this is a big deal, is that the US Government bond yields are what are utilized to benchmark most of the different types of retail and commercial loans.
In Australia the banks also rely heavily on overseas markets and especially the US markets to provide the necessary funding to support their loan book. So as bond yields have skyrocketed in such a short period in the US, it has already led to the banks in Australia lifting rates by between 0.20% – 0.60% on their fixed loans as their funding costs have jumped dramatically.
With mortgage rates rising and lending conditions being tightened its becoming more difficult for developers to sell their off the plan apartments as investors find it more difficult to access bank lending to finance their purchases, resulting in a slump in demand for off the plan apartments.
Melbourne Developer Offers $21,000 To Encourage Buyers
In an attempt to lure buyers to a new off the plan development in Melbourne, a large well known developer is now offering $21,000 to investors in an attempt to sell their $420,000 1 br apartments in Southbank Melbourne. The idea is to match the investor or first time buyer’s 5% deposit of $21,000 to assist them in meeting a 10% deposit.
The problem that this Melbourne developer and other developers will find, is even with this huge financial incentive, many of the banks in Australia have lifted their minimum deposit requirements for off the plan apartments in major cities to between 15% – 25%.
Apartment Bubble Bursting Leading To Australian Recession
Similar to Professor Steve Keen’s prediction that a recession is coming to Australia in 2017 or early 2018, I also believe that the perfect storm of conditions are developing that will soon pop the apartment bubble that has been taking place in Australia.
When the correction in apartment prices takes hold, it will have a domino effect on the Australian economy, leading to a contraction in economic activity in Australia. The reason for this is because the real estate industry and related industries now has the largest contribution to GDP at around 28%. (See chart below)
With record amount of apartment construction taking place over the last few years, fueling a considerable amount of GDP growth, I believe the slowing of the construction industry will start to subtract heavily on GDP growth in 2017 and 2018 leading to Australia’s first recession in over 25 years.
- October Was The Worst Month For Hedge Funds Yet This Year
Another month, and the pain for the hedge fund industry just keeps getting more intense.
According to the latest Evestment report, investors redeemed an estimated net $14.2 billion from hedge funds in October. Year-to-date, there has been a net $77.0 billion removed from the industry. October’s outflow was the fourth month of redemptions in the last five and seventh in 2016. Due to the breadth of products experiencing outflows, and the persistence of redemptions outweighing new allocations, it is clear the industry is experiencing a crisis -like wave of negative investor sentiment.
One almost wonders how much higher the market can keep rising with redemption requests flooding countless back offices. We hope to find out soon.
Here are the rest of the details on the latest, ongoing, troubles facing the hedge fund industry which, unless something drastically changes soon may end up being a “zero hedge” industry:
- The breadth of redemption pressure in October was the industry’s largest in 2016 with 61% of reporting funds estimated to have net outflow during the month. The last five months have accounted for the majority of the industry’s redemptions in 2016, a time frame which aligns with investors’ processes for analyzing 2015 results, and taking actions on those decisions.
- While investors broadly reduced investments in hedge funds in October, the bigger issue was the lack of meaningful new investment. The portion of funds losing greater than 2% or 5% of their AUM from redemptions was only slightly above average in October, however the portion with new allocations greater than 2% or 5% of their AUM were well below average. Essentially, flows in October were poor not necessarily because investors redeemed from the industry, but no one is really allocating with any enthusiasm.
- One major issue that arose in October, investors appear to be turning their backs on the one segment which had supported industry flows in 2016, managed futures. Performance issues, as anticipated, appear to have swayed investor sentiment toward the group negative. After aggregate performance declines in each of the last three months, and six of the last eight, managed futures funds had their second largest month of outflows in almost two years in October. With performance losses intensifying in October, the outlook for flows for the universe is not positive.
- Event driven funds continue to be a major source of redemption pressures for the industry. October and YTD flows by size and prior year return illustrate the issue well; too many large funds performed poorly last year, and they have been the major source of redemption pressures through the year, and into October. Why that occurred is particular to each fund, however the negative sentiment in response has been universal.
- August marked fifteen months of investors voting in favor of commodity strategies, but after recent losses, investors have begun to head to the exits. Redemptions in October were the second consecutive month of outflows after persistent losses re-emerged in July.
- If pressed for a bright spot, investors were net allocators to multi-strategy hedge funds in October. Inflows were not large, however it may be a positive sign that the seven months of positive returns prior to October have resulted in positive flows in two of the last three months. July’s nearly $8 billion in redemptions may ultimately prove to be the moment investor sentiment bottomed out toward the strategy.
- The outlook for macro hedge funds may actually be positive, despite October being the tenth monthly net outflow for the universe within the last year. Eight consecutive months of positive asset-weighted performance, against the backdrop of a rapidly evolving macro economic landscape could be positive for flows. There remains the risk for investors to select managers who most appropriately interpret global influences, as the universe has proven that not all will get it right, and several may get it very wrong.
- Distressed, the industry’s best performing strategy of 2016, had slightly positive flows in October. Distressed investing, in a hedge fund structure, has endured 22 months of negative investor sentiment prior to October. The interest in private credit funds, whose structures are designed to be specifically aligned to opportunities in distressed or special situation credit markets, have likely had an impact on distressed hedge fund net flows.
There is a silver lining. Here is evestment’s conclusion:
Hedge funds are facing difficult times, but the $3 trillion industry is not on the verge of disappearing. The issues of expensive access to increasingly marginalized and potentially replicable returns streams, has and will continue to force change. Savvy institutional investors have more choices, more technology and more influence on their side than ever before. The largest allocators may find it more cost effective to bring resources in-house rather than to pay fees for mediocrity. Others may turn to replication strategies, ETFs, but also increasingly to private markets where there is the perception that value has more potential to be realized, and manager expertise is more critical in that process. The result for the hedge fund industry, for now, appears to be stagnation at best, and erosion at worst. What may provide hope to the industry is a change which disrupts the homogeny of public markets over the last several years. There are sparks of change emerging over the globe, but whether professional discretion can prevail is not yet evident.
- Trump, OPEC, & Game Theory
Submitted by Emad Mostaque via GovernmentsAndMarkets.com,
“It’s not whether you win or lose, but whether you win!”. Source: Reddit
Nobody has any real idea what President-elect Donald Trump has planned.
It is quite possible he himself doesn’t know.
As President-elect we are all forced to take him seriously, but the consequences of taking him literally or not are so wide that most are in a state or confusion.
However, if we look at the situation more closely there may be method to the madness and some potential hints on where we go from here.
Candidate Trump was incredibly successful in covering up his weaknesses by, in effect, making the US election a referendum.
The election was a referendum on the status quo and a vote for Trump was a vote for change, not a vote for the huge range of messages and proposals he put out.
Indeed, by putting out so many messages and controversial statements he attracted different voters for different reasons. So the blue collar worker may have voted against free trade, but the Pennsylvanian Latino may have voted against health insurance premiums jumping 50%. The extreme proposals echoed his negotiation style as he made a bold first step, then walked it back, also allowing voters to justify ignoring his more odious statements.
The opponents of Trump preferred to take him at his word, ignoring the real passions his grievance narrative and promise of a better (different) tomorrow stirred up, looking to fight him on topics his supporters found ephemeral.
This strategic ambiguity in his message changed the game and was a key component of his ability to beat Clinton by going outside the system and making it a game of persuasion over politics. The falsehoods leading to furious fact checking were also reminiscent of the theoretical foundations of non-linear war put in place by the Russians, building on the work of prior autocrats. We can expect this to continue with Trump TV and direct communication through social media.
The normalization of Candidate Trump has occurred faster than anyone could have imagined as the world is now forced to take him seriously as President-elect.
The narrative has moved quickly to a positive one of a structural change with decreased regulation, lower taxes and huge infrastructure spending. Leading figures are overlooking extreme statements and focusing on President Trump as a more reasonable, settled and somewhat magnaminous chap after he ‘won’ the negotiation.
However, little is certain and this presents an interesting situation to look at through the lens of game theory.
The USA has been the global superpower for decades, much to its own benefit and that of the rest of the world (overall).
Free trade and globalization trends combined in a cooperative game where participants benefited, although some, like global multinational organisations and owners of capital, gained more than others such as domestic blue collar workers. These trends also helped pull hundreds of millions out of poverty worldwide and trade in a truly positive sum outcome.
The most recent cooperative equilibrium has been the gospel belief in the power of Central Banking that has dominated markets and investment moves in recent years. This has been the primary narrative around the market and most price moves have been described in relation to Central Bank actions as opposed to more idiosyncratic factors.
Cooperative equilibria like this are slow to form, but relatively stable.
Until they aren’t.
Political factors and a slowing of global trade has been placing increasing pressure on this narrative and the election of Donald Trump into the most powerful position in the world has accelerated this process, with a key flip in the dominant narrative towards fiscalism and stimulus spending over austerity and low rates.
More importantly, the role of the USA has changed sharply in terms of its likely behaviour under a Trump administration as it will no longer be a cooperative player, but a competitive one.
This moves us into a different class of competition, such as the familiar games of chicken and the prisoner’s dilemma, where there are drastically different equilibrium conditions.
Competitive players in competitions where there is a key enforcer and dominant player such as the USA can be handled through a variety of means, but when the dominant player changes its tack to claw back some the shared gains for itself, the game can rapidly change to a zero-sum or even negative-sum one.
This is where the fear of trade wars comes in and, looking at prior instances, the narrative is likely to rapidly shift across a spectrum of outcomes as each player in the game makes their competitive moves to get “ahead” of the game.
The “pricing for perfection” of the current narrative is fragile in this environment given the difficulty of implementation and the probability of continued extreme comments from the President-elect and his transition team. Curiously, the likely continued impact of these statements means the US will likely trade in a similar manner to autocratic Emerging Markets, unsurprising when Trump’s executive Presidency has more power than even rulers like President Erdo?an.
The uncertainty created by the dichotomy between the outcomes of Candidate and President Trump also add an additional wrinkle to this, placing the new normal into a category known as competitive games under uncertainty.
The most prominent recently example of this is OPEC and Saudi Arabia’s decision not to cut. A number of classical models can be employed to understand OPEC (generally a Stackelberg competition given Saudi’s role is a good starting point), but the presence of US shale changed the equation.
In this case, a cut, for example, of 1mbpd by Saudi Arabia (say 10% of 10mbpd of production), would be sensible if they expected the price to rise 10%, particularly if everyone else chipped in, something other players are not incentivised to do due to lack of enforceability by OPEC.
This would cost Saudi Arabia $18bn in forgone production revenue over 12 months if oil prices stayed at $50. If US shale output was elastic as oil prices rose however, with rigs firing up once more and stabilising the price, US shale would make $18bn at the Saudi’s expense.
This uncertainty changed the game and equilibrium conditions until we headed into the recent Saudi bond issuance and in the next period ahead of a potential Saudi Aramco IPO as this completely changes the payoff structure. OPEC is still an unstable competition, but there are alternative oil balancing approaches that are not.
Going into the OPEC meeting at the end of the month the optimised structure would have Iran being included once more in the exclusions and an overall cut target announced but flexible country quotas. The negotiating position of Saudi Arabia simply is not very strong given the changing conditions. This may not be enough to push oil prices above $60, but a failure in the deal would push prices well into the $30 range. I remain very bullish for 2017.
As he has a huge popular mandate having eschewed using the GOP power structure, the rational approach for President Trump is to continue with his classical negotiation tactics in bringing the House, Senate and foreign powers in line with his long-term wishes under an environment of competition and uncertainty to gain an edge.
The proximate impact of this shift is to increase the probability of market-altering moves such as a Chinese currency free float, with a periodic shifting between multiple unstable equilibria as each side tries to get ahead. We are already seeing this with the Yuan drifting to multi-year lows and JP is very bearish on the potential for a Q1 shock in China as outlined here.
The world seems a very uncertain place at the moment as the foundations of many of our political, economic and market models shift underneath us.
However, this may be a feature, not a bug of the new regime and it may be possible to adapt and understand where we might be headed if we build the right structural models in a methodological way. The likely path to a new stable status quo is likely to be a rocky one, with plenty of opportunities and dangers to keep us on our toes.
Bonus: Learn how to play the game
- Silver Enters Bear Market As Hedgies Flee
After tagging $19 the night of Trump's victory, Silver prices have tumbled 15% (the biggest drop since Summer 2013's taper tantrum). However, as large speculators dumped their longs en masse, this week also marked another milestone as Silver drops 24% from its post-Brexit peak (above $21) and entered a bear market once again.
As the dollar surges, Bloomberg reports that gold and silver holdings in exchange-traded funds are set for the biggest monthly drop in more than three years.
“Everyone is looking for a December rate hike, and that’s what’s been priced into gold and silver at the moment,” Tom Kendall, head of precious metals strategy at ICBC Standard Bank Plc, said by phone from London.
“The dollar remains a key driver.”
And, just as we have seen in gold futures, hedge fund speculative longs in silver are also decling rapidly…
And this selling pressure has slammed Silver to six-month lows (down 24% from Brexit highs in June)…
But, as Dana Lyons' Tumblr explains, Silver prices are testing a confluence of potential support levels.
We often get questions about our technical analysis on specific assets or securities, especially as it pertains to potential support or resistance levels on the chart. We don’t post many of those types of charts anymore but we present one today in the chart of the popular iShares Silver Trust, ticker, SLV. The impetus was partially because of the amount of attention on PM’s, but primarily due to a potential inflection point on the chart.
Everyone asks “when is XYZ going to bottom”? There is no way to ever know for sure. The best thing you can do is identify the most likely points of support in order to put the best odds of success on your side. And the best setups are always when multiple key potential support levels line up in the same vicinity. Such a setup may be present now in the chart of SLV, in our view.
So what are the potential support levels?:
- The 61.8% Fibonacci Retracement of the November-August Rally ~15.62
- The 500-Day Simple Moving Average ~15.64
- The June 7 closing price (15.60) from which SLV gapped up, launching it on its final run to 19.71
As the chart shows, SLV is testing this level today. In fact, the low of the day was exactly 15.60.
So will this 15.60 level hold? Obviously nobody knows for sure. At least there are multiple key levels of potential support there, however. That puts decent odds of success with the silver bulls – as well as giving them a level with which to play off of. If SLV remains above there, it can bounce. If it closes below there without an immediate reversal, perhaps there is more downside to come for silver prices.
How far will SLV bounce if it holds? Obviously, we can’t know that either. There appears to be considerable potential resistance near 16.80 and just above 18.00, if the SLV does bounce. So, that would be about 7-15% of upside – without even breaking the post-summer intermediate-term downtrend. It would take a lot more strength to convince us that the post-2015 uptrend is resuming. So, even holding this level doesn’t mean it’s up, up and away again for silver.
For now, precious metals fans will have to be satisfied with, “Hi Ho Silver, A-Bounce!”
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More from Dana Lyons, JLFMI and My401kPro.
- On A Personal Note…
With raw newsflow in the financial, political, economic and geopolitical realms hurtling ever faster – scrambling toward some yet unknown climax – facilitated by a world that has never been more interconnected, and where the noise to signal ratio (especially over the past few months courtesy of certain… events) has hit unprecedented levels, sometimes we get so focused on trying to share our own, unique (we hope) vision and take on things, that we lose connection, and direct communication, with the only thing that really matters for this little project: our readers.
That would be you.
Without you, dear reader, this website would not exist.
The truth is that while we always try to represent, interpret and explain events as they happen objectively and in real time (a challenge which at times is literally painful) we may not get everything right or accurate, but we try.
We try to do as well as we can within the confines of our modest staffing, infrastructure and financial capabilities. Unlike media behemoths and “titans” of industry, many of whom have infinitely more in resources and outside “access”, our growth is only possible if you – dear reader – keep coming back. Incidentally, and contrary to various amusing rumors, Zero Hedge does not, and has never had any financial, political, or any other affiliation or relation to an external entity or organization; no we are not funded by the KGB, no we are not on Trump’s secret payroll, no we have never raised one dollar of outside funding. From day one, all our revenue has been through advertising, and your kind donations.
Which, simply stated, means that we write what we believe in, even if it is ultimately proven to be dead wrong. And always remember: there is no such thing as “absolute truth.”
Which is not to say readers should accept everything, or anything, at face value. Quite the contrary: as we have warned since the very start, our main intention, while informing readers, has been to make them think critically – to present a different side to things, even if it is ultimately dead wrong. For pete’s sake, this a blog after all, not some established pillar of the fourth estate with editors, sub-editors, reporters, journalists, crossword puzzle makers, back office, and so forth.
This should be nothing new: for those still unfamiliar, here is a brief excerpt from our “full disclosure” policy, which we hope most of you are familiar with:
The reality is, critical readers should read analytic posts and the rest of Zero Hedge with the blanket assumption that the author is totally “conflicted.” (Phrased more logically, that the author stands to benefit from being right- imagine that). This turns the conversation to the content, and away from the author, the author’s biography and the contents of their IRA account / blind trust. This (the content) is, of course, where the focus should be. If you think otherwise you might be one of those people who thinks it was a good idea for a news program hosted by Dan Rather, and where viewers spend 66% of the non-commercial time watching his mug, to be in HDTV. If you still get something out of our writing with the assumption that we are invested in our position and stand to gain personally from you believing us, well, we’ve done our job. If not, then our being “unconflicted” isn’t going to change the fact that we have a weak argument or poorly reasoned prose. At least, if you’re not one of the “optics” idiots.
People, you don’t test a safe under ideal conditions for the safe and call it good. You test it with all the advantages to the burglar. And then you let the burglar cheat. If it still remains closed after that, then it’s secure.
We wrote the above in 2009. In light of the recent unprecedented implosion of trust in the “mainstream”, it has never been more relevant, and we bring it up because in recent weeks the tension between the so called “mainstream” and “alternative” medias has never been greater. Perhaps that’s a good thing.
However, no matter how the growing conflict within the fourth estate turns out, we would like you – our reader – to know that we have survived this long, nearly eight years since our modest start in January 2009, in the process clocking in nearly three billion page views, because of your faith in us and the fact that you – for whatever reason – keep coming back.
And for that, from the entire tiny staff here at Zero Hedge, we thank you.
- All Aboard The Post-TPP World
Authored by Pepe Escobar, originally posted op-ed via Strategic-Culture.org,
A half-hearted near handshake between US President Barack Obama and Russian President Vladimir Putin before and after they spoke «for about four minutes», standing up, on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Lima, Peru, captured to perfection the melancholic dwindling of the Obama era.
A whirlwind flashback of the fractious relationship between Obama and «existential threats» Russia and China would include everything from the Washington-sponsored Maidan in Kiev to Obama’s «Assad must go» in Syria, with special mentions to the oil price war, sanctions, the raid on the ruble, extreme demonization of Putin and all things Russian, provocations in the South China Sea – all down to a finishing flourish; the death of the much vaunted Trans-Pacific Partnership (TPP) treaty, which was reconfirmed at APEC right after the election of Donald Trump.
It was almost too painful to watch Obama defending his not exactly spectacular legacy at his final international press conference – with, ironically, the backdrop of the South American Pacific coast – just as Chinese President Xi Jinping all but basked in his reiterated geopolitical glow, which he already shares with Putin. As for Trump, though invisible in Lima, he was everywhere.
The ritual burial, in Peru’s Pacific waters, of the «NATO on trade» arm of the pivot to Asia (first announced in October 2011 by Hillary Clinton) thus offered Xi the perfect platform to plug the merits of the Regional Comprehensive Economic Partnership (RCEP), amply supported by China.
RCEP is an ambitious idea aiming at becoming the world’s biggest free trade agreement; 46% of global population, with a combined GDP of $17 trillion, and 40% of world trade. RCEP includes the 10 ASEAN nations plus China, Japan, South Korea, India, Australia and New Zealand.
The RCEP idea was born four years ago at an ASEAN summit in Cambodia – and has been through nine rounds of negotiations so far. Curiously, the initial idea came from Japan – as a mechanism to combine the plethora of bilateral deals ASEAN has struck with its partners. But now China is in the lead.
RCEP is also the fulcrum of the Free Trade Area of the Asia-Pacific (FTAAP) – a concept that was introduced at an APEC meeting in Beijing by, who else, China, with the aim of seducing nations whose top trade partner is China away from entertaining TPP notions.
RCEP – and even FTAAP – are not about a new set of ultra-comprehensive trade rules (concocted by US multinationals), but the extension of existing deals to ASEAN and key nations in Northeast Asia, South Asia and Oceania.
It didn’t take experienced weathermen to see which way the Pacific winds are now blowing. Peru and Chile are now on board to join RCEP. And Japan – which was negotiating TPP until the very last breath – has now steered the drive towards RCEP.
The Sultan gets into the action
Meanwhile, Putin and Xi met once again – with Putin revealing he’s going to China next spring to deepen Russian involvement in the New Silk Roads, a.k.a. One Belt, One Road (OBOR). The ultimate objective is to merge the Chinese-led OBOR with the development of the Russia-led Eurasia Economic Union (EEU).
That’s the spirit behind 25 intergovernmental agreements in economy, investment and nuclear industry signed by Russian Prime Minister Dmitry Medvedev and Chinese Premier Li Keqiang in St. Petersburg in early November, as well as the set up of a joint Russia-China Venture Fund.
In parallel, almost out of blue, and with a single stroke, Turkey President Tayyip Erdogan, on the way back from a visit to Pakistan and Uzbekistan, confirmed what had been all but evident for the past few months; «Why shouldn't Turkey be in the Shanghai Five? I said this to Mr. Putin, to (Kazakh President) Nazarbayev, to those who are in the Shanghai Five now… I think if Turkey were to join the Shanghai Five, it will enable it to act with much greater ease».
This bombshell of course refers to the Shanghai Cooperation Organization (SCO), which started in 2001 as the Shanghai Five – China, Russia and three Central Asia nations, Kazakhstan, Kyrgyzstan and Tajikistan (Uzbekistan joined later) – as a security bloc to fight Salafi-jhadism and drug trafficking from Afghanistan.
Over the years, the SCO has evolved much further – into an Asia integration/cooperation mechanism. India, Pakistan, Iran, Afghanistan and Mongolia are observers, with India and Pakistan to be admitted as full members arguably by 2017, followed by Iran. Turkey (since 2013) and Belarus are SCO «dialogue partners».
Wily Erdogan made his SCO opening in conjunction to stressing Turkey did not need to join the EU «at all costs». That’s been more than evident since Erdogan survived the July coup and unleashed a hardcore crackdown that’s been met with horror by Brussels – where the 11-year (so far) negotiations for Turkish accession are all but stalled. And France, the number two EU power after Germany, will inevitably block it further on down the road, whoever is elected President next year.
Turkey joining the SCO, in the long run, alongside Iran, India and Pakistan, would represent yet another key node of Eurasia integration, as the SCO is progressively interlocked with OBOR, EEU, China’s Silk Road Fund, the Asian Infrastructure Investment Bank (AIIB) and even the BRICS’s New Development Bank (NDB), which will start financing projects for group members and then expand to other nations in the Global South. Moscow and Beijing would welcome Ankara with open arms.
Whatever the contours of Trump’s China/Asia foreign policy, Eurasian integration will proceed unabated. China is advancing its own simultaneously internal and external pivot, involving the tweaking of financial, fiscal and tax policies to drive consumption in retail, health, travel and sports in parallel to the OBOR drive all across Eurasia, all the way to solidifying an economic superpower.
TPP – or NATO on trade, the Asian version – is just a scalp in a long and winding road. And on the South China Sea, dialogue is slowly edging out the confrontation fomented throughout the Obama administration.
At APEC, Xi also met with Philippines President Rodrigo Duterte – and called for China and the Philippines to go for maritime cooperation. A practical result is that Philippine fishermen will continue to have access to Scarborough Shoal, the fertile fishing ground inside the Philippines’ exclusive economic zone (EEZ) that has been under Chinese control since 2012. Beijing also pledged assistance to Philippine fishermen in alternative industries – such as aquaculture.
Call it the Trans-South China Sea Partnership.
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