- Our Brave New 'Markets' – How HFT Algos Risk A Sudden Massive Sell-Off
Authored by Chris Martenson via PeakProsperity.com,
One thing is clear: These aren’t your daddy’s markets anymore.
Why? Because about 10 years ago the Rise of the Machines (aka high frequency trading algorithms) completely altered the terrain of what we call the ‘capital markets.’
Let’s look at this as a before and after story.
Before the machines, markets were a place that humans with roughly equal information and reflexes set the prices of financial assets by buying and selling. Fundamentals mattered.
After the machines took over, markets became dominated — in terms of volume, liquidity and pricing — by machines that operate in time frames of a millionth of a second. The machines and their algorithms use remorseless routines and trickery — quote stuffing, spoofing, price manipulations — to ‘get their way.’
Fundamentals no longer matter; only endless central bank-supplied liquidity does. Because such machines and their coders are very expensive and require a lot of funding.
The various financial markets are so distorted that I first resorted to putting that word in quotes – “markets” – to signify that they are not at all the same as in the past. In recent years I’ve taken to putting double quote marks – “”markets”” – in attempt to drive home their gross distortion. Not only are todays “”markets”” something the human traders of a generation ago would fail to recognize, they're no longer a place where human actions of any sort have much of a remaining role.
Why care about this? Two big reasons:
1. Such “”markets”” are easily manipulated by central banks and other state actors by virtue of their automated responses to liquidity injections. Are the markets going down when you don’t want them to? Just use any one of several highly leveraged means of signaling to the computers that it’s time to buy instead of sell. Common leverage points include the Japanese Yen-to-USD price level, selling VIX to lower volatility, and buying massive quantities of index futures ‘all at once.’
2. These manipulations will work until they don’t. When they fail, they may well fail spectacularly — resulting in shattered markets that have to be shuttered until the damage can be assessed. Investors will not be able to access their capital, either to buy or sell, while things get sorted out. When the markets finally do reopen, valuations will be a whole lot lower due to the loss of the huge block of (phantom) volume previously supplied by the now-shut down algos.
The main predicament were facing is that by jamming the “”markets”” ever higher, the central banks have created an enormous gap between current prices and reality.
An easy to see example of this is the housing market in San Francisco, where average income earners cannot afford average houses — at all. The only way the SF housing market can re-balance to a sustainable level is either for salaries to shoot up massively (while house prices remain flat) or for house prices to fall.
Equities are no different; their prices current suffer from a similar "reality gap". The same is true for bonds.
Obvious Price Manipulations
Just to show that I'm an equal opportunity critic and don’t just think gold and silver are manipulated — and they have been and continue to be, which is now a matter of fact — I warn that the same dynamics that infest the precious metals ""markets"" at the COMEX indeed happen elsewhere.
My conclusion is that the HFT computer algos are in complete control of the ""market" action, and play with and off of each other to create massive sudden price movements that have nothing to do with anything except book order saturation.
Today's recent example comes to us courtesy of the WTIC oil market on the NYMEX:
Starting around 6:30am, oil futures started drifting slightly lower. A little volume came in around 6:40 a.m. and then — BAM! — right at 6:44 a.m. EST, a super spike of volume to the downside occurred. I happened to be watching this in real time and began counting off seconds. Before I got to 3 seconds it was over. (These are one minute bars so those three seconds are obscured in a full sixty second long bar).
So…8 thousand contracts in 3 seconds. Staggering.
For fun, amortize this out over a full trading year. It's a preposterous figure.
The point being, these volume spikes (especially to the downside) have an intensity that is simply overwhelming for the market structure.
Which is entirely the point of the operation. That’s the very essence of price manipulation.
Let's try to look at this rationally. Let's define intensity as "volume of more than 2 standard deviations above the recent 1-hour average, divided by the duration of the volume event."
If we do this, an analysis of the oil chart above would go like this:
Say the average volume was 200 contracts/min. The normal 'intensity value' would be 0, because there are no moments above 2 std before the big volume spike (0/0)
Making a guess of a std of 300 for the normal period, at the height of the spike, the value would be ~7,400. Then divide the 3 second episode (expressed in minutes) and you get 148,000.
So from an intensity value of 0, thing spiked up to 148,000 in a matter of seconds.
Is that a useful number or way to look at this? I think so, because it expresses the idea that these volume spikes, combined with their extremely short duration, have an intensity that is far outside of the normal trading bounds. And it’s that super out-of-range characteristic that just clobbers the price of whatever is being traded (in this case oil, one of the most widely-traded commodities on the planet).
These blasts destroy the market bid/ask structure in those moments. You have literally zero chance of trading that event as a human, even and especially if using 'insurance' like stops.
This means that the ""markets"" have a barrier to entry where the cost is the price of a very expensive arrangement of hardware and software capable of operating at the micro-second level. Humans need not apply.
These are not your daddy’s markets. They belong to the big players (aka big banks and hedge funds) and their very expensive machines.
Understanding Volume vs. Liquidity
What we’re really describing here is a sudden spike in volume that basically destroys the current market book of orders.
What that means is this. Imagine that you are selling eggs at the farmers market along with nine other vendors. There are 500 people wandering the market looking for eggs and other produce. The average sales rate for all 10 egg vendors and all 500 customers is 5 dozen eggs per minute.
The price you can sell your eggs for is set in accordance with the other prices around you. Yours are organic, but small. The vendor next to you has large eggs that are conventional, but larger. And third has small colored eggs from heritage breeds that are free range. Let’s say that the range of selling prices is from $4/doz to $5.50 per dozen. This is the market structure for eggs at our farmers market in this thought exercise.
All of a sudden, a giant semi-truck backs up. It's filled with eggs matching every description of those being sold at our small little market. A bullhorn speaker rises from the roof of the truck and announces that 10,000 dozen eggs are now available for the next 1 minute for whatever price anyone is willing to give him for them.
What do you think happens to egg prices over that one-minute window? That’s right, the price gets completely crushed. And what do you think happens to demand for eggs among the 500 potential customers at our market? It’s completely satisfied. So future demand is eliminated and sales volumes decline accordingly.
In other words, the “”market”” for eggs got ruined, right there and in an instant. You and the other 9 original egg merchants got thoroughly hosed.
The volume of eggs on offer shot up massively all of a sudden, but once all 500 potential egg buyers had been satisfied, the number of buyers dropped away rapidly. Liquidity dried up.
This shows how it’s possible to have a market with tons of volume, but no liquidity. There are lots and lots of eggs for sale, but no buyers. All volume, no liquidity.
I know this is a little complex, and possibly arcane, but the points are important to understand. You see, even the most liquid of all possible markets, the US Treasury market, er “”market””, suffered an amazing flash crash back in 2014. It’s been pretty well studied, but the culprits were the HTF machines that now dominate that “”market.””
This next chart by Eric Hunsader of NANEX (whom we've interviewed numerous times over the past years) shows the relationship between price, liquidity and volume on that fateful day, when yields plunged and prices spiked (remember in bonds yield and price move oppositely).
Note the first event which was a sudden loss of liquidity, seen at the yellow arrow:
https://twitter.com/nanexllc/status/784371418955997184
At the same time that the liquidity dried up, you can see volume ticked up pretty strongly and this caused prices to rise. For whatever reason, in HFT land the rules seem to be:
- High Volume + High Liquidity = small price movements
- High Volume + Low Liquidity = big price movements
- High Volume + HFT only Liquidity = flash crash
The point here is this: The computer bots now are the market.
They operate according to a set of pre-programmed parameters. If or when those parameters are exceeded, they simply vanish in less than an eye blink. When that happens, prices go wonky as the remaining few algos go wild. Their resulting erratic trading spikes volumes and prices all over the place.
Why This Matters
Maybe you’re thinking, “So what?” Maybe you aren't a trader and think the hows, whens and whys of the computer algos in the Brave New Market isn't really of any concern to you.
But it really is. And here’s why.
The flash crash in May 2010 gave us an indication, but the mini flash crashes we see almost daily in various other markets — ranging from the tiny to the US Treasury market — tell us that it’s entirely possible that someday all the worlds computer algos might suddenly stop operating because an event occurs that is out of their programmed operating state.
We’ve seen these flash crashes numerous times. The biggies were the 1,000+ point plunge in the Dow on May 6, 2010, the Treasury flash crash of October 15, 2014, the ETF flash crash of August 24th 2015, and the dollar flash crash on the last trading day of 2016.
There have been innumerable smaller flash crashes in specific equities and commodity contracts as well. But the biggies show us that nothing is safe. When you can have flash crashes in the entire equity market index universe, ETFs, the Treasury market, and even the US Dollar, then you know there’s no safe place.
Everything is under the control of the computers.
A long-running discussion between Dave Fairtex, myself and others, concerns the idea of whether or not markets as big as the ones just mentioned can be manipulated by government/central banking forces to stop, limit, or even reverse a price decline.
My view has always been “yes”, because it should be child’s play to fool the algos into going this way instead of that way by simply injecting a relatively small amount of capital at the right place and time.
I would love to know, for example, why central banks have an incentive program at the CME — where the exact sorts of highly leveraged, electronically traded products that would be best suited for market manipulation — are traded.
By virtue of its existence, we know that central banks are highly active traders on the CME platforms. Otherwise an incentive program offering steep volume-based trading discounts would not exist.
Not one single central bank (yet) reports anywhere in their financial disclosures of being the proud owners of any of the accounts traded on the CME. So the details of the situation remain a mystery.
But dependably, every single market decline that began over the past several years has been reversed — usually in the dead of night, and in the futures market — by mysterious injections of capital that then get the HFT algos to follow the trend. So inquiring minds would like to know.
Back to the story: Dave had an opportunity to meet recently with a super smart HFT developer and operator who confirmed that algos are easy targets for such a manipulation scheme should the central banks wish to engage in such a thing.
So I went off to my afternoon meeting with the HFT trading guru and, well, because of too many ciders I forgot most of the questions. But the one I remembered most clearly did get answered.
I asked him, "Do you think that someone could manipulate the market by figuring out what the bots were coded to trigger on, and then taking action to encourage them to do just that?"
Short answer: yes.
(Source)
So, yes, such a thing is possible. And because it’s possible, and there are seemingly no consequences for getting caught, and because the Fed is fighting any sort of audit tooth and nail, and because the CME has a central bank incentive program, and because the “”market”” mysteriously self-corrects at odd moments usualy with a flood of intense futures buying, my inner prosecutor thinks he could win a case in front of a reasonable jury here.
The big issue, however, is what might happen if (or rather when) things get ‘out of hand’ and the computer bots cannot be cajoled back into the market because the parameters are just too far out of whack. 'A major market accident' is the likely answer.
Dave continues:
Two weeks ago I went to this lecture by a guy (a physics PhD) on unsupervised machine learning techniques called "reinforcement learning". In the past, the lecturer had worked for JP Morgan and others on HFT applications. He's now got this startup, and he was (more or less) recruiting AI/ML people to come work for him.
The sense I got from his lecture is that there was a big initial move using machine learning to harvest pennies, but that the market is very efficient now at that particular thing, and so its tough to make a living these days by using that approach. Another thing he said was that, there are bots out there that try to find your bots, and then trick them into losing money. Enemy bots, as it were.
One interesting question was asked by an audience member: "how do you train your bots for market problems or exceptional conditions?" His answer, informed by years of work in constructing market maker bots, was: "the vast majority of time is spent in 'normal markets' and as such, that's how we train our bots." Basically, when things get dicey, they just turn them off. I've heard that before too, but it was fun hearing it from the horse's mouth.
And, of course, that's why we have flash crashes. Also my sense is, there aren't really enough humans left to make markets in an emergency, since the profits have been all eaten up by the bots – no money to pay the human traders, which would spend 99.5% of their time sitting and looking at the bots doing their work. And the bots have only been trained on "normal situation" operations.
It makes sense. Why train a bot for exceptional situations, when a huge pile of money can be made just on the day to day fluctuations. Not only is finding enough data to train a bot to run during crash situations difficult, testing is problematic, and then of course you have to wait for a crash and see if it actually works. And if there's a bug, losses could be catastrophic. Better to pull the plug when things get iffy.
(Source)
So, why does this matter to you? Because today's ""market"" structure is so completely broken now that a flash crash can happen in any sector, no matter how large. That’s not speculating, that’s established fact.
Once a crash really gets under way, for whatever reason, getting the computer bots back online cannot be accomplished until and unless the markets are within certain operating ranges. That’s just how they are built and designed. So as long as everything is within a certain set of parameters, the bots will participate. But as soon as they aren't, they'll all just disappear. When they do, they'll take literally 99% of the market quotes away and 70% of the trading volume. In an instant.
So I’ll add one more ‘rule’ to that list above:
- No quotes + no volume = no market.
Someday parameters will be exceeded and the “”market”” will crash. Unless the central banks can manage to become such dominant buyers in the “”market”” that they become the market. Japan’s central bank has already achieved this status in its country's government bonds and ETF markets.
Who knows? Maybe this is the goal of every major central bank. But if so, then we should be having a robust discussion about how this is no different than printing up money and handing it directly to the very wealthiest individuals and most powerful corporations.
That’s not monetary policy. That’s social engineering.
Conclusion
Patently obvious price manipulations happen daily now in all electronic markets. Oil, gold, silver, indexes, individual equities, options – you name it – all are subject to overt price manipulation tactics being run by the largest and most well-connected Wall Street and private trading firms.
The algos are now the dominant force in the markets in terms of both quote and trade volumes.
Further, the central banks can and do easily use these same lightning-fast programs to halt and reverse market price declines.
This level of micro-management of the “correct" pricing is ruining the core function of the financial markets, which is to set prices by aligning the collective needs and wisdom of millions of individuals and entities.
By ruining this, the central banks have bought some temporary market price stability at the expense of legitimate price discovery. Without that mechanism, mal-investments are now accruing, as they always do when speculation is rewarded over hard work.
Making a sound investment decision requires smarts, effort and risk. Feh! Who want’s to go through all that when you can borrow at 1% and retire stock in your company yielding a 2% dividend?
Who wants to figure out how to satisfy all those state and federal regulations involved in opening a new business when you can earn more by playing the speculation game in the financial ""markets""?
As Adam Taggart wrote recently:
When [the market correction eventually] happens, those who decided to look like an idiot early on and refuse to join the party (i.e., positioning their capital defensively), are going to look like geniuses. They will avoid the heartbreak of loss, and they will have capital to deploy when the dust settles, purchasing quality assets at (potentially historic) bargain prices.
It's not an easy choice to make, or to remain steadfast in. It takes foresight, courage, and resolve. But it's a smart choice.
Of course, cash savings is just one of a number of options for positioning your financial wealth defensively right now. For those looking to learn more about other ways to do so, we recommend the following progression:
- If you haven't yet read it, read our free report The Mother of All Financial Bubbles to understand the full nature of the situation we're living through today
- Read our report How To Hedge Against A Market Correction, to understand the most common strategies for protecting your portfolio from downside risk
- For those interested, I've shared how my own personal portfolio is positioned (Note: this is not intended as personal financial advice, but as an example to evaluate)
- Schedule a review focused on downside risk management with your financial adviser. If you're having difficulty finding one experienced on this topic, we can suggest one to consider.
It's unknowable exactly how much longer our unsustainable markets can remain at their record levels. But there is one thing we know for certain: we're closer to their day of reckoning than we've been at any point over the past seven years. A recession is due soon by historical standards, and long overdue by fundamental ones.
When it happens, do you want to look like an idiot? Or would you rather choose to look like one now, so that you can look brilliant then?
Choose wisely.
Good luck everyone. This is the most unusual period in all of economic, financial and monetary history. Perhaps this time they’ve got it right.
But if not: Look out below.
- Illinois Had The Worst Personal Income Growth In The U.S. Over The Past Decade
Submitted by Austin Berg, of IllinoisPolicy.org
Illinois’ jobs growth was worse than every neighboring state, and half the neighboring state average from June 2016 to June 2017, according to a new report. Data released July 27 by the Illinois Department of Employment Security, or IDES, reveals Illinois’ jobs growth from June 2016 to June 2017 was 0.9 percent, compared with a national average of 1.5 percent.
The greater Chicago area fared far better than the rest of Illinois with 1.2 percent jobs growth, but still lagged behind the national average. The rest of the state saw just 0.2 percent jobs growth.
The new IDES release also contained data by metropolitan statistical area, or MSA. Of Illinois’ 14 MSAs, eight saw jobs growth of less than 1 percent. Only five of Illinois’ MSAs saw jobs growth higher than the national average: Springfield, Kankakee, Lake County-Kenosha County, Bloomington and Carbondale-Marion.
The Decatur MSA experienced no jobs growth over the year. Rockford and Danville each lost 200 jobs over the year, on net.
The IDES data underscore a lack of economic reforms in the budget passed by state lawmakers earlier this month, which included the largest permanent income tax hike in state history.
Take Decatur, for example. Moody’s Analytics revealed earlier this year that the former manufacturing titan was one of four Illinois metro areas where the recession recovery was at risk of “coming undone.” Researchers also included Danville on that list.
Decatur residents are in dire need of healthier incomes. Even the hope of decent jobs growth would be a vast improvement.
Instead, the tax hike will force the average Decatur resident to send $580 more each year to state government, according to the Decatur Herald & Review. That’s money that could have been spent locally at struggling small businesses, put toward college savings or spent on household essentials. Instead, it will vanish into Springfield’s sinkhole of debt.
Illinois’ sickly economy doesn’t just show itself in poor jobs numbers, but in paychecks as well. The Land of Lincoln is home to the worst personal income growth in the United States over the Great Recession era.
Illinois’ lawmakers have failed to pass the pro-growth reforms from which neighboring states are reaping benefits. Take property taxes, which are higher in Illinois than in every state with no income tax at all.
Neighboring Wisconsin’s property taxes as a percentage of personal income are the lowest the state’s seen since the end of World War II. Illinois property taxes are nearly triple those in neighboring Indiana. But reforms to address the cost-drivers of Illinois property taxes have been stonewalled in the General Assembly.
Illinois is also home to the costliest workers’ compensation system in the region, yet serious efforts at reform have gone untouched by legislative leaders. And as neighboring states such as Missouri are on the path to income tax cuts, Illinois lawmakers passed a 32 percent income tax increase.
Until lawmakers get serious about economic growth, don’t expect Illinois’ jobs trend to diverge from the weak path it’s been treading for years.
- In Fiscal Dire Straits, Connecticut Showers State Disability Workers With Overtime Pay
Judging by muni spreads, Illinois is widely considered the most financially troubled state in the country. However, preppy Connecticut, which has the highest per-capita income in the country and whose capital Hartford has been on the verge of bankruptcy for months, isn’t far behind.
As lame-duck Democratic Gov. Daniel Malloy battles with the legislature – including members of his own party – over passing the state’s budget with a $2.5 billion deficit, the state’s largest newspaper, the Hartford Courant, is highlighting an issue that is emblematic of a nettlesome fiscal problem facing the nutmeg state: its overly generous treatment of state employees through overtime pay, particularly the Department of Developmental Services which operates a string of hospitals serving the intellectually disabled and group homes, that is putting a heavy strain on the state’s already teetering budget.
State payroll data analyzed by the Courant revealed that, through the first half of the year, 37 DDS employees have already earned more than $50,000 in overtime alone, putting a handful of these workers on track to collect $250,000 in pay this year. By comparison, workers with similar jobs in the private sector with state contracts – a group that serves 90% of the state’s intellectually disabled patients – haven’t had a pay raise in 12 years.
This excessive reliance on overtime is the result of a quirk in the regulatory framework that governs how the aging state institutions are run. Some nurses are on track to earn more this year than DDS Commissioner Jordan Scheff.
“With half the year to go, one direct-care worker in a facility in DDS's west region, with an annual base salary of $44,000, had already earned $119,000, including $91,170 in overtime alone, payroll records show. She's on pace to earn $238,000 this year.”
“…in the north region, with a base salary of $57,000, had earned $122,500 by mid-year, including $94,000 in overtime since Jan. 1, the records show. At this pace, he'll earn over $245,000, well more than the $138,000 annual salary of the commissioner of DDS, Jordan Scheff.
More than 250 DDS employees, most of them direct-care workers, had earned at least $25,000 in overtime through June, records show.”
According to the Courant, the state’s excessive regulations governing how state-run health-care enterprises should be staffed, have transformed the Department of Development Services into a massive drain on the state already devastated budget. As a result, the state is hesitant to hire much needed new workers because it’s slowly working to close the state-institutions.
“For many advocates…overtime illustrates the inequities between the public and private sectors. There have been calls for several years for more funding for the private agencies serving most of the state's 16,000 intellectually disabled clients. Advocates say the disability community has never been in greater jeopardy, and they have ratcheted up their public protests. Several hundred parents, advocates, and clients attended twin rallies at the Capitol on July 18.”
DDS Head Scheff explains how the state’s powerful public employee are working to preserve the system despite its obvious inefficiencies, adding that the costs of running these hospitals are “not sustainable.”
"No, it's not sustainable, and it's not cost effective, and it's not in the best interest of the people we support to have out folks working this way," Scheff, in an interview last week, said of the overtime situation.
He said the budget impasse, funding cuts to the agency, and certain state concessions to the union, such as stopping the privatization of state-run group homes, have hampered the department's ability to reduce costs and shift money to serve clients who have been waiting years for housing support, in-home aides, or other assistance from DDS.”
Furthermore, wasteful regulations that require a ratio of 2.7 on-duty staff for each psychiatric patient at a state-run hospital has also been blamed for ballooning the DDS budget to $1 billion.
“Advocates who have studied the public and private systems extensively say that a higher staff-to-client ratio in the public sector, about 2.7:1, compared with about 2:1 in the private sector, is a major reason why the public costs are significantly higher. A study by the legislature's program review and investigations staff concluded that the quality of care provided by state and private workers was the same.”
To be sure, solving the overtime problem at CT’s psychiatric institutions wouldn’t go anywhere near to resolving the state's budget woes which extend far beyond this one sector. But the problem is emblematic of the most intractable financial and political problems facing the state: powerfully entrenched state employee unions, wasteful regulation and programs that commit vast resources to serving a handful of needy individuals.
But the need to close – or at least minimizing – the massive budget deficit is growing inexorably more pressing with each passing day. Back in May, yields on CT’s general obligation bonds surged as plummeting income-tax revenues and a series of downgrades by the major credit-rating houses raised serious questions about the state’s fiscal health. And with the state capital, Hartford, downgraded to junk on June 11, underscoring the threat of an imminent bankruptcy, worries that the state might need to orchestrate a bailout of its once-proud capital have intensified.
And just when the situation was showing signs of stabilizing, a series of corporate defections, including health insurance giant Aetna’s June decision to move its headquarters to NYC – are shrinking the state’s already narrow tax base. Now that Gov. Malloy’s strategy of enticing companies to stay with a mix of tax cuts and the promise of state aid has failed, the state is in desperate need of a new leader to find a way to lure businesses back into the state. The question is who would even want that job?
- Trump Lashes Out At China Over North Korea: "We Will No Longer Allow This To Continue"
One month after Trump’s ominously tweeted in the aftermath of Otto Warmbier’s death, that while he greatly appreciates the efforts of President Xi & China to help with North Korea, “it has not worked out”, confirming that the post Mar-A-Lago honeymoon period was officially over, moments ago the president blasted out his latest two tweets Saturday tweets, #12 and 13, in which he said he was “very disappointed” in China.
“Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem!” Trump tweeted one day after North Korea launched its second successful ICBM in the past month, one which according to both experts and Kim Jong-Un, can reach most US metro areas.
Relations between the world’s two largest economies soured after an initial honeymoon between Trump and President Xi Jinping. The U.S. last month sanctioned a regional Chinese bank, a shipping company and two Chinese citizens over dealings with North Korea, which could be a precursor to greater economic and financial pressure on Beijing to rein in its errant neighbor.
Trump has also vowed to put more pressure on China to do help curb Pyongyang’s rapidly advancing programs, which however judging by the recent spike in Chinese exports to NKorea, has not been successful.
Meanwhile, the primary reason why China has been urging all involved parties to remain calm, yet does nothing to curb Kim’s provocative launches, is that as Bloomberg reports, “China is betting that U.S. President Donald Trump won’t make good on his threats of a military strike against North Korea, with Beijing continuing to provide a lifeline to Kim Jong Un’s regime.”
China on Saturday condemned the latest test while calling for restraint from all parties, a muted reaction to Pyongyang’s progress on an ICBM capable of hitting the U.S. mainland. Despite Kim’s provocations, analysts said Beijing still sees the collapse of his regime as a more immediate strategic threat, and doubts Trump would pull the trigger given the risk of a war with North Korea that could kill millions.
“The military option the Americans are threatening won’t likely happen because the stakes will be too high,” said Liu Ming, director of the Korean Peninsula Research Center at the Shanghai Academy of Social Sciences. “It’s a pretext and an excuse to pile up pressure on China. It’s more like blackmail than a realistic option.”
Secretary of State Rex Tillerson singled out China and Russia as “economic enablers” of North Korea after Kim on Friday test-fired an intercontinental ballistic missile for the second time in a matter of weeks. While Tillerson said the U.S. wants a peaceful resolution to the tensions, the top American general called his South Korean counterpart after the launch to discuss a potential military response.
China’s biggest fears remain a collapse of Kim’s regime that sparks a protracted refugee crisis and a beefed-up U.S. military presence on its border. And now that Trump’s new Chief of Staff is a 45 year army veteran, who will be whispering in Trump’s ear just what any other general whispers to a president vis-a-vis “defensive-yet-offensive” wars, China’s “biggest fear” may be about to come true.
- Shock Claim From Inside DNC: Seth Rich Leaked Emails To Moscow Lawyer One Month Before His Murder
Content originally published at iBankCoin.com
With the ‘Russian hacking’ conspiracy theory hanging by a gossamer thread, a new claim has emerged which dispels the notion of a server breach by a foreign actor, yet maintains the charge of Russian interference in the 2016 U.S. election: Seth Rich leaked the DNC emails to the same Moscow attorney who met with Trump Jr. in June 2016.
According to Radar Online, an anonymous staffer currently employed by the DNC contacted attorney, GOP lobbyist, and Seth Rich investigator Jack Burkman, to reveal Rich met with Natalia Veselnitskaya one month before his murder – giving her a cache of DNC emails later released by WikiLeaks.
“They claimed the Russian lawyer had met with Rich about a month before his death, four to six weeks, and Seth provided her with emails that were, apparently, leaked later on WikiLeaks.” –Jack Burkman
Of note, Veselnitskaya – who doesn’t speak English, would have needed an interpreter to meet with Rich unless he spoke Russian.
Jack Burkman represents the family of Seth Rich, and has been pushing the Seth Rich – Russia connection for months, calling for an investigation into links to the murder. In January, he told Infowars Rich was murdered by Russia after uncovering evidence that they hacked the DNC.
In addition to creating the website www.whokilledseth.com, Burkman is staging a reenactment of Rich’s murder next Tuesday.
Exactly one week from now, August 1st, we are staging a reenactment of #SethRich‘s murder. YOU CAN’T MISS THIS. #JusticeforSeth
— Jack Burkman (@Jack_Burkman) July 25, 2017
//platform.twitter.com/widgets.js
‘Russian Hacker’ narrative in it’s death throes…
After serious doubt was cast on Crowdstrike, the firm which produced the evidence of Russian hacking, recent forensic analysis revealed the leaked emails could have only been accessed locally by someone like Seth Rich. Considering that the Russia investigation was constructed around the premise that Russia hacked the DNC servers, and sanctions against Russia – including the expulsion of Russian diplomats by president Obama – Seth Rich leaking to Russia would be a convenient way for the establishment to save face and keep pressure on president Trump.
One has to wonder – why would Seth Rich leak to Veselnitskaya instead of going straight to WikiLeaks? Rich was an incredibly patriotic American who loved Democracy and pandas. Why would he meet with a shadowy Russian lawyer who doesn’t speak English, to hand over a trove of DNC emails?
Is it possible that Burkman was fed disinformation by the DNC in order to maintain the Russian interference narrative? Was Seth Rich one of the hundreds of people unmasked by Obama admin?
I’m just going to leave this here…
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- Kim Jong Un: "The Entire US Territory Is Now Within Our ICBM Range"
Confirming a Friday report by David Wright, physicist and co-director of the UCS Global Security Program, that the newest North Korean ICBM – which on Friday night flew for 45 minutes, reaching an altitude of up to 3,725 kilometers and traveled just under 1,000 kilometers before landing in Japan waters – can strike half the major metro areas on the continental US, overnight North Korea’s leader Kim Jong-Un said that “we have demonstrated our ability to fire our intercontinental ballistic rocket at any time and place and that the entire U.S. territory is within our shooting range.”
Quoted by the Korean Central News Agency, he also expressed his “great satisfaction” with the ICBM test – the country’s second after an earlier test on July 4 – which reaffirmed that the missile was able to deliver a “large-sized, heavy nuclear warhead” to the United States. The test was part of the “final verification” of the Hwasong-14 missile’s technical capabilities, including its maximum range.
As a reminder, Wright’s calculations showed that the ICBM could have a range 10,400 km (6,500 miles), not taking into account the Earth’s rotation, which if added would increase the range of missiles fired eastward. And, calculating the range of the missile in the direction of some major US cities gives the approximate results in Table 1, which showed that Los Angeles, Denver, and Chicago appear to be well within range of this missile, and that Boston and New York may be just within range while Washington, D.C. is just out of range.
Melissa Hanham, a researcher at the James Martin Center for Nonproliferation Studies in California, confirmed the findings saying that the test showed North Korea is now capable of hitting U.S. cities such as Denver or Chicago.
Also on Saturday, Kim said the test was a “serious warning” to the US, which has been “meaninglessly blowing its trumpet” in threatening Pyongyang.
In response, U.S. Secretary of State Rex Tillerson said in a statement that “as the principal economic enablers of North Korea’s nuclear weapon and ballistic missile development program, China and Russia bear unique and special responsibility for this growing threat to regional and global stability.” He added that even as the US seeks a peaceful denuclearization of the Korean Peninsula, Tillerson said, “we will never accept a nuclear-armed North Korea nor abandon our commitment to our allies and partners in the region.”
In a late Friday statement from the White House, Trump rejected North Korea’s claims that its nuclear program is designed to prevent an attack by the U.S. or other, saying it had the “opposite effect.”
“By threatening the world, these weapons and tests further isolate North Korea, weaken its economy, and deprive its people,” Trump said.
China also responded to the launch, with Foreign Ministry spokesman Geng Shuang saying in a Saturday statement in the People’s Daily newspaper that Beijing also opposes North Korea’s launch and its violations of Security Council resolutions, while calling on all parties to show restraint.
As Reuters subsequently reproted, Marine General Joseph Dunford, chairman of the Joint Chiefs of Staff, discussed “military response options” in a phone call with his South Korean counterpart, his spokesman said in an emailed statement that didn’t elaborate. While Trump hasn’t ruled out a military response, Dunford warned in June that an armed conflict with North Korea would leave the millions of residents in Seoul, South Korea’s capital, to face casualties “unlike anything we’ve seen in 60 or 70 years.” This month he told a security conference in Colorado that “what’s unimaginable to me” is allowing the capability for “a nuclear weapon to land in Denver, Colorado.”
Shortly after the North Korean launch, the US and South Korean militaries responded with their own display of military strength, firing live surface-to-surface missiles from rocket launchers, amid renewed tension on the peninsula. Videos posted by the South Korean Ministry of Defense showed the US-made Tactical Missile System, known as ATACMS, as well as its own Hyunmoo Missile II.
The missiles hit the East Sea on Saturday morning, where North Korea’s ballistic missile is believed to have landed, as part of a live-fire exercise to demonstrate its “precision firing ability,” the US 8th Army said. US Forces in Korea said two missiles were fired from the ATACMS along with two Hyunmoo system missiles. The ATACMS is a Lockheed Martin surface-to-surface missile, with a range of 160km that can be fired from a range of rocket launchers.
The South Korean ministry said it was responding “to provocations of North Korean ballistic missiles.” “The systems can be rapidly employed to provide deep-strike precision capability, enabling the ROK-U.S. Alliance to engage a full array of time-critical targets under all weather conditions,” the 8th Army said on Facebook.
South Korea also said it would deploy four additional THAAD [Terminal High Altitude Area Defense] anti-missile launchers after North Korea’s test. The THAAD deployment had been delayed after South Korean President Moon Jae-in ordered an environmental assessment. Meanwhile, China on Saturday said it had grave concerns about the possibility of more Thaad launchers in South Korea. It called on the U.S. and South Korea to stop the deployment, saying the launchers hurt the strategic balance in the region.
- The Hedge Fund That Almost Broke The World
Before the financial crisis and the billions of dollars in corporate bailouts, and trillions more in central bank quantitative easing, the world of investing was simpler.
Back then, markets moved in two directions, traders trusted their models, and hedge funds stacked with PhDs and top executives from well-respected bond trading houses were expected to make money hand over fist. And for three glorious years in the mid-1990s, Long Term Capital Management did exactly that. But when the fund suddenly imploded in 1998, stung by economic crises in Russia and Asia that caused it to lose $4 billion in a bizarre six-week stretch…
… it almost brought the entire financial system down with it.
In a recent interview on Real Vision's Adventures in Finance podcast, former LTCM Founding Partner Victor Haghani, who was at the epicenter of the firm’s meteoric rise and catastrophic collapse, discusses the birth of the fund, its flawed investment strategy and the impact its collapse had on the broader financial landscape.
His story begins shortly after the 1991 Salomon Brothers scandal, when the Treasury banned the firm, then one of Wall Street’s most aggressive and well-respected bond-trading shops, from participating in Treasury bond auctions. After the firm's dramatic fall, prospective investors encouraged several senior executives who either left the firm, or were forced out, to consider starting a hedge fund.
“I was married in January 1993, and that’s when it was starting. I decided I definitely wanted to leave Solomon with John [Gutfreund] having left and some of my other mentors having left, it was time to smell the roses and take some time off. I didn’t need to make both decisions at the same time.
It was a period of great change at Salomon Brothers when John Gutfreund, Tom Strauss and John Meriwether had all taken leave from the firm because of the 1991 Treasury bond auction scandal, I forget what the rulings were but John Meriwether could’ve come back to Salomon. In this period of months when those three executives were kind of defending themselves over the Treasury bond scandal and trying to set the record straight, a number of investors came to John Meriwether who said ‘listen you should start a fund and do what you did at Salomon on the outside,’ and that sort of got things going.
And there were other people. Bob Merton and Myron Scholes also were interested in doing this project outside of Salomon Brothers. It’s hard to remember exactly how it all took shape but it took shape pretty quickly in 1993 and by January of 94 we were up and running and investing.”
With Meriwether at the helm, and not one but two Nobel Laureates, the firm sought to pioneer a computer-driven approach in which its models would identify arbitrage opportunities for the firm to capitalize on. Real Vision recalled the culture of risk taking at Salomon brothers, which was inculcated in the new firm as well. During one quarter when Salomon’ trading business lost a lot of money, Gutfreund, then CEO, explained that they staked the firm’s whole balance sheet on a European convergence trade that would eventually result in enormous profits.
Back to Haghani, the former LTCM partner describes how the successes of the firm’s early years helped instigate its collapse as the firm became emboldened to use an increasing amount of leverage.
“We were surprised by the high returns we were earning in our first three years and the reason was there was a lot of capital coming in to these trades. We were doing them and there were a lot of people coming to the beach to come swimming with us.
We never understood why they were so high, we just saw everything converging really quickly.”
Haghani's views on what caused the firm’s collapse have evolved since the financial crisis, explaining that employing leverage in a relative-value trading strategy that includes a universe of exotic and illiquid investments, just wasn't – and isn’t – smart for a small hedge fund.
“Post 2008, the view I have and that a lot of people share is what we were doing just wasn’t a good idea. It’s not a question of how we were doing it, it’s just a question of leverage. Relative value investing as a hedge fund isn’t a good idea.
That basic model isn’t a good idea because at some point things will move far enough that you will be forced to liquidate positions. You can’t really run this business with a tight stop loss approach. It’s not consistent with an expansive relative value frame work.
You could say well we could have tight stop losses, do relative value and limit ourselves to liquid investment but that wasn’t our model. Ours was a model where the only sort of stop loss was as we lost money, we would reduce positions. We would reduce risk in line with our capital.”
Thanks to the billions of dollars in leverage extended to LTCM by a coterie of banks, the Fed was forced to step in and demand that the firm’s lenders agree to a bailout.
“The world’s financial system ground to a halt as the fed had to cut rates just for this firm, and it was a hedge fund,” Haghani added.
To summarize, the lesson from LTCM was clear though, as the financial crisis nearly a decade later would demonstrate, none of the bankers, regulators or central bankers were paying attention. These guys, Haghani explains, were the smartest guys in the world. So nobody was checking their numbers. But of course, all traders inevitably get certain things wrong. And liquidity was what LTCM got wrong. Oh, and finally, LTCM got bailed out, setting the stage for the longest period of institutionalized moral hazard, in which nobody is allowed to fail any more, in the process destroying the risk/return calculus, but making a mockery of capitalism.
The Haghani interview begins roughly 20 minutes into the podcast below.
- Fox Airs Allegations That Awans Aided Wasserman-Schultz With Voice Altered Phone Calls
By Elizabeth Vos of Disobedient Media
Lt. Colonel Tony Schaffer alleged on Fox News that the Awan brothers may have aided Debbie Wasserman-Schultz in making bizarre, voice modulated phone calls to the offices of attorneys currently pursuing a litigating a class action lawsuit against Debbie Wasserman-Schultz and the DNC. If substantiated, the claims may have significance for the DNC fraud lawsuit proceedings, and add to the growing controversy surrounding the recent arrest of Imran Awan on bank fraud charges.
Jared Beck, and attorney litigating the DNC Fraud Lawsuit noted on Twitter:
Disobedient Media‘s previous coverage of the DNC fraud lawsuit discussed ominous phone calls received by the Becks’ offices. The individual called the Becks using a voice modulator with a caller ID corresponding to the Aventura offices of Debbie Wasserman Schultz. The Becks referral to the ominous phone calls to the D.C. Capital police is potentially extremely significant in terms of both the DNC fraud lawsuit and the degree to which Imran Awan may have engaged in potentially illegal activity while serving in his role as an IT staffer. This came after a string of concerning events surround the suit which eventually resulted in the Becks unsuccessfully seeking legal protection for themselves and others involved in the suit. The the former DNC chairwoman’s representatives denied the call had been made by Schultz or an associated party.
Lt. Colonel Tony Shaffer appeared on Fox New’s Tucker Carlson where he made allegations that Imran Awan had helped Schultz make the disturbing phone call to the Beck’s legal offices. Schaffer also discussed concerns regarding sensitive information that the Awans were privy to during their employment by the DNC. In discussing the Becks, Schaffer commented that Schultz had employed the brothers to do “hideous things behind the scenes… they helped her make voice change calls…” Schaffer added that the sensitive information the Awans had access to were stored in a third database, which he said is now being called a “breach.”
If it is confirmed that the Awans helped Schultz contact the law offices of the Becks, this could have significant implications for the DNC Fraud lawsuit. Unsolicited contact from Schultz to the Becks would be highly improper. Such phone calls were one in a string of apparently threatening conduct by Schultz and her associated. The former DNC chair was reported to have threatened the U.S. Capital chief of police with “consequences” in a heated exchange after he refused to surrender a laptop seized from Imran Awan.
Disobedient Media previously discussed concerns that the Awans may have leaked sensitive data related to their service for Schultz and the DNC. Schaffer alleged that a “foreign intelligence service” may have been the recipient of the leaked information, referring specifically to the Muslim Brotherhood, which he speculated was what had prompted FBI involvement in the case beyond the initial wire fraud charges.
- Japanese Are Going "Hog Wild" Buying $19,000 Doomsday Shelters
North Korea’s latest ICBM test demonstrated once again that all of Japan is within striking range of the Kim Jong Un’s missiles, as it has been for a long time.
But it appears the North’s intensifying campaign of missile tests, which have increased dramatically in frequency since the beginning of the year, has convinced many wealthy Japanese that a nuclear confrontation could be imminent.
At least that’s what a surge in sales at one US-based builder of custom bunkers seems to suggest. The company, Atlas Survival Shelters, says the escalating tensions between President Donald Trump and North Korea have sparked a boom in sales, but not in the markets one might expect, according to Bloomberg.
“Business has never been better at Atlas Survival Shelters, which ships bunkers to customers around the world from its U.S. factories. Among the best sellers: the BombNado, with a starting price of $18,999.
The popularity of the company’s doomsday fortifications is no surprise, considering the state of the world in general and, specifically, Kim Jong-Un’s pursuit of a missile that can hit the continental U.S. Curiously, though, the most furious surge of interest isn’t in America but Japan, a country that’s long been within North Korea’s striking distance.
“Japan’s going hog wild right now,” said Ron Hubbard, owner of Atlas Survival. The Montebello, California-based company makes about a dozen different underground refuge models intended to be inhabitable for six months to a year, some outfitted with escape tunnels, decontamination rooms and bulletproof hatches.
While the Japanese have viewed North Korea as a menace for decades, the rogue regime’s July 4 launch of an intercontinental ballistic missile raised the level of alarm among preppers, as some people serious about emergency preparedness call themselves. Japan has its own small bunker-making sector, but the U.S., unique in its abundance of survivalist networks, is ground zero for get-ready-for-Armageddon businesses.”
Atlas isn’t the only one: Emergency shelter sales have soared since the beginning of the summer. One company, Rising S Co. of Murchison, Texas, said sales of its steel-clad products have doubled in the past three weeks, with Japanese buyers accounting for 80 percent of this demand.
“The company website lays out the many options — a decontamination area, a fitness center, a swimming pool, a gun range, a game room with pool tables, a garage for your Porsche. The Aristocrat, big enough to sleep more than 50 and delivered with a bowling alley, is listed at $8.35 million.
North Korea is behind the fresh interest, [General Manager Gary] Lynch said. ‘It’s really not a new threat, it’s just something the media and people are paying attention to.’”
Given that recent improvements in North Korea’s missile capabilities have potentially put several coastal US cities within striking distance, it’s surprising that US citizens with the means to afford it aren’t scrambling to buy shelters.
One reason for the discrepancy highlighted by Bloomberg is the tone of government rhetoric surrounding North Korea. President Donald Trump has never publicly spoken about precautions that Americans should take in the event of a strike (though this could change once the reality sinks in that NK could very well land a ballistic missile in US territory. Meanwhile, Japanese Prime Minister Shinzo Abe’s government takes the possibility of a strike very seriously.
“The government of Shinzo Abe takes it all seriously, regularly updating its civil-protection website with tips (stay inside, keep away from windows) and airing public-interest ads on TV about what to do in event a ballistic missile is en route and the country’s early warning system successfully sounds the alert. Children are given instructions at school — basically, get under your desks.”
The announcements have bred what one resident describes as a “culture of fear.”
“’People are genuinely afraid,’ said Seiichiro Nishimoto, president of Shelter Co., an Osaka-based installer of air-conditioned nuclear shelters imported from Israel. ‘That’s why we’re getting so many calls.’”
In recent years, the market for emergency shelters has evolved to include an ultra-high-end segment that would allow buyers to comfortably ride out the apocalypse – or at least create the illusion that doing so would be possible.
Robert Vicino, founder and chief executive officer of Vivos, in Del Mar, California, described features of one of his company’s luxury shelters, which is equipped with nuclear-biological-chemical air-filtration systems, space to store enough food and toilet paper for a year, a diesel generator and an emergency exit shaft. It also has the ability to take a 500,000-pound blast without crumpling.
Vivos also sells individual and communal apocalypse “retreats” with amenities like movie theaters and “members only” restaurants and bars, which begs the question: where will they source their employees?
“Vivos (“alive” in Spanish) sells models for individual and communal use, and has built subterranean survival communities in the U.S. and Europe. The latest is xPoint, on 9,000 acres in South Dakota, with 575 off-grid dugouts and planned amenities including a community theater, hydr oponic gardens, shooting ranges and a members-only restaurant and bar. The upfront cost to lease one is $25,000. Vicino, the CEO, said about 50 have been leased or reserved so far.”
The end times is big business.
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