- The Intrigue At The Heart Of The Beijing-Riyadh-Washington Triangle
Authored by Valentin Katasonov via The Strategic Culture Foundation,
Saudi Aramco (the Saudi Arabian Oil Company) is the world’s largest petroleum business. It owns more than 100 oil and gas fields in Saudi Arabia with reserves of at least 264 billion barrels of oil, which is estimated to be approximately one-fourth of the world’s known reserves of this raw material. The company’s production figures do not give the full picture, as data exists only for a few years. But as an example, in 2013 Saudi Aramco produced 3.4 billion barrels of crude oil. Analysts calculate that every year the Saudi company extracts about twice as much oil and gas, in terms of barrels of oil equivalent, as the largest US company ExxonMobil. Interestingly, Saudi Aramco never appears in the rankings of the world’s largest oil producers, since it does not publish financial information such as profit, sales, assets, or market capitalization. Therefore America’s ExxonMobil and Chevron, China’s Sinopec and PetroChina, the Anglo-Dutch company Royal Dutch Shell, Great Britain’s BP, and France’s Total top the rankings. But everyone knows perfectly well that these leaders in the global oil industry are mere dwarfs compared to Saudi Aramco.
Saudi Aramco’s management set off a real bomb in early 2016 when they announced their plans to privatize part of the company through a stock market IPO. The proposal was to sell shares in Saudi Aramco equal to about 5% of the company. But an estimate of the company’s potential market price is needed in order to understand how much this would be in absolute terms. Almost the next day after the announcement of the potential sale of part of the company (in January 2016), the global media published a stunning evaluation by the independent oil analyst Mohammad Al Sabban, a former senior adviser to the Saudi Arabian oil ministry. He estimated the company’s worth at $10,000,000,000,000 (ten trillion USD). For comparison I should add that in 2016 the largest US oil company, ExxonMobil, barely exceeded $350 billion in share capital. And yes, It’s true that later on some of the hype in the assessments died down and more rational numbers were cited, most often $2 trillion. This meant that Saudi Arabia would be able to rake in approximately $100 billion from the sale of 5% of the company. But the company’s biggest trump card isn’t even the current record levels of oil production, but rather the reserves of hydrocarbon raw materials at Saudi Aramco’s disposal. And that’s a number that none of the companies named in the rankings of the global oil industry can even begin to approach.
At present, Riyadh adjusts and verifies the data on the hydrocarbon reserves in the fields owned by Saudi Aramco. Financial reports are painstakingly drafted in the needed formats for a public offering of shares. The company is being restructured to optimize the way it is organized and managed. And finally, a crucial step was taken to lower the taxes on the company’s profits. The traditional tax rate has been 90%, but this year it was set at 50%, which roughly corresponds to the level at which the leading Western oil companies are taxed. Lowering the tax rate raises dividends and makes the company a more attractive target for investment.
But beginning in early 2017, the estimates of Saudi Aramco’s market value have unexpectedly begun to decline. Appraisals began to surface that claimed the company’s share capital was only worth $1.5 trillion, then $1 trillion. The consulting firm Wood Mackenzie estimated Saudi Aramco’s worth at $400 billion overall, bringing it closer to US-based ExxonMobil. And suddenly Western consultants began talking about the need to “discount” the value of the Saudi company, since it is state-owned, and in the securities markets all government issues are by convention sold “at a discount.” They point out that although Saudi Aramco currently pays 50% of its profits in taxes, since the government owns the company anyway it could restore the 90% tax rate tomorrow with a simple stroke of the pen. There is also the fear that oil prices could be low for the next few years, and Saudi Aramco might not be able to generate big profits. But none of that can remotely explain why the valuations of the Saudi company have dropped so precipitously in the past year.
Analysts blame this on the pressure Washington is putting on Riyadh, for reasons that have as much to do with the currency market as the oil market. And the pressure coming from Washington is, in turn, a response to the pressure also being exerted on Riyadh by China, which wants to buy oil from Saudi Aramco in renminbi instead of dollars. China is currently the world’s biggest oil importer, knocking the US out of its former first-place position. China is also the Saudi oil industry’s biggest customer, and Beijing does not want to pay extra for that black gold using American currency. A number of oil exporters that sell to China have already partially or entirely transitioned to settling their accounts in renminbi. Topping that list are Nigeria and Iran. Russia has also recently begun to sell some oil to China for renminbi (although only small percentage as yet).
Saudi Arabia, however, is heavily dependent on the US and has thus far refused to settle its accounts in renminbi. And that rebuff is costing the country dearly: Beijing is gradually finding other suppliers to take Riyadh’s place. The Saudis used to be China’s biggest foreign supplier of oil, but recently Russia has squeezed them out for that number-one spot. If this continues, Saudi Aramco might lose its Chinese market altogether.
Riyadh now finds itself caught between a rock and a hard place. It’s hard to imagine what Saudi Arabia could be hit with from across the Atlantic, should it sell even one barrel of oil for Chinese currency. After all, that would be a direct challenge to the petrodollar, which was born right there in Saudi Arabia in the 1970s, midwifed by the negotiations between Henry Kissinger and King Faisal.
Washington has sternly warned Riyadh to refrain from any ill-considered move to replace the dollar with the renminbi in its transactions with China, lest other players in the oil market follow suit (oil might then be traded for rubles, rupees, rials, etc.) And tomorrow that epidemic of transitioning to national currencies could infect other commodity markets. Incidentally, this year Beijing will begin to trade oil futures priced in renminbi on its commodity exchanges and claims that this is only the first step.
Voices have already been heard within the US president’s entourage that suggest blocking the listing of Saudi Aramco shares on the New York Stock Exchange. Signs have emerged of an organized campaign to short-sell the Saudi oil company. In light of that development, Riyadh has announced that it will put off its share listing until a later date. But its problem isn’t going to go away – Saudi Arabia will still have to make a choice between the dollar and the renminbi.
Although Beijing is upping its pressure on Riyadh, it is also simultaneously offering to directly buy out 5% of Saudi Aramco, while allowing the Saudis to forgo the usual ritual of listing shares on Western stock markets. And China is prepared to shell out a “fair” price (about $100 billion). The Chinese government has already announced that it is forming a consortium of energy and finance companies, plus China’s sovereign wealth fund, in order to purchase a “chunk” of the Saudi company. The Chinese media reports that that consortium is ready to become a cornerstone investor in Saudi Aramco.
Beijing’s winning move in its chess game against Washington has neutralized the US threat to disrupt the sale of Saudi Aramco, while simultaneously pushing Riyadh toward a decision to transition Saudi oil sales to the renminbi.
And so the plot thickens inside the Beijing-Riyadh-Washington triangle of intrigue.
- Visualizing How Billionaire Investors Hedge Against Geopolitical Black Swans
Investors must always be comfortable with the idea that the market bears risk.
Sometimes this risk flies under the radar and isn’t as pronounced as it probably should be. However, as Visual Capitalists's Jeff Desjardins notes, in other cases, the topic of risk can catapult to the forefront of discussion. There can be specific events or signals unfolding that give investors the jitters – and during these times, investors will make adjustments to their portfolios to avoid getting caught off guard.
HOW BILLIONAIRES ARE HEDGING
In the following infographic from Sprott Physical Bullion Trusts, we explain the particular geopolitical risks that have the world’s most elite investors concerned today – and what moves they are making to protect themselves from black swans.
Courtesy of: Visual Capitalist
The world isn’t predictable at the best of times – but after unanticipated occurrences such as Brexit and the election of Trump in 2016, the geopolitical tea leaves are getting even more difficult to read.
The world is approaching a major inflection point and the intense amount of global angst we’re experiencing now stems from deep, structural forces that have been building over decades.
– Reva Goujon, VP Global Analysis of Stratfor
According to Reva Goujon, VP Global Analysis of Stratfor, we are experiencing the perfect storm of “-isms”: nationalism, nativism, protectionism, and isolationism.
As a result, the following potential geopolitical risks are at the top of the agenda for experts and top investors:
Domestic risks:
Unpredictability of the Trump administration, government inaction, a trade war with China, and NAFTA renegotiationsInternational risks:
Economic nationalism, further “exits” from the EU, Russia and China seeking to assert authority, terrorism, escalation of Middle East conflicts, and North Korea’s nuclear ambitionsELITE INVESTORS TAKING ACTION
With these risks perceived to be on the table, some of the world’s most elite investors like Ray Dalio and Warren Buffett are taking action. Here’s what they are up to:
Ray Dalio
Ray Dalio, the founder of the world’s largest hedge fund, Bridgewater Associates, had this to say:
When it comes to assessing political matters we are very humble.
-Ray Dalio, Aug 2017
Dalio’s advice: to stay liquid, stay diversified, and not be overly exposed to any particular economic outcomes. He also recommends a 5%-10% position in gold.
Warren Buffett
The Oracle of Omaha has a similar but very different perspective.
No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media.
– Warren Buffett, Feb 2017
With this in mind and with equities expensive, the seasoned value investor holds onto piles of cash to prepare for potential buying opportunities. Berkshire Hathaway now has $99.7 billion in undeployed cash, the most in the company’s history.
Bill Ackman
Billionaire hedge fund manager Bill Ackman took a position in “out of the money” call options on the VIX.
This will protect against stock market risk.
– Bill Ackman, Aug 2017
David Einhorn
The billionaire founder of Greenlight Capital says he is keeping gold as a top position.
The (Trump) administration comes with a high degree of uncertainty.
– David Einhorn, Feb 2017
Howard Marks
Lastly, the famous value investor Howard Marks warned his clients to move into lower-risk investments to protect against future losses.
The uncertainties are unusual in terms of number, scale and insolubility in areas including secular economic growth; the impact of central banks; interest rates and inflation; political dysfunction; geopolitical trouble spots; and the long-term impact of technology.
– Howard Marks, July 2017
- Sorting Out The Russia Mess
Authored by Robert Parry via ConsortiumNews.com,
The U.S. mainstream media finally has its 'smoking gun' on Russia-gate – incriminating information from a junior Trump campaign adviser – but a closer look reveals serious problems with the 'evidence'…
Tomb of the Unknown Soldier outside the Kremlin wall, Dec. 6, 2016. (Photo by Robert Parry)
Russia-gate special prosecutor Robert Mueller has turned up the heat on President Trump with the indictment of Trump’s former campaign manager for unrelated financial crimes and the disclosure of a guilty plea from a low-level foreign policy adviser for lying to the FBI.
While longtime Republican fixer Paul Manafort, who helped guide Trump’s campaign to the GOP nomination in summer 2016, was the big name in the news on Monday, the mainstream media focused more on court documents related to George Papadopoulos, a 30-year-old campaign aide who claims to have heard about Russia possessing Hillary Clinton’s emails before they became public on the Internet, mostly via WikiLeaks.
While that would seem to bolster the Russia-gate narrative – that Russian intelligence “hacked” Democratic emails and President Vladimir Putin ordered the emails be made public to undermine Clinton’s campaign – the evidentiary thread that runs through Papadopoulos’s account remains tenuous.
That’s in part because his credibility has already been undermined by his guilty plea for lying to the FBI and by the fact that he now has a motive to provide something the prosecutors might want in exchange for leniency. Plus, there is the hearsay and contested quality of Papadopoulos’s supposed information, some of which already has turned out to be false.
According to the court documents, Papadopoulos got to know a professor of international relations who claimed to have “substantial connections with Russian government officials,” with the professor identified in press reports as Joseph Mifsud, a little-known academic associated with the University of Stirling in Scotland.
The first contact supposedly occurred in mid-March 2016 in Italy, with a second meeting in London on March 24 when the professor purportedly introduced Papadopoulos to a Russian woman whom the young campaign aide believed to be Putin’s niece, an assertion that Mueller’s investigators determined wasn’t true.
Trump, who then was under pressure for not having a foreign policy team, included Papadopoulos as part of a list drawn up to fill that gap, and Papadopoulos participated in a campaign meeting on March 31 in Washington at which he suggested a meeting between Trump and Putin, a prospect that other senior aides reportedly slapped down.
The ‘Email’ Breakfast
But Papadopoulos continued his outreach to Russia, according to the court documents, which depict the most explosive meeting as an April 26 breakfast in London with the professor (Mifsud) supposedly saying he had been in Moscow and “learned that the Russians had obtained ‘dirt’ on then-candidate Clinton” and possessed “thousands of emails.” Mainstream press accounts concluded that Mifsud must have been referring to the later-released emails.
Former Trump foreign policy adviser George Papadopoulos.
However, Mifsud told The Washington Post in an email last August that he had “absolutely no contact with the Russian government” and described his ties to Russia as strictly in academic fields.
In an interview with the U.K. Daily Telegraph after Monday’s disclosures, Mifsud acknowledged meeting with Papadopoulos but disputed the contents of the conversations as cited in the court papers. Specifically, he denied knowing anything about emails containing “dirt” on Clinton and called the claim that he introduced Papadopoulos to a “female Russian national” as a “laughingstock.”
According to the Telegraph interview, Mifsud said he tried to put Papadopoulos in touch with experts on the European Union and introduced him to the director of a Russian think tank, the Russian International Affairs Council.
It was the latter contact that the court papers presumably referred to in saying that on May 4, the Russian contact with ties to the foreign ministry wrote to Papadopoulos and Mifsud, reporting that ministry officials were “open for cooperation,” a message that Papadopoulos forwarded to a senior campaign official, asking whether the contacts were “something we want to move forward with.”
However, even an article in The New York Times, which has aggressively pushed the Russia-gate “scandal” from the beginning, noted the evidentiary holes that followed from that point.
The Times’ Scott Shane wrote: “A crucial detail is still missing: Whether and when Mr. Papadopoulos told senior Trump campaign officials about Russia’s possession of hacked emails. And it appears that the young aide’s quest for a deeper connection with Russian officials, while he aggressively pursued it, led nowhere.”
Shane added, “the court documents describe in detail how Mr. Papadopoulos continued to report to senior campaign officials on his efforts to arrange meetings with Russian officials, … the documents do not say explicitly whether, and to whom, he passed on his most explosive discovery – that the Russians had what they considered compromising emails on Mr. Trump’s opponent.
“J.D. Gordon, a former Pentagon official who worked for the Trump campaign as a national security adviser and helped arrange the March 31 foreign policy meeting, said he had known nothing about Mr. Papadopoulos’ discovery that Russia had obtained Democratic emails or of his prolonged pursuit of meetings with Russians.”
Reasons to Doubt
If prosecutor Mueller had direct evidence that Papadopoulos had informed the Trump campaign about the Clinton emails, you would assume that the proof would have been included in Monday’s disclosures. Further, since Papadopoulos was flooding the campaign with news about his Russian outreach, you might have expected that he would say something about how helpful the Russians had been in publicizing the Democratic emails.
Hillary Clinton at the Code 2017 conference on May 31, 2017.
The absence of supporting evidence that Papadopoulos conveyed his hot news on the emails to campaign officials and Mifsud’s insistence that he knew nothing about the emails would normally raise serious questions about Papadopoulos’s credibility on this most crucial point.
At least for now, those gaps represent major holes in the storyline. But Official Washington has been so desperate for “proof” about the alleged Russian “election meddling” for so long, that professional skepticism has been unwelcome in most media outlets.
There is also another side of the story that rarely gets mentioned in the U.S. mainstream media: that WikiLeaks founder Julian Assange has repeatedly denied that he received the two batches of purloined Democratic emails – one about the Democratic National Committee and one about Clinton’s campaign chairman John Podesta – from the Russians. While it is surely possible that the Russians might have used cutouts to pass on the emails, Assange and associates have suggested that at least the DNC emails came from a disgruntled insider.
Also, former U.S. intelligence experts have questioned whether at least one batch of disclosed emails could have come from an overseas “hack” because the rapid download speed is more typical of copying files locally onto a memory stick or thumb drive.
What I was told by an intelligence source several months ago was that Russian intelligence did engage in hacking efforts to uncover sensitive information, much as U.S. and other nations’ intelligence services do, and that Democratic targets were included in the Russian effort.
But the source said the more perplexing question was whether the Kremlin then ordered release of the data, something that Russian intelligence is usually loath to do and something that in this case would have risked retaliation from the expected winner of the 2016 election, Hillary Clinton.
But such questions and doubts are clearly not welcome in the U.S. mainstream media, most of which has embraced Mueller’s acceptance of Papadopoulos’s story as the long-awaited “smoking gun” of Russia-gate.
- Anbang? Evergrande? Or Does HNA's Bond Sale Mark The Beginning Of China's Minsky Moment?
We know… there are several candidates to choose from. For example…
It might be Anbang – the acquisitive insurance behemoth – see “Anbang Just Became A ‘Systemic Risk’: Revenues Crash As Its Chairman Is “Detained”
It might be China Evergrande – the developer of “ghost” properties and described by J Capital’s, Anne Stevenson-Yang as “the biggest pyramid scheme the world has yet seen” – see “Stevenson-Yang Warns ‘China Is About To Hit A Wall”.
Or…it might be HNA. The highly-leveraged Chinese conglomerate, which has been on an overseas acquisition binge, is paying more for a 363-day dollar loan than serial defaulter, Argentina, paid on a 100-year loan earlier this year.
HNA has $28bn of short-term debt coming due before the end of June 2018, most of which has been accumulated during the last two years. As Bloomberg reports, HNA Group Co., which once symbolized China’s insatiable appetite for overseas assets, is offering to sell the country’s most expensive short-term dollar bond ever as it tries to refinance a wall of maturing debt amid government scrutiny. The company is marketing a 363-day bond at nine percent which is expected to price Thursday to refinance offshore debt, according to a person familiar with the offering, who isn’t authorized to speak publicly and asked not to be identified. The previous record was Herun Holdings Ltd.’s eight percent notes sold in September…
See the interview on the HNA bond offering with Bloomberg’s Lianting Tu.
Like Anbang, HNA has over-extended itself buying overseas assets as Bloomberg explains…
The sale is the latest indication that HNA’s $40-billion-plus acquisition spree since last year, where it became the largest shareholder in companies such as Deutsche Bank AG and Hilton Worldwide Holdings Inc., is catching up to the company as it accumulated about $28 billion in short-term debt. HNA’s interest expenses doubled in the first half, when it paid more than any other non-financial company outside of the U.S. and Brazil, according to data compiled by Bloomberg.
"Nine percent is really high for one year," said Warut Promboon, managing partner at credit research firm Bondcritic. "Basically, it tells you that the worry is real."
As we discussed in our July piece "It Feels Like An Avalanche": China's Crackdown On Conglomerates Has Sent A "Shock Wave" Across Markets”, HNA is suffering from the backlash of an insanely out-of-control acquisition strategy and a crackdown by the Chinese Government’s on outbound investment (A.K.A. DOLLAR FUNDING SHORTAGE) and corruption. Beginning with Anbang, the authorities have targeted each of the “famous four” Chinese conglomerates, the other three being HNA, Dalian Wanda Group and Fosun International.
By issuing offshore (dollar) bonds with less than a year to maturity, HNA has found a way to circumvent the government’s restrictions on outbound investment – although this is probably not what officials had in mind. Bloomberg explains…
Bonds due in a year or less, which do not need government approvals, started to appear earlier this year after the National Development and Reform Commission started withholding approvals for offshore debt for some sectors.
A representative of HNA couldn’t immediately comment. HNA was among conglomerates that spearheaded the record $246 billion in outbound acquisitions announced by Chinese companies last year, according to data compiled by Bloomberg. Then the government began restricting capital outflows to protect the yuan from depreciating further.
Delving into HNA’s metrics, Bloomberg finds that HNA’s interest costs exceed EBIT at the group level, while its subsidiaries rush to refinance existing debt.
Now, costs are piling up. HNA’s interest expenses more than doubled to a record 15.6 billion yuan as of the end of June, exceeding the company’s earnings before interest and taxes. Its short-term debt ballooned to 185.2 billion yuan, exceeding its cash-pile. The bond offering comes days after HNA’s flagship carrier, Hainan Airlines Holding Co., sold a $300 million 364-day dollar note at a yield of 6.35 percent, higher than the 5.5 percent it offered for a short-term note in June. The carrier has applied for an offshore bond issuance quota from the NDRC, according to people familiar with the matter last Thursday. A unit of HNA is also seeking a loan of about HK$6.4 billion ($820 million) to help refinance borrowings related to a land purchase in the former Kai Tak airport area in Hong Kong.
In “Hainan’s Bottomless Credit” from 20 April 2016, Bloomberg expressed disquiet about HNA’s financial position – and its borrowing costs have risen as the current bond issue clearly shows. As Bloomberg lamented…
None of this necessarily matters as long as HNA has the earnings and liquidity to meet its debt payments promptly, and the operating performance to deliver rising profits. Things don't look too hot on that front, though.
Take a look at HNA's quick ratio and interest cover, which gauge its ability to meet short-term liabilities and pay its interest out of income. Both are around or below their respective safety levels of 1 and 1.5 times. Return on assets hasn't cracked above 1 percent throughout the period, suggesting the group would have been better off sticking its money in the bank. HNA's performance metrics leave a lot to be desired…
In another piece, “A Reverse Rollup From Hell’: China's ‘Boldest Dealmaker’ Faces Margin Call Disintegration” this July, we questioned whether HNA’s practice of pledging its own shares and those of its investments would eventually lead to a catastrophic margin call. From our post.
…while most Chinese companies pledged "only" their own shares to get loans, a handful of companies also used shares of the acquired companies as pledged collateral. This is precisely what HNA Group did, which now faces not only growing regulatory scrutiny from Beijing that threatens to spook bond investors and raise HNA’s financing costs, but also send its shares plunging as holders are forced to liquidate even as most of the shares pledged to fund its buying spree are already declining, accelerating its demise. And, in a scenario that can only be dubbed as a "reverse rollup from hell" – on steroids and margin – one that would make even Valeant blush and snicker, if the value of its collateral, i.e. stock price, falls enough, HNA will soon be forced to sell its holdings to repay debt, thereby resulting in the disintegration of the company.
HNA is a private company and, although a breakdown of its share pledges is not available, Bloomberg compiled a detailed look at its exposure (see below) and concluded…
HNA and its units have pledged at least $24 billion of shares across 15 publicly traded firms, including the Hilton and Deutsche Bank stakes, filings show. HNA-related entities also have pledged billions more of unlisted assets that include shares of holding companies, land-use rights, planes, a golf resort and $289,000 of corporate vehicles. Shareholders pledged a 17 percent stake in the group’s closely held parent, according to government filings obtained by Bloomberg that document the pledges.
We have two questions:
- Does paying a 9% yield on a 1-year note signal that HNA is getting close to the catastrophic margin call we alluded to 3-4 months ago?
- If so, is this what PBoC Governor, Zhou Xiaochuan, was concerned about when he said at the recent Party Congress “If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky Moment”?
- How The DPRK Riddle Is Freaking Out The US Establishment
Authored by Pepe Escobar via The Saker blog,
The 19th Party Congress has made it very clear that “socialism with Chinese characteristics” – as codified by President Xi Jinping – is China’s road map ahead. Not only does the strategy graphically eschew those much-lauded “Western values”; it will, in Xi’s own words, offer “a new option for other countries and nations who want to speed up their development while preserving their independence.”
Xinhua even dared to venture, “the 21st century is likely to see capitalism lose its appeal while the socialist movement, led by China, rapidly catches up”.
To say this won’t go down very well in the West, especially in the US, may be the understatement of the century – even considering that the Chinese system is more like “neoliberalism with Chinese characteristics.”
It’s enlightening to crisscross what happened in Beijing with what was happening in Washington on the eve of President Trump’s trip to Asia, when he will visit China but also Japan, South Korea, Vietnam and the Philippines. Discussion of virtually all the key issues in Asia-Pacific will be on the table.
Asia-Pacific is where the real action is – geopolitically and geoeconomically. And once again, the number one issue in the intractability stakes will be the DPRK.
At a recent meeting with top US military and intelligence chiefs Trump, referring to the DPRK, asked to be provided “with a broad range of military options, when needed, at a much faster pace.”
For his part, Pentagon head Mattis has emphasized that “the US army must stand ready.” He has been extolling his targeted military audience to read T.R. Fehrenbach’s This Kind of War – a history of the 1950-1953 Korean War, and even extracting a chilling quote from it; “You may fly over a nation forever, you may bomb it, atomize it, pulverize it and wipe it clean of life. But if you desire to defend it… you must do this on the ground the way the Roman legions did: by putting your young men in the mud.”
Yet the real story regarding the Trump meeting is what was taking place behind the scenes involving key business/economic decision makers – call them some of the Masters of the Universe – as revealed to me by a high-level intel source privy to these meetings.
The conclusions of the debate were then presented directly to Trump, ahead of his visit to Asia.
The Sudetenland revival
The source stressed how principals in these meetings were familiar with “key strategists above Mattis who were responsible for most of the major US defense programs in place.”
They know, for instance, how “we are four generations behind in defensive missiles which seals the Russian airspace” – even though any expert in US Think Tankland persists in total denial.
The number one concern is about “the present satellite and missile capacity of North Korea to detonate nuclear bombs over the US knocking out the entire electronic infrastructure through an electromagnetic impulse (EMP) attack liquidating 90% of the American population within a year. This concurs with public statements by Putin that tiny countries in the future can obtain the capacity to destroy superpowers.”
Putin’s comment should be interpreted as this possible DPRK threat being capable of affecting a very advanced nation much more than those in the Global South; a completely different dimension compared to the former MAD concept of mutually assured (nuclear) destruction.
In his own presentation to Trump, Mattis emphasized the EMP “as a potential horror beyond imagination. Within 24 hours Walmart shelves would have nothing on them. Food distribution would grind to a halt. Food riots all over the US would take place. 80% of the population would perish according to Mattis.”
The debate then moved to whether the DPRK already possesses submarine-launched ballistic missiles (SLBMs). According to Heritage’s Bruce Klingner, the DPRK has twenty Romeo class submarines capable of carrying SBLMs (their range is 9,000 miles; the distance from Pyongyang to New York City is 6,783 miles). True, they are old, built in the 1950s. The question is open on how far advanced the DPRK is in miniaturization.
The debate considered the possibility the EMP threat was “a leak from Mattis to justify war tension, or it so should be interpreted by China and Russia. Mattis said the US would lose 80% of their population based on Pentagon studies, though they did not go that far. Mattis has no strategic sense at all and should be no more than a minor Marine functionary as his ability is very limited.”
Regardless of Mattis’s judgement, the principals agreed that the highest concern is the miniaturization of a hydrogen bomb set off via satellite as an EMP attack – even though that would not be very high above the earth and could, in theory, be knocked out by US ground missiles.
What was interesting is that this possible DPRK threat invoked the specter of the Sudetenland.
“The Sudetenland analogy was one of the principals’ way of expressing that WWIII has already started”, according to the source.
“My interpretation was that he was referring to actions of North Korea, and actions in Syria and Ukraine. Those were his words, not mine. You could say Russia occupied Crimea or exerts its influence over Donbass. Or has displaced the US in Iraq and Syria. The main point is that Russia and China are starting to roll back US influence. So the North Korea threat is also part of Sudetenland.”
What’s clear is that the DPRK drama is further straining US alliances, and not only in Northwest Asia.
According to the source, “a lot of this has to do with a wide perception that US weaponry does not measure up to the Russians and Chinese. And that US interests such as stopping North Korea from reaching the US overrides US considerations of its allies. These alliance structures are falling apart out of sight of the public.”
In a nutshell, this behind the scenes debate does show how alarmed is the US establishment. It’s unclear what Trump will make of its conclusions as he gets ready to hit the Asia trail.
Wang Yang to the rescue?
The ultimate question for the US establishment is how to find some sort of balance in breaking up the Eurasian landmass from the long-term China-Russia strategic partnership embrace. Tactics include mixing a push to resurrect Pilsudski’s http://hungarianspectrum.org/2017/06/29/the-three-seas-initiative-and-donald-trump/
Intermarium Plan against Russia with countering China by seeking to ally India, Taiwan, Japan and South Korea. This is by now classic Cold War 2.0 – but this time around with China and Russia massively stronger than the alliances attempted against them, and on top of it constituted as a Eurasian peer-competitor strategic partnership.
Progressive alienation, simultaneously, of China, Russia and Germany (for instance, via US Congress sanctions on German companies over Nord Stream Two), is not only a de facto act of strategic insanity.; this will end up forcing the trio into a solid, long-term realignment in which Washington will be completely alienated from the entire Eurasian landmass to the benefit of the Belt and Road Initiative (BRI) and its spin-offs.
In their upcoming meeting in Beijing, a plausible scenario is Xi suggesting Trump the possibility of a deal with Kim Jong-un – eventually leading to de facto ending of the Korean War (instead of the current armistice). The process would include multilateral security guarantees (by the US, and endorsed/supervised by Russia and China) and a US no-sanction commitment towards some sort of economic opening if the DPRK freezes for good the testing of nuclear weapons and ICBMs. Xi would be a sort of guarantor of the DPRK. The question is whether Pyongyang would accept it.
In realpolitik terms there’s not much the Trump administration can do about the DPRK, except work through Beijing and Moscow to defuse the crisis. Some action is underway via the so-called “New York channel”, with Joseph Yun, US negotiator for North Korea, talking to diplomats at the DPRK mission to the UN. A potential, unilateral US attack on the DPRK could trigger the very World War destruction it’s supposed to halt, as China has made it quite clear.
So all eyes, once again, are on China. Apart from Xi, the man to watch with the emergence of the new 7-member Politburo Standing Committee is Wang Yang – the number four in the hierarchy who now becomes executive vice-premier.
Wang is the former party chief in both Chongqing and Guangdong, and previously vice-premier in charge of agriculture and foreign trade. He’s the top Chinese official dealing with Washington on economy and trade – and may now have his work cut out for him; to convince Team Trump, via Chinese diplomacy, that to do business with the DPRK is actually a good deal.
That certainly beats the specter of an EMP inferno.
- Don't Mention Madoff: JP Morgan Whistleblower Not Fired For Whistleblowing (Allegedly) In Third Trial
Here we go again, the third trial, following two appeals, in which former JP Morgan Wealth Manager, Jessica Sharkey, claims she was unfairly dismissed after whistleblowing on one of the bank’s clients shortly after the Bernie Madoff scandal came to light.
The client in question, an Israeli with involvement in the diamond cutting and pre-paid calling card businesses, was a “big fish”, was generating about $600,000 of revenue annually for the bank.
Sharkey had alleged that the client’s multiple bank accounts and failure to provide sufficient information to satisfy “Know Your Customer” requirements led her to conclude that the bank’s relationship with the client should be terminated.
It was clear from recent filings that Sharkey wanted to highlight the contemporaneous nature of her dismissal and Madoff’s arrest. However, Judge Cote said "There will be no discussion of Bernie Madoff at this trial," in a pretrial hearing. Cote argued it could unfairly prejudice jurors against the bank. JPMorgan Chase paid over $2.5 billion to settle claims for failing to adequately oversee accounts used by Madoff in his Ponzi scheme. Madoff is currently serving a 150-year sentence.
Sharkey testified (again) earlier in the week that she was fired in 2009 for whistleblowing on a bank client (“Client A”), who she suspected of fraud and money laundering. According to Bloomberg, JP Morgan and its defendants claimed in court that the Client A issue was irrelevant and Sharkey was primarily fired for lying about another client (“Client H”).
…her former boss testified.
"In the end, it was the fact she lied to me," Leslie Lassiter told jurors in Manhattan federal court Wednesday. "It’s hard to have somebody working for you who you can’t trust. That’s pretty fundamental in a bank."
Lassiter, a key witness for JPMorgan Chase in its defense of Sharkey’s whistle-blower suit, said she was fired for lying when questioned about contacts with the representative of a different wealthy customer. The client’s office manager called to complain that Sharkey hadn’t returned her calls and to ask if the wealth manager was just "a phantom," according to Lassiter, who is one of three JPMorgan employees named as defendants in Sharkey’s suit, alongside the bank. Lassiter said she assigned the client, referred to in the trial only as "Client H," to Sharkey, who’d been promoted from private banker to private wealth manager in 2008. Client H had about $25 million managed by the bank, she said.
Lassiter claims that Sharkey lied numerous times and performed some parts of her job poorly, in spite of adding 50 new clients and more than $100 million of assets to JP Morgan’s Wealth Management business. From Bloomberg..
Lassiter told jurors she asked Sharkey at least a half dozen times whether she’d been in contact with Client H or his office, and that Sharkey gave her reassurances.
"‘Don’t worry, I’m on it. Taken care of,’" Sharkey said, according to Lassiter. Lassiter said she then got a call from Client H’s office manager, known in the trial as "Manager T," who said she couldn’t get her calls returned by Sharkey. Manager T questioned whether Sharkey was a phantom and asked if she needed to pull her boss’s money out of JPMorgan Chase to get her attention, Lassiter testified.
Lassiter then discussed Manager T’s call with Sharkey, in a meeting on July 21, 2009. Sharkey admitted she’d never contacted Manager T, according to Lassiter. Lassiter also faulted Sharkey for a "casual attitude" toward her work and her inability to wrap up required "Know Your Customer" processes on client accounts. Sharkey was fired Aug. 5. Under questioning by Sharkey’s lawyer, Lassiter testified that Sharkey had been promoted to private wealth manager about a year before she was fired. Sharkey was responsible for bringing more than 50 new client relationships totalling more than $100 million in assets.
On Tuesday, Bloomberg provided more details on Sharkey’s testimony…
Sharkey claims JPMorgan Chase violated whistle-blower protections in the 2002 Sarbanes-Oxley Act and is seeking back pay, compensation for her emotional distress and reinstatement to her job.
Sharkey told the jury of five women and three men on Tuesday that she was let go after telling superiors she planned to send out letters terminating the bank’s relationship with Client A, who had about $14 million under management.
"I was fired the next day," Sharkey said. Michael Schissel, a lawyer for the bank, sought to undercut Sharkey’s testimony that she suspected Client A of breaking the law. "You never put in writing that you believed Client A was engaged in illegal activities, true?" Schissel asked. "True," Sharkey said.
The report noted that there was another, albeit unrelated, lawsuit in March this year by whistleblower fired by JP Morgan…
In an unrelated case, a former JPMorgan private client adviser claimed in a March lawsuit that he was fired for blowing the whistle on potential Dodd-Frank Act violations to upper management.
Bradley Sayre said he was told to toss out notes in his files and destroy fraudulent sales materials while the bank was negotiating a settlement with the Justice Department over fraudulent sales of collateral backed securities. The bank has sought a dismissal of the case, saying Sayre is pursuing the same claims in arbitration.
While this murky case continues, we can’t say that we are confident that Jennifer Sharkey will prevail. However, at least she hasn’t fallen from any tall buildings.
- All Of Iraq About To Be Liberated As ISIS Enters The Dustbin Of History
Iraqi forces continue to advance on al-Qaem, the last "Islamic State" (ISIS) stronghold in Iraq, which will put the last stone over the terrorist group’s grave and on the so-called “Islamic State Caliphate” that so much occupied the world’s headlines over the last few years and indeed, large parts of Iraqi and Syrian territories.
ISIS is aware that al-Qaem will fall very soon – the city won’t be able to hold for very long. Therefore, many of the group's leaders and militants have fled to the numerous refugee camps which have emerged in the last years – according to intelligence reports – in the Iraqi Anbar desert and the Syrian al-Badiya where ISIS can hide along the tens of thousands of kilometers of sprawling Syrian-Iraqi border areas among refugees.
ISIS is expected to lick its wounds to try and re-organize its group following the defeat inflicted upon it as indicated by its shrinking territory (which it has occupied since 2014), as well as its shrinking numbers. Many foreign fighters were either killed or mostly left the group, which has remained largely incapable of recruiting new forces. Moreover, ISIS resources have dried up: no more oil and gas fields under its control, no more taxes to be imposed, no more arts and crafts to steal and sell, and no more “donations” from the Arab world.
Image source: SouthFrontFurthermore, the terror group has lost its very powerful, efficient, and unique propaganda tools and machine as after the liberation of Mosul and most of Iraq, the liberation of Palmyra, Raqqah, Deir-ezzour, most of al-Badiya, the Syrian Army liberated the city of al-Mayadeen, where ISIS kept its media base. Forces in al-Mayadeen seized a huge stock of ISIS propaganda tools and apparatus, reducing the group’s capability to produce online and offline propaganda.
Nevertheless, it must be borne in mind that terrorism can never be totally defeated and it is obvious that cells remain active and will always find societies to host it or cover its back. Therefore, ISIS terrorist attacks in Mesopotamia, the Levant, West Africa, Asia and other parts of the world are expected to take place from time to time. This certainly doesn’t mean ISIS is returning or will become strong again, but on the contrary, it will be the group’s way of saying: “You think I am dead, but can still cause harm.”
Today, the basis of any such “Islamic state” has been destroyed. ISIS has lost the two key cities that formed 'Islamic States' in ancient Islam (in Iraq and Syria), which leaves ISIS in a position of non-return to the era of 2014 when it occupied most of northern Iraq and a big part of Syria. In fact, ISIS has been pushed today into the dustbin of history.
Many speculations continue to surface about the “challenge Iraq will face to avoid the return of ISIS to the 2014 era.” These speculations and analyses are based on pessimism and a lack of contact among "experts" with the ground and its dynamics as they pontificate while sitting comfortably thousands of miles away from Iraq and Syria. Today ISIS is the enemy of Shias, Sunni, Christians, Yazidi, Kurds and everybody else. Iraqis have experienced ISIS’ way of ruling and won’t allow it to return to occupy territory.
Concerning reconstruction, yes, this is a real challenge facing every country at war. The whole of Europe (including Germany) suffered for decades from the German occupation and the destruction caused by two World Wars. Lebanon’s economy and infrastructure has still not recovered since the 1975 civil war. Syria, Yemen and Iraq will all suffer the financial burden caused by the devastation of war. All this is not new because war leaves behind destruction of the infrastructure and of homes, and leaves thousands of wounded in continuous need of expensive care, even if the world unites to support reconstruction.
As for the political outcome in Iraq, the country proved to be outside the Iranian and American sphere of control. Iraq (Baghdad to Erbil) benefited from Iranian military support in 2014 when the US watched and waited for over six months while ISIS was swallowing city after city. But later on, when the US decided to intervene, Iraq benefited from American intelligence information, training and air support to defeat ISIS. Iraq also benefited from good relations with its neighbors like Turkey, Kuwait and Saudi Arabia regardless of the level of animosity between some of these countries and Iran. Baghdad made it clear that its line of policy doesn’t go against anyone and would like to stay out of regional and international disputes. Iraq is further aiming to distance itself from the Middle Eastern rivalries because its national interest comes before all other regional or international interests. Doubtless Iraq can play a role of mediation between the countries of the Middle East, but it will do so only if asked.
Al-Qaem is the last major Daesh stronghold in Iraq. Image source: @IraqiGovtIn fact, the head of the Iranian Revolutionary Guard Corps (IRGC) and envoy of the Gran Ayatollah Ali Kaminei, General Qassem Soleimani, offers his country’s support for the unity of Iraq and the defeat of ISIS. Like the US Special Presidential Envoy for Global Coalition to defeat ISIS, Brett McGurk, both have the same objectives and cannot expect that Iraq will adopt their respective policies in the Middle East nor adapt their animosity. Moreover, Baghdad is establishing good relationships with Damascus and is cooperating with the Syrian Army to defeat terrorism which hits both countries, despite the US stand against Syrian President Bashar al-Assad. Also, the Iraqi Prime Minister Haidar Abadi recently traveled to both Riyad and Turkey to promote reconstruction and investment in his country regardless of well-known Saudi and Turkish support of ISIS (known as al-Qaeda in Iraq up to and including 2014).
Therefore, Iraq won’t be a platform for Iran nor the US to fight their wars on its territory despite the presence of over 5200 US military personnel and the presence of Iraqi groups and organizations close to Iran. These Iraqi groups are today assisting the Popular Mobilisation Forces (PMF) in their war on terror. Some will remain within the PMF and others will detach themselves by the end of this war. These are ideologically linked to Iran’s religious leadership – as are many Shia in the Islamic World – but are Iraqis who won’t act against their country’s interest because they are part of Iraqi society. Actually, as there are many Iraqi Kurds faithful to the US in Kurdistan Iraq, there are also Iraqi Sunni faithful to Saudi Arabia. Since Mesopotamia is walking towards democracy, the presence of cultural, religious and political diversity and alliances is only natural.
There will be no tolerance from Baghdad leadership – after the defeat of ISIS – towards any religious or political group willing to keep its weapon or armed groups outside the military and security institutions. The PMF is like the Counter Terrorism Forces, the Federal Police and the Army, all under the command of the Iraqi Prime Minister who is also the supreme head of the armed forces. Since the war on ISIS, and the creation of the PMU in 2014, it has never fulfilled non-Iraqi agendas regardless of its raised banners in the battlefield.
In Iraq, there is a new reality everybody should understand: no hostile propaganda can affect the security forces or the political leadership. Mesopotamia will declare a national independence day the moment ISIS occupation of every city is ended. With the end of ISIS, all foreign influence, regional or international, will cease. Iraq is planning to keep many friends and allies and build bridges for a new Iraq.
- Payrolls Preview: Here Comes The Post-Hurricane Surge
Submitted by RanSquawk
The BLS will release the October Employment Report at 08:30am ET on Friday, November 3. The Street is looking for a veritable surge in hiring following the hurricane-related disruption last month sent monthly payrolls to the first negative print in 7 years. Analysts also expect wage growth to continue rising: Median forecasts looks for 310k nonfarm payroll jobs, with average hourly earnings rising rise to 2.7% Y/Y
Key forecasts:
- Non-farm Payrolls: 310k (120k to 420k, Prev. -33k)
- Unemployment Rate: 4.2% (4.1% to 4.4%, Prev. 4.2%)
- Average Earnings Y/Y: 2.7% (2.5% to 3.1% , Prev. 2.9%)
- Average Earnings M/M: 0.2% (-0.1% to 0.8% , Prev. 0.5%)
- Average Work Week Hours: 34.4hrs (33.4 to 34.6hrs, Prev. 34.4hrs)
- Private Payrolls: 303k (155k to 405k, Prev. -40k)
- Manufacturing Payrolls: 15k (5k to 34k, Prev. -1k)
- Government Payrolls: No forecasts (Prev. 7k)
- U6 Unemployment Rate: No forecasts (Prev. 8.3%)
- Labour Force Participation: No forecasts (Prev. 63.1%)
TRENDS:
Headline nonfarm payrolls have averaged 148k in the first nine-months of 2017, lower than the 200k average in the first nine-months of 2016, and below the 187k 2016 average. The trend rate has been hit, in recent months, due to disruptions caused by hurricanes Harvey, Irma and Maria. The three-month rolling averages has now slipped to 91k on the back of last month’s 33k decline in payroll growth.
POTENTIAL REVISIONS TO SEPTEMBER DATA:
While the consensus view expects the October data to show a bounce back, Societe Generale warns “historical experience after Hurricane Katrina showed that hard-hit industries struggled to spring back in the following month, and that phenomenon may have repeated this October,” adding that “given the extent of the damage and flooding from Irma and Harvey, there may have been some lingering weather effects that hindered job growth.”
Analysts will be keeping an eye on September’s data following the shock decline of 33k payrolls (consensus looked for 80k payrolls to be added). While most of the drop was due to the leisure and hospitality sectors, the professional and business services sector printed just 13k payroll additions, which SocGen says is 35k below the January to August average.
WAGES:
In its latest policy statement, the FOMC noted that “labor market has continued to strengthen,” and going forward “labor market conditions will strengthen somewhat further.” However, it once again reiterated that “market-based measures of inflation compensation remain low.”
The latest Employment Cost Index data for Q3 – which tends to correlate quite well with wage growth analysts say – bodes well. But although the ECI shows compensation is rising, it has failed to spark any meaningful inflation. “Lower unemployment has not yet fed through to a meaningful acceleration in wage growth,” Capital Economics writes. “Further ahead though, with labour market conditions exceptionally tight, payroll growth will trend lower, and earnings growth may begin to rise more markedly.”
MARKET INDICATORS:
CLAIMS: Initial jobless claims were rising going into the September report, on a four-week moving-average basis; but since then, they have been ticking down. The latest data puts the four-week moving-average at 232.5k, down from 267k going into the September report. “Increasingly, it appears that the trend in claims has declined to a new low, consistent with the strengthening in surveys of labor demand,” writes Pantheon Macroeconomics. “Falling claims boost consumers' sentiment, and usually are associated with falling unemployment and a rising quits rate. The labor market continues to tighten.”
ADP: The ADP reported 235k payrolls were added to the US economy in October, greater than the consensus view which was looking for 200k. The September data, however, was revised lower slightly. “The ADP payroll private employment measure is not the best predictor of the official non-farm payroll employment at the best of times and is even less useful in the aftermath of the hurricane disruption. Accordingly, it’s probably best to ignore the data,” Capital Economics says. “The ADP measure never accounted for the full disruption of the hurricanes in September so, unsurprisingly, the bounce-back in October was minimal. But looking at September and October together, ADP employment increased by a cumulative 345,000,” which suggests that the official NFP number could come in around 378k.
CHALLENGER JOB CUTS: The survey saw US employers announcing just under 30k job cuts in October, 3% lower than October 2016, and employers have now signalled some 25% fewer job cuts than in the same period last year, Challenger said. The 2017 total YTD stands around 25% lower than the same time last year, the lowest 10-month total since 1997. “Companies are currently holding on to their workforces, but this may be the calm before the storm,” Challenger CEO said. “Another downturn could be on the horizon for early to mid-2018 and with it, the large-scale layoff announcements that typically follow. Adding to this is the possibility that global factors, including Brexit, could usher in a recession,” Challenger added.
BUSINESS SURVEYS: Markit’s flash composite PMI for October suggests that private sector job conditions saw “a solid increase supported by the steepest rise in payroll numbers at manufacturing companies since June 2015.” However, for the dominant services sector, job creation eased in the month. Nevertheless, Markit noted that “There were also positive developments in terms of staff hiring and business optimism during October, suggesting that private sector firms are gearing up for sustained growth in coming months.” It is slightly more difficult to use the ISM indices to gauge the health of the labour market this month, given the non-manufacturing release is scheduled for release on the day of the NFP release. However, the employment sub-index slipped by 0.5pts, though comfortably remains in growth territory.
WHAT BANKS DESKS ARE SAYING:
- Barclays: We expect the October employment report to show a strong rebound in hiring after September data were suppressed by hurricane-related effects. At a decline of 33k last month, we estimate that the storms reduced growth in payroll employment by about 200k. Looking ahead to the October report, we expect nonfarm payrolls to rise by 325k. Our forecast is consistent with a quick retracement of storm-related effects, which is consistent with the signal from initial jobless claims and, indirectly, from other activity data that showed a quicker-than-expected bounce back in activity. Nearly all of this improvement should come in private sector payrolls and we expect private payrolls to rise by 320k, with the remainder coming in government payrolls. Within private payrolls, we look for a significant rebound in services employment and, in particular, leisure and hospitality employment. Elsewhere in the report, we look for the unemployment rate to hold steady at 4.2% and for average hourly earnings to rise by 0.2% m/m (2.6% y/y). We view at least part of last month’s 0.5% m/m rise in hourly earnings as distorted by storm-related factors that either held back hours for salaried employees or reduced the numbers of hourly workers from the survey.
- BMO: We estimate Hurricanes Irma and Harvey chopped nonfarm payrolls by roughly 160,000 in September. This estimate (based on an equation that includes the number of workers absent due to bad weather) is just shy of the BLS’s tally of actual job losses in Florida and Texas last month (-135,000) relative to this year’s trend. Most workers likely returned to work in October, while other persons were hired for reconstruction efforts. Adding an assumed 160,000 rebound in payrolls to the average gain in the first eight months of the year (just over 170,000) yields a 330,000 increase in October following a 33,000 decline in September. The leisure and hospitality sector should recover most of the 111,000 jobs that were lost in September. Some payback for the astounding 906,000 increase in household survey jobs last month, coupled with a likely pullback in the participation rate, should hold the jobless rate at a 16-year low of 4.2%. Average hourly earnings will simmer down after September’s result (0.5%) was juiced by the loss of low-paying jobs in the hospitality sector. A 0.2% monthly advance would trim the yearly rate to 2.8%, while maintaining a slow upward trend.
- Capital Economics: We are forecasting a huge 350,000 rebound in payroll employment in October, as the impact of Hurricanes Harvey and Irma is reversed. State level data show that payroll employment fell by 130,000 in Florida and by almost 10,000 in Texas in September, compared to average monthly gains of close to 20,000 for both states. If that shortfall were fully reversed in October, that would add 200,000 to payroll employment. All the indications are that the underlying pace of payroll gains has remained fairly robust. The Markit employment PMIs point to private payrolls expanding by close to 200,000. All told, we are pencilling in a 350,000 rebound in payroll employment, following the 33,000 fall in September. Even so, the unemployment rate probably held steady at 4.2% since the household employment measure is unlikely to rise much following its surge last month. Finally, wage growth was boosted last month as the hurricanes hit low-paid employment hardest. That effect will be unwound in October.
- Deutsche Bank: With September’s soft CPI print providing a little more ammunition to the Fed’s doves, employment data is crucial to the Fed’s narrative for continued gradual rate hikes. We are expecting a sharp rebound in payroll growth (+250k forecast vs. -33k previous), supported by a dissipation of hurricane effects; low jobless claims during the survey week; and robust supporting evidence of solid job growth from the ISM employment subcomponents. However, there is considerable uncertainty around this expectation. Indeed, after Hurricane Katrina, which exhibited a similar plunge in job growth in the September 2005 print, it took until November 2005 for job growth to return to its earlier trend. Within the other details of the report, average hourly earnings growth should slow (0.1% m-o-m vs 0.5%), which could lower the year-over-year growth rate to 2.6%, down from the post-crisis high of 2.9% in September. This retracement is due both to hurricane effects, which we believe boosted September average hourly earnings growth by at least 4bp, as well as other statistical regularities that we have noticed (e.g., bias tied to when the 12th falls within the survey week and how many work days there are in the month) that also point to a softer average hourly earnings print. We expect the unemployment rate to be unchanged (4.2%) at its lowest level since early 2001. Ahead of Friday’s report, we may potentially sharpen our expectations for job growth depending on ADP employment (+240 thousand vs +136 thousand) on Wednesday.
- HSBC: Nonfarm payrolls fell 33,000 in September. State level figures show that payroll employment in Florida fell by 127,000. This largely reflected the effects of Hurricane Irma, as many people were unable to work because their workplaces were not open or because they had temporarily been evacuated from their regions. The majority of these workers will have returned to their jobs in October and should therefore add to overall national increase in payrolls for the month. State level figures for Texas suggest that there will be a similar, but much smaller, impact from persons returning to work following Hurricane Harvey. We expect that nonfarm payrolls rose 300,000 in October. This month's release may shed some light on whether the sharp 0.5% rise in average hourly earnings in September was partly distorted by the hurricanes. The September report showed a sharp drop in food services employment which is likely to be reversed in October. Since average wages in the food service industry are lower than the national average, the temporary decline in jobs in this industry may have indirectly boosted the overall average for hourly wages. We expect that average hourly earnings were unchanged m-o-m in October. The y-o-y rate of increase could fall to 2.5%, down from 2.9% in September. In addition, we forecast the unemployment rate rose to 4.3% in October from 4.2% in September.
- Team Bernie Chimes In: "DNC Corruption Is Bigger Than One Primary"
Former interim DNC Chairwoman Donna Brazile confirmed what many widely suspected in an essay published in Politico today where she called out former DNC Chairwoman Debbie Wasserman Schultz and former Secretary of State Hillary Clinton for unfairly rigging the 2016 primary against Bernie Sanders.
In her expose, Brazile described how the Clinton campaign siphoned money from state party chapters, and asserted her control over the DNC by making it financially reliant on her fundraising abilities, even describing the campaign’s actions as “essentially money laundering.”
The agreement—signed by Amy Dacey, the former CEO of the DNC, and Robby Mook with a copy to Marc Elias—specified that in exchange for raising money and investing in the DNC, Hillary would control the party’s finances, strategy, and all the money raised. Her campaign had the right of refusal of who would be the party communications director, and it would make final decisions on all the other staff. The DNC also was required to consult with the campaign about all other staffing, budgeting, data, analytics, and mailings.
Brazile’s revelations have revived conversations about whether the party has an obligation to ensure a fair primary (one judge who dismissed a lawsuit against the DNC suggested the organization is actually under no obligation to do so, even confirming that it showed a “palpable bias” toward Clinton).
Offering their two cents on the issue, a group of former Bernie Sanders’ presidential campaign staffers chimed in on the debate, claiming that “corruption has plagued” the DNC for years and that the problem stretches far beyond the 2016 campaign, according to the Washington Free Beacon.
Saikat Chakrabarti, who was director of organizing strategy for the Sanders campaign and now runs a group aiming to change the Democratic Party, said he wasn't surprised to hear the admission from Brazile.
"We all knew that the primary was rigged," Chakrabarti said on behalf of Justice Democrats, a group he founded. "But the corruption that plagues the Democratic Party is bigger than one primary—it's become a rot set at the very root of a party [that] claims to be for working people."
Chakrabarti added that the Democratic Party is currently "devoid of message, devoid of money, and devoid of a winning strategy."
"The people want a party that works for the people and wins," he said. "We are sick and tired of wasting money on helping a party that wastes it through incompetence and corrupt negligence."
Justice Democrats says it has seen an uptick in donations—$2,500 an hour—since Brazile's admission broke on Thursday morning. The group currently has a slate of candidates running for office in 2018, many of them challenging Democratic incumbents.
Of course, despite Brazile’s sanctimonious posturing and her claims that she was ignorant of the control Clinton exerted over the party before taking over as interim chair last summer (Tom Perez has since been named permanent chair), leaked DNC emails revealed that she played a role in tilting the primary in Clinton’s favor by leaking debate questions and town hall topics to her one-time political ally.
Recent polling shows Bernie Sanders is presently the most popular politician in the country, and he’s an independent candidate. That’s hardly a coincidence. We didn’t need Brazile to tell us how Clinton effectively ran the DNC – the public has widely believed this for years.
The question now is: Will anything change?
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