Feb 05

Today’s News 5th February 2018

  • Israel And Egypt Form Secret Alliance To Wipe Out Egyptian Jihadists

    Israel has been conducting bombing raids on jihadists within Egypt’s borders since at least late 2015 as part of a secret two-year alliance. For more than two years, unmarked Israeli drones, helicopters and jets have carried out a covert air campaign, conducting more than 100 airstrikes inside Egypt, frequently more than once a week — and all with the approval of President Abdel Fattah el-Sisi, the NYT reported on Sunday.

    Once enemies in three wars, and having struggled to reach peace agreements for decades, Egypt and Israel are now (not so) secret allies against a common foe.

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    Prime Minister Benjamin Netanyahu of Israel at a conference in December (Getty)

    In late 2015, jihadists in Egypt’s Northern Sinai moved in, killing hundreds of soldiers and police officers and briefly seizing a major town – setting up armed checkpoints as they established control over the area. On October 31, 2015, the Islamic State of Iraq and the Levant’s Sinai branch, formerly known as Ansar Bait al-Maqdis, brought down a Russian passenger flight with an explosive device – killing all 224 people aboard.

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    Russian passenger jet downed by Egyptian jihadists 

    With Egypt seemingly unable to stop the jihadists, Israel – alarmed by the threat just over the border, began taking action – sending a barrage of airstrikes into the neighboring Arab country whose officials and media continued to vilify the Jewish state in public. 

    In order to conceal their involvement, Israel’s drones, jets and helicopters have covered up their markings. “Some fly circuitous routes to create the impression that they are based in the Egyptian mainland,” according to American officials briefed on the operations.

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    It is unclear whether any Israeli troops have actually set foot inside Egyptian borders.

    Despite efforts by both Israel and Egypt to hide the origin of the strikes and censor public reports, Egypt and Israel’s two-year alliance has become somewhat of an open secret in intelligence circles: 

    Inside the American government, the strikes are widely known enough that diplomats and intelligence officials have discussed them in closed briefings with lawmakers on Capitol Hill. Lawmakers in open committee hearings have alluded approvingly to the surprisingly close Egyptian and Israeli cooperation in the North Sinai.

    In a telephone interview, Senator Benjamin L. Cardin of Maryland, the ranking Democrat on the Senate Foreign Relations Committee, declined to discuss specifics of Israel’s military actions in Egypt, but said Israel was not acting “out of goodness to a neighbor.”

    “Israel does not want the bad stuff that is happening in the Egyptian Sinai to get into Israel,” he said, adding that the Egyptian effort to hide Israel’s role from its citizens “is not a new phenomenon.” –NYT

    Moreover, despite Israeli military censors preventing reports of the strikes from becoming public, certain news outlets circumvented the censorship by citing a 2016 Bloomberg report in which a former Israeli official admitted to drone strikes inside of Egypt. 

    The two-year alliance between the two countries is thought to have begun after Egypt’s relatively new president Mohamed Morsi – a leader within the Muslim Brotherhood who came to power after the Arab Spring revolt, was outed in a military takeover by el-Sisi – then defense minister. 

    Israel welcomed the change in government, urging Washington to accept it. 

    And Egypt needed the help; following Mr. Sisi’s takeover, Islamist militants who had established a refuge in the North Sinai region between the Suez Canal and the Israeli border began a wave of deadly assaults against Egyptian security forces. 

    A few weeks after Mr. Sisi took power, in August 2013, two mysterious explosions killed five suspected militants in a district of the North Sinai not far from the Israeli border. The Associated Press reported that unnamed Egyptian officials had said Israeli drones fired missiles that killed the militants, possibly because of Egyptian warnings of a planned cross-border attack on an Israeli airport. (Israel had closed the airport the previous day.)

    At the time, both Israel and Egypt vehemently denied the reports – however after the Russian charter jet was brought down in October of 2015, Israel began its wave of airstrikes, killing a long list of militant leaders according to an American official who spoke on the condition of anonymity in order to discuss classified operations. 

    After Israel wiped out much of the jihadist leadership in the region, less ambitious successors stepped in. No longer employing armed checkpoints, closing roads or claiming territory – the group began targeting “softer” targets like Christians in Sinai and Muslims they considered heretics. As an example, the militant group killed over 300 worshippers at a Sufi Mosque in North Sinai. 

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    Sufi Mosque in North Sinai, 311 worshippers killed by militants in Nov. 2017

    Since Israel has effectively been keeping jihadists at bay in a mutually beneficial arrangement, some American supporters of Israel have been complaining that given Egypt’s reliance on the Israeli military, “Egyptian officials, diplomats and state-controlled news media should stop publicly denouncing the Jewish state.” 

    “You speak with Sisi and he talks about security cooperation with Israel, and you speak with Israelis and they talk about security cooperation with Egypt, but then this duplicitous game continues,” said Representative Eliot L. Engel of New York, the ranking Democrat on the House Foreign Relations Committee. “It is confusing to me.”

    Israel’s prime minister, Benjamin Netanyahu, has also pointedly reminded American diplomats of the Israeli military role in Sinai. In February 2016, for example, Secretary of State John Kerry convened a secret summit in Aqaba, Jordan, with Mr. Sisi, King Abdullah of Jordan and Mr. Netanyahu, according to three American officials involved in the talks or briefed about them.

    Mr. Kerry proposed a regional agreement in which Egypt and Jordan would guarantee Israel’s security as part of a deal for a Palestinian state. –NYT

    Netanyahu scoffed at the idea – arguing that if Egypt was unable to control the ground within its own borders, it was hardly in a position to guarantee Israel’s safety. 

  • The Grand Crowded Trade Of Financial Speculation

    Excerpted from Doug Noland’s Credit Bubble Bulletin,

    Even well into 2017, variations of the “secular stagnation” thesis remained popular within the economics community. Accelerating synchronized global growth notwithstanding, there’s been this enduring notion that economies are burdened by “insufficient aggregate demand.” The “natural rate” (R-Star) has sunk to a historical low. Conviction in the central bank community has held firm – as years have passed – that the only remedy for this backdrop is extraordinarily low rates and aggressive “money” printing. Over-liquefied financial markets have enjoyed quite a prolonged celebration.

    Going back to early CBBs, I’ve found it useful to caricature the analysis into two distinctly separate systems, the “Real Economy Sphere” and the “Financial Sphere.” It’s been my long-held view that financial and monetary policy innovations fueled momentous “Financial Sphere” inflation. This financial Bubble has created increasingly systemic maladjustment and structural impairment within both the Real Economy and Financial Spheres. I believe finance today is fundamentally unstable, though the associated acute fragility remains suppressed so long as securities prices are inflating.

    [ZH: This week’s sudden burst of volatility across all asset-classes highlights this Minskian fragility]

    The mortgage finance Bubble period engendered major U.S. structural economic impairment. This became immediately apparent with the collapse of the Bubble. As was the case with previous burst Bubble episodes, the solution to systemic problems was only cheaper “money” in only great quantities. Moreover, it had become a global phenomenon that demanded a coordinated central bank response.

    Where has all this led us? Global “Financial Sphere” inflation has been nothing short of spectacular. QE has added an astounding $14 TN to central bank balance sheets globally since the crisis. The Chinese banking system has inflated to an almost unbelievable $38 TN, surging from about $6.0 TN back in 2007. In the U.S., the value of total securities-to-GDP now easily exceeds previous Bubble peaks (1999 and 2007). And since 2008, U.S. non-financial debt has inflated from $35 TN to $49 TN. It has been referred to as a “beautiful deleveraging.” It may at this time appear an exquisite monetary inflation, but it’s no deleveraging. We’ll see how long this beauty endures.

    The end result has been way too much “money” slushing around global securities and asset markets – “hot money” of epic proportions. This has led to unprecedented price distortions across asset classes – unparalleled global Bubbles in sovereign debt, corporate Credit, equities and real estate – deeply systemic Bubbles in both (so-called) “risk free” and risk markets. And so long as securities prices are heading higher, it’s all widely perceived as a virtually sublime market environment. Yet this could not be further detached from the reality of a dysfunctional “Financial Sphere” of acutely speculative markets fueling precarious Bubbles – all dependent upon unyielding aggressive monetary stimulus.

    I have posited that aggressive tax cuts at this late stage of the cycle come replete with unappreciated risks. Global central bankers for far too long stuck with reckless stimulus measures. A powerful inflationary/speculative bias has enveloped asset markets globally. Meanwhile, various inflationary manifestations have taken hold in the global economy, largely masked by relatively contained consumer price aggregates. Meanwhile, global financial markets turned euphoric and speculative blow-off dynamics took hold. A confluence of developments has created extraordinary financial, market, economic, political and geopolitical uncertainties – held at bay by history’s greatest Bubble.

    Bloomberg: “U.S. Average Hourly Earnings Rose 2.9% Y/Y, Most Since 2009.” Average hourly earnings gains have been slowly trending higher for the past several years. Wage gains have now attained decent momentum, which creates uncertainty as to how the tax cuts and associated booming markets will impact compensation gains going forward.

    February 2 – Bloomberg (Rich Miller): “As Jerome Powell prepares to take over as chairman of the Federal Reserve on Feb. 5, some of his colleagues are publicly agitating for a radical rethink of the central bank’s playbook for guiding monetary policy. Behind the push for reconsideration of the Fed’s 2% inflation target: a fear of running out of monetary ammunition in the next recession. With interest rates near historically low levels—and likely to remain that way for the foreseeable future—these officials worry the Fed will have little leeway to aid the economy when a downturn inevitably hits. They argue that revamping the inflation objective beforehand could help counteract that. ‘The most important issue on the table right now is that we need to consider the possibility of a new economic normal that forces us to reevaluate our targets,’ Federal Reserve Bank of Philadelphia President Patrick Harker said in a Jan. 5 speech.”

    “Is the Fed’s Inflation Target Kaput?”, was the headline from the above Bloomberg article. There is a contingent in the FOMC that would welcome an inflation overshoot above target, believing this would place the Fed in a better position to confront the next downturn. With yields now surging, these inflation doves could be a growing bond market concern.

    Interestingly, markets were said to have come under pressure Friday on hawkish headlines from neutral/dovish Dallas Fed President Robert Kaplan: “If We Wait to See Actual Inflation, We’ll Be Too Late; We’ll Likely Overshoot Full Employment This Year; We Central Bankers Must Be Very Vigilant; Base Case Is For 3 Rate Hikes in 2018, Could Be More.”

    [ZH: something changed this week]

    Are Kaplan’s comments to be interpreted bullish or bearish for the struggling bond market? Are bonds under pressure because of heightened concerns for future inflation – or is it instead more because of a fear of tighter monetary policy? Confused by the spike in yields back in 1994, the Fed questioned whether the bond market preferred a slow approach with rate hikes or, instead, more aggressive tightening measures that would keep a lid on inflation.

    Just as a carefree Janet Yellen packs her bookcase for the Brookings Institute, the Powell Fed’s job has suddenly morphed from easy to challenging. With tax cut stimulus in the pipeline and signs of a backdrop supportive to higher inflation, a growing contingent within the FOMC may view more aggressive tightening measures as necessary support for an increasingly skittish bond market. At the minimum, the backdrop might have central bankers thinking twice before coming hastily to rescue vulnerable stock markets.

    …

    The marketplace has begun to ponder risk again.

    February 1 – Bloomberg (Sarah Ponczek and Lu Wang): “Coordinated selling in stocks and bonds is making life miserable for investors in one of the most popular asset allocation strategies: those lumped together under the rubric of 60/40 mutual funds. Counter to their owners’ hope, that pain in one will be assuaged by the other, this week has seen both fixed-income and equities tumbling as concern has built about the pace of Federal Reserve interest rate increases. Funds that blend assets have borne the brunt, suffering their worst weekly performance since Feb 2009.”

    Stock prices have been going up for a long time – and seemingly straight up for a while now. Bonds, well, they’ve been in a 30-year bull market. Myriad strategies melding stocks and fixed-income have done exceptionally well. And so long as bonds rally when stocks suffer their occasional (mild and temporary) pullbacks, one could cling to the view that diversified stock/bond holdings were a low risk portfolio strategy (even at inflated prices for both). And for some time now, leveraging a portfolio of stocks and bonds has been pure genius. The above Bloomberg story ran Thursday. By Friday’s close, scores of perceived low-risk strategies were probably questioning underlying premises. A day that saw heavy losses in equities, along with losses in Treasuries, corporate Credit and commodities, must have been particularly rough for leveraged “risk parity” strategies.

    It’s worth noting that the U.S. dollar caught a bid in Friday’s “Risk Off” market dynamic. Just when the speculator Crowd was comfortably positioned for dollar weakness (in currencies, commodities and elsewhere), the trade abruptly reverses. It’s my view that heightened currency market volatility and uncertainty had begun to impact the general risk-taking and liquidity backdrop. And this week we see the VIX surge to 17.31, the high since the election.

    The cost of market risk protection just jumped meaningfully. Past spikes in market volatility were rather brief affairs – mere opportunities to sell volatility (derivatives/options) for fun and hefty profit. I believe markets have now entered a period of heightened volatility. To go along with currency market volatility, there’s now significant bond market and policy uncertainty. The premise that Treasuries – and, only to a somewhat lesser extent, corporate Credit – will rally reliably on equity market weakness is now suspect. Indeed, faith that central bankers are right there to backstop the risk markets at the first indication of trouble may even be in some doubt with bond yields rising on inflation concerns. When push comes to shove, central bankers will foremost champion bond markets.

    While attention was fixed on U.S. bond yields and equities, it’s worth noting developments with another 2018 Theme:

    February 2 – Wall Street Journal (Shen Hong): “Chinese stocks had their worst week since 2016, with fresh concerns about Beijing’s campaign to cut financial risk and predictions of a slowing economy helping erase half of the market’s year-to-date gains in just a few days… Mr. Zhang [chief executive of CYAMLAN Investment] said the increasingly frequent market intervention by the ‘national team’ to prop up the major indexes could prove counterproductive. ‘It’s OK to bring in the national team when there’s a huge crisis but if it’s there everyday, it will create even more jitters,’ Mr. Zhang said. ‘If you see policemen everywhere, don’t you feel less safe?’”

    The Shanghai Composite dropped 2.7% this week. Losses would have been headline-making if not for a 2.1% rally off of Friday morning lows.

     

    The Shenzhen Exchange A index sank 6.6% this week, and China’s growth stock ChiNext Index was hit 6.3%. The small cap CSI 500 index fell 5.9%, and that was despite a 2.1% rally off Friday’s lows (attributed to “national team” buying). Financial stress has been quietly gaining momentum in China, with HNA and small bank liquidity issues the most prominent. As global liquidity tightens, I would expect Chinese Credit issues to be added to a suddenly lengthening list of global concerns.

    Unless risk markets can quickly regain upside momentum, I expect “Risk Off” dynamics to gather force. “Risk On” melt-up dynamics were surely fueled by myriad sources of speculative leverage, including derivative strategies (i.e. in-the-money call options). As confirmed this week, euphoric speculative blow-offs are prone to abrupt reversals. Derivative players that were aggressively buying S&P futures to dynamically hedge derivative exposures one day can turn aggressive sellers just a session or two later. And in the event of an unanticipated bout of self-reinforcing de-risking/de-leveraging, it might not take long for the most abundant market liquidity backdrop imaginable to morph into an inhospitable liquidity quandary.

    February 1 – Bloomberg (Sarah Ponczek): “When stocks fall, investors typically pull money out of the market. But when U.S. equities suffered their worst two-day slump since May, some traders didn’t blink an eye. Exchange-traded funds took in $78.5 billion in January, exceeding the previous monthly record by nearly 30%. ETFs saw close to $4 billion a day in inflows even on the stock market’s down days, according to Eric Balchunas, a Bloomberg Intelligence senior ETF analyst…”

    Adding January’s $79 billion ETF inflow to 2017’s record $476 billion puts the 13-month total easily over half a Trillion. If the ETF Complex is hit by significant outflows, it’s not clear who will take the other side of the trade. This is especially the case if the hedge funds move to hedge market risk and reduce net long exposures. And let there be no doubt, the leveraged speculators will be following ETF flows like hawks (“predators”).

     

    And I’m having difficulty clearing some earlier (Bloomberg) interview comments from my mind:

    January 24 – Bloomberg (Nishant Kumar and Erik Schatzker): “Billionaire hedge-fund manager Ray Dalio said that the bond market has slipped into a bear phase and warned that a rise in yields could spark the biggest crisis for fixed-income investors in almost 40 years. ‘A 1% rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981,’ Bridgewater Associates founder Dalio said… in Davos…”

    Dalio: “’There is a lot of cash on the sidelines’. … We’re going to be inundated with cash, he said. “If you’re holding cash, you’re going to feel pretty stupid.’”

    Here I am, as usual, plugging away late into Friday night. So, who am I to take exception to insight from a billionaire hedge fund genius. But to discuss the possibility of the worst bond bear market since 1981 – and then suggest those holding cash “are going to feel pretty stupid”? Seems to be a disconnect there somewhere. Going forward, I expect stupid cash to outperform scores of brilliant strategies.

    The historic “Financial Sphere” Bubble has ensured that ungodly amounts of “money” and leverage have accumulated in The Grand Crowded Trade of Financial Speculation.

    And as we detailed earlier – it doesn’t get any more crowded that record long equities and record short bonds!

  • Who Let Dr. Strangelove Write The Pentagon's Nuclear Posture Review?

    Authored by Julia Conley via TheAntiMedia.org,

    The Pentagon’s official outline for its use of nuclear force was denounced as “radical” and “extreme” by prominent anti-nuclear weapons groups when it was released Friday afternoon—confirming peace advocates’ worst fears that the Trump administration would seek to expand the use of nuclear force.

    “Who in their right mind thinks we should expand the list of scenarios in which we might launch nuclear weapons?” asked Peace Action in a statement. 

    “Who let Dr. Strangelove write the Nuclear Posture Review?”

     

    The Nuclear Posture Review (NPR) calls for the development of smaller warheads that the military believes would be seen as more “usable” against other nations.

    “In support of a strong and credible nuclear deterrent, the United States must…maintain a nuclear force with a diverse, flexible range of nuclear yield and delivery modes that are ready, capable, and credible,” reads the report, which serves as the first updated document the U.S. has released regarding its perceived nuclear threats since 2010.

    In addition to “diversifying” its nuclear arsenal, the Pentagon notes that it will seek to “expand the range of credible U.S. options for responding to nuclear or non-nuclear strategic attack,” raising concerns that President Donald Trump will argue for the use of nuclear force as a deterrent—a significant departure from previous administrations which saw nuclear weapons as an option only for retaliation.

    “The risk of use for nuclear weapons has always been unacceptably high,” said Beatrice Fihn, executive director of the International Campaign to Abolish Nuclear Weapons (ICAN).

    “The new Trump Nuclear Doctrine is to deliberately increase that risk. It is an all-out attempt to take nuclear weapons out of the silos and onto the battlefield. This policy is a shift from one where the use of nuclear weapons is possible to one where the use of nuclear weapons is likely.”

    Derek Johnson, head of Global Zero, called the NPR “a radical plan written by extreme elements and nuclear ideologues in Trump’s inner circle who believe nuclear weapons are a wonder drug that can solve our national security challenges.”

    “Trump’s insistence that we need more and better weapons is already spurring countries to follow in his footsteps,” he added. “Nuclear arms-racing is a steep and slippery slope; we’d do well to learn the lessons of the former Soviet Union, whose collapse was accelerated by its unsustainable nuclear ambitions.”

    As Paul Craig Roberts summed up so eloquently, the new US nuclear posture is a reckless, irresponsible, and destabilizing departure from the previous attitude toward nuclear weapons. The use of even a small part of the existing arsenal of the United States would be sufficient to destroy life on earth. Yet, the posture review calls for more weapons, speaks of nuclear weapons as “usable,” and justifies their use in First Strikes even against countries that do not have nuclear weapons.

    This is an insane escalation. It tells every country that the US government believes in the first use of nuclear weapons against any and every country. Nuclear powers such as Russia and China must see this to be a massive increase in the threat level from the United States. Those responsible for this document should be committed to insane aslyums, not left in policy positions where they can put it into action.

  • Watch As Drone 'Dive-Bombs' US Passenger Jet Landing In Vegas Airport

    Drone racing is a high-tech sport sweeping across the United States. Millennials are rushing to become the next drone pilot building these fast and agile multi-rotor crafts in their parents’ basements.

    All of these drones are controlled through FPV (First Person View) systems. FPV is a type of flying system where pilots use cameras to fly drones as if they were sitting in the cockpit. Some pilots fly using FPV monitors, whereas others use specialized goggles to give them a more immersive experience.

    According to the Federal Aviation Administration’s (FAA) Michael Huerta said back in March 2017 that more than 777,000 drone registrations have been filed with the agency.

    With that being said, the Federal Aviation Administration has created a list of rules called the Small Unmanned Aircraft Regulations (Part 107), which outlines what not to do while piloting a drone in U.S. airspace.

    Granted, in the latest installment of absolute foolishness, the Federal Aviation Administration is investigating an incident in which someone piloted a racing drone feet from a jetliner on approach to land at McCarran International Airport in Las Vegas.

    Ian Gregor, public affairs for the FAA Western-Pacific Region said, “We became aware of this incident this afternoon and we are investigating.”

    A person who goes by the name, ‘James Jayo Older’ posted the video online to a Facebook group called “1% FPV.” In the post, he said, “Found the SD card.. 1%ers only.” The video shows the racing drone hovering in the flight path and then dive bombing the jetliner in a swoop maneuver.

    By using landmarks in the video, the incident occurred approximately 3.14 miles away from McCarran International Airport, which could be a violation of FAA rules if the operator failed to the call air traffic control tower.

    Nevertheless, dive bombing a jetliner is an unsafe practice, and the operator “could face fines from of up to $1,437 per violation, while businesses that fly unsafely can face fines of up to $32,666 per violation.,” said Las Vegas Now.

    To make matters worse, the operator could also “face federal criminal penalties including fines of up to $250,000 and/or imprisonment for up to three years,” added Las Vegas Now.

    Drone organizations have already condemned the incident.

    “This pilot’s actions not only endangered the flying public but has the potential to discredit an entire sUAS industry,” Drone U said. “It is the opinion of Drone U and its members that the pilot receives swift and just punishment for this example of irresponsible and reckless flight. There is no excuse for this type of criminal behavior.”

    “All drone and model aircraft pilots must stay well clear of manned aircraft. We condemn the type of operation depicted in this video,” said Chad Budreau, director of government affairs for the Academy of Model Aeronautics, in a statement.

    “Anyone who violates aviation regulations or endangers public safety must be held accountable for their actions. We urge the FAA to take strong enforcement action against this drone pilot, and against any future violators,” he added.

  • Korybko: The US Deep State And The Democrats Are The Problem, Not The Solution

    Authored by Andrew Korybko via Oriental Review,

    The latest policy recommendations by the influential Director General of the Russian International Affairs Council (RIAC), one of the most well-respected and listened-to experts in Russia – to say nothing of the entire former Soviet space – is causing quite a stir by waxing nostalgically about the Obama years and even suggesting that Moscow should embrace the American “deep state”.

    Mr. Kortunov’s Case For Russia’s “Deep State”-Democrat Partnership

    Mr. Andrey Kortunov is one of the most brilliant minds in Russia and earned his place as the Director General of the Russian International Affairs Council (RIAC), and his words accordingly carry much weight for the fact that they set the tone for countless other analysts in the country and even an untold number of policymakers who look to him for guidance.

    That’s why it caused quite a stir when he published his latest recommendation earlier this week at the famous Valdai Club titled “Russian Approaches to the United States: Algorithm Change Is Overdue”, in which he waxed nostalgically about the Obama years and even suggested that Moscow should embrace the American “deep state”.

     

    Director of the Russian International Affairs Council Andrey Kortunov

    So as not to put words in his mouth, the relevant passages are republished in their entirety below:

    “First, it is better to avoid demonizing the Deep State, which is perceived by many in Moscow as the center of world evil and the stronghold of the pathological haters of Russia. Of course, most of the State Department or the CIA officials, the Congress staff, experts from the main think tanks are not Vladimir Putin’s fans. But these people, at least, have considerable experience of interaction with Moscow and can hardly be considered stubborn paranoids, exalted conspiracy theorists or genetic Russophobes. Deep State consists of rationally thinking professionals, who are always easier to deal with than romantic amateurs are. With all its shortcomings, it is the Deep State that limits Donald Trump’s most exotic and potentially most dangerous foreign policy oddities.

     Second, it’s time to change the attitude toward the Democratic Party leadership. For some reason (probably because of inertia) the Barack Obama administration is constantly remembered in Russia in the worst possible way, with the two latest presidents constantly juxtaposed. How is Obama bad, and Trump is good? The stubborn facts show otherwise. For example, Obama pursued a consistent policy of rapprochement with Iran, and Trump returned to the most severe pressure on Tehran. Obama followed the international consensus on the status of Jerusalem, and Trump destroyed this consensus. Obama did not resort to direct military action against Bashar Assad, and Trump did not hesitate to give an order to launch missiles against the Syrian Al- Shayrat airbase. Well, who after all created more problems for Russia — Democrats or Republicans?”

    Mr. Kortunov did indeed talk about other aspects of US-Russian relations, including the need for a bottom-up approach to improving his country’s soft power in America, but none of those proposals are controversial, at least not when compared to what he wrote about above.

    A diversity of respectful views in any discourse is symptomatic of a healthy democracy, and Russian society is no different in this respect, which is why the dialogue on this topic would be greatly enriched by presenting some counterpoints to Mr. Kortunov’s article.

    Deciphering The “Deep State”

    The first is that the US’ military, intelligence, and diplomatic bureaucracies (“deep state”) are experienced and rational like Mr. Kortunov describes them as, but that they nevertheless bear primary responsibility for the deterioration in US-Russian relations under both the Obama and Trump Presidencies because the bulk of these professional bureaucrats always retain their jobs between leadership transitions in the country.

    The President is supposed to determine the broad trajectory of their work in consultation with his closest advisors, some of whom are handpicked by him and approved by Congress to lead the relevant institutions of the “deep state” while others are more informal, but the rank-and-file members of the “deep state” are still largely more responsible for the execution of policy in practice than anyone else.

    Unprecedentedly, many of them oppose President Trump’s stated desire to improve relations with Russia and have worked to unconstitutionally offset his plans, and the pressure that they’ve put on him to this end explains why he’s undertaken decisively anti-Russian policies during his first year in office despite his campaign pledge to do the opposite.

    Seeing as how most of these “deep state” individuals naturally remained in the same positions that they had during the Obama Administration and would have probably still retained their jobs under Hillary’s Presidency, it’s inaccurate to attribute the deterioration of Russian-American ties to President Trump personally while overlooking the actions of the “deep state” that he’s still trying to reform to the best of his ability.

    The “deep state” is rational – too rational, it can be argued – because it embraces a Neo-Realist paradigm of International Relations that sometimes correlates with Trump’s own views on certain topics but other times contradicts them like in the case of Russia, and the internal power struggle between Trump and the “deep state” is what’s really to blame for the worsening of bilateral relations, not the “amateur” President’s “romanticism” like Mr. Kortunov insists.

    For these reasons, it can be argued that Mr. Kortunov’s belief that the “deep state” “can hardly be considered stubborn paranoids, exalted conspiracy theorists or genetic Russophobes” isn’t exactly accurate, since it’s indeed full of “stubborn paranoids” under the dual influence of the neoconservatives’ Neo-Realism and the Obama-Clinton worldview of “militant liberalism”.

    That said, the “conspiracy theories” that he references are just a “deep state” infowar distraction to deceive the voting masses while the assertion that such a thing as a “genetic Russophobe” exists wrongly implies that an individual’s political views are irreversibly predetermined by their DNA.

    To flip around Mr. Kortunov’s last comment on the matter, it’s more realistic to assert that “with all his shortcomings, it is Donald Trump that limits the Deep State’s most exotic and potentially most dangerous foreign policy oddities.”

    Debunking The Dreams Of Democrat Rule

    Relatedly, Mr. Kortunov’s views on the “deep state” clearly influence his attitude towards the Democrats and specifically the Obama Administration, which he thinks is unfairly “remembered in Russia in the worst possible way” because “the stubborn facts show otherwise” and apparently disprove the prevailing notion that “Obama (is) bad, and Trump is good.”

    Mr. Kortunov thinks that Obama had pure intentions in signing the nuclear agreement with Iran, though it can cynically be argued that his “deep state” was in fact trying to co-opt the Islamic Republic’s “moderate/reformist” ruling elite in a bid to tip the scales to their favor in the country’s own “deep state” competition for influence with the “conservative/principalist” military-security faction, the failure of which would explain why Trump was tasked with “returning to the most severe pressure on Tehran.”

    The enduring presence of most of the “deep state’s” personnel between presidential administrations doesn’t preclude the US from pivoting between policies but actually allows such moves to be more smoothly executed, as can be seen from the example of Nixon’s rapprochement with China in spite of Johnson’s antagonism towards it; Bush Sr. “betraying” Iraq even though Reagan aligned with it; Obama signing the nuclear deal against the former Bush Jr. Administration’s wishes; and Trump dismantling his predecessor’s plans.

    Although the President might set the tone for the overall direction that each respective policy should go in and this sometimes reverses what the previous administration did, it’s ultimately the “deep state” that puts these ideas into practice and is able to maintain a degree of strategic continuity that advances America’s national interests regardless, though the case of Trump’s vision for US-Russia relations also shows that this same “deep state” can also conspire to obstruct the President’s will.

    Another “stubborn fact” at variance with Mr. Kortunov’s nostalgia for Democrat rule is the practical significance of Obama “following the international consensus on the status of Jerusalem” and Trump “destroying” it since it inaccurately hints that the former was somehow ‘pro-Palestinian’ and that the latter’s announcement tangibly changed something on the ground, neither of which are true because Obama was actually very pro-Israel and Trump’s decision only stands to affect foreign aid recipients who voted against the US and the UN.

    Looking beyond Obama’s highly publicized personal rivalry with Netanyahu and his populist rhetoric on the Palestinian issue, nothing that he did during his two terms had any influence on Israel’s occupation of East Jerusalem and unilateral claim to the entirety of the city being its capital; likewise, Trump’s words didn’t change any of this reality either and only resulted in word games being played at the UN and the Organization of Islamic Cooperation, neither of which did anything other than attempt to comfort the Palestinians.

    As for Mr. Kortunov’s juxtaposition of Obama’s refusal to “resort to direct military action against Bashar Assad” with Trump “not hesitating to give an order to launch missiles against the Syrian Al- Shayrat airbase”, he’s totally overlooking the 44th President’s responsibility for the theater-wide “Arab Spring” Color Revolutions and the resultant Hybrid War of Terror on Syria which dealt incomparably more damage to Syria and its democratically elected President’s standing that Trump’s handful of one-off missiles.

    In addition, Trump only ordered the attack because he was under intense “deep state” pressure to do so after having been caught in a Catch-22 trap where he was forced to “put his money where his mouth is” and respond to the false-flag chemical weapons attack that violated his “red line”, but truthfully speaking, what Mr. Kortunov might really resent is that it only took a few million dollars’ worth of missiles to call President Putin’s bluff in hinting at a military response to the exact same scenario in 2013 that got Obama to back down at the time.

    To respond to Mr.Kortunov’s rhetorical question of “who after all created more problems for Russia — Democrats or Republicans?”, the reader should be reminded that the Obama Administration presided over or was outright responsible for the “Arab Spring” and its attendant regime changes, the War on Syria, the 2011-12 anti-government unrest in Moscow, EuroMaidan and the Ukrainian Civil War, the anti-Russian sanctions, and the fake news scheme of “Kremlin interference” in order to suppress Russia’s publicly funded international media outlets and harass their employees, among many other examples.

    In comparison, Trump merely continued most of the policy trajectories that Obama and his Secretary of State Hillary Clinton first initiated, and even then he’s tried to resist some of the “deep state’s” pressure when it comes to Russia, so as bad as he’s been for Moscow’s interests, one should wonder how much worse Hillary would have been she entered into the Presidency and allowed the “deep state” to do as it pleases.

    Concluding Thoughts

    Mr. Kortunov seems to have wanted to spark a serious conversation about how Russia’s “deep state” should respond to the disappointment that it experienced throughout Trump’s first year in office, and if that was his intention, then he remarkably succeeded by controversially reinterpreting the Obama years as something to apparently be nostalgic about and boldly suggesting that his government reconsider its negative attitude to Trump’s “deep state” foes.

    In the spirit of dialogue that Mr. Kortunov implicitly encouraged by publishing such a provocative piece, it’s only fitting that a rebuttal be presented to challenge his premise that the Democrats and their “deep state” handlers are supposedly more preferable to Russia than Trump is, especially seeing as how he selectively pointed to a few decontextualized examples that were presumably cherry-picked in order to promote his argument.

    With all due respect to this prestigious gentleman, his entire notion is flat-out wrong and shows that he doesn’t at all understand Trump’s “Kraken”-like leadership and his never-ending struggle to survive the “deep state’s” permanent Clintonian Counter-Revolution that’s being waged in trying to undermine the Second American Revolution that the President is trying to carry out in America’s domestic and foreign affairs.

    Instead of ignoring the plethora of evidence proving the Obama Administration’s hostility to Russia and its international interests, Mr. Kortunov should have at least made a superficial reference to it because this glaring omission implies a deliberate partiality towards that political faction and the “deep state” in general, which is fine to have in principle but nevertheless casts doubt on how effective his proposals would be in the overall sense of things if they were ever put into practice.

    Mr. Kortunov is evidently unaware that the same “deep state” that he finds attractive in contrast to Trump had a controlling influence in determining the Obama Administration’s anti-Russian policies that the 44th President’s Secretary of State Hillary Clinton ended up implementing with ruinous consequences for Moscow’s grand strategic interests, and that she would have given the “deep state” free rein to do whatever it wanted had she won unlike Trump’s willingness to challenge its most extreme tendencies (though with mixed results).

    Having said that, pragmatic working relations between Russia and the US’ “deep states” are inevitable because there isn’t any alternative to interacting with any national counterpart’s collection of military, intelligence, and diplomatic figures no matter how much one may disagree with their policies unless ties between the two sides are formally suspended, which isn’t foreseeable but would in any case still allow for the existence of communication backchannels.

    What Mr. Kortunov is lobbying for is something altogether different because he wants Russian decision makers to reconceptualize the American “deep state” as a ‘positive’, ‘moderating’, and ‘responsible’ force against what he characterizes as Trump’s ”romantic”, “amateurish”, “most exotic and potentially most dangerous foreign policy oddities”, which is ironically a very “romantic” and “exotic” view to have of the US’ most dangerous anti-Russian institutional forces.

    In all actuality, however, the “deep state” and its Democrat allies are the real reason why Trump hasn’t been able to succeed in his pledge to improve Russian-American relations, and these two problems shouldn’t ever be confused as part of the solution that’s needed to reverse this downward spiral, nor should a tactical partnership with these two actors ever be considered if Moscow hopes to maintain the upper hand in the New Cold War.

  • Super Bowl Security Has Turned Minneapolis Into A Military Police State

    Authored by Aaron Nelson via TheAntiMedia.org,

    The Department of Homeland Security has designated Super Bowl LII a National Special Security Event (an event deemed a potential target for terrorism or criminal activity) with a SEAR-I classification. The National Guard, federal agencies, and law enforcement from across the country have been patrolling Minneapolis and Saint Paul since January 26th.

    While security around the Super Bowl has been openly militarized every year since the 9/11 attacks, only three have been labeled National Special Security Events, including this year’s. Since 2001, every city except Houston (which had over 5,000 police officers) has called in the National Guard to provide additional security on the streets.

    SEAR-I is an event “of such magnitude and significant national and/or international importance that may require the full support of the United States Government (USG). The scale and scope of these events requires significant coordination among federal, state, and local authorities and warrants pre-deployment of federal assets as well as consultation, technical advice, and support to specific functional areas in which the state and local agencies may lack expertise or key resources.”

    In its 52-year history, there has never been an attack at the site of the Super Bowl, which raises questions about the need for SEAR-I classification.

    More than a dozen streets have been shut down at three major points within downtown Minneapolis: the Minneapolis Convention Center (NFL Super Bowl Experience), Nicollet Mall (Super Bowl LIVE), and the site of the game, U.S. Bank Stadium. These areas are guarded and patrolled by militarized forces.

     

     

    Though the Minneapolis Police Department is the agency in charge of security operations during Super Bowl LII, more than 60 additional police departments from across the state of Minnesota have sent officers. There are also over 400 National Guard members, United States Secret Service, ICE and FBI agents, several hundred security contractors, county Sheriff’s Reserves, and over 10,000 civilian volunteers. Representatives from Minnesota police departments, FBI, DHS, and the Secret Service, have been stationed at multiple command centers around Minneapolis to watch hundreds of surveillance cameras, track social media, and monitor communications on the ground during Super Bowl events.

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    Mobile phone signal boosters, surveillance gear, and other unknown electronics began popping up throughout the Twin Cities in preparation for the Super Bowl. Some of the surveillance technology, as well as the general culture of surveillance, will remain in Minneapolis long after the Super Bowl leaves.

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    Locals have taken note of a twin-engine Bell 412 helicopter flying 300 feet above downtown Minneapolis conducting radiation level tests, as well as other security aircraft, including black hawk helicopters enforcing the no-fly zone around the event, some of which have been flying dark.

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    A contracted helicopter previously observed flying low over water protectors at Standing Rock was also spotted in Minneapolis.

     

    Some are worried that the intense security for large sporting events like the Super Bowl is normalizing the use of military forces and surveillance in the everyday life of Americans. With numerous event attendees stopping to take photos next to military humvees and with Minnesota National Guard, Hennepin County Sheriff’s Deputies, and military police outfitted in camouflage military gear, it isn’t hard to see why people are concerned.

    Here are 11 photos that show how the Super Bowl has turned Minneapolis into a police state:

    Is the presence of military personnel and militarized police at Super Bowl LII keeping Minneapolis safe, or is it simply an excuse for a police state and the installation of citywide surveillance?

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  • Watch As Students Hate 'Trump SOTU Quotes'… Until They Find Out They're Obama's

    President Trump delivered his first State of the Union address this week. While the speech was received favorably by 75 percent of those who watched, according to a CBS poll, there were still those who disapproved.

    Campus Reform’s Cabot Phillips went to John Jay College in NYC to talk to students who disapproved of the speech by asking them to react to a few select quotations.

    Almost unanimously, the students found each of the quotes to be “warmongering”, “aggressive,” and “immature.”

    What the students didn’t know was that all the quotes given to them were taken from President Obama’s State of the Union addresses.

    How would they react when they found out it was President Obama, not Trump, who had spoken each of the quotes they disapproved of?

    However, if there is any silver-lining from this disgusting display of cognitive dissonance, it is one of the students’ honest reflection that:

    “While I’m actually not a huge fan of him… but i think being closed-minded is more dangerous than anything he could do…”

    Now if only the media could see things that way…

  • Deutsche Bank: "Here Is The Bad News"… And How To Trade It

    In the aftermath of last week’s market rout, it now appears that risk-parity is about to become a household word within financial circles, for obvious reasons discussed already on several prior occasions.

    Confirming this sentiment, is a note published late on Sunday London time (yes, there is a distinct urgency here) by Deutsche Bank’s chief macro strategist, Alan Ruskin, focusing precisely on the threat of a sharp Risk Parity unwind, and what it means for FX.

    As Ruskin writes in “Risk Parity, FX & the end of financial repression” two or more consecutive weeks of higher US bond yields and lower equity prices, have become progressively less common since the 1980s/1990s, and especially since the 2008 financial crisis. “Three weeks of equities down, 10y yields up, has not happened for more than a decade.” This is shown in the charts below.

    Which brings us to what Ruskin calls “The bad news”, namely that “the markets may be contending with a shift in two big macro factors that point to a change in the post-2008 world: i) reduced financial repression, and, ii) some inflation creep.”

    Some more details:

    Bond and equity prices falling sharply on the week may feel like an unusual environment, because in the last decade, it has become unusual. However, especially as we go back to the 1980s and 1990s it was a more frequent occurrence to see the following causal chain develop: Equities go up, supporting growth with a lag, pushing bond yields up, to the point where higher bond yields eventually pull equities down. In this way the equity – bond causality and correlation shifts, from a positive correlation where equities drive up yields, to a negative correlation as bond yields take the causal lead in pushing equities down.

    From a macro perspective what is intriguing about this dynamic is two old school factors could be back in play: i) At least in the US there is a confluence of inflationary factors – lagged demand, tight labor markets, the tax reforms impact on wages/bonuses and growth, higher oil prices, latent protectionism, and the weak USD. All these factors are apt to have a cumulative effect, chipping away at global disinflation and inflation inertia. ii) the Fed and other Central Bank’s balance sheet adjustments, may signal the end of financial repression, and this repression likely helped risk parity trades.

    Risky assets are understandably worried because these are indeed important changes.

    How does risk-parity get involved? Well, as Ruskin noted, consecutive week after week of both bond and equity price declines is unusual, and very painful for risk-parity funds. This is likely to prove true in current circumstances, where the US bond market is such a stand-out relative to other G10 bond markets.

    Still, according to the DB strategist, risk parity – and the broader market will likely be spared a broader rout, as 10y TSY yields will likely not easily soar much above 3% without finding some real support, most obviously near the 3.03% January 2014 yield peak.

    Ruskin then makes a very good observation: “were bond yields to keep on going higher, it would do enough damage to stocks to start hurting growth expectations, in turn supporting bonds. Bond bears would in this way create the source of their own demise, which is not an unusual self correcting mechanism.”

    In that sense we do not want to exaggerate the prospect of weeks like we have gone through that threaten risk parity trades consistently. At the same time, if inflation pressures and quantitative tightening are not about to change, then the weeks where both equities and bonds sell-off will become a good deal more frequent than we have seen since the Great Financial crisis.

    This, again, is a way of summarizing the “bad news.”

    * * *

    So what does this all mean for currencies, and how should one trade said bad news?

    The table below shows how currencies have traded under different bond (10y yield) and equity (S&P) scenarios.

    Here Deutsche first demarcate each week as falling into one of 4 scenarios: S&P up, 10y yield up; S&P up 10y yield down; S&P down and 10y yield down, and S&P down, 10y yields down. We then looked at how currencies traded,  taking medians and averages of the weekly performances for ach scenario.

    According to Ruskin, the table below shows the following:

    • The percent of time when S&P is down and 10y yields are up is roughly 1 in 6 trading weeks, so not all that unusual, but certainly less common than the other scenarios.
    • In the environment where 10y yields go up and equities go down, the USD tends to go up sharply versus the AUD at least in the past decade. The USD also goes up substantially versus the JPY. The USD is mixed to near flat versus the EUR (or before the EUR the DEM). This leaves the USD up moderately on a Trade weighted basis. Since 1999, the USD also appreciates (somewhat less than we might expect) versus EM carry – using the Bloomberg EM-8 carry index of cumulative total returns. The USD’s positive response versus EM looks much more substantial when using average weekly gains as distinct from median weekly gains. This suggests that every now and then there are some very large negative EM moves, when US bond prices and stock prices go down, which is not a huge surprise.

    To summarize the “worst case” trade, one which sees stocks tumbling and yields continuing to surge, “history supports the thesis that when it feels like there is nowhere to hide between poor simultaneous trading conditions in the equity and fixed income markets, the USD and more recently the EUR have been the currencies to shelter in”, Rusking concludes. .

    “With bond and equity prices tumbling in the last week, the FX markets price action conformed remarkably closely to  how the USD and other currencies have traded in tough risk parity environments of the past 30 years.”

    Of course, with a gigantic $10 trillion global synthetic dollar short – according to the BIS  – one which has so far avoided a squeeze thanks to the record surge in risk assets, it is hardly rocket surgery then if the carpet is pulled from under the market, it is the US Dollar that will surge; after all that is precisely what has happened during every previous crisis.

    The real question is what happens if stocks and bond tumble, and the dollar does not go up. That would be the real crisis, and one which would explain not only the record recent cryptocurrency bid, but also confirm the fact that the dollar’s day as the world’s primary reserve are numbered.

     

  • North Korea Used Berlin Embassy To Smuggle Nuclear Tech, German Spy Chief Claims

    North Korea obtained ballistic missile equipment and technology using its embassy in Berlin, says the head of Germany’s domestic intelligence agency, Hans-Georg Maassen in an interview with public broadcaster NDR. 

    “We determined that procurement activities were taking place there, from our perspective with an eye on the missile program, as well as the nuclear program to some extent” -Hans-Georg Maassen

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    Hans-Georg Maassen

    On Saturday, NDR released portions of the Maassen interview – with the full program airing Monday.

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    North Korea embassy, Berlin

    Maassen did not divulge the exact technology and equipment North Korea procured through the Berlin embassy, aside from that they were so-called “dual-use” goods that can be used for military oir civilian purposes – making it difficult in some cases to identify technology to be used in the ballistic missile program.

    “We found out that there were procurement activities from there, from our point of view with regard to the rocket program, and partly also to the nuclear program,” Massen told NDR. “If we find such things, we prevent it. But we cannot guarantee that this can be detected and prevented by us in all cases.”

    Pyongyang also used a variety of other methods to procure the parts, which “were acquired via other markets, or that shadow firms had acquired them in Germany,” before reaching North Korea, says Maassen. 

    The BfV obtained information on North Korea’s procurements in 2016 and 2017, according to an investigation by NDR. These items were allegedly used for the country’s missile program.

    In 2014, a North Korean diplomat reportedly tried to obtain a “multi-gas monitor” that is used in the development of chemical weapons. –DW

    According to NDR, a longtime UN investigator has raised complaints that the trade embargo against North Korea is a joke, and has “more loopholes than stuffed holes,” (translated). The NDR report comes on the heels of a UN report that north Korea has been ignoring sanctions – having earned $200 million from banned exports in 2017. 

    Meanwhile – as we reported in January the Chinese military has been amassing assets near their shared border with North Korea around the Tumen River in Yanji city, Jilin province. 

    One source told the Daily NK, “there were so many soldiers in the car that there was a lot of traffic. I have not seen so many soldiers trucking to Yanji so far.”

    Another source said, “Chinese troops are gathering around the Yalu and Tumen rivers. It is also heard that the tanks are moving to the North and the Chinese border.”

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    And according to the Daily Star: Chinese military officials have recently conducted the so-called “war ceremony” – urging their troops to be ready to fight.

    If the media report is accurate, it would suggest that China – fearing the worst – is preparing for war on the Korean Peninsula. Previously, internal documents leaked from China’s main state-owned telecommunications company shows three villages and cities in the northeastern border province of Jilin, have been designated for refugee camps-if war breaks out. China is afraid a swarm of refugees from North Korea could cross the Tumen River into China.

    In early January, Kim Jong Un warned that North Korea would soon begin mass producing nuclear weapons – urging South Korea to join it for a much-needed dialogue ahead of the Winter Olympics in Pyeongchang, South Korea. 

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