ZeroHedge. Alternative view on facts Zero Hedge Mon, 16 Jul 2018 15:58:59 +0300 <![CDATA[Consumer Credit Binge Hangover Sparks Slowdown in Retail Sales Growth]]> Following May's exuberant jump (revised even higher to +1.3% - biggest since Sept 2017) which coincided with a massive spike in consumer credit, June's retail sales growth slowed notably (+0.5% as expected).

Retail Sales ex-Autos beat expectations, rising 0.5% vs 0.4% expected, but slowing dramatically from an upwardly revised May spike of 1.3% MoM; but retail sales ex-autos and gas disappointed.

However, the control group's growth (ex-food, auto dealers, building materials, and gas stations) collapsed to unchanged in June (against expectations of a 0.4% MoM jump)...


Under the hood it was a mixed picture, with 8 of 13 major retail categories showed increases, according to the Commerce Department data.


  • Motor Vehicle and parts dealers: +0.9%
  • Furniture and home furnishing stores: +0.6
  • Building material and garden equipment: +0.8%
  • Health and personal care stores: +2.2%
  • Gasoline stations: +1.0%
  • Nonstore (internet) retailers: +1.3%
  • Food service and drinking places: +1.5%
  • Miscellaneous store retailers: +0.2%


  • Electronics and appliance stores: -0.4%
  • Food and beverage stores:  -0.3%  
  • Clothing and clothing accessories stores: -2.5%
  • Sporting goods, hobby, musical and book stores: -3.2%
  • General Merchandise stores: -0.8%

So, once again, retail sales seems as dependent on the gusher of available consumer credit as any sentiment-driven impact.

]]> Mon, 16 Jul 2018 15:40:16 +0300
<![CDATA[15 Flashpoints That Could Produce A "Perfect Storm" In H2 2018]]> Authored by Michael Snyder via The American Dream blog,

Events are beginning to greatly accelerate, and many believe that the ingredients for a “perfect storm” are starting to come together as we enter the second half of 2018.

Other than the continual drama surrounding the Trump presidency, things have been quite calm for the past couple of years. We have been enjoying a time of peace, safety and relative economic prosperity that a lot of Americans have begun to take for granted. But great trouble has been brewing under the surface, and many are wondering if we are about to reach a major turning point. Our planet is being shaken physically, emotionally and financially, and it isn’t going to take much to push us over the edge. The following are 15 flashpoints which could create world changing events during the 2nd half of 2018…

#1 War In The Middle East – A state of war already exists in Israel. 200 rockets and mortar shells were fired into Israel on Saturday alone, and it won’t take much to spark a much broader regional war.

#2 Civil Unrest In U.S. Cities – Progressives are promising a “summer of rage”, and they are assuring us that all of the anger that has been building up against President Trump and his administration is about to starting boiling over onto the streets of our major cities all across America.

#3 The Nomination Of Brett Kavanaugh To The Supreme Court – Prominent liberals are stoking fears that the Supreme Court will start taking away “our most cherished liberties” if Brett Kavanaugh is confirmed by the Senate. Expect Washington D.C. to be the focus for a lot of the chaos that will happen later this summer.

#4 Tensions In The Windy City – The City of Chicago is a powder keg that could erupt at any moment. The recent shooting of a young African-American man resulted in a violent night of protests, and we should expect much more chaos in the days ahead.

#5 The 2018 Mid-Term Elections – These are probably the most important mid-term elections in modern American history, and tempers are running high on both sides. At this point the left appears to have more energy than the right, as they have accumulated a voter registration lead of 12 million in states that require party affiliation.

#6 Hillary Clinton – Hillary has been acting very much like a presidential candidate in recent days, and she has been continually fueling hatred for Donald Trump during her public appearances. Many believe that she will launch yet another campaign for the presidency once the 2018 mid-term elections are over.

#7 The U.S. Border With Mexico – President Trump’s immigration policies have absolutely infuriated the left, and Mexico’s new president is a radical socialist that absolutely hates Donald Trump and that has declared that immigration to the United States is a “human right”. It is difficult to see how this crisis is going to end well.

#8 The Trade War Between The United States And China – A full-blown trade war has erupted between the two largest economies on the entire planet. U.S. consumers are going to have to start paying much more for certain goods, and U.S. businesses that are heavily dependent on exports are going to have to start laying off workers.

#9 The Deteriorating Relationship Between The United States And Russia – Russia has become the “boogeyman” that gets blamed for everythingthese days, and relations between our two nations are the worst that they have been since the Cold War. Hopefully Trump and Putin can change that, but it is hard to be optimistic at this point.

#10 Will NATO Survive? – Donald Trump has threatened to pull the United States out of NATO if European leaders do not “immediately” begin increasing defense spending.

#11 The Stock Market – Markets all over the world have already been plummeting, and the smart money in the United States is getting out of the market at a pace that we haven’t seen since 2008. We are way overdue for a major crash, and if one happens during the second half of 2018 it definitely will not be a surprise.

#12 The Price Of Oil – The price of oil has reached levels not seen in many years, and many believe that the price is going to go much higher. This is already putting a tremendous amount of strain on working families all over America.

#13 The Political And Financial Crisis In Italy – The Italian government is going through an enormous amount of turmoil right now, and there are rumblings that the Italians may decide to leave the euro altogether. If that happens, we should expect to see the greatest financial shaking in modern European history.

#14 Earth In Travail – More than 30 volcanoes are erupting all around the world right now, and seismic activity appears to be escalating along the Ring of Fire. It is only a matter of time before we have a major seismic event in the United States, but hopefully that will not happen within the next six months.

#15 Drought In The Southwest – A devastating drought of historic proportions has already caused “Dust Bowl conditions” to return to some areas of the Southwest. If more rain doesn’t start falling, farmers and ranchers in the region are going to be absolutely crippled.

Of course it is inevitable that we will face some moments of crisis during the second half of 2018 that have nothing to do with the items on this list. One thing that is always true about life is that it is unpredictable, and so we should expect the unexpected.

But what virtually everyone should be able to agree upon is the fact that we are witnessing a very strange confluence of events that is unlike anything that we have witnessed in a very, very long time.

Is America about to plunge into a time of unprecedented turmoil? Only time will tell, but all of the ingredients are definitely there, and if a “perfect storm” does emerge during the second half of 2018 there are many of us that won’t be shocked at all.

]]> Mon, 16 Jul 2018 15:17:48 +0300
<![CDATA[Soros-Linked Nonprofit Led By Clinton & Obama Alum Spending Millions To "Stop" Kavanaugh]]> Today's edition of "George Soros Meddles" is brought to you by ten-week-old political advocacy group Demand Justice - a Soros-linked organization which has pledged $5 million towards a "multi-platform" campaign to stop Judge Brett Kavanaugh's confirmation to the US Supreme Court.

Headed by former Clinton campaign press secretary Brian Fallon and longtime Obama aide Christopher Kang as chief counsel, Demand Justice was created and financed by nonprofit organization the "Sixteen Thirty Fund," which has received millions from the Open Society Policy Center (OSPC), according to the Daily Caller's Kevin Daley and Andrew Kerr.

As we reported two weeks ago, Demand Justice intends to fight "Trump's hateful vision for America" by opposing his Judicial picks across the country - including the Supreme Court.  

The campaign will feature television spots promoting embattled Democratic Senate incumbents in West Virginia, Indiana, and North Dakota, who face competitive Republican challengers this November.

They will also run ads in Maine and Alaska, urging GOP Sens. Susan Collins and Lisa Murkowski to oppose the nomination. Collins and Murkowski are pro choice moderates who have broken with their party on Obamacare repeal and federal funding for Planned Parenthood. The spots urge the senators to protect abortion access by withholding support for nominees who oppose the 1973 Roe v. Wade decision. -Daily Caller

The Sixteen Thirty Fund collected some $2.2 million in contributions from the OSPC between 2012 and 2016 - while more recent records are not available. The OSPC, meanwhile, is virtually indistinct from Soros's Open Society Foundations (OSF), the 87-year-old's grant-giving and philanthropic network. 

The [Sixteen Thirty] Fund is largely financed by a handful of donors. Financial statements filed with state oversight officials in 2014 show just three contributors accounted for 70 percent — or some $11.5 million — of the Fund’s total donations and grant revenue. Disclosure forms filed with the same agency in 2016 present similar facts. Fewer than five donors gave $13.3 million to the Fund, representing 63 percent of their donations.

One of those donors is the OSPC. The Center’s tax forms show the Soros group gave hundreds of thousands of dollars to the Fund each year between 2012 and 2016, the last year in which records are publicly accessible. The Center gave the Fund $350,000 in 2012, $772,000 in 2013, $125,000 in 2014, $550,000 in 2015, and $481,483 in 2016. -Daily Caller

The Caller reports that the OSPC has no staff of its own - rather, Open Society Foundation employees are compensated for work done on OSPC efforts. 

“OSPC has no employees,” the form reads. “Employees of Open Society [Foundations], a related section 501(c)(3) tax-exempt organization, perform services for OSPC. OSPC advances funds to Open Society [Foundations] for their services based on the time they spend on OSPC matters. Their compensation is determined by Open Society [Foundations], and is based on market comparability data and is documented in Open Society [Foundations’] records.”

The Sixteen Thirty Fund created Demand Justice in May of this year in order to counter a network of conservative advocacy groups which "advertise and organize around judicial confirmations," according to the Caller

Republicans have significantly outpaced Democrats in this space in recent years, given conservative voters’ sustained interest in the federal courts.

Executive director Brian Fallon told The New York Times that DJ hopes to “sensitize rank-and-file progressives to think of the courts as a venue for their activism and a way to advance the progressive agenda.” -Daily Caller

Hillary Clinton threw her support behind her former Press Secretary's new political machine in a late June tweet:

"Long after Donald Trump is no longer our President, his takeover of our courts will keep alive his hateful vision for America for decades to come," their website reads. "Trump’s judges are overwhelmingly white men. Many are not at all qualified for their posts. And they consistently hold extreme, right-wing views."

"If we truly want to stop Trump, we can’t surrender this fight." -Demand Justice

Since the Sixteen Thirty Fund serves as Demand Justice's fiscal sponsor, it doesn't submit its own tax returns or disclose its supporters. As such, beyond the Soros network's $2.2 million contribution to Sixteen Thirty over five years - it's difficult to determine how much money individual donors like Soros have channeled directly to Demand Justice since its inception ten weeks ago. 

The National Council of Nonprofits says that fiscal sponsors provide “fiduciary oversight, financial management, and other administrative services” for its dependents, like Demand Justice. As such, many grants or donations DJ receives are awarded by way of the Fund. Both organizations are based out of the same Washington, D.C., address.

Supporters can also give to DJ through ActBlue Civics, a major fundraising platform for leftwing causes.

Given this structure, it is difficult to know how much money individual donors like Soros have channeled to Demand Justice. Daily Caller

Meanwhile, Capital Research noted last month that "coupled with the fact that Fallon recently spoke at the Atlanta Conference of the Democracy Alliance, a shadowy network of left-leaning donors including George Soros, it is clear that Demand Justice could be well on its way to becoming something much bigger than the obscure nonprofit it is now. As a (c)(4), it is allowed to engage in unlimited lobbying. But it can also support or oppose candidates for election (as long as that activity isn’t the organization’s primary purpose, which currently means spending no more than 49 percent of expenditures on electioneering)."

And just like that, the newly formed, Soros-linked, Obama and Clinton alum operated nonprofit has sprung up with a $5 million "multi-platform effort" to prevent Judge Brett Kavanaugh's ascension to the US Supreme Court.

]]> Mon, 16 Jul 2018 14:57:07 +0300
<![CDATA[BofA Boasts Of "Best First Half In History" Despite Revenue Drop, Muted Loan Growth]]> Bank of America joined JPMorgan (if not Wells Fargo) in reporting Q2 earnings that beat on the top and bottom line, reporting Q2 Net Income of $6.8 BN, up 33% from the $5.1BN a year ago, and EPS of $0.63, above consensus exp. of $0.57, and the highest quarterly EPS in the past decade, on revenue of $22.6BN, less than last year's $22.8BN but better than the $22.1BN expected. According to CFO Paul Donofrio on the earnings call, this was "the best first half in the company's history" even though the bank just reported its first revenue decline in 2 years.

A big contributor to the jump in the bottom line is the lower tax rate, although pretax income also jumped 11% due to "improved operating performance."

CEO Moynihan noted the bank's expense cutting, expenses as well as growth in different areas of the bank:

Solid operating leverage and client activity drove earnings higher this quarter. Responsible growth continued to deliver as a driver for every area of the company. We grew consumer and commercial loans; we grew deposits; we grew assets within our Merrill Edge business; we generated more net new households in Merrill Lynch; and we supported more institutional client activity — all of this while we continued to invest in our businesses and began an additional $500 million technology investment, which we intend to spend over the next several quarters, due to the benefits we received from tax reform.'

As it has done in recent quarters, BofA showed a chart demonstrating its improving operating leverage, which has increased for 14 consecutive quarters, with Q2's decline in revenue growth offset by a bigger Y/Y drop in operating expenses.

Looking at the balance sheet, BofA reported a very modest, 2% Y/Y increase in loans and leases, which rose to $935BN in Q2 from $932BN in Q1 and up from $915BN a year ago, missing expectations of $943BN and surprising many market observers . The modest increase was the result of an increase in loans in Consumer banking, Wealth Management, Global Banking and Global Markets, offset by a drop in Residential Mortgage and Home Equity loans.

While loans increased, deposits declined modestly, from $1.328TN  in Q1 to $1.310TN in Q2. The bank notes that rising rates are causing some wealthy clients to move their money from lower-yielding deposits to higher yielding investments in the Global Wealth and Investment Management business, a part of the so-called "deposit beta" shift.

Looking at the bank's asset quality, the bank reported total net charge-offs of $1.0B, which increased $0.1B from 1Q18; with the net charge-off ratio increasing 3 bps to 0.43%.  Consumer net charge-offs were flat at $0.8B, and reflected seasonally higher losses in credit card, offset by improvement in home equity. Meanwhile, provision expense of $0.8B decreased modestly from 1Q18. BofA also took advantage of a net reserve release of $0.2B in 2Q18, which reflected "improvements in consumer real estate and energy, partially offset by portfolio seasoning in consumer credit card."

The Provision for credit card losses also jumped by just over $100MM Y/Y to $827MM, from $726MM a year earlier.

BofA's allowance for loan and lease losses of $10.1B, represented 1.08% of total loans and leases, while nonperforming loans (NPLs) decreased $0.5B from 1Q18, "driven by improvements in both consumer and commercial."

Looking at the income statement, the bank reported a 6% increase in net interest income to $11.7 billion, driven by higher interest rates and one additional interest accrual day, partially offset by seasonally lower Global Markets and credit card NII, and increased $0.7BN from 2Q17, reflecting higher interest rates and loan and deposit growth, offset by a decline resulting from the sale of the non-U.S. consumer credit card business in 2Q17 and higher funding costs in Global Markets.

However, in a disappointing tangent, BofA also reported a decline in its NIM, with net interest yield declining by 1 basis point to 2.38% from 2.39% last quarter, if 4 bps higher from 2Q17, which "reflected the benefits from spread improvement, offset by a reduction in the non-U.S. consumer credit card portfolio (higher-yielding asset), as well as the impact from an increase in Global Markets assets (lower-yielding)." BofA also clarified that excluding Global Markets, the net interest yield would have been 2.95%, up 12 bps from 2Q17.

While net revenue dipped by $200MM, this was more than offset by a $600MM drop in noninterest expense, which declined 5% from $14.0N to $13.3BN Y/Y, "due to the absence of a $0.3B impairment charge in 2Q17 related to certain data centers, as well as reduced support costs and lower litigation." Noninterest expense also declined from 1Q18, due primarily to the absence of seasonally elevated payroll taxes, while the efficiency ratio improved to 59% in 2Q18.

Revenues at the consumer bank were up from higher interest rates, deposit and loan growth, and higher income from cards. The one offset was lower mortgage banking income. Here BofA also set more money for credit losses, with provisions for credit losses increasing $110 million to $944MM, which the bank attributed to credit-card portfolio seasoning and loan growth.

The consumer bank's also said that deposit transactions over mobile devices exceeded ones in the bank's financial centers for the first time. Digital sales now account for 24% of all consumer banking sales, BofA says.

Finally, something interesting: the rate on BofA's total interest-bearing deposits ($873BN) rose from 0.17% in Q2 2017 to 0.43% this quarter as the Fed's monetary tightening continues.

* * *

But focusing on the one income segment which is of most interest to investors, the bank's Global Markets, the bank reported beats across all key segments. Sales and trading revenue of $3.4B increased 6% from 2Q17, with FICC flat at $2.1B and Equities up 19% to $1.3B.

A detailed breakdown below:

  • Trading revenue (ex DVA) $3.6BN, up 7% Y/Y, beating the estimate $3.39BN
  • FICC trading revenue (ex DVA) $2.29 billion, up 2% Y/Y, beating the estimate $2.17BN
  • Equities trading revenue (ex DVA) $1.31 billion, up 17% Y/Y, beating the estimate $1.21BN.

As Bloomberg notes, looking at BofA's sales & trading revenues, it "looks like a 17% boost in equities helped them post flat results, similar to what happened at JPMorgan last Friday. As we know, volatility (judging by the VIX index) increased a little bit in June compared to the first two months of the quarter."

Separately, average total assets increased 5% from 2Q17, while the average VaR declined once more, to a multi-year low low of $30MM in 2Q18 as the bank refuses to take on substantial trading risk.

Net, the results were hardly impressive, with results across the various individual business lines slightly better than expected but hardly spectacular, with loan growth disappointing, however the negative was more than offset by the big drop in expenses. Bank of America shares are up some 1% in the pre-market.

Full presentation below (link).

]]> Mon, 16 Jul 2018 14:35:04 +0300
<![CDATA[Bitcoin Bounces Back Above $6500 After BlackRock Creates Crypto Team]]> Following new last week that billionaire investor Steven Cohen was said to have put money into a hedge fund focusing on crypto, Bitcoin et al. are extending gains today following headlines that BlackRock has formed a team to look into ways to take advantage of the cryptocurrency market and blockchain.

In the last week we have seen the owner of Switzerland’s securities exchange in Zurich say it’s creating a platform for trading digital assets.

Then, according to Fortune, none other than billionaire Steve Cohen has decided to join the bitcoin party and has invested in a Autonomous Partners, a relatively new hedge fund that is acquiring both cryptocurrencies and blockchain-related companies.

And now, as Financial News reports, the world's largest asset manager will examine whether the manager of $6.3 trillion of assets should invest in Bitcoin futures.  It is also reportedly reviewing what competitors are doing with cryptocurrencies and how it would affect its business.

Notably, the formation of the team marks a change for the company after CEO Larry Fink said in October cryptocurrencies are a speculative platform in Asia and heavily used for money laundering. He has also said Bitcoin and other cryptocurrencies were “far from” being an opportunity for institutional investors, and none of BlackRock’s clients wanted to invest in it, according to Financial News.

And all of this comes after JPMorgan, Fidelity, and CME among others have stepped into the crypto mix.

Bitcoin has spiked back above $6500, back at one-week highs...

And the rest of the crypto space is rising also - led by Bitcoin Cash...

So the big question is - Is the institutional investor finally ready to join the crypto party?

]]> Mon, 16 Jul 2018 14:10:50 +0300
<![CDATA[Trump, Putin Shake Hands As Summit Meeting Begins]]> After a brief delay reportedly caused by President Putin, Trump and his Russian counterpart have gathered for a brief press conference before the start of their 90-minute summit meeting, during which the two men will be left alone to discuss a range of issues.


The two men shared a handshake, as Trump said "I really think the world wants to see us get along."

But just like with Trump's summit with North Korean leader Kim Jong Un, who knows what they will say?

NBC News is in full panic mode - "This is remarkable. President Trump, President Putin are going to be alone in a room for 90 minutes with only their interpreters."

And The Intercept's Glenn Greenwald reminds his followers that:

"In 1987, when Reagan met with Soviet leadership, the Far Right took out ads attacking him as a "Useful Idiot" for Russian propaganda, and of betraying America by legitimizing Russian aggression and domestic repression."

And already the talking heads on CNBC have proclaimed that "it was a weak opening by Trump."

As we noted earlier, here are five key things to watch for as they start their press conference in approximately 90 minutes.

* * *

President Trump and First Lady Melania Trump arrived in Helsinki late Sunday night for his long-awaited summit meeting with Russian President Vladimir Putin, according to the Financial Times. And though the two leaders have met before, Monday's summit will mark the first sit down meeting between the two leaders since Trump's inauguration. In an interview that aired yesterday, Trump cautioned that he has "low expectations" going into the summit, because no matter what he accomplishes, the media and Trump's political opponents will treat him like it wasn't enough.

Trump said Friday during his press conference with UK Prime Minister Theresa May that he expects to discuss Syria, Ukraine and terrorism with Putin. He said later that he would consider asking Putin about the possibility of extraditing the more than two dozen Russians who have now been indicted by the DOJ over allegations of interference in the 2016 election.


Just hours before meeting with Putin, Trump blamed former President Barack Obama for the so-called Russian interference during the election because Obama knew about the interference but chose to do nothing, and slammed his political opponents for allowing the US's relationship with Russia to deteriorate to a point where it "has never been worse."

Following Friday's latest round of indictments against a dozen Russian military intelligence officials, Democratic lawmakers slammed Trump for refusing to cancel the meeting.

And while Trump berated his political opponents for taking advantage of the indictments and their timing to try and foil the long-anticipated meeting between the two world leaders, National Security Advisor John Bolton said on Sunday that the president had been briefed in advance about the indictments of the Russian intelligence agents. According to Reuters, Trump appeared upbeat during a breakfast meeting with Finland’s president before the meeting with Putin in the Finnish capital, even tweeting his thanks to his hosts for their hospitality.

Shortly before the meeting was set to begin, Putin was filmed getting off his presidential aircraft in Helsinki.

The Kremlin has said it doesn't expect an easy meeting after pushing back against President Trump's criticisms of a planned Russian gas pipeline to Germany, while suggesting it could be difficult to find common ground on Syria thanks to tensions over Iran.

]]> Mon, 16 Jul 2018 13:38:15 +0300
<![CDATA[US Futures, European Stocks Rise Even As Chinese Data Spooks Asia]]> U.S. futures are fractionally higher, following European shares in the green as Asian equities retreated ahead of today's historic Trump-Putin summit and the first big week of earnings for US corporations.

The key economic catalyst overnight was the latest batch of Chinese data, where GDP rose as expected 6.7% - the slowest since 2016 - however Industrial Production missed badly as discussed last night, printing at 6.0%, below the 6.5% expected and the lowest since Dec 2015, pressuring regional equities.

Chinese Economic Data

The data indicates that Chinese economic growth momentum slowed further, but investors are more worried about coming quarters as U.S. tariffs come into effect, says Ben Kwong, executive director at KGI Asia; sentiment remains quite cautious.

As a result, Chinese stocks slumped after data showed GDP grew at the slowest since 2016 in the second quarter, while Xiaomi dropped after being excluded from a list of stocks eligible for trading via connects with mainland as China aims to protect retail investors using HK link from less understood securities. The Shanghai Composite Index closed down 0.6% at 2,814, while the CSI 300 was also 0.6% lower, ChiNext down -0.1%.

Offsetting some of the gloom, the PBoC injected CNY 170bln via 7-day and CNY 130bln via 14-day reverse repos for a net CNY 300bln daily injection.

“Investors will watch for signs of monetary and fiscal policy loosening from the upcoming central economic work conference, and first-half results for stocks with cheap valuations and earnings growth that beat estimates,” said Central China Securities strategist Zhang Gang.

Elsewhere in Asia, shares were lower, the MSCI Asia Pacific index declining -0.3%, with volumes down in most markets while Japan was shut for a public holiday.

Europe bucked the trend with banks rising on the Stoxx Europe 600 Index, after Deutsche Bank said its earnings are likely to be above market expectations, offsetting a drop in miners. The biggest European bank whose stock price recently a new all time low, said it sees net income of about 400 million euros ($468 million) and pretax income of 700 million euros, “considerably” above estimates. The news sent DB stock surging 8% in early trading, its biggest daily gain since April 2017.

In FX, the dollar weakened against most G-10 peers ahead of an expected slowdown in U.S. retail sales data, set to be reported at 830am ET. The Bloomberg Dollar Spot Index fell 0.2%, taking its three-day decline to more than 0.3%; Treasury 10-year yields rose 1bp to 2.84%

“The USD’s sharp turnaround late on Friday may be telling of the currency’s waning bullish momentum –- or the fact that the dollar looks to be running out of positive catalysts,” wrote ING Groep FX strategist Viraj Patel. “We may need a very strong U.S. retail sales print today to see the dollar push higher.”

The pound rose a third day ahead of a vote later Monday on U.K. Prime Minister Theresa May’s Brexit legislation in Parliament, while the euro was stuck in a small range near the $1.17 level, while the yen edged lower, adding to its biggest weekly slide in 10 months.

In rates, US Treasuries inched lower, tracking bond declines across most of Europe: the 10Y TSY yield dipped 1 basis point to 2.84%; German 10Y Bund yields climbed 1bps to 0.35% while Britain’s 10-year yield also climbed 1bp to 1.273%.

Meanwhile, as Bloomberg notes, with no fresh signs of a trade war escalation and President Donald Trump heading to a summit with Vladimir Putin, investors will focus on a barrage of economic data including Monday’s mixed figures from China, and company earnings, with Bank of America Corp. due to report. The big event this week is Federal Reserve Chairman Jerome Powell's semi-annual testimony where he is expected to lay the groundwork for further tightening.

Commodities traded mixed with WTI and Brent leak lower: Brent flirted around USD 75.00/bbl while WTI hovered near the USD 70.50/bbl level in the aftermath of a pullback from last Friday’s settlement amid reports that the Trump administration was said to be considering tapping into the Strategic Petroleum Reserve to rein in prices. Sentiment also hampered by the weekly Baker Hughes rig count showing an increase of 2 rigs in operation compared to the prior week. Elsewhere, gold (+0.2%) prices are buoyed by the softer USD. London Copper slipped this morning while Chinese Q2 growth printed a slight downtick (yet in-line with expectations), focus continues to remain on China’s response to US tariffs. Steel-linked metals, Nickel and Zinc, are subdued on lower demand expectations amid China’s top steelmaking city ordering steel mills to shut sintering plants for five days due to adverse weather conditions.

Expected data today includes retail sales, which should decline from last month's 0.8% to 0.5%, and the Empire State Manufacturing Survey. Bank of America, BlackRock, and Netflix are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.1% to 2,805.25
  • STOXX Europe 600 up 0.2% to 385.64
  • MXAP down 0.3% to 165.20
  • MXAPJ down 0.4% to 538.17
  • Nikkei up 1.9% to 22,597.35
  • Topix up 1.2% to 1,730.07
  • Hang Seng Index up 0.05% to 28,539.66
  • Shanghai Composite down 0.6% to 2,814.04
  • Sensex down 0.2% to 36,455.29
  • Australia S&P/ASX 200 down 0.4% to 6,241.52
  • Kospi down 0.4% to 2,301.99
  • German 10Y yield rose 1.6 bps to 0.356%
  • Euro up 0.08% to $1.1694
  • Italian 10Y yield fell 7.2 bps to 2.286%
  • Spanish 10Y yield rose 0.7 bps to 1.27%
  • Brent futures down 0.1% to $75.28/bbl
  • Gold spot little changed at $1,244.21
  • U.S. Dollar Index down 0.1% to 94.61

Top Overnight News from Bloomberg

  • President Donald Trump prepared to meet Vladimir Putin in Helsinki on Monday, under pressure to confront his Russian counterpart over Kremlin meddling in the 2016 election and with concerns rising that the U.S. is abandoning the current international order
  • Goldman Sachs Group Inc. bank plans early this week to name company President David Solomon -- whom Blankfein has publicly referred to as his successor -- as its next CEO, the New York Times reported Sunday, citing people briefed on the plan
  • European Union President Donald Tusk called on Donald Trump to reform the world order rather than bring it down, warning that trade wars can lead to “hot conflicts.”
  • China’s economic expansion slowed in line with expectations, signaling broadly stable output as the trade conflict with the U.S. intensifies. GDP increased 6.7 percent in the second quarter from a year earlier, slowest since 2016 and down slightly from the 6.8 percent pace in the previous quarter. Investment growth and industrial output also slowed in June.
  • Theresa May’s long-running battle with her divided Conservative Party took a potentially more dangerous turn, as one of her former ministers began assembling lawmakers to vote against her Brexit plans. Steve Baker, a former Brexit minister, is coordinating lawmakers on WhatsApp ahead of key parliamentary votes, according to a person familiar with the strategy
  • Bank of England policy makers are getting a crucial glimpse of the health of the U.K. economy before their crunch August meeting. A deluge of numbers on wages, inflation, retail sales and public borrowing are coming over the next five days

Asian stocks began the week subdued with the region lacklustre amid the absence of Japanese participants and following a quiet weekend in terms of newsflow, while the region also digested a deluge of mixed Chinese data including a slowdown in Q2 GDP. ASX 200 (-0.4%) was on the backfoot from early trade amid cautiousness prior to the key Chinese releases and with the index dragged by losses in miners and financials. Elsewhere, Shanghai Comp. (-0.6%) and Hang Seng (+0.1%) were initially downbeat after the mixed data in which GDP topped estimates on a Q/Q basis at 1.8% vs. Exp. 1.6%, but GDP Y/Y slowed inline with forecasts to 6.7% vs. Prev. 6.8%. In addition, Retail Sales was better than expected and Industrial Production disappointed, while the lending and money supply data late last week was also varied and added to the uninspired tone. In terms of today’s notable movers, ZTE shares surged after the US confirmed to lift the ban on US sales to the Co. while Xiaomi were on the other side of the spectrum after the Shanghai Stock Exchange banned investors from trading in a dozen of foreign companies and firms with weighted-voting rights via the stock-connect. Chinese Premier Li reiterated China and EU are to uphold multilateralism and free trade during meeting with EU officials, while EU's Tusk said trade wars can result to hot conflicts and that EU is seeking support for WTO reform.

Top Asian News

  • China’s Economy Slows as Expected With Trade War Dimming Outlook
  • China Stocks at Record Lows Make Case for $941 Billion Fund
  • Bank of Thailand Says 4.5% Growth May Spur More Hawkish Stance
  • Malaysia to Propose 10% Sales Tax on Goods, 6% on Services
  • Iron Ore’s Top Grade May Hit $100 as China Chases Blue Skies

European equities opened relatively flat and since then have traded in no firm direction (Eurostoxx 50 +0.1%). Financials (+0.7%) outperform as Deutsche Bank (+6.5%) ignited a bid in the sector after announcing better than expected Q2 preliminary results. Banks dominate gains in their respective bourses. Meanwhile, Indivior (+27.1%) shares sky-rocketed after a US court blocked Indian competitors from selling a cut-price version of Indivior’s bestselling opioid addiction treatment in the US. Due to the Farnborough Air Show, it may be worth keeping an eye on BAE Systems (BA/ LN), Rolls-Royce (RR/ LN), Leonardo (LDO IM), Boeing (BA) and Airbus (AIR FP).

Top European News

  • Buy Europe’s Defensives as Economic, Earnings Growth Slows: HSBC
  • Another Week, Another Brexit Showdown for Theresa May

In FX, the DXY index is meandering within a narrow 94.558-776 band in line with restrained Dollar movement vs its G10 counterparts after last week’s volatile trade and relatively big swings culminated in the Usd netting decent gains, with the DXY briefly over 95.000 at one stage on Friday. Ahead, some data to provide impetus in the form of retail sales. JPY - A marginal underperformer after suffering heaviest losses vs the Usd of late and closing below a key 76.4% Fib (112.33) on Friday, However, the absence of Japanese participants due to the Marine Day holiday has impacted trade overnight between 112.20-55. CHF - Back on a par with the Greenback and still straddling 1.1700 vs the Eur, awaiting the next moves in global trade/tariff wars and anything from Trump’s meeting with Putin.  CAD - The Loonie is pretty level vs its US peer and pivoting 1.3150 ahead of some Canadian data that could impact and/or offset any Usd-led moves in the form of existing home sales.

Commodities trade fairly mixed while WTI and Brent continue to leak with losses. Brent has broken below USD 75.00/bbl while WTI has taken out USD 70.00/bbl to the downside in the aftermath of a pullback from last Friday’s settlement amid reports that the Trump administration was said to be considering tapping into the Strategic Petroleum Reserve to rein in prices. Sentiment also hampered by the weekly Baker Hughes rig count showing an increase of 2 rigs in operation compared to the prior week. Meanwhile, in talks with the Saudi’s Energy Minister, Iranian Oil Minister said OPEC decision does not give members the right to raise their production level above targets Elsewhere, gold (+0.2%) prices are buoyed by the softer USD. London Copper slipped this morning while Chinese Q2 growth printed a slight downtick (yet in-line with expectations), focus continues to remain on China’s response to US tariffs. Steel-linked metals, Nickel and Zinc, are subdued on lower demand expectations amid China’s top steelmaking city ordering steel mills to shut sintering plants for five days due to adverse weather conditions. Iran warns OPEC it will be less effective if the production cap slip.

Looking at today's calendar, the highlight is likely to be the June retail sales report, while the July empire manufacturing report and May business inventories data are also due. Away from that, Bank of America and Netflix are due to report their Q2 earnings while the IMF is due to release its World Economic Outlook. Politics is likely to be a big focus too with US President Trump holding talks with his Russian counterpart President Vladimir Putin and the China - EU summit starting in Beijing.

US Event Calendar

  • 8:30am: Empire Manufacturing, est. 21, prior 25
  • 8:30am: Retail Sales Advance MoM, est. 0.5%, prior 0.8%;
    • Retail Sales Ex Auto MoM, est. 0.3%, prior 0.9%
    • Retail Sales Ex Auto and Gas, est. 0.4%, prior 0.8%
    • Retail Sales Control Group, est. 0.4%, prior 0.5%
  • 10am: Business Inventories, est. 0.4%, prior 0.3%

DB's Craig Nicol concludes the overnight wrap

Congratulations to our readers from France this morning following the country’s highly entertaining 4-2 win over Croatia in the World Cup final yesterday. We’ll have to find something else to talk about now but the good news is that it’s just 25 days until the Premier League season gets underway again. So a decent window to get life admin out of the way. Jim was in France for the game yesterday and  we haven’t heard from him so we can only assume he’s still out celebrating with the locals.

Aside from the football, as we’ve become slightly accustomed to of late, much of the weekend newsflow has centred around President Trump. Specifically, it’s an interview released on CBS‘s ‘Face the Nation’ yesterday which has attracted  the main headlines as during it, President Trump was asked to name the US’s “biggest foe globally”. It’s fairly quiet outside of that in terms of weekend news; however, this morning we’ve already had one of the bigger data releases expected this week. China’s Q2 GDP reading has come in at 6.7%, in line with expectations and down one-tenth of a percent from Q1. The rest of the June activity data out of China was a bit mixed, with retail sales above market at 9.0% (vs. 8.8% expected), fixed asset investment in line at 6.0% while industrial production was weaker than expected at 6.0% (vs. 6.5% expected). The Shanghai Comp (-0.47%) and CSI 300 (-0.45%) are both lower following the data while the rest of Asia is also trading down with the Kospi (-0.27%), Hang Seng (-0.17%) and ASX 200 (-0.44%) all modestly in the red. Markets in Japan are closed for holidays. The CNY and CNH are little changed along with base metals (Oil is about 0.5%  lower, however) although US equity index futures are flat slightly higher as we type.

To be honest that China GDP print is probably the most significant data release this week. This afternoon we’ll get US retail sales data for June where our US economists expect a healthy +0.6% mom headline print and +0.4% mom retail control reading; however, the rest of the calendar is reasonably sparse of data. Markets are likely to spend most of their time preoccupied with any further (unpredictable) developments on the trade front, while, as mentioned at the top, the first summit between President’s Trump and Putin in Helsinki today should be worth watching as a bit of potential political drama to start the week, as well as the EU-China summit which gets going today and where one would expect there to be plenty of debate on both trade and also the WTO.

As far as central banks are concerned, Fed Chair Powell’s semi-annual monetary policy testimony to the Senate Banking Committee on Tuesday and then the House Financial Services Committee on Wednesday will likely be the main highlight, although the latter is usually a copy and paste of the former. Our US economists expect Powell’s testimony to largely reflect the minutes of the June 13th FOMC meeting as he will be testifying on behalf of the committee. As a reminder those minutes presented a generally upbeat economic outlook and broad based support amongst participants for continuing along the path of gradual policy firming. That said policymakers did note the rising risks to the outlook associated with trade policy and given the news last week, Congress will no doubt question Powell as to how the Fed views these risks. The yield curve could also be a point of debate however our economists do not expect Powell to raise alarm bells about the recent flattening.

Elsewhere earnings season is set to ramp up in the US this week too with 64 S&P 500 companies slated to report. We’ll get the remaining banks with Bank of America today, Goldman Sachs on Tuesday and Morgan Stanley on Wednesday. Ahead of those, Friday’s earnings releases from JP Morgan, Citi and Wells Fargo were a bit of a mixed bag. Results for Wells in particular were taken fairly negatively with the stock falling -1.20% following a miss at both the revenue and EPS lines, while disappointing revenues at Citi saw the stock -2.20% lower by Friday’s close. JP Morgan’s numbers were a bit more positive but the stock still slid -0.46%. It’s worth noting that JP’s CEO Jamie Dimon addressed the trade war situation, calling it a “worry” but also saying that its “affecting psyche more than it is economics”. Away from the banks this week we’ve also got some notable tech names reporting including Netflix today, eBay on Wednesday and Microsoft on Thursday.

Coming back to the trade debate, despite last week seemingly marking an escalation of the trade war between China and the US, markets were pretty well behaved for the most part and the one-week returns particularly for equity markets suggest little sign of concern for now. The lack of any retaliation is certainly a big part in that, but the +3.06% and +3.79% five-day returns for the Shanghai Comp and CSI 300 certainly stand out especially with the former seeing the biggest weekly gain since June 2016. The likes of the Kospi (+1.67%) and Nikkei (+3.71%) also had solid weeks while the MSCI EM index also put up a +1.48% return. In Europe the Stoxx 600 returned a more modest +0.70% but has still gained in 8 out of the last 9 trading days. Meanwhile the S&P 500 returned +1.50% and is also up on 6 out of the last 7 trading days. It also passed the elusive 2800 level on Friday. Vol measures are back down near their YTD lows with the VIX closing at 12.18 on Friday (compared to the YTD average of 16.11) and the VSTOXX at 12.80 (YTD average 15.86). So no real signs of stress.

Bond markets meanwhile have been incredibly quiet with 10y Treasury yields just 0.5bps higher than last week and 10y Bunds 4.8bps higher. Both remain in incredibly tight ranges for now although the relentless flattening of the Treasury curve remains a feature with 2s10s closing at 24.5bps on Friday, meaning it flattened 3.6bps last week alone. To be fair commodities did have a tougher time of it but the moves are hardly eye watering. The likes of copper, lead and zinc fell -0.72%, -5.57% and -5.74% last week while WTI Oil fell -3.78%, albeit still only a few bucks off its YTD high.

In terms of Friday’s session itself, risk assets nudged higher in the absence of further escalation in trade tensions. The Stoxx 600 rose +0.17% while the S&P (+0.11%) pushed through the 2,800 mark for the first time since February, with gains led by industrials and consumer staple stocks. Meanwhile core bonds firmed slightly with 10y yields down c.2bp (UST -1.9bp; Bunds -1.7bp) while IG credit spreads also tightened 1-1.5bp. Measures of volatility were little changed with the VIX down 0.4pts to 12.18.

Friday was dominated by a steady slate of central bank speak. The Fed’s Bostic noted that the flattening yield curve requires monitoring by policymakers, but also noted that “to the extent the whole market believes that (relationship),  whether it’s true or not is kind of immaterial because it can become a self-fulfilling prophecy”. Earlier on, the Fed’s Kaplan told Reuters that an escalation of US tariffs would harm the economy and “what’s going on in the short run certainly is not positive, but for me, it isn’t sufficient yet to materially change my outlook”. In the UK, the BoE’s Cunliffe signalled that the BoE should take a cautious approach to rate hikes as he noted that there remains a case for “a little stodginess”.

Finally wrapping up with the data releases from Friday. In the US, the July University of Michigan consumer sentiment index dipped 1.1pts mom to a below market print of 97.1 (vs. 98.0 expected). In the details, inflation expectations for 1yr ahead moderated 0.1ppt from last month’s 3 year high to 2.9% yoy, while the 5yr ahead expectations index also edged down 0.2ppt mom to 2.4% yoy.

Looking at today's calendar, in Europe today, the July Rightmove house price data in the UK followed by the release of the May trade balance for the Eurozone are due. In the US, the highlight is likely to be the June retail sales report, while the July empire manufacturing report and May business inventories data are also due. Away from that, Bank of America and Netflix are due to report their Q2 earnings while the IMF is due to release its World Economic Outlook. Politics is likely to be a big focus too with US President Trump holding talks with his Russian counterpart President Vladimir Putin and the China - EU summit starting in Beijing.

]]> Mon, 16 Jul 2018 13:34:54 +0300
<![CDATA[5 Things To Watch For At The Trump-Putin Summit]]> Despite John McCain and the neocon's best efforts to disrupt it, his advisors (and the Democrats) warnings, and the rest of the Deep State's concerted plans with the liberal media to paint Trump into a lose-lose situation, the Trump-Putin Summit in Helsinki is due to start within the next hour or two.

As President Trump noted in a tweet earlier, "Unfortunately, no matter how well I do at the Summit, I would return to criticism that it wasn’t good enough."

As The Hill notes, Trump has long wanted a closer relationship with Putin, something he believes can mend frayed ties between their two countries. But beyond his apparent affinity for Putin, many in Washington have questioned why the president is sitting down with his Russian counterpart and what he seeks to accomplish.

Here are five things to watch for when Trump and Putin meet in Helsinki:

Election interference

Russia’s interference in the 2016 election, already at the front of observers’ minds, has rocketed to the top of the agenda ahead of Monday’s summit. Deputy Attorney General Rod Rosenstein announced Friday the indictment of 12 Russian intelligence officers who allegedly hacked into the Democratic National Committee and other Democratic groups. The announcement comes just days before the Helsinki summit, ramping up pressure on Trump to raise the issue with Putin. But the president has long wavered on the matter, despite the U.S. intelligence community’s assessment that Russia interfered in the election. Just last month, Trump tweeted that “Russia continues to say they had nothing to do with Meddling in our Election!”

Trump has repeatedly highlighted that denial — which Putin made during their first face-to-face meeting at last year’s group of Group of 20 summit — as a way of downplaying the issue. “President Trump is now the outlier in his own administration, seemingly,” said a former Trump transition official. The president has promised multiple times to press Putin on election interference, saying Friday he would “absolutely firmly ask the question” when they meet. Trump has expressed a belief, however, there is not much he can do to deter their activity. “I don’t think you’ll have any ‘Gee, I did it, I did it, you got me.’ There won’t be a Perry Mason here,” Trump said at a press conference with British Prime Minister Theresa May.

National security figures with ties to the White House hope Trump publicly warns Putin against interfering in the midterms and threatens the Russian leader with consequences.

But the worst-case scenario they fear is Trump remaining silent on the issue and raising the possibility of lifting sanctions on Moscow, something that would fuel criticism from political opponents who believe he is too close to Putin.

Democrats in Congress have called on Trump to cancel the summit entirely in response to the indictment, but there is no sign Trump is interested in doing so.


Trump has reportedly been eying a deal with Putin in Syria that is aimed at moving Iranian forces away from the border with Israel in exchange for withdrawing U.S. troops. But both U.S. and Russian officials have been reluctant to give ground on thorny issues such as troop levels or territory, and experts are not optimistic a deal will be made in Helsinki. “To me, this whole issue of expecting the Russians or hoping the Russians are going to deliver Iranian concessions in Syria is the triumph of blind hope over grim analysis,” said Robert Ford, former U.S. ambassador to Syria under former President Obama.

Under the terms of a possible deal, Russia would promise to limit Iranian presence near Syria’s border with Israel and Jordan and, in turn, the U.S. would allow Syrian President Bashar Assad’s forces to take control of the area. U.S. forces have an outpost in southern Syria near the border with Jordan and Iraq known as al Tanf, which Pentagon officials have said is key to ensuring Iran does not complete the Tehran-to-Beirut land bridge it desires. But under the reported deal, U.S. forces would leave al Tanf — and eventually Syria — altogether. Experts have warned Trump not to repeat the mistakes of his summit with North Korean leader Kim Jong Un, when he did not come away with an ironclad plan for denuclearization.

“If he buys a vague promise, then it looks like the Singapore summit where he gets some nice words without details from the other side of the summit table,” said Ford.


Crimea has been at the heart of U.S.-Russia tensions since 2014. That’s when Russia annexed the peninsula off Ukraine, sparking a wave of international sanctions and other measures aimed at isolating Moscow. But Trump has repeatedly left the door open to recognizing Russia’s claim over Crimea during his meeting with Putin, even repeating Moscow’s talking point that it has a rightful claim to the territory because most residents speak Russian. The president stoked further concern this week when he again did not rule out the possibility during his press conference at the end of the tumultuous NATO summit.

“That’s an interesting question, because long before I got here President Obama allowed that to happen, that was under his watch, not my watch,” Trump said. “What will happen with Crimea from this point on? That, I can’t tell you.”

One of the post-Crimea punishments for Russia was getting booted from the then-Group of Eight world economic powers. But last month, on his way to the Group of Seven summit in Canada, Trump said that should be reversed. “Russia should be in this meeting,” he said at the time. "Why are we having a meeting without Russia being in the meeting?"

The U.S. and its European allies stepped up their military posture and exercises in Eastern Europe after the Crimea annexation. But after Trump unilaterally agreed to cancel joint military exercises with South Korea during his summit with North Korea’s Kim, allies are fearful of him doing the same with Putin. Republicans in Congress are cautioning Trump against a repeat performance. “I think the president should listen to his security council and our secretary of Defense and our NATO allies on anything of substance dealing with the U.S. military posture. We’ve got to be careful, we’ve got to be strong,” said Sen. Richard Shelby (R-Ala.), who recently led a congressional delegation to Russia.

Arms control

Trump has said one of his top priorities for the summit is arms control, a topic that could produce a rare opportunity for the U.S. and Russia to find common ground. Arms control advocates say Trump can score an easy win with Putin by agreeing to extend the New START Treaty for another five years. The treaty, negotiated by the Obama administration, caps the U.S. and Russia’s deployed nuclear warheads to 1,550 each and comes up for renewal in 2021. “[Renewal] would ensure that we do not return to a numerical arms race,” said Thomas Countryman, former assistant secretary of State on international security and nonproliferation.

But most experts do not believe a decision on New START will come at the summit. Trump has dismissed the treaty as one of Obama’s “bad deals,” and it could take some convincing to get him on board. Republicans have argued the treaty should not be extended while Russia is in violation of a separate arms control agreement known as the Intermediate-Range Nuclear Forces (INF) Treaty. That agreement, which has been credited with helping end the Cold War, bans ground-launched ballistic and cruise missiles with ranges between 500 and 5,500 kilometers. The United States has repeatedly accused Russia of violating the INF Treaty by developing and deploying a banned missile, a charge Moscow denies.

The summit could provide an opportunity for Trump to address the INF violation directly with Putin, but experts say Russia has shown little appetite for reversing course.


Even more than contentious policy issues, the visuals could be the most memorable part of the Trump-Putin summit. Trump and Putin will hold a joint press conference, which should be a spectacle in and of itself and give U.S. media a chance to rare opportunity to press the Russian leader on election meddling and other key issues. It could cause problems for Trump if he appears too friendly with Putin, especially given the timing of the meeting, just days after the hacking indictments.

But Trump’s desire to form a close bond with Putin could lead the president to give his Russian counterpart a warm reception, just like he did with Kim in Singapore. It could fuel criticism back home that Trump has a greater affinity for strongmen than he does for longtime U.S. allies.

Days before the summit, Trump was shown grimacing during a group photo with NATO partners in Brussels and rolled his eyes when he was asked during a meeting with British Prime Minister Theresa May about critical comments he made about the U.K. leader. Putin, a former KGB officer with a flair for the dramatic, could also have some tricks up his sleeve.

The Russian leader frequently shows up late for meetings with world leaders, even forcing Pope Francis to wait for 50 minutes before a 2015 sit-down in Vatican City. Putin even brought his pet Labrador to a 2007 meeting with German Chancellor Angela Merkel, who has a well-known fear of dogs. The Russian president later said he did not mean to scare Merkel and claimed he apologized after learning she is scared of dogs.

*  *  *
And in case it's not immediately obvious, as Jim Jatras recently noted, there are many reasons the bipartisan US establishment hates Trump. His heresies from neoliberal orthodoxies on immigration and trade are prominent. But top among them is his oft-stated intention to improve relations with Russia.

That’s fighting words for the Deep State and its mainstream media arm, for which demonizing Russia and its president Vladimir Putin is an obsession.

The fact that Donald Trump made his intention to get along with Moscow a priority during his 2016 campaign, both against his Republican primary rivals and Hillary Clinton (who has compared Putin to Hitler) was cause for alarm. This is because far more than even the frightening prospect that the 70-year state of war on the Korean Peninsula might end, US reconciliation with Russia would yank the rug out from under the phony justifications for spending hundreds of billions of dollars annually to counter a “threat” that ceased to exist over a quarter century ago. Absent hostility to Russia that money has no reason to keep sustaining the power, privilege, and prosperity of a horde of moochers and profiteers, both at home and abroad.

That’s why when it was reported soon after his January 2017 inauguration that Trump was seeking to open dialogue with the Kremlin and set an early summit with Putin there was a hysterical counteraction.

*  *  *

Finally, watch out for any 'hot mic' incidents, because it would very awkward if a president on the United States was caught offering himself up to a Russian leader...

]]> Mon, 16 Jul 2018 12:00:00 +0300
<![CDATA[Boris Johnson Vs. Theresa May: Too Close To Call]]> During President Trump's working visit to the UK, he gave an interview to tabloid newspaper The Sun in which he dropped a number of bombshells on Prime Minister May - which he later attempted to back-pedal during their press conference.

Among them was a warning regarding May's Brexit plan, saying: "If they do a deal like that, we would be dealing with the EU instead of dealing with the UK, so it will probably kill the deal”. Piling further pressure onto the PM, he also appeared to throw his support behind recently resigned foreign secretary Boris Johnson, saying he would "make a great prime minister".

As Statista's Martin Armstrong notes, Johnson has long been expected to launch a leadership bid, and the chances only seem to have gotten higher since his resignation. While he apparently has Trump's backing, does he have enough support among the public and, perhaps more importantly, Conservative voters?

Infographic: Boris Johnson vs. Theresa May: too close to call | Statista

You will find more infographics at Statista

A new survey by YouGov reveals that Johnson and May are actually seen in a similarly unfavourable light across the country and, while they are certainly more popular among Conservative party supporters, there is very little to choose between the two of them at this stage in terms of popularity.

]]> Mon, 16 Jul 2018 11:25:00 +0300
<![CDATA[Hyperinflation Avoidance Advice For Turkish Citizens As Fitch Cuts Ratings]]> Authored by Mike Shedlock via MishTalk,

Turkey is on a path towards hyperinflation. Here are the steps Turkish citizens should make ASAP.

Citing stability risks, Fitch Cuts Turkey's Credit Rating to BB, further into junk territory.

  • Risks to macroeconomic stability have intensified owing to the widening in the current account deficit, more challenging global external financing environment, jump in inflation and the impact of the plunge in the exchange rate on the private sector: Fitch

  • Economic policy credibility has deteriorated in recent months and initial policy actions following elections in June have heightened uncertainty, the rating agency said in a statement

  • Fitch expects CAD to widen to 6.1% of GDP in 2018, driven by higher fuel prices, and in 1H, higher household consumption

  • Fitch forecasts annual average inflation to be more than double the current BB range median, at 13% in 2018 and 10.8% in 2019

  • Outlook on the rating is negative

Heading for Hyperinflation

Turkey isn't close to hyperinflation yet. But the path it's on is a guaranteed way to get there.

Turkey on Venezuela's Path

  1. Erdogan jailed political opponents

  2. Parliament effectively made Erdogan prime minister for life

  3. Erdogan took over the press

  4. Erdogan took over the courts

  5. Erdogan took over finance

  6. Erdogan about to take over the central bank

Hyperinflation Nearly Inevitable

Venezuela did not hop straight into hyperinflation and Turkey likely won't either.

However, if Turkey remains on the same path, which seems highly likely, hyperinflation is the inevitable outcome.


The Turkish Lira has lost 76% of its value in the last 10 years against the USDollar (and lost 94% in the last 20 years).

Advice for Turkish Citizens

  • Prepare for hyperinflation

  • Get your money out of Turkish banks ASAP

  • Convert all existing savings into a basket of US dollars, gold and silver.

  • Borrow as much Turkish Lira as you can

  • Invest it in a basket of US dollars, Gold, and Silver

Hyperinflation is complete loss of faith in currency. It's inevitably starts off as a series of political as opposed to monetary events.

Erdogan has Turkey on that path.

For discussion of the Turkey hyperinflation case and comparisons to other historic hyperinflations, please see Hyperinflation and Mass-Migration Crisis Inevitable.

]]> Mon, 16 Jul 2018 10:50:00 +0300
<![CDATA[Italy Blocks 450 Migrants As New Mediterranean Crisis Unfolds]]> Italy dug its heels in on Saturday after conservative Interior Minister Matteo Salvini refused to let 450 migrants aboard two military vessels dock at Italian ports, marking the country's latest stand against the large-scale influx of predominantly North African refugees.

The migrants had originally set sail from Libya in a single wooden vessel which was identified early Friday as it passed through Maltese waters. After being denied safe harbor in Italy, they were transferred to the two separate vessels near the Italian island of Linosa - close to Malta, after which Salvini suggested they "head south, down to Libya or Malta." One of the two ships is operated by EU border agency Frontex, while the other belongs to Italy's tax police. 

In an exchange of messages, emails and phonecalls on Friday, Rome had tried to push Valetta to take responsibility for those on board the wooden boat.

But Malta said the ship was much closer to the Italian island of Lampedusa, insisting that those on board only wanted to reach Italy.

On Saturday morning, they were transferred to two military vessels but where the vessels will dock remains unclear. -France24

The new standoff began just hours after Italy allowed 67 migrants to disembark in Sicily from an Italian coast guard ship on Thursday. 

"We need an act of justice, of respect and of courage to fight against these human traffickers and generate a European intervention," said Salvini during talks with Prime Minister Giuseppe Conte.

On Sunday, Germany, France and Malta agreed to take 50 migrants each, while Conte sent letters to the governments of the 27 other EU members encouraging them to share responsibility.

"Germany and Italy have agreed that, in view of the ongoing talks on closer bilateral cooperation on asylum, Germany is ready to accept 50 people in this case," a German government spokeswoman said on Sunday.

“This is the solidarity and responsibility that we have always asked of Europe and now, after the results obtained at the last European Council, they are beginning to become reality,” Mr Conte wrote in a Sunday afternoon Facebook post, adding "Let's continue on this path with firmness and respect for human rights," he added.

Conte's comments were not well received by the Czech Republic, who refused his request as Andrej Babis, the prime minister, tweeted that the approach was the "road to hell" - adding that boats carrying migrants should be turned back, and that migrants should be helped within their own countries. 

Germany's agreement to take 50 migrants follows an announcement by Interior Minister Horst Seehofer that the Bavarian state police would begin granted authority to patrol the southern border with Austria as part of a new series of measures aimed at resisting migrant arrivals. 

Mr Seehofer said on Sunday that Bavarian police would be able to conduct checks at the Austrian border “at the request or with the consent of federal police,” after it was questioned whether it was legal for such power to be granted to them. -Telegraph

Seehofer threatened to resign earlier this month if Chancellor Angela Merkel could not arrive at a European solution, or to let him implement tougher border security measures. The debate which threatened to tear apart Germany's coalition government, an agreement was reached on how to control the influx of migrants from the German-Austrian border.

Italy's Conte, meanwhile, says that his country is willing to help the migrants as long as other EU members share the burden - while Salvini said that he will allow a few children and mothers to disembark in Sicily. 

"I am monitoring the situation of two ships travelling in Italian waters... there are 16 mothers and 11 children who will disembark in the next few minutes, hours...," Mr Salvini said in a statement to TV channel RaiNews24.

]]> Mon, 16 Jul 2018 10:15:00 +0300
<![CDATA[The Gaping Holes In The Official Skripal Story]]> Authored by Craig Murray,

In my last post I set out the official Government account of the events in the Skripal Case. Here I examine the credibility of this story. Next week I shall look at alternative explanations.

Russia has a decade long secret programme of producing and stockpiling novichok nerve agents. It also has been training agents in secret assassination techniques, and British intelligence has a copy of the Russian training manual, which includes instruction on painting nerve agent on doorknobs.

The only backing for this statement by Boris Johnson is alleged “intelligence”, and unfortunately the “intelligence” about Russia’s secret novichok programme comes from exactly the same people who brought you the intelligence about Saddam Hussein’s WMD programme, proven liars. Furthermore, the question arises why Britain has been sitting on this intelligence for a decade and doing nothing about it, including not telling the OPCW inspectors who certified Russia’s chemical weapons stocks as dismantled.

If Russia really has a professional novichok assassin training programme, why was the assassination so badly botched? Surely in a decade of development they would have discovered that the alleged method of gel on doorknob did not work? And where is the training manual which Boris Johnson claimed to possess? Having told the world – including Russia -the UK has it, what is stopping the UK from producing it, with marks that could identify the specific copy erased?

The Russians chose to use this assassination programme to target Sergei Skripal, a double agent who had been released from jail in Russia some eight years previously.

It seems remarkable that the chosen target of an attempt that would blow the existence of a secret weapon and end the cover of a decade long programme, should be nobody more prominent than a middle ranking double agent who the Russians let out of jail years ago. If they wanted him dead they could have killed him then. Furthermore the attack on him would undermine all future possible spy swaps. Putin therefore, on this reading, was willing to sacrifice both the secrecy of the novichok programme and the spy swap card just to attack Sergei Skripal. That seems highly improbable.

Only the Russians can make novichok and only the Russians had a motive to attack the Skripals.

The nub of the British government’s approach has been the shocking willingness of the corporate and state media to parrot repeatedly the lie that the nerve agent was Russian made, even after Porton Down said they could not tell where it was made and the OPCW confirmed that finding. In fact, while the Soviet Union did develop the “novichok” class of nerve agents, the programme involved scientists from all over the Soviet Union, especially Ukraine, Armenia and Georgia, as I myself learnt when I visited the newly decommissioned Nukus testing facility in Uzbekistan in 2002.

Furthermore, it was the USA who decommissioned the facility and removed equipment back to the United States. At least two key scientists from the programme moved to the United States. Formulae for several novichok have been published for over a decade. The USA, UK and Iran have definitely synthesised a number of novichok formulae and almost certainly others have done so too. Dozens of states have the ability to produce novichok, as do many sophisticated non-state actors.

As for motive, the Russian motive might be revenge, but whether that really outweighs the international opprobrium incurred just ahead of the World Cup, in which so much prestige has been invested, is unclear.

What is certainly untrue is that only Russia has a motive. The obvious motive is to attempt to blame and discredit Russia. Those who might wish to do this include Ukraine and Georgia, with both of which Russia is in territorial dispute, and those states and jihadist groups with which Russia is in conflict in Syria. The NATO military industrial complex also obviously has a plain motive for fueling tension with Russia.

There is of course the possibility that Skripal was attacked by a private gangster interest with which he was in conflict, or that the attack was linked to Skripal’s MI6 handler Pablo Miller’s work on the Orbis/Steele Russiagate dossier on Donald Trump.

Plainly, the British governments statements that only Russia had the means and only Russia had the motive, are massive lies on both counts.

The Russians had been tapping the phone of Yulia Skripal. They decided to attack Sergei Skripal while his daughter was visiting from Moscow.

In an effort to shore up the government narrative, at the time of the Amesbury attack the security services put out through Pablo Miller’s long term friend, the BBC’s Mark Urban, that the Russians “may have been” tapping Yulia Skripal’s phone, and the claim that this was strong evidence that the Russians had indeed been behind the attack.

But think this through. If that were true, then the Russians deliberately attacked at a time when Yulia was in the UK rather than when Sergei was alone. Yet no motive has been adduced for an attack on Yulia or why they would attack while Yulia was visiting – they could have painted his doorknob with less fear of discovery anytime he was alone. Furthermore, it is pretty natural that Russian intelligence would tap the phone of Yulia, and of Sergei if they could. The family of double agents are normal targets. I have no doubt in the least, from decades of experience as a British diplomat, that GCHQ have been tapping Yulia’s phone. Indeed, if tapping of phones is seriously put forward as evidence of intent to murder, the British government must be very murderous indeed.

Their trained assassin(s) painted a novichok on the doorknob of the Skripal house in the suburbs of Salisbury. Either before or after the attack, they entered a public place in the centre of Salisbury and left a sealed container of the novichok there.

The incompetence of the assassination beggars belief when compared to British claims of a long term production and training programme. The Russians built the heart of the International Space Station. They can kill an old bloke in Salisbury. Why did the Russians not know that the dose from the door handle was not fatal? Why would trained assassins leave crucial evidence lying around in a public place in Salisbury? Why would they be conducting any part of the operation with the novichok in a public area in central Salisbury?

Why did nobody see them painting the doorknob? This must have involved wearing protective gear, which would look out of place in a Salisbury suburb. With Skripal being resettled by MI6, and a former intelligence officer himself, it beggars belief that MI6 did not fit, as standard, some basic security including a security camera on his house.

The Skripals both touched the doorknob and both functioned perfectly normally for at least five hours, even able to eat and drink heartily. Then they were simultaneously and instantaneously struck down by the nerve agent, at a spot in the city centre coincidentally close to where the assassins left a sealed container of the novichok lying around. Even though the nerve agent was eight times more deadly than Sarin or VX, it did not kill the Skripals because it had been on the doorknob and affected by rain.

Why did they both touch the outside doorknob in exiting and closing the door? Why did the novichok act so very slowly, with evidently no feeling of ill health for at least five hours, and then how did it strike both down absolutely simultaneously, so that neither can call for help, despite their being different sexes, weights, ages, metabolisms and receiving random completely uncontrolled doses. The odds of that happening are virtually nil. And why was the nerve agent ultimately ineffective?

Detective Sergeant Bailey attended the Skripal house and was also poisoned by the doorknob, but more lightly. None of the other police who attended the house were affected.

Why was the Detective Sergeant affected and nobody else who attended the house, or the scene where the Skripals were found? Why was Bailey only lightly affected by this extremely deadly substance, of which a tiny amount can kill?

Four months later, Charlie Rowley and Dawn Sturgess were rooting about in public parks, possibly looking for cigarette butts, and accidentally came into contact with the sealed container of a novichok. They were poisoned and Dawn Sturgess subsequently died.

If the nerve agent had survived four months because it was in a sealed container, why has this sealed container now mysteriously disappeared again? If Rowley and Sturgess had direct contact straight from the container, why did they not both die quickly? Why had four months searching of Salisbury and a massive police, security service and military operation not found this container, if Rowley and Sturgess could?

I am, with a few simple questions, demolishing what is the most ludicrous conspiracy theory I have ever heard – the Salisbury conspiracy theory being put forward by the British government and its corporate lackies.

My next post will consider some more plausible explanations of this affair.

]]> Mon, 16 Jul 2018 09:40:00 +0300
<![CDATA[NHS Waiting-List In England Reaches Longest In 11 Years]]> New figures released by NHS England today reveal the waiting list to be at its longest since August 2007 having steadily risen over the last few years to 4.1 million people awaiting treatment.

Infographic: NHS waiting list in England longest since August 2007 | Statista

You will find more infographics at Statista

Responding to the figures, Chief Executive and General Secretary of the Royal College of Nursing, Janet Davies, said:

"While he is not personally on the hook today...these figures should leave the new Health Secretary in no doubt as to the scale of the task ahead of him".

In terms of the action she sees as necessary for the NHS, she added:

"Safe and effective patient care relies on having enough nurses, and the Health Secretary must urgently address the staff shortages that are crippling our healthcare system.

As a reminder, in a tweet earlier this year, President Trump wrote:

“The Democrats are pushing for Universal Healthcare while thousands of people are marching in the UK because their system is going broke and not working. Dems want to greatly raise taxes for really bad and non-personal medical care. No thanks!”

With almost 10% of the UK population in front of you for treatment, he may have a point.

]]> Mon, 16 Jul 2018 09:05:00 +0300
<![CDATA[The Relentless Radicalization Of Sweden]]> Authored by Judith Bergman via The Gatestone Institute,

A new study of Salafism in Sweden, conducted by the Swedish Defence University, paints a bleak picture of the ongoing radicalization of Muslims in Sweden.

The Salaf are the "pious ancestors" during the first three generations of the followers of Mohammed; its ideology has come to be associated over the last few decades with al-Qaeda and ISIS, as well as with local al-Qaeda affiliates. According to the study, Salafists, who believe in Islam as Mohammed's early followers practiced it, tend to reject Western society in favor of a "pure" Islam: "Not all Salafists are jihadists, but all jihadists are Salafists".

Although the study does not give an estimate of how many Salafists are in Sweden, it does describe how Salafist milieus there have evolved and grown stronger, especially during the past decade, and lists several examples of the influence they wield in different Swedish cities and localities.

The Swedish Defence University has published a new study that paints a bleak picture of the ongoing radicalization of Muslims in Sweden. (I99pema/Wikimedia Commons)

"Salafists", the authors of the study conclude, "...advocate gender segregation, demand that women veil themselves to limit 'sexual temptation', restrict women's role in the public sphere and strongly oppose listening to music and some sports activities"

According to the study, many Salafists also tell Muslims not to have Swedish friends, and refer to them as "kufr", the Arabic term for a non-Muslim or "disbeliever". One Salafist preacher, Anas Khalifa, said:

"Does that mean that if you meet a Christian or Jew you should beat him or threaten him? No. There is no war between you and Christians and Jews in your school, for example. You hate him for Allah's sake. You hate that he does not believe in Allah. But you want from your heart that he will love Allah. So you have to work with them, talk with them, because you want Allah to guide them".

The Salafists, apparently, have divided Sweden geographically between them. According to the study:

"It is interesting that the Salafist preachers, on which the study focuses, appear to be more in cooperation with each other, rather than rivals. Instead, these preachers seem to divide their da'wa (mission) into different geographical areas..."

The study's findings from different cities where Salafists are active include:

In Borås, some children will not drink the water at the school or paint with watercolors there, because they say the water is "Christian". The police report that Muslim children have told their classmates they will cut their throats, while showing them beheadings on their mobile phones. There are examples of "adolescents arriving at mosques at the end of a school day to 'wash' themselves after having interacted with [non-Muslim] society". Care workers [health care, child care, etc.] in the city have testified to how men exercise control over women, checking on them even in waiting rooms. One care worker said:

"I realized that there is a network that controls the women so they won't be left alone with the care workers. They are not given a chance to tell anyone about their situation. Many women live worse [lives] here than they would have in their former countries".

This kind of control of women appears to be taking place in practically all the Swedish cities mentioned in the study.

In Västerås, religious influence is mixed with crime. "It could be a bunch of guys coming into the grocery store. If the woman at the cashier is not veiled, they take what they want without paying, they call the cashier 'Swedish whore' and spit on her," said a police officer in the study. Other examples include Syrians and Kurds who run stores and restaurants in the area and are questioned by young Muslims about their religion. If the answer is not Islam, they are harassed. In other cases, boys as young as 10-12 years have approached older women in the area, asking them whether they are Muslim, telling them "this is our area".

In Gothenburg, according to the study, Salafists told Muslims not to vote in the most recent elections because it is "haram" (forbidden). "They said that on the day of judgment you will be responsible for the actions of all stupid politicians if you vote. They stood at polling stations... At one polling station they waved an IS [Islamic State] flag", a local official told the authors of the study. According to one imam in the city, Gothenburg has been the capital of Wahhabism (a Saudi version of Salafism) in Europe since the 1990s.

Out of the 300 Swedish Muslims who joined ISIS in Syria and Iraq, almost one third came from Gothenburg. (In relation to their total population, more people have traveled from Sweden to join jihadist groups in Syria and Iraq than from most European countries -- only Belgium and Austria have a higher proportion). Somali-Canadian preacher Said Regeah, speaking at the Salafist Bellevue Mosque in Gothenburg, has "raised the importance of people being born 'pure' and that only Muslims are pure. All are born as Muslims, but it is the parents who shape them to become 'Jews, Christians, or Zoroastrians'".

The study also reports that non-Muslim business owners have experienced having their facilities vandalized with Islamic State graffiti and that Christian priests have received threats of decapitation. One man, Samir, said, "If you do not follow Islam, people ostracize you. There are parents here who put veils on their three-year-olds. It is unreal. We are not in Iraq".

Another man, Anwar, was denied service in a Muslim restaurant because he is not religious. He points out that society is letting secular Muslims down: "I don't need a Bible or a Koran in my life. The only book I need is... the [Swedish] law. But if society isn't even on your side, what can you do?"

In the Stockholm area, the study estimates that there are currently up to 150 Salafist jihadists. Salafists are especially concentrated in the Järva area, a "no go zone". Sometimes the jihadist and the criminal elements overlap, and these Muslims terrorize other people who live in the area. One woman said that Salafists and Islamists have come to dominate businesses, basement mosques, and cultural associations during the past ten years, and that "Swedes have no idea how much influence political Islam has in the suburb". She described how even children are gender segregated and that religious leaders tell women not to tell the authorities if their husband abuses them. "Swedish laws are not applied in the suburbs".

The study concludes with a critique of Swedish authorities for their apparent inability to link individual radical Muslims to the "environments that form their ideas and in certain cases have facilitated the will to join more radical and violent groups". The study mentions the following as an example:

"When the then-National Coordinator Against Violent Extremism said that the question of why so many people chose to travel to IS from Sweden was 'a million dollar question', it is an illustration of the overall inability of Swedish authorities (with the exception of police and security police) to see that this problem has not emerged from a vacuum".

This inability -- or possibly willful blindness -- to see that jihadist terrorism does not emerge from a vacuum, but is nurtured in particular environments is hardly an exclusively Swedish situation. The insistence of so many European and other Western authorities to describe terrorist attacks as instances of "mental illness" illustrate it perfectly.

The authors of the study also mention that schools and other local authorities do not know how to deal with the challenges created by the Salafists. The study mentions, for example, that a Muslim schoolgirl wanted to take off her headscarf to play hairdresser with the other children, but the Swedish personnel did not allow it out of respect for her parents' wishes. In an example from a Swedish preschool, a little girl did not want to wear her headscarf but the Swedish personnel forced it on her, "even though it felt wrong", because it was the parents' wish. Swedish school personnel have also described that they do not know how to act when children want to eat and drink during Ramadan, but the parents have instructed that they must fast.

The study is an important first step in Sweden finally acknowledging that there is a problem, but unless the relevant Swedish authorities -- including the Swedish government and the political leaders, who refuse to acknowledge reality in Sweden -- read and internalize it, the study will have been done in vain.

]]> Mon, 16 Jul 2018 08:30:00 +0300
<![CDATA[Beijing Sends Spy Ship To Monitor Rimpac Wargames After Being Disinvited]]> A Chinese spy ship is currently monitoring the US-led Rim of the Pacific (RIMPAC) war games off the waters of Hawaii after Beijing was disinvited from the event, according to USNI News. The People's Liberation Army Navy (PLAN) Dongdiao-class auxiliary general intelligence (AGI) spy vessel was first spotted near the event on July 11, though it has not entered the territorial waters of the United States.

"We expect the ship will remain outside the territorial seas of the U.S. and not operate in a manner that disrupts ongoing RIMPAC exercise," US Pacific Fleet spokesman Capt. Charlie Brown told USNI, adding "We’ve taken all precautions necessary to protect our critical information. The ship’s presence has not affected the conduct of the exercise." 

"We continue to uphold the principle of freedom of navigation and overflight in accordance with international law."

The spy ship's presence was criticized by the commander of the exercise's combined forces maritime component, Chilean Commodore Pablo Nieman.

"It is very disappointing that the presence of a non-participating ship could disrupt the exercise," Nieman said in a statement. "I hope and expect all seafarers to act professionally so we may continue to focus on the work at hand and building on the spirit of cooperation that gives purpose to this exercise."

The presence of the ship off of Hawaii can be used a tool to justify more U.S. presence operations closer to China, Andrew Erickson, a professor at the Naval War College, told USNI News on Friday.

“The U.S. shouldn’t let China have it both ways,” he said. “No matter what Beijing says or does, U.S. forces must continue to operate wherever international law permits, including in, under, and over the South China Sea—a vital part of the global maritime commons that is 1.5 times the size of the Mediterranean and contains substantial areas that no nation can legally claim for itself or restrict access to in any way.” -USNI

A similar Russian spy ship observed the RIMPAC games in 2016 when China was a participant. 

On May 23 the Pentagon announced that it was disinviting China from the exercise due to the recent militarization of the South China Sea, while Vietnam was invited to participate for the first time. Also making their debut will be Israel and Sri Lanka. The People's Republic of China (PRC) had participated in 2014 and 2016. 

The 47-ship, five submarine exercise between twenty-six countries will feature over 200 aircraft and be manned by around 25,000 personnel according to the US Navy. It will also feature the first live firing of the Lockheed LRASM anti-ship missile. 

For a full list of countries and vessels participating in RIMPAC, click here.

]]> Mon, 16 Jul 2018 07:30:00 +0300
<![CDATA[The Deadly Math Of America's Faux Prosperity]]> Authored by Tom Luongo,

Record Deficits, Stronger Dollar Equals Record China Trade Deficit

Sometimes math is a real bitch.   Donald Trump is a smart guy.  I know he knows math.

Too bad he’s ignoring it.

Here’s the gig.  The title says it all.  Government spending is rising rapidly.  More actual money is flowing into the US economy.  Where is that spending going?  To buy cell phones, computers, cars, office supplies and all the rest.

It doesn’t matter if the purchase is made at Best Buy through a Purchase Order, the money still goes to stuff built and imported from China.  The second order effect is that even if it goes to subsidize a farmer in Iowa or a defense contractor in California, that money winds up in the hands of a consumer who does what?

Goes to Best Buy and buys a new TV.  This isn’t rocket science folks, it is simple cause and effect.

More money chases those goods.  Despite the naysayers, Apple is selling a crap-ton of $1200 phones…. built where?  China.

So, the budget deficit thanks to record spending is fueling the very trade deficit with China that Trump is complaining about daily.

Here’s the math.

Big Badda Boom

First up is the budget deficit numbers through nine months of fiscal year 2018, courtesy of Zerohedge.

This resulted in a June budget deficit of $75 billion, better than the consensus estimate of $98BN, and an improvement from the $147 billion deficit in May and as well as slightly less than the deficit of $90.2 billion recorded in June of 2017.This was the second biggest June budget deficit since the financial crisis…

…The June deficit brought the cumulative 2018F budget deficit to over $607BN during the first nine month of the fiscal year, up 16% over the past year; as a reminder the deficit is expect to increase further amid the tax and spending measures, and rise above $1 trillion.

The post has a ton of charts to illustrate the point, but it’s mostly unnecessary.  The US Treasury is issuing debt at an astounding rate to cover this budget.  Spending goes up as tax receipts do thanks to lower tax rates and increasing growth.

More Ticky, More Washy

The second part of the title is the latest figures released on the trade deficit with China.

Trump and Navarro Will Hate This Chart

Taking this one step further we have the exploding interest payments on the $21 trillion pile of debt the US Treasury has racked up.  $1.18 trillion of which is owed to….?


As anyone who runs a house knows, when you get a raise what happens to your debt load if you increase your spending to match the raise in earnings?

Nothing.  It stays the same.

If you are smart, your debt is all fixed-rate, so your monthly outlays stay the same.  But, guess what?  A lot of the US’s debt is inflation-linked TIPS (Treasury Inflation Protected Securities).

TIPS are basically a variable-rate mortgage against your labor folks.

So, debt-servicing costs are rising quickly with the slightest rise in interest rates.

Because when you paying 1% on $100 a rise to 2% doesn’t hurt much.  But, when that 1% marginal rise in interest rate is on $20,000, now its real money.  In your household you cut back on spending.

Does the government do that?  Nope.

Keynesian thinking dominates economic thought.  Even Chicago School guys like Chief Economic Advisor Larry Kudlow are effectively Keynesian when it comes to money issuance.

So, inherent in this equation is the increasing interest payments on a portion of the US’s debt held by China.  That’s not something tariffs can fix.

Yuan Moar?

The third part of the math is the Yuan.  China, to combat a slowing credit growth as the Fed pulls back on dollar liquidity is devaluing the Yuan to keep its banking system liquid.

Cheap yuan means cheaper Chinese goods.

Hybrid war tactics like tariffs and monetary policy adjustments are double-edged swords.

For countries that don’t prepare themselves they are left vulnerable to shifts in central bank credit creation.  The severity of that vulnerability, however, can be managed by the opposing central bank.

Remember last month when the TIC report told us that Russia dumped half of its US Treasury holdings?   It caused the yield on the 10-year note to rise above 3.00%, threatening a major technical breakdown which momentum traders could have piled onto and caused a whole lot more pain for the Treasury Department.

And that was only just under $50 billion worth.

China doesn’t have to start with such a drastic measure.  In fact, Russia held off on this course of action for the past four years.  In fact, after the Ruble crisis of 2014/15, Russia reloaded its stock of US Treasury ammunition.

China, however, has started the Yuan devaluation process along with loosening monetary policy to support its domestic banking sector.  And expect this to continue as communications between the Trump administration and China’s Ministry of Finance is on hold.

For President Trump, the math is clear.  And will continue to be clear.  And it is saying, “Stop blaming others for your problems.  Clean up your own house, first.”  In the short-term Trump will look like he’s winning this trade war.

Capital inflow to the US will support this policy.  China’s stock markets will underperform the US’s. But, that will be a function of safe-haven flows, not because the US’s finances are structurally sound.

The People’s Bank of China will respond with liquidity injections that will look increasingly desperate and will result in a wave of defaults and a slow-down.

The dollar will rise and the trade deficit will persist.  So will the budget deficit.

Because math.

*  *  *

To find out how to build a portfolio based around these big changes in the geopolitical arena, as well as stay one-step ahead of where we are headed, join my more than 120 Patrons at Patreon and subscribe to the Gold Goats ‘n Guns Investment Newsletter.

]]> Mon, 16 Jul 2018 06:35:00 +0300
<![CDATA[A Brief History Of US Covert Action In Syria - Part 1]]> In part 1 of this corrective history of the Syrian proxy war which notable Middle East experts have lately urged is important and essential reading, William Van Wagenen thoroughly dismantles the dominant media myths that have persisted throughout seven years of conflict. 

Part I: The Myth of US 'Inaction' in Syria, by William Van Wagenen via The Libertarian Institute

When the Russian military intervened in the Syrian war in October 2015, many in the Western press complained bitterly, demanding that US planners intervene directly in Syria on behalf of the anti-government rebels in response. Reuters alleged that “The Middle East is angry and bewildered by US inaction in Syria,” arguing that “The question on everyone’s mind is: will the United States and its European and regional Sunni allies intervene to stop President Vladimir Putin from reversing the gains made by mainstream Syrian rebels after more than four years of war? Few are holding their breath.” 

The Washington Post similarly argued that Russian president Vladimir Putin was “exploiting America’s inaction,” while the Guardian lamented the “western inability to care enough about the plight of Syrians.” As Russian and Syrian forces battled rebels one year later in Aleppo, more dramatic accusations of US inaction emerged, with Foreign Policy describing US policy in Syria under Obama as “inaction in the face of genocide.”

The idea that the United States has not intervened in Syria and is guilty of “inaction,” is a myth however. The United States and its Western and Gulf Allies have intervened in the Syrian conflict from early on. US planners have been fighting what the New York Times described as a “$1 Billion Secret C.I.A. War in Syria” while providing weapons to rebels through a program considered “one of the costliest covert action programs in the history of the C.I.A.” Starting in the fall of 2012, the US and its Gulf partners, under the direction of then CIA director David Petraeus, were openly sending “a cataract of weaponry” into Syria. It is likely that such shipments began much earlier without public acknowledgment, via the “rat line” from Libya, as reported by journalist Seymour Hersh. 

US Special Envoy to Syria Michael Ratner, in a meeting with members of the Syrian opposition, explained that “The armed groups in Syria get a lot of support, not just from the United States but from other partners,” while Secretary of State John Kerry added in the same meeting, “I think we’ve been putting an extraordinary amount of arms in,” and “Qatar, Turkey, Saudi Arabia, a huge amount of weapons [are] coming in. A huge amount of money.”

Sectarian Mass Murder

Also a myth is the idea that any US intervention in Syria would seek to protect civilians. While allegations that Syrian and Russian forces were committing genocide in Aleppo proved baseless, US planners have themselves supported rebels intent on committing genocide and sectarian mass murder. This was clearly evident in the Syrian city of Latakia, which by the time of the Russian intervention in October 2015 was on the verge of falling to a coalition of Syrian rebel groups including al-Qaeda (known in Syria as the Nusra Front) and the US-armed and funded Free Syrian Army (FSA).

Robert Worth of the New York Times writes that “In Latakia, some people told me that their city might have been destroyed if not for the Russians. The city has long been one of Syria’s safe zones, well defended by the army and its militias; there are tent cities full of people who have fled other parts of the country, including thousands from Aleppo. But in the summer of 2015, the rebels were closing in on the Latakia city limits, and mortars were falling downtown. If the rebels had captured the area — where Alawites are the majority — a result would almost certainly have been sectarian mass murder. Many people in the region would have blamed the United States, which armed some of the rebels operating in the area. . . Andrew Exum, who worked in the Pentagon at the time, told me that the military drew up contingency plans for a rapid collapse of the regime. The planning sessions were talked about as ‘catastrophic success [emphasis mine].’”

Alawite civilians in Latakia faced the prospect of being massacred if rebels had been able to capture the city, due to the virulently anti-Alawite views of Nusra Front members. Nusra religious clerics draw on the writings of the fringe 14th century Islamic scholar Ibn Taymiyya to argue that Alawites are “infidels” deserving of death. Syria analyst Sam Heller described Nusra clerics as promoting “toxic — even genocidal — sectarianism.” Rebels from the FSA, which have fought alongside and “in the ranks” of the Nusra Front throughout the conflict, also posed a threat to Alawite civilians in Latakia. 

Though typically considered moderate in the Western press, many FSA battalions have been armed and funded by the Syrian Muslim Brotherhood (MB). Thanks to the influence of Brotherhood ideologue Said Hawwa, the Syrian Brotherhood strongly promoted the anti-Alawite sectarian views of Ibn Taymiyya from the 1960’s until the 1980’s. This anti-Alawite sectarianism re-emerged in segments of the Syrian opposition, including in elements of the FSA, when peaceful protests and armed insurrection against the Syrian government simultaneously erupted in Syria in the spring of 2011.

While the Syrian and Russian militaries managed to protect Latakia and prevent a massacre of the city’s Alawite civilians, the broader effort to prevent the fall of the country to al-Qaeda and its FSA allies exacted a huge toll on Syria’s Alawites. The Telegraph noted that already by April 2015, “The scale of the sect’s losses is staggering” and that of some 250,000 Alawite men of fighting age “as many as one third are dead” and that “Alawite villages nestled in the hills of their ancestral Latakia province are all but devoid of young men. The women dress only in mourning black.”

Welcoming ISIS as a Bulwark against Assad

While arming rebels threatening the massacre of Alawite civilians in Latakia, US planners were at the same time welcoming the potential massacre of Syrian civilians in Damascus. The Syrian capital was on the verge of falling to the Islamic State (ISIS) in the summer of 2015 after ISIS, with the help of Nusra, captured all of the Yarmouk Palestinian refugee camp in the southern Damascus suburbs. The New York Times acknowledged the ISIS threat to Damascus at this time, observing that “By seizing much of the camp” ISIS had “made its greatest inroads yet into Damascus,” while the Washington Post noted that “Their new push puts [ISIS] within five miles of the heart of the capital . . . even as they are on the retreat in Iraq.”

In a private meeting with members of the Syrian opposition, Secretary of State John Kerry acknowledged that US planners had actually welcomed the ISIS advance on Damascus, in an effort to use it as leverage to force Assad to give up power. Kerry explained that, “the reason Russia came in is because ISIL [ISIS] was getting stronger. Daesh [ISIS] was threatening the possibility of going to Damascus. And that is why Russia came in. They didn’t want a Daesh [ISIS] government and they supported Assad. And we know this was growing. We were watching. We saw that Daesh [ISIS]was growing in strength. And we thought Assad was threatened. We thought we could manage that Assad might then negotiate. Instead of negotiating, he got Putin to support him [emphasis mine].”

Because the US was bombing ISIS in defense of its Kurdish allies in Northeastern Syria and its Iraqi government allies in Northwestern Iraq, the fact that US planners at the same time welcomed the ISIS push on Damascus against the Syrian government was largely obscured.

Had Damascus fallen to ISIS, it is clear that many civilians in the city, including Christians, Alawites, Shiites, members of the LGBTQ community, and pro-government Sunnis, would have been killed. While commenting on the Russian intervention, Michael Kofman of the Wilson Center acknowledged that “Assad may be irredeemable in the eyes of the United States, but it is equally clear that a high human price would be paid when the Islamic State [ISIS] or al-Nusra seizes the major population centers in Syria that he still controls.”

Suicide Bombers and US Anti-tank Missiles

It is also clear that US planners were deliberately supporting al-Qaeda (Nusra), despite its genocidal intentions towards Syria’s Alawites, by flooding Syria with weapons. Because FSA brigades that received funding and weapons from the US and its Gulf Allies were fighting side by side with militants from Nusra throughout the country, in practice much of the money and weapons sent to the FSA ultimately benefited al-Qaeda.

For example, US-made TOW anti-tank missiles sent by US planners to FSA groups in Idlib played a crucial role in helping Nusra conquer the entire province in the spring of 2015. Syria analyst Hassan Hassan observed in Foreign Policy during this period that “The Syrian rebels are on a roll” and that “The recent offensives in Idlib have been strikingly swift — thanks in large part to suicide bombers and American anti-tank TOW missiles,” which the FSA and Nusra deployed in tandem. Syria analyst Charles Lister, also writing in Foreign Policydescribed how US planners explicitly encouraged the FSA groups they were arming to fight alongside Nusra in Idlib. Rebel victories in Idlib, in particular the town of Jisr al-Shughour, allowed Nusra and the FSA to then threaten the massacre of Alawites in Latakia.

When Russia intervened militarily in Syria in October 2015, US planners responded by immediately increasing shipments of TOW anti-tank missiles to FSA groups, some of which then helped Nusra capture the strategic town of Murek in central Syria one month later in November 2015.

This prompted Daveed Gartenstein-Ross of the Foundation for Defense of Democracies (FDD) to observe that “it is impossible to argue that U.S. officials involved in the CIA’s program cannot discern that Nusra and other extremists have benefited” from CIA weapons shipments to Syrian rebels, “And despite this, the CIA decided to drastically increase lethal support to vetted rebel factions following the Russian intervention into Syria in late September.”

"Deal with the Devil"

Nusra did not only benefit from fighting alongside FSA rebels armed with US-supplied weapons, but acquired many of these weapons themselves. That Nusra regularly purchased weapons from the Western-backed military councils supplying the FSA was confirmed in October 2014, when the New York Times reported that Shafi al-Ajmi, a Nusra fundraiser, told a Saudi news channel that “When the military councils sell the weapons they receive, guess who buys them? It’s me.”

That al-Qaeda was purchasing US supplied weapons seemed of little concern to US planners. When journalist Sharmine Narwani asked why US-supplied weapons allegedly meant for FSA groups were showing up in Nusra hands, CENTCOM spokesman Lieutenant Commander Kyle Raines responded: “We don’t ‘command and control’ these forces—we only ‘train and enable’ them. Who they say they’re allying with, that’s their business.”

Obama administration officials themselves acknowledged tacit US support for al-Qaedaadmitting in November 2016 to the Washington Post that they had struck “a deal with the devil,” years before, “whereby the United States largely held its fire against al-Nusra because the group was popular with Syrians in rebel-controlled areas and furthered the U.S. goal of putting military pressure on Assad,” thereby confirming long standing Russian accusations that the US had been “sheltering al-Nusra.”

Ben Rhodes' Bombshell Confirmation

More recently, Ben Rhodes, deputy national security advisor under the Obama administration, acknowledged providing military support to Syrian rebels, even though it was clear that Nusra comprised a good portion of the Syrian opposition as a whole. Rhodes explained that “there was a slight absurdity in the fact that we were debating options to provide military support to the opposition at the same time that we were deciding to designate al-Nusra, a big chunk of that opposition, as a terrorist organization.”

Despite designating Nusra as a terror group already in 2012, US planners nevertheless provided weapons to the Syrian rebels, of which Nusra comprised a “big chunk,” for the next 7 years. As Sharmine Narwani observes, “U.S. arms have been seen in Nusra’s possession for many years now, including highly valued TOW missiles, which were game-changing weapons in the Syrian military theater. When American weapons end up in al-Qaeda hands during the first or second year of a conflict, one assumes simple errors in judgment. When the problem persists after seven years, however, it starts to look like there’s a policy in place to look the other way.”

US planners welcomed rebel gains in Syria, including by rebel groups advocating genocide against Syria’s Alawite population, such as ISIS and Nusra, because these gains bolstered the broader US goal of toppling the Syrian governmentin an effort to weaken its close allies, Iran and Hezbollah. US planners wished to see rebel gains in Syria, in spite of the obviously catastrophic consequences for Syrian civilians, including for Syria’s Sunnis, which rebel success would bring. US support for the rebels belies the myth of US “inaction” in Syria, and the myth that any US intervention would be for the sake of preventing massacres and even genocide, rather than in support of it.

* * *

In parts 2 and 3, we will review US support for rebel advances in the spring and summer of 2015 in Idlib, Latakia, Palmyra, Yarmouk, and Homs, and further describe how these rebel advances nearly led to the massacre of Syrian civilians in two of the country’s main population centers, Latakia and Damascus, if not for the Russian intervention which halted the rebel advance.

]]> Mon, 16 Jul 2018 06:10:00 +0300
<![CDATA[Chaos At The NATO Summit Benefits Eurasian Integration]]> Authored by Federico Pieraccini via The Strategic Culture Foundation,

The chaos that has engulfed the NATO summit is yet further confirmation of the world’s transition from a unipolar to a multipolar order, with the return of great-power competition and different states jockeying for hegemony. Trump is adapting to this environment by seeking to survive politically in a hostile environment.

The meeting of the NATO countries in Brussels highlighted the apparent intentions of the US president towards his allies and the Atlantic organization. Trump's strategy is to oblige the European countries to halt energy imports from Moscow and replace them with liquefied natural gas (LNG) from the US at a price that is obviously not cheap. The gas would come from the US by ship, entailing huge logistical costs that are not the case with regard to physical pipelines between Europe and Russia. This issue directly affects Germany and the Nord Stream II project, a deal worth billions of euros.

The reasons behind Trump’s behavior are twofold.

On the one hand, we have the politics of "America First", with the intention of increasing exports of LNG while boasting of “successes” to the base.

The other purpose of Trump's words is to highlight, sotto voce, the inconsistency of EU countries, who despite considering Russia an existential danger, nevertheless strongly depend on Russia’s energy exports.

To be fair to Trump, these same EU countries -- fearful of Moscow but ready to do business with it -- do not even spend 2% of their GDP on defense, while the US commits closer to 4%. For Trump this is surreal and intolerable. The NATO Summit began more or less with this anomaly, conveyed by Trump in front of the cameras to Jens Stoltenberg, the Secretary General of NATO, with Pompeo and the US ambassador to NATO on either side of him doing their best to remain impassive.

The photo-op with Merkel did not go any better. Needless to say, the American media is being driven into a tizzy. The headlines blare: "Trump betrays the allies"; "End of NATO". CNN is in a state of mourning. Brzezinski's daughter (yes, that Brzezinski ) almost vomited from the tension on MSNBC’s Morning Joe.

In truth, Trump is engaging in a lot of public relations. When he makes these performances in front of the cameras, he is speaking directly to his electoral base, showing that he is keeping his promises by putting “America First”. To be honest, it would be more appropriate to declare, "America, b****h!"

To back his words up with actions, he slaps his allies with tariffs and sanctions against Russia, and now Iran, incurring huge losses for Europe. He mocks leaders like Merkel and Trudeau in public, and has humiliated Macron in front of the world.

In practical terms, Trump does not care whether Germany buys LNG from the United States. If this is to ever occur, then it will take 20 years, given the cost and time needed to build dozens of LNG facilities on the European and American coasts.

The summit between Trump and Putin in Helsinki could even lead to more drama if Trump wants to drive the media, liberals, neocons and his European allies into further conniptions.

It depends on the issues on his checklist that he has to deal with before the November midterm elections. I do not rule out seeing Kim Jong-un in Washington before then, or a summit between the US, Israel and Palestine -- anything that will play to the desired optics. The issue is just that: all image, no substance.

Trump is focussing principally on triumphing in the November midterms, and to do so he needs to look like a winner. He will be keen to ensure the moneybags of the Israel lobby and Saudi Arabia keep flowing. In doing so, he will probably even win the 2010 presidential election. There is always the possibility that the Fed and other financial conglomerates will decide to commit harakiri and blow up the economy with a new financial crisis in order to get rid of Trump. It would be the deserved end of the US empire.

European politicians also await the midterms with great anticipation, hoping that this will be the end of the Trump nightmare. They still live in the same dreamworld of Hillary Clinton, believing that Democratic victory is possible and that Trump's election was simply an anomaly.

They will not have woken from their nightmare when they come to realize that Trump has increased the number of Republicans in the House and Senate. Perhaps at that point, with sanctions in place against Russia and Iran and with huge economic losses and the prospect of another six years with Trump, a coin will drop for someone in Europe, and Trump will be seen as the catalyst for breaking ties with Washington and looking east towards a new set of alliances with China and Russia.

In conclusion, we are experiencing the full effects of the Trump presidency, which is destructive of and devastating for the neoliberal world order. As I said at least a year before he was elected, Trump is accelerating the decline of the United States as a lodestar for the West, representing Washington’s swan song as the only superpower.

It is not "America First", it is Trump First. There is no strategy or logic behind it. There are only friendships, his personal ego, and the need to remain in the saddle for another six years. Meanwhile, get your popcorn ready in anticipation of the Helsinki summit.

]]> Mon, 16 Jul 2018 05:45:00 +0300
<![CDATA[A Problem Emerges For Japanese Stocks: The Biggest Market "Whale" Can't Buy Any More]]> When it comes to Japan's risk assets, it is a widely - in incorrectly - accepted that only the Bank of Japan matters: and with Kuroda now a proud owner of nearly 80% of the country's ETFs and the BOJ a top 10 shareholder in nearly 40% of listed companies, one can see where this perception comes from.

However, when it comes to Japanese, and international, stocks there is one whale that is far more impactful than even the BOJ when it comes to capital allocation and the fate of risk assets: Japan's gargantuan Government Pension Investment Fund (or GPIF) - the largest in the world -  which manages 156 trillion yen ($1.41 trillion), and whose assets are broken down in 4 main categories: Japanese bonds, Japanese stocks, overseas bonds and overseas stocks. As the Nikkei notes, the GPIF earned the moniker as a "whale" in the stock market due to its massive holdings of domestic stocks. Previously, a greater weight was given to less risky domestic bonds, which amounted to 62% of total assets as recently as 2012.

The historical distribution of the GPIF's asset holdings is shown in the chart below: what is notable is that as a result of a mandated shift in its asset allocation several years ago, the fund which traditionally had a conservative posture with the bulk of its assets - usually as much as 70% - in the form of domestic bonds, had since shifted to a stock-heavy allocation, with the target allocation for domestic and foreign stocks rising to 50%.

And here a problem has emerged, because the GPIF's portfolio has exceeded its 25% allocation target for domestic stocks for the first time, a milestone that - unless the world's largest pension fund changes  its strategy for stable returns - could have severely adverse consequences for local risk assets.

According to a filing last Friday, Japanese equities accounted for 25.14% of the GPIF's portfolio at the end of March. That equates to over 40 trillion yen worth of shares covering roughly 2,300 issues.

Just like the BOJ, the fund is believed to be a major shareholder in many companies listed in the Tokyo Stock Exchange's first section. In fact, the GPIF is often seen as a tack-on to the BOJ, because as the GPIF sells its Japanese bond holdings to the BOJ usually at prices well above market value, it opens up more space to buy equities, thereby creating a feedback loop in which the BOJ's purchases of JGbs indirectly result in higher stock prices, with the GPIF as a conduit.

For now the strategy of dumping Japan's pensions into the stock market has been a smashing success: in fiscal 2017, the GPIF posted an investment return of 10.08 trillion yen. There is just one problem: with the whale by far the biggest market player in Japan's stock market, its buying was sufficient to lift stock prices, thereby creating a virtuous cycle in which the more the GPIF bought, the greater its return.

That may soon be over, however, now that the GPIF has hit its limit on how much domestic stocks it can buy.

* * *

The GPIF's impact on Japan's stock market in recent years has been staggering. Shinzo Abe's government, hoping to boost the "wealth effect" by creating higher stock prices, resolved to reduce the GPIF's reliance on Japanese government bonds while boosting stock holdings instead. In October 2014, the GPIF revised portfolio allocations and set a 50% aggregate target for equities at home and abroad.

According to the Nikkei, since 2014, the GPIF has bought an estimated 6.36 trillion yen more in domestic equities than it sold, equal to about 1% of the TSE first section's market value.

"That computes to lifting the Nikkei Stock Average by about 1,000 points," said Masahiro Nishikawa, chief fiscal policy analyst at Nomura Securities.

To be sure, worried that domestic investors will dump their shares now that the "whale" is no longer a backstop buyer for Japanese stocks, GPIF President Norihiro Takahashi said that although Japanese equities have topped the 25% goal, the ratio can exceed the target by a few percentage points. "Investment will not stop." Translated: please don't start a liquidation cascade.

And yet despite wishful thinking, "the GPIF is now less likely to be a force that elevates the market as it did in the past" the Nikkei admits, for the simple reason that it can no longer aggressively invest in stocks absent yet another change to its  asset allocation target.

Japanese bonds still occupy the largest slice of the GPIF's portfolio, but to a lesser extent. As shown in the chart above, the allocation to bonds stood at 27.5% at the end of fiscal 2017, well below the 35% target. A big reason why the fund has had trouble procuring the bonds is because another whale, the Bank of Japan, is also mass purchasing JGBs.

Meanwhile, with the GPIF's buying having created its own bullish sentiment, now that the buying is over the fund has two options: risk a sudden drop in the market, one which comes as the BOJ is creeping ever closer to its own QE end as Japan runs out of JGBs for sale, or expand the fund's allocation to stocks further. And in an attempt to keep the party going a little longer, it is obvious that the choice will be the latter. Unfortunately, as both a Japanese and global recession - and market crash - gets ever closer, all this will do is jeopardize even more Japanese pensions.

The real question is just how angry Japan's population, already the oldest in the world, will be once it learns that much - or all - of its pensions were lost in the government's vain pursuit of further market gains, and to keep Abe's popularity rating high. With the US economic cycle already the second longest in history, we doubt we will have long to wait for the answer.

]]> Mon, 16 Jul 2018 05:20:00 +0300
<![CDATA[China GDP Growth Slows After Record Contraction In Shadow Banking Credit]]> Following the largest contraction in 'shadow banking system' credit, and a record low for M2 growth, fears were building that China's economic growth prospects may lag expectations.

By way of background for tonight's economic data deluge, here are the lowlights.

The drop in shadow bank was particularly sharp for the second month in a row: this has been the area where Beijing has been most focused in their deleveraging efforts as it’s the most opaque and riskiest segment of credit. And, as the chart below show, the aggregate off balance-sheet financing posted its biggest monthly drop on record in June

the lass granular M2 reading also posted a growth slowdown, rising only 8.0% in June, down from May's 8.3%, below consensus of 8.4%, and the lowest on record.

Both of which do nothing to help China's credit impulse. Investors see China's liquidity tightening...

Commenting on the ongoing slowdown in China's credit creation, Goldman said that the latest money and credit data highlighted the challenges the government is facing in loosening monetary policy.

But before we shift to the market's perceptions, don't forget, China's trade surplus with the US just hit a Trump-tantrum-creating record high...

Oh, and don't forget, Chinese stock markets have tumbled...

And bond markets have collapsed as defaults surge...

And Yuan has plunged...

So the big picture was not rosy heading into tonight's big data deluge.

Early signs for June pointed to weakness. The official and Caixin PMIs indicated a slowdown in momentum – with export order gauges weakening.

China stocks were down, Yuan flat, and China 10Y bonds 3bps lower in yield as the data hit.

And this is what the data looked like..

  • China Q2 GDP YoY MET EXPECTATIONS rising 6.7% - equal to the weakest since Q1 2009 (against expectations of +6.7% but slowing from Q1 growth of 6.8% YoY)

  • China Retail Sales YoY BEAT rising 9.0% (against expectations of +8.8% and notably up from May's 8.5% YoY - the lowest since May 2003)

  • China Industrial Production YoY MISS rising just 6.0% - weakest since Dec 2015 (against expectations of +6.5% and well down from May's 6.8% YoY)

  • China Fixed Asset Investment YoY MET EXPECTATIONS rising 6.0% - the lowest on record (against expectations of +6.0% and down from May's 6.1% YoY - record low)

Visually - down and to the left...

Not pretty. It is clear that momentum in the world's second-largest economy is slowing amid deleveraging and intensifying trade friction with the US...

Though there is one silver-lining, as Bloomberg's Enda Curran notes, the rebound in retail sales is noteworthy as it's an indicator of confidence in the wider economy. Granted it was from a low base in May, but it shows that consumer confidence is holding up, despite the trade tensions - although auto sales are down 7% YoY (and petroleum is up 16.5% YoY). Also bear in mind that retail sales print is likely flattered by the fact that the yuan tumbled over 4% from end May through June.

In case those charts look a little odd to you, they do to us too... and amid the world's craziest decade ever in terms of monetary policy experimentation, extremes of leverage and debt, nuclear armageddon proximity, and now global trade wars, somehow, China has managed to crush all uncertainty out of its business cycle...

It's almost as if they rigged it?!

In many respects today's numbers are already history (with most analysts expecting China to have an overall 'OK' first half of the year), it's the second half that will be tougher.

Huatai Securities estimated in a report over the weekend that if the U.S. implements its tariff plan on $200 billion of Chinese imports, China's exports growth should decrease by 0.8 percentage point and GDP growth by a quarter percentage point.

Finally, as a reminder,  if investors are hoping for China to reflate its way back out of this, Chinese billionaire Zhang Baoquan has a warning (via iFeng: 张宝全:中国人缺乏投资工具 把不动产当硬通货)...

"China now has two 'bombs', one 'bomb' is a real estate bubble and the other is a local debt. Any explosion to the Chinese economy is devastating."


]]> Mon, 16 Jul 2018 05:07:18 +0300