Archive for June 2018
Is One Man About To Collapse German Politics As We Know It?

Is One Man About To Collapse German Politics As We Know It?

Authored by Jorg Luyken via The Local,

On Sunday the Christian Social Union (CSU) are set to meet to vote on whether to back Horst Seehofer in his plan to turn asylum seekers back at the German border. If Seehofer follows through, the move will have incalculable consequences for German politics.

What is the problem?

Germany's conservative parties are a little like two crime families who work together as long as one stays off the other's turf. This has worked out pretty well over several decades as the CSU have sat in power in Munich, while the CDU dominated politics on the federal level.

There were unwritten rules to their collaboration though. Whereas the mafia (at least in the films) drew a line at bringing drugs into the country, the unspoken code of German conservative politics was: no immigrants (or at least, not too many).

When Angela Merkel decided not to close the borders as thousands of refugees crossed the border in 2015 she broke this rule. Ever since then the ageing boss of the CSU, Horst Seehofer, has been seething. Throw into the mix a hot-headed upstart who is challenging Seehofer's grip on power in the CSU and you not only have the ingredients for a ropy Hollywood movie, but also for real-life German politics.

Now Interior Minister, Seehofer has loudly declared that Germany has been too soft in applying EU law on asylum seekers. He was set to publish an “asylum masterplan” a little over two weeks ago, which would have given him the power to stop migrants coming into the country.

But Merkel bluntly rejected the proposal.

Ever since then conservative politics in Germany has been in a state of meltdown. Seehofer claims he can't understand why Merkel rejects what he describes as a technicality, while Seehofer has been accused of putting Bavaria's interests above those of Germany and Europe.

And with state elections coming up in Bavaria in the autumn, there is every reason to believe that Seehofer and the young upstart Marcus SΓΆder aren't thinking about much else other than what goes on inside their own territory. 

The upshot of the controversy was that Seehofer gave Merkel two weeks to find a deal on migrants with other EU countries, otherwise he would shut the border whether she liked it or not.

If he goes ahead, decades of peace between the conservative clans will come to an end. Seehofer will force Merkel to fire him and their Bundestag alliance will be over. A pitched battle for power will commence in the build up to Bavaria's autumn elections. Things could get very messy.

Time is up

Seehofer's deadline is up this Monday. On Sunday, the most important members of the CSU will come together in Munich to discuss what steps they'll take next.

In the meantime, Merkel has been wringing every last inch of guile out of her political neckerchief in an attempt to get European deals signed that stave off the threat of a rebellion from down south.

The first success was announced early on Friday morning when she managed to secure a surprise agreement between the 28 EU member states on migration.

The states agreed to set up closed migrant centres, which would be hosted on a voluntary basis. People rejected for asylum would “be returned” from these centres, while genuine refugees would be taken in by states on a voluntary basis.

But the agreement was thin on the ground on details on the crunch issue for Seehofer, so-called “secondary migration”, a phrase which refers to migrants moving around within the EU. The agreement only contains the vague statement that “member states should call on all necessary internal lawful and administrative processes in order to prevent such movements, and should collaborate closely on this issue.”

Then later in the day Merkel could announce bilateral deals with Spain and Greece, committing them to taking migrants who German border police detain at the border. The big one, Italy, remained elusive, though. Most asylum seekers who reach Europe come through Italy - and Merkel has been unable to get Rome to commit to a bilateral deal.

So will Seehofer pull the trigger?

One fundamental reason why the CSU have been so agitated is that another organization has been aggressively muscling in on their patch. The Alternative for Germany (AfD) have managed to be more populist, more anti-immigrant and more reactionary than the Bavarians - and in doing so have stolen a whole heap of business from Seehofer and his gang.

Polling shows that the AfD are on course to win 14 percent of the vote in Bayern, a result which will drag the all-mighty CSU down to their worst score since the 1950s. The days of absolute power will be over.

So the temptation is clearly there: pull the trigger and show the Bavarian beer halls that you don't take orders from Berlin.

If only it were that simple, though. Were Seehofer to close the border to migrants, thus pulling down the government and ending the alliance with the CDU, Merkel's party would swiftly move onto his patch.

And polling shows that many Bavarians are secretly crying out for freedom from the yoke of one-party rule.

A poll released on Friday by Forsa showed that 54 percent of Bavarians who voted CSU at the last election would swap to the CDU if they had the choice. That poll suggested that the CDU would win 33 percent of the vote in a Bavarian state election.

Meanwhile well over a third of Bavarians told Forsa that the CSU are the single biggest problem in their state, above the number who said refugees are Bavaria's biggest headache.

Meanwhile a powerful alliance of business leaders has closed rank behind the Chancellor.

The country's four most influential industry associations on Friday released a common statement which denounced Seehofer in no uncertain terms.

“What we need now is a stable and resolute government that works together with its European partners constructively and calmly,” the statement read. “The German economy is convinced that acting only out of national interest will do more harm than good.”

So will Seehofer close the border and risk an all out battle for power in Bavaria? Only he knows that - and on Friday he was staying silent. A spokesperson said that he was refusing to comment on the EU migration summit. He would wait instead to speak to Merkel in person.

In San Francisco, Families Making $117,000 Qualify For Low-Income Housing

In San Francisco, Families Making $117,000 Qualify For Low-Income Housing

Shortly after officials revealed that San Francisco had become the first US city to mandate a $15 minimum wage in accordance with a law passed in 2014 - and just in the nick of time, too. Because home prices in San Francisco have risen so rapidly that Business Insider reported Saturday that applicants for affordable hoping qualify for affordable housing in the city must earn less than 117,400  a year qualify for low-income housing in San Francisco and a few neighboring counties, according to a new report from the Department of Housing and Urban Development. To help put this in context, that number is just shy of the city's median income of $118,400.


Here's more from BI:

To qualify for low-income housing in San Francisco County or the nearby San Mateo and Marin counties, a four-person household can make as much as $117,400 a year. The same goes for a one-person household raking in $82,200 a year.

That's the conclusion of a new report from the Department of Housing and Urban Development, which just released the 2018 thresholds for affordable housing across the US...the San Francisco metro area's threshold is just below the area's median family income of $118,400.

Housing costs in San Francisco have been increasing at a ludicrous rate: According to the S&P/Case-Shiller Home price index, which covers not just the city and county, but also includes four other Bay Area counties: Alameda, Contra Costa, Marin, and San Mateo, prices in the region increased by a YOY 10% as of April. However, others argue that the increase in home prices has been even more extreme For example, Paragon Real Estate Group reported in April that prices in San Francisco had skyrocketed by an astounding 24% YOY, more than double the Case-Shiller estimate. This staggering jump has left the median home price in the city at an astonishing $1.6 million.

Of course, the new figures from the city's Department of Housing are hardly surprising: As BI reports, over the past several years, the Bay Area has been grappling with an affordable-housing crisis that has been exacerbated by the tech boom and a concomittant shortage of housing stock. Several Bay Area tech giants (like Alphabet, for example) situated their headquarters in areas without much nearby housing.

And as we pointed out back in April, this is what a housing boom looks like...


...which in turn pushed the median home sales price above $1.6 million...


...which is well above the national average.


Even the city's "poor" neighborhoods have seen a huge boost in prices on a neighborhood-by-neighborhood basis. In the table below, the median house prices range from $960,000 in Bayview, one of the more troubled neighborhoods, to over $5 million in Pacific Heights, one of the city's wealthiest neighborhoods.


Unfortunately for the city's beleaguered residents, SF's "robust" affordable housing lottery isn't nearly enough to serve anywhere close to the numbers who could use the help. With this in mind, some Bay Area cities are considering alternatives, like a sizable "head tax" on employers. In Cupertino and Mountain View, the city councils have proposed a $150-a-year per-employee "head tax" that would replenish a fund dedicated to building more affordable housing.

SF is also considering a head tax. And while tech companies (like Amazon in Seattle) have threatened to move or abandon planned expansions over similar measures, at this rate, the city's residents would also benefit from this outcome: Because pushing out the tech talent that have been probably the largest contributors to the housing-price boom, the city might slowly but surely send prices lower... along with tax revenues and all local economic growth.

Paul Craig Roberts: Two Views Of The Putin-Trump Summit

Paul Craig Roberts: Two Views Of The Putin-Trump Summit

Authored by Paul Craig Roberts,

The meeting that the Deep State strived to make impossible with fabricated “Russiagate” assertions and an orchestrated “investigation” by Mueller has now been set in place by no less than Deep State neocon operative John Bolton. Patrick Lang explains how this came about.



Many see benefits from the Putin/Trump meeting.

Putin himself sees benefits in the meeting as does Trump. Putin sees hope of improving relations between the two governments. Of course, the “strained relations” are entirely due to Washington, which has demonized both Russia and Putin with false accusations and hostile acts such as illegal sanctions. It was miscalculation for Washington to expect Russia to give up its Black Sea naval base to Washington’s coup in Ukraine.

What can an agreement be based on? Bolton’s position has been opposed to making any agreement with Russia or cooperating with Russia in any way. From the neoconservative standpoint, Russia is in the way of US world hegemony. As the neoconservative foreign policy doctrine states, it is a principle US goal to prevent the rise of any country that could serve as a check on American unilateralism. Russia is a challenge to the American World Order because Russia stands in the way of the American unipolar world.

A successful summit will require Trump to reject this neoconservative doctrine. If Trump can pull this off with Bolton sitting by him, Trump’s critics will look very silly.

Do Bolton and the Deep State have a way of baking failure into the summit that will ensure the continuation of Russia’s enemy status, thereby sustaining the enormous budget and power of the US military/security complex? Is Trump a superman who can overcome this powerful vested interest about which President Eisenhower warned Americans in 1961? How much stronger is this complex more than half a century later after being nourished by decades of Cold War and War on Terror?

Assad and no doubt Iran are convinced that negotiations with Washington are a waste of time. Assad has concluded that:

...the problem with US presidents is that they are hostage to lobbyists. They can tell you what you want to hear, but they do the opposite. That’s the problem, and it’s getting worse and worse. Trump is a stark example. That’s why when talking to the Americans, discussing something with them does not settle anything. There will not be any results. It’s a simple waste of time.”

Assad’s view has the evidence on its side.

One of Trump’s first actions was to unilaterally pull out of the multi-nation Iran nuclear agreement. There is no evidence that supports the hopeful Russian view.

It would be an interesting exercise to list all the agreements Washington has made over the course of US history and to calculate the percentage that Washington kept. If Putin doesn’t want to be taken for a ride, he should contemplate the words of Chief Joseph of the Nez Perce summing up his negotiations with Washington: “I have heard talk and talk, but nothing is done. I am tired of talk that comes to nothing. It makes my heart sick when I remember all the good words and broken promises.”

Israeli Dual Citizen Convicted Of Making Hundreds Of Hoax Bomb Threats Against Jewish Centers

Israeli Dual Citizen Convicted Of Making Hundreds Of Hoax Bomb Threats Against Jewish Centers

An court in Israel has convicted a 19-year-old American-Israeli man of making hundreds of threats to bomb or otherwise attack Jewish schools and community centers. 

Michael Ron David Kadar of Southern Israel attempted to conceal his identity to make threatening phone calls and electronic threats to the US, UK, Canada, New Zealand and Australia - forcing evacuations, emergency airplane landings and prompting concern over a surge in anti-Semitism. 

Kadar was also found guilty of extortion, money laundering and assaulting a police officer. He was arrested in the Israeli town of Ashkelon in March 2017 following a joint investigation by the Israeli and US authorities, including the FBI.

He was accused of making more than 2,000 bomb threats to Jewish institutions, airlines, airports, police stations, hospitals and sporting events. -BBC

"As a result of these threats, planes were forced to land in different airports, schools were evacuated and emergency forces were alerted," said Israeli state prosecutor Yoni Hadad.

"He essentially created panic, terrorised many people and disrupted their lives."

While the calls reportedly began in 2015, Kadar was only tried for calls he made beginning in 2016 when he turned 18. 

Several Jewish schools in the UK were targeted in February 2017 - as well as the Jewish Museum in London, which was evacuated due to bomb threats attributed to Kadar. He also made threats towards British Airways flights between New York and London. 

Kadar's parents have called him a "helpless person" after arguing that a brain tumor which caused autism is to blame, along with other mental problems, and that their son is not competent to stand trial. 

"The fact that they determined that he was fit to stand trial was a lie and a conspiracy against a helpless person. We have been raising this child for 18 years," his father said in a Thursday hearing. "He is incapable of telling good from bad. His discretion is horrible. There is a conspiracy here."

Judge Zvi Gurfinkel had none of it, rejecting the claim and stating "The defendant changed his version according to his needs. He is well aware of the consequences of his actions. He understands what it means and keeps changing his version according to the convenient defence line."

Kadar was accused of making active shooter and bomb threats to several Florida Jewish community centers, as well as the Israeli embassy and Anti-Defamation League in Washington DC. Additionally, he stands accused of cyber-stalking and conveying false information to Georgia police. 

Outsourcing Morality

Outsourcing Morality

Authored by Robert Gore via Straight Line Logic blog,

All the benefits of virtue without the costs...

Remember when you had to do something virtuous to signal your virtue? Some of the virtuous way back when did virtuous acts and didn’t even tell anyone else about them. If you go into older museums and other civic monuments and look at donors’ names on plaques, you’ll find anonymous donors. They didn’t get a wing named after them, there were no press releases, they just gave to a good cause and that was its own reward. If they were alive today, they wouldn’t have Twitter feeds. Private virtue and public anonymity—incomprehensible!

At least plutocrats who plaster their names where they donate are donating their own money. Perhaps the most odious form of virtue signaling demands everyone’s taxes fund a chosen cause, then claims the same moral stature as the plutocrats. Strictly speaking this can’t be virtue signaling. There’s no virtue, only coercion and theft. The merit, if any, of the cause never justifies the immoral means used to fund it.

Gresham’s law of virtue: phony virtue drives out the real thing. It’s partly mathematical - what the government steals cannot be donated - but it goes much deeper.

There’s an intergenerational understanding rooted in biology: parents take care of children when they’re young; children take of parents when they’re old. Rearing children and caring for aging parents impose inconvenient burdens, but for most of history people had little choice, the only alternative was neglect and abandonment. Enter the state. In most Western countries responsibility for both child rearing and elder care has in whole or in part shifted to it.

Any respectable list of progressive “demands” includes access to day care, either funded or provided by the government. In truly advanced welfare states, day care is already an “entitlement,” like unemployment support or medical care. It’s a comforting sophistry that turning children over to third party caregivers in their formative years doesn’t attenuate the bond between parents and children. Two or three hours a day—always labelled quality time—is not ten or twelve hours a day. Day care personnel attending a group of children cannot devote the time and attention to one child as that child’s stay-at-home parent could.

The flip side of taking care of the young is taking care of the old. Social Security and Medicare are pay-as-you-go transfer schemes masquerading as funded pensions and medical plans. They have, judging by so many aging baby boomers’ lack of assets, nominally relieved individuals of the responsibility to provide for their own golden years. It’s fair to assume that such provision also attenuates for many boomers’ children any obligation they may feel regarding their parents’ support. In fact, the obligation often seems to run the other way, children demanding their boomer parents support them well into adulthood.

People outsource responsibility. but they want to feel virtuous. One way to do so is become an advocate. You may be dropping your own children off at day care, but you can advocate for children’s causes; children at the border is currently fashionable. You personally don’t have to do anything or spend a penny, just advocate that the government do something. You’ll acquire—among the circles you care about—the moral sheen that in days gone by required that you actually do something and spend your own pennies.

That moral sheen is worth less than nothing. Government Programs That Made the Problem Worse is a multi-volume set, each volume over a thousand pages. That’s not a problem for their promoters, what counts is their self-credited good intentions. If the road to hell is paved with good intentions, then hell fire itself is stoked by self-credited good intentions. The cynics—right about politics more often than anyone else—suggest good intentions often cloak a ruthless drive for votes, payola, and power.

Political funerals are revolting spectacles, the guilty living paying tribute to the guilty dead. It’s a toss-up which is more revolting. The “Humanitarian” epitaph for those who spent other people’s money “helping” the downtrodden of various stripes. Or the “Patriot” epitaph for those who blessed waging war on people and countries that pose no threat to the US. Surely the gates of hell open wide for hybrid Humanitarian Patriots. The Lyndon Johnsons, Bills and Hillarys, and John McCains of the world are alway loathsome creatures who unsurprisingly treat real life humans like shit.

Taken to its logical extreme, a government so big and powerful that it’s responsible for everything leaves everyone else responsible for nothing.

If you aren’t responsible for anything, you can’t be virtuous or evil... or human. You can, however, signal your faux virtue: the government actions you advocate; the politicians and media figures you admire; the bumper stickers or lapel pins you sport.

Government has subsumed individual choice, responsibility, and thought at a historical juncture that will require individuals to make choices, take responsibility, and think as they’ve never thought before. Based as they are on coercion and their unsustainable ability to extract resources from their subject populations through force and fraud, governments are dominoes, and they’ve already begun to fall. Only ideologically induced analytical myopia accounts for the failure to recognize the fall of the most statist institution ever erected—the government of the USSR—as the beginning of the end of current statist arrangements, including welfare statism (it’s giving humanity too much credit to believe such arrangements will ever be wholly eradicated).

The energy required to maintain statist control is rising exponentially as information technology and weaponry become ever-cheaper and more widely diffused. Governments have plunged into an abyss of debt and welfare state promises. Soon they’ll lack the resources to keep either themselves or their recipients alive. Those that “contribute” recognize governments as their enemy, and most acknowledge no duty to the recipients. They’re on strike in myriad ways and economic growth rates continue their inexorable descent. Soon those rates will be less than zero. They may already be there, a reality obscured by rising debt and phony government statistics and accounting.

The world was caught by surprise when the USSR fell. It will be caught by surprise when the welfare states go, but in neither case is the surprise justified. Stupid is as stupid does: actions have consequences. The writing is on the wall.

The consequences will be especially severe for those who have outsourced their morality, brains, and very souls to politics and the state. If separated babies or kneeling football players can trigger “vitriolic outrage,” then there is no single phrase that describes the anger, frustration, desperation, hate, violence, lunacy, and outright insanity that will reign when politics and states fail. The resulting entropic atomization will force the atomized to fall back on precisely what many don’t have: their own physical, mental, emotional, and spiritual resources.

Within a society, no matter how insane, there are pockets of rationality, true virtue, and wisdom. The wise see what’s coming and have prepared accordingly, to the best of their abilities. The rest will navigate the chaos to the best of their abilities, not an optimistic prospect.

Canadian Restaurant Destroyed On Yelp After MAGA Hat Incident

Canadian Restaurant Destroyed On Yelp After MAGA Hat Incident

Trump-hating Canadians flooded the Yelp page of a restaurant with one-star reviews after a manager was fired for ejecting a man wearing a "Make America Great Again" (MAGA) hat, reports The Hill.

Canada's NBC News reported that former manager Darren Hodge, who had worked at the Teahouse in Vancouver's Stanley Park for 18 months, told the customer that he would not be served unless he removed his MAGA hat.

“As a person with a strong moral backbone, I had to take a stand against this guest's choice of headwear while in my former place of work. Absolutely no regrets," the former employee told CBC News.

The restaurant owners, meanwhile, say that the manager was fired because their actions "did not align with their policy of hospitality and inclusiveness."

“[He] was aware what he was doing was probably contrary to our values and our philosophy as a company,” said the restaurant’s general manager. 

Angry Canadians were having none of it. A few of the one-star reviews: 

  • "Fired a manager for taking a stand against bigotry and white supremacy. Unbelievable!"

  • "wearing a MAGA hat these days is the same thing as wearing a black swazstika arm band."

  • I have enjoyed the Teahouse in the past. Recently the Teahouse fired a manager for refusing to serve an American tourist who was wearing a Make America Great Again. I support that manager 100%. He was right in refusing to serve someone wearing an offensive hat that has become symbol of racism and is very offensive to Canadians.

Oddly, Yelp hasn't removed the politicized reviews as they often do in similar situations.

The "damned if you do, damned if you don't" situation the Treehouse finds itself in follows an incident at a Virginia restaurant last week in which the owner of the Red Hen kicked out White House press secretary Sarah Sanders. 

In that instance, Trump supporters flooded the Red Hen website with one-star reviews - which Yelp, in a statement, told the Red Hen it was actively working to remove.

We wonder if the Treehouse will receive the same support? 

Maxine Waters Lashes Out: "If You Shoot Me, You Better Shoot Straight"

Rep Maxine Waters (D-CA) is blaming a series of death threats on comments made by President Trump over Twitter, following her call last weekend for the public to form into mobs and physically confront members of the Trump administration.

"If you see anybody from that Cabinet in a restaurant, in a department store, at a gasoline station, you get out and you create a crowd and you push back on them, and you tell them they’re not welcome anymore, anywhere," said Waters.

Addressing a crowd in Los Angeles on Saturday, Waters, 79, packaged the entirety of her detractors into the same category as would-be KKK assassins in the same breath, and then insinuated that if they don't successfully take her out she would become "like a wounded animal." 

“I know that there are those who are talking about censuring me, talking about kicking me out of Congress, talking about shooting me, talking about hanging me,” Waters told the crowd in Los Angeles.

“All I have to say is this, if you shoot me you better shoot straight, there’s nothing like a wounded animal.”

In response to Waters call to action last weekend, President Trump tweeted on Monday that "Congresswoman Maxine Waters, an extraordinarily low IQ person, has become, together with Nancy Pelosi, the Face of the Democrat Party. She has just called for harm to supporters, of which there are many, of the Make America Great Again movement. Be careful what you wish for Max!"

In response, Waters appeared on MSNBC's All In With Chris Hayes where she read a list of incidents in which Trump has mentioned violence.

"He calls for more violence than anybody else," Waters said, referencing an incident in which Trump said he'd like to punch a gloating protester "in the face," as well as Trump's off the cuff remark that he would defend his supporters if they harm a protester being ejected from the event. 

“Try not to hurt him but if you do, I’ll defend you in court. Don’t worry about it,” Trump said.

“If that’s not creating violence and supporting violence, what is?” Waters proclaimed. “I’ve said nothing like that.”

Then on Wednesday, Trump suggested that Waters and Nancy Pelosi (D-CA) were the "unhinged FACE of the Democrat Party." 

And on Thursday, Waters told CNN that she had been forced to cancel a pair of public events in Alabama and Texas after receiving "threatening messages" and "hostile mail" at her office, including "one very serious death threat" from an individual in Texas.

"There was one very serious death threat made against me on Monday from an individual in Texas which is why my planned speaking engagements in Texas and Alabama were cancelled (sic) this weekend," she continued. "This is just one in several very serious threats the United States Capitol Police are investigating in which individuals threatened to shoot, lynch, or cause me serious bodily harm."

"As the President has continued to lie and falsely claim that I encouraged people to assault his supporters, while also offering a veiled threat that I should 'be careful', even more individuals are leaving (threatening) messages and sending hostile mail to my office," Waters said in the statement, reports CNN.

We urge Waters make each of the death threats she's received public in the hopes that a crowdsourced effort by a concerned citizenry might be able to assist law enforcement in their efforts, and maybe save Maxine's life.

These Are The Cheapest "Market Shock" Hedges Right Now

These Are The Cheapest "Market Shock" Hedges Right Now

With the "smart" money (as defined by Don Hays) exiting the stock market in droves, yield curves collapsing (now with extra help from a "Twisting" ECB), extreme speculative positioning in bonds, and a dramatically diverging economic reality from market market narratives, the possibility of a crash - Fed triggered or not - is rising. Do 'they' know something the "dumb money" does not?

And with everyone still the same side of the rates boat...

... while Bank of America is warning that the current market feels ominously similar to that right before the 1998 Asia Crisis and LTCM blow up...

... the question is - what's the cheapest way to hedge against a crash scenario?

Bank of America's Jason Galazidis has some answers for traders looking for some protection. The screen below shows that the hedges, ranked by the average, which are most underpricing historical drawdowns are Gold calls, EUR 10y receivers and TLT (US 20y+ Treasury) calls:

EUR 10y receivers and TLT calls screen as the best value hedges after Gold calls. Interestingly, USD 10y receivers screen materially richer owing to increased demand on heightened US trade tensions.

HSCEI puts are the second best screening equity hedge after RDXUSD (Russia) puts despite the HSCEI being the worst performing equity index in our screen (YTD peak vs. current levels).

EU Credit payers have richened remarkably over the last few months, particularly in IG, following the extreme widening in EU-periphery bond spreads in May. Our credit derivatives strategists note that the richening of downside tails in credit (payer skew) reached 8y extremes driven by heavy hedging demand.

As a reference, the table below shows the largest drops (or gains in the case of GLD, gold, Euro and US 10Y and TLT as designated with **) within 3 month in each asset class between ‘06 and ‘17, ranked in the same order as the assets in the chart above. The table shows that gold not only has a high vol delta but is consistently one of the best performing assets during crisis times.

And so - once again - the precious metal regains 'most-favored-nation' status as the world's emerging markets collapse and economic reality washes ashore on the banks of the river-of-excess-debt.

Since the middle of January, gold's implied vol has been notably, systemically lower than stocks:

And US equity vol has "normalized", catching back up to Europe over the past month:

Cross asset risk is once more in benign territory relative to history as vols and credit spreads are all in their 1st quartile, although recently cross asset risk rose across the board led by credit spreads, while commodity volatility has emerged as a notable exception after declining MoM - largely thanks to the recent surge in the price of oil - and is now the 2nd least elevated risk metric vs. its own history.

Meanwhile, another indicator that further vol breakouts are coming is the 12M cross-asset-class correlation, which has continued its climb since the Feb-18 equity-led sell-off, and is now at 5y highs.

Historically there have been 3 distinct cross asset correlation regimes since 1995. Interestingly, we see a broadly upward trend since Oct-03, well before the Lehman bankruptcy in Sep-08. This is related to the liquidity driven crush in asset risk-premia that helped drive investment leverage higher.  Long-term correlation established a new regime since 3Q13, similar to the ’03 to ‘08 correlation environment.

Which brings us to the punchline chart: these are the two-month-forward historical stress peaks observed during turbulent market shocks in 2008, 2009 and 2011, and compared to current levels. This is BofA's way of hinting where vol is most underpriced assuming, of course, that a crash should occur in 2 months:

The chart illustrates why it is useful to consider the relative pricing of options across asset classes to hedge against tail events: option markets often underestimate the severity of market shocks, and to different degrees. In 2008, currency, equity and sovereign risk vols were the most optimistic ahead of the Lehman crisis and the most surprised after (rose to the highest levels).

As Manafort Battles FBI, Mueller Gives Flynn Another Unexpected Reprieve

As Manafort Battles FBI, Mueller Gives Flynn Another Unexpected Reprieve

Recent developments in separate cases against former Trump officials Paul Manafort and Mike Flynn have left many scratching their heads.

On Friday, Politico reported that the Associated Press may have tipped off the FBI to a storage locker that the bureau then raided, according to an FBI agent who gave an unexpected testimony at a federal court hearing in Alexandria, Virginia.

A meeting last year where Associated Press reporters discussed with federal officials the news outlet’s investigation of former Trump campaign chairman Paul Manafort’s finances may have led the FBI to a storage locker the bureau raided, an FBI agent testified Friday. -Politico

Congressional investigators have inquired into the April 2017 meeting between AP and officials from both the DOJ Criminal Division and the FBI. 

Manafort's attorneys have sought to suppress the materials obtained through the searches as part of a broader attempt to discredit the Mueller investigation.

In response to an earlier question about how the FBI became aware that Manafort had a secret storage locker used for all of his business-related files, FBI agent Jeff Pfeiffer said "Either through my investigative efforts or through a meeting that occurred with reporters of The Associated Press." 

Present at the meeting with the Associated Press was Mueller investigator Andrew Weissmann - who is also a top prosecutor in the Criminal Division's Fraud section.

It was Weissman’s presence in the meeting with Associated Press reporters that first generated interest from congressional Republicans. In a January letter to Deputy Attorney General Rod Rosenstein, House Intelligence Committee Chairman Devin Nunes indicated he was interested in obtaining “records related to the details of an April 2017 meeting between DOJ Attorney Andrew Weissmann … and the media.” The disclosure of the meeting in Nunes’ letter led to speculation among Trump allies that Weissmann had aided the reporters’ stories. -Politico

AP's director of media relations, Lauren Easton, confirmed that AP journalists met with DOJ officials "in an effort to get information on stories they were reporting, as reporters do," and claimed that the journalists asked the DOJ about the storage locker but never identified its location.

Following the FBI's meeting with AP, Manafort assistant Alex Trusko eventually helped federal officials obtain access to the locker and consented to its search. While Manafort's attorneys have argued that Trusko lacked the authority to grant access, he was listed as the "occupant" on the locker's lease, and he had a key to it. 

Flynn gets another reprieve

Meanwhile, special counsel Mueller has asked for yet another delay in the sentencing of former national security adviser Michael Flynn, according to court documents filed on Friday - the third such request

Mueller's team asked for two more months before scheduling his sentencing - with a request to file another status report by August 24. 

“Due to the status of the Special Counsel’s investigation, the parties do not believe that this matter is ready to be scheduled for a sentencing hearing at this time,” reads a joint status report filed on Friday in a D.C. federal court. 

Flynn worked on the Trump campaign during the 2016 election and was briefly Trump's national security adviser before being fired for misleading Mike Pence about his contacts with Russian officials. While an incoming national security director communicating with Russia would be absolutely expected - Flynn's statements to White House officials and the FBI led to his firing and subsequent prosecution by the special counsel. 

McCabe didn't think they had a case

In May, an unredacted House Intel Committee report revealed that former Deputy FBI Director Andrew McCabe told Congressional investigators that the FBI had virtually no case against former National Security Advisor Mike Flynn, and "The two people who interviewed [Flynn] didn't think he was lying[.]" 

"[N]ot [a] great beginning of a false statement case." McCabe told the Committee. 

The same House Intel report revealed that James Comey contradicted himself in a Fox News interview when he denied telling lawmakers those agents thought Flynn was telling the truth, when in fact he did. Meanwhile, there has been an unconfirmed rumor that McCabe instructed agents to alter their "302" forms from the Flynn interview, effectively changing their written accounts. 

Senate Judiciary Committee Chairman Chuck Grassley (R-IA) has been zeroing in on the Flynn interview - demanding the 302 forms, as well as a sit-down with Special Agent Joe Pientkawho Grassley revealed as the second FBI agent in the Flynn interview aside from Peter Strzok

Grassley demanded a transcribed interview with Pientka - who would be able to testify as to whether or not McCabe had him alter his 302 formwhich would send things nuclear.

Thus far, the DOJ has told Grassley to pound sand...

Match Made In Hell: Bayer-Monsanto Partnership Signals Death Knell for Humanity

Match Made In Hell: Bayer-Monsanto Partnership Signals Death Knell for Humanity

Authored by Robert Bridge via The Strategic Culture Foundation,

On what plane of reality is it possible that two of the world’s most morally bankrupt corporations, Bayer and Monsanto, can be permitted to join forces in what promises to be the next stage in the takeover of the world’s agricultural and medicinal supplies?

Warning, plot spoiler: There is no Mr. Hyde side in this horror story of epic proportions; it’s all Dr. Jekyll. Like a script from a David Lynch creeper, Bayer AG of poison gas fame has finalized its $66 billion (£50bn) purchase of Monsanto, the agrochemical corporation that should be pleading the Fifth in the dock on Guantanamo Bay instead of enjoying what amounts to corporate asylum and immunity from crimes against humanity. Such are the special privileges that come from being an above-the-law transnational corporation.

Unsurprisingly, the first thing Bayer did after taking on Monsanto, saddled as it is with the extra baggage of ethic improprieties, was to initiate a rebrand campaign. Like a Hollywood villain falling into a crucible of molten steel only to turn up later in some altered state, Monsanto has been subsumed under the Orwellian-sounding ‘Bayer Crop Science’ division, whose motto is: "Science for a better life."

Yet Bayer itself provides little protective cover for Monsanto considering its own patchy history of corporate malfeasance. Far beyond its widely known business of peddling pain relief for headaches, the German-based company played a significant role in the introduction of poison gas on the battlefields of World War I. 

Despite a Hague Convention ban on the use of chemical weapons since 1907, Bayer CEO Carl Duisberg, who sat on a special commission set up by the German Ministry of War, knew a business opportunity when he saw one.

Duisberg witnessed early tests of poison gas and had nothing but glowing reports on the horrific new weapon:

“The enemy won’t even know when an area has been sprayed with it and will remain quietly in place until the consequences occur.”

Bayer, which built a department specifically for the research and development of gas agents, went on to develop increasingly lethal chemical weapons, such as phosgene and mustard gas. “This phosgene is the meanest weapon I know,” Duisberg remarked with a stunning disregard for life, as if he were speaking about the latest bug spray. “I strongly recommend that we not let the opportunity of this war pass without also testing gas grenades.”

Duisberg got his demonic wish. The opportunity to use the battlefield as a testing ground and soldiers as guinea pigs came in the spring of 1915 as Bayer supplied some 700 tons of chemical weapons to the war front. On April 22, 1915, it has been estimated that around 170 tons of chlorine gas were used for the first time on a battlefield in Ypres, Belgium against French troops. Up to 1,000 soldiers perished in the attack, and many more thousands injured.

In total, an estimated 60,000 people died as a result of the chemical warfare started by Germany in the First World War and supplied by the Leverkusen-based company.

According to Axel Koehler-Schnura from the Coalition against BAYER Dangers:

 “The name BAYER particularly stands for the development and production of poison gas. Nevertheless the company has not come to terms with its involvement in the atrocities of the First World War. BAYER has not even distanced itself from Carl Duisberg’s crimes.”

The criminal-like behavior has continued right up until modern times. Mike Papantonio, a US attorney and television presenter discussed one of the more heinous acts committed by this chemical company on Thomas Hartmann’s program, The Big Picture: “They produced a clotting agent for hemophiliacs, in the 1980s, called Factor VIII. This blood-clotting agent was tainted with HIV, and then, after the government told them they couldn’t sell it here, they shipped it all over the world, infecting people all over the world. That’s just part of the Bayer story.”

Papantonio, citing Bayer’s 2014 annual report, said the company is facing 32 different liability lawsuits around the world. For the 2018 Bayer liability report, click here.

Before flushing your Bayer products down the toilet, you may want to put aside an aspirin or two because the story gets worse.

One of the direct consequences of the ‘Baysanto’ monster will be a major hike in prices for farmers, already suffering a direct hit to their livelihood from unsustainable prices.

“Farmers have already experienced a 300% price increase in recent years, on everything from seeds to fertilizer, all of which are controlled by Monsanto,” Papantonio told Hartmann. “And every forecaster is predicting that these prices are going to climb even higher because of this merger.”

Yet it’s hard to imagine the situation getting any worse for the American farmer, who is now facing the highest suicide rate of any profession in the country. The suicide rate for Americans engaged in the field of farming, fishing and forestry is 84.5 per 100,000 people - more than five times that of the broader population.

This tragic trend echoes that of India, where about a decade ago millions of Indian farmers began switching from farming with traditional farming techniques to using Monsanto’s genetically modified seeds instead. In the past, following a millennia-old tradition, farmers saved seeds from one harvest and replanted them the following year. Those days of wisely following the rhythms and patterns of the natural world are almost over. Today, Monsanto GMO seeds are bred to contain 'terminator technology', with the resulting crops ‘programmed’ not to produce seeds of their own. In other words, the seed company is literally playing God with nature and our lives. Thus, hundreds of thousands of Indian farmers are forced to buy a new batch of seeds – together with Monsanto pesticide Round Up - each year and at a very prohibitive cost.

But should the world have expected anything different from the very same company that was involved in the production of Agent Orange for military use during the Vietnam War (1961-1971)? More than 4.8 million Vietnamese suffered adverse effects from the defoliant, which was sprayed over vast tracts of agricultural land during the war, destroying the fertility of the land and Vietnam’s food supply. About 400,000 Vietnamese died as a result of the US military’s use of Agent Orange, while millions more suffered from hunger, crippling disabilities and birth defects.

This is the company that we have allowed, together with Bayer, to control about one-quarter of the world’s food supply. This begs the question: Who is more nuts? Bayer and Monsanto, or We the People?

It’s important to mention that the Bayer – Monsanto convergence is not occurring in a corporate vacuum. It is all part of a race on the part of the global agrochemical companies to stake off the world’s food supplies. ChemChina has bought out Switzerland’s Syngenta for $43 billion, for example, while Dow and DuPont have forged their own $130 billion empire.

However, none of those companies carry the same bloodstained reputations as Bayer and Monsanto, a match made in hell that threatens all life on earth.

Senate Votes To Legalize Hemp After 80 Years Of Prohibition

Senate Votes To Legalize Hemp After 80 Years Of Prohibition

Authored by Carey Wedler via Steemit.com,

On Thursday, the U.S. Senate approved a bill to legalize hemp, an industrial crop that has been banned for decades.

In April, Senators Mitch McConnell (R-KY), Rand Paul (R-KY), Ron Wyden (D-OR), and Jeff Merkley (D-OR) submitted a separate bill to legalize hemp, and those provisions were then incorporated into the broader farm bill. The Senate Committee on Agriculture, Nutrition and Forestry approved that version before the upper house of Congress voted to approve it this week by a margin of 86-11. The bill would legalize the cultivation, processing, and sale of hemp.

"Consumers across America buy hundreds of millions in retail products every year that contain hemp," McConnell said Thursday.

"But due to outdated federal regulations that do not sufficiently distinguish this industrial crop from its illicit cousin, American farmers have been mostly unable to meet that demand themselves. It's left consumers with little choice but to buy imported hemp products from foreign-produced hemp."

According to Wyden:

Legalizing hemp nationwide ends decades of bad policymaking and opens up untold economic opportunity for farmers in Oregon and across the country.”

Hemp is a versatile crop that can be used in everything from construction material to clothing, and it has long been a staple in the United States and around the world. In fact, in the 17th century, the government encouraged people to grow it.

Though hemp was eventually banned amid the widespread attack on cannabis in the 1930s, ironically, it then had to be imported to sustain the war effort during World War II.

Farmers across the country have expressed relief and excitement that hemp has come this close to legalization.

“It’s super big,” Dani Billings, who owns LoCo farms in Longmont Colorado, said, as reported by an NBC affiliate station in Colorado . “We have people who understand agriculture, that understand this is for farming and it’s not to get people high.”

Bruce Perlowin, CEO of NC-based Hemp Inc., which worked with veterans, said in a press release:

“With Veteran Village Kins Community B-Corporations set up in 8 states so far, the legalization of industrial hemp will now allow these future veteran villages to be built and to flourish - creating more support for our veterans than anyone can possibly imagine.”

The bill still must be approved by the House, which has expressed opposition to hemp legalization, though McConnell is expected to campaign heavily in favor of the bill in the lower house of Congress. A list of concerns about the bill handed down from the White House reportedly did not include any objections to hemp legalization, meaning that if the bill makes it through the House, it’s likely President Trump will sign it into law.

Some states have passed legislation in recent years legalizing hemp, but the latest legislation would make it national policy.

Congressman Investigating FISA Abuse, Awan Says DOJ Spying On Him

Rep. Louie Gohmert (R-TX) says that agents working for Deputy Attorney General Rod Rosenstein have been spying on his office, Gohmert told WMAL's "Morning on the Mall" Friday.

“I don’t doubt for a minute that he has people who have been looking into my background. I’ve been told as much by some other folks,” said the Congressman, who added that he did not believe such an operation was overseen by Rod Rosenstein personally. 

“There’s always deniability,” he said.

Gohmert recounted a fiery exchange with Rosenstein during Congressional testimony last week in which the Congressman grilled the Deputy AG over not having read a FISA warrant renewal he signed. 

"If I were a FISA judge," Gohmert told WMAL, "now that we have him on record refusing to say that you even read it - I would never accept an application signed by you again, because you don't even know what you were signing

Gohmert also expressed frustration over the DOJ's efforts to stall Congressional investigations. 

"He think that if they drag their feet long enough like Eric Holder did with fast and furious, we won't do anything about it," suggesting that Rosenstein would seek to run out the statute of limitations on various allegations. 


Gohmert has been tirelessly pushing for the DOJ to investigate the Pakistani IT family which had unprecedented access to top secret information via computers and other electronic devices belonging to House Democrats. 

Gohmert gave a rousing speech in early June, imploring the DOJ to act on the Awan case, noting that there are "dozens and dozens" of potential felonies involved.

“The FBI has had opportunities to have those invoices presented to them, and each time, they have instructed, ‘Don’t bring any of those documents; we don’t want to see any of that, we just want to talk to [him],’” Gohmert said. Instead, the FBI has insisted that there's “no evidence of anything other than this false statement.”

They have instructed, ‘We don’t want to see the documents that proved those cases.’ They’re readily available, for any federal officer that wants to see them, but [the FBI] don’t want to see them, so they can keep reporting to the new U.S. attorney that there’s no evidence, nothing there,” Gohmert said.

And for his efforts to get to the bottom of two massive D.C. scandals, Rep. Louie Gohmert now says he's being spied on. 

What's Really Wrong With The US Equity Business?

What's Really Wrong With The US Equity Business?

Authored by Nicholas Colas via DataTrekResearch,

Prior to starting DataTrek with Jessica, I spent +30 years in the equity business, first in fund operations, then stock research, hedge funds, and finally writing market strategy for a brokerage firm. That time span represents an entire cycle for “Wall Street” as a business, from starting up a handful of mutual funds that charged 8% loads in 1984 to trading stocks at 0.2% commissions for ETFs that charge 0.04%. It has truly been the proverbial “Long strange trip”.

There are many causes for this downward slide, and each carries a well-worn narrative. A few standouts:

  • Declining asset management fees: Passive investing has seriously dented the popularity of active management, which has admittedly struggled to consistently outperform in the last 20 years of equity market volatility.
  • Lower sell side research margins: Wall Street analysts were hurt by Reg FD and AC, which seriously limited their ability to get a non-public (but once legal) investment edge and deliver that to clients for a premium price.
  • Lower hedge fund profitability: Low barriers to entry allowed too many hedge fund startups, compressing fees for even truly talented managers.
  • Lower equity trading profits: Decimalization, market fragmentation, higher technology costs and long stretches of central bank-driven volatility suppression have killed desk profitability.

Now, equities are an optimist’s game, and there’s no shortage of hopeful narratives that argue we’re at a bottom for many of these trends. The Fed is cutting back on its balance sheet, so volatility will return and lift trading profitability. The next bear market will see investors come back to active management. Asset allocators are more selective now, so the best hedge funds will regain pricing power.

We prefer to consider the decline of the US equity business writ large (both buyside and sellside) through a different lens: long term US equity returns.These, after all, are what pay for the money management, trading, and research services Wall Street has to offer. It is a lot easier to justify higher fees if returns are strong. And essentially impossible to pass along most costs when they are not.

Here are the trailing 20-year compounded average returns for the S&P 500 every 5 years since 1980, underlying data courtesy of NYU Professor Aswath Damodaran:

  • 1980: 8.3% 20-year trailing nominal returns
  • 1985: 8.6%
  • 1990: 11.1%
  • 1995: 14.5%
  • 2000: 15.5%
  • 2005: 11.9%
  • 2010: 9.1%
  • 2015: 8.1%
  • 2017: 7.1%

This data puts trends in the health of the US equity business in a different light than the narratives we outlined earlier. Equity owners – the ones that actually pay for services like money management, research and trading – have scaled their expenses based on their realized returns. For example:

  • The year 1999 at 17.7% 20-year trailing returns was the peak back to 1928, the start of this data series. Ask any old Wall Street professional and they will tell you that was exactly the peak of the US equity business.
  • As of the end of 2017, 20-year trailing returns are just 7.1%, lower even than 1961 - 1980. And the same pros will tell you things are, well, very difficult.

This admittedly non-consensus framework also allows us to take a stab at forecasting the future health of the US equity business. Everyone from Vanguard’s research group to Cliff Asness thinks the Shiller PE (current price divided by 10-year average earnings) is a good heuristic to estimate future returns, so let’s go with that:

  • Current Shiller PE: 32
  • Average real future 10 year returns when the Shiller PE is between 25 and 46 (i.e. like now): 0.5% (see link to a paper with the data below)
  • Assuming 2% inflation, that puts expected future returns at 2.5%

The bottom line here: if this lackluster future return forecast comes to pass, the US equity business will continue to see fee/commission compression for years to come. Asset owners have no choice but to continue to cut their expenses, which are (inconveniently) also the Street’s revenues. That applies equally to the buyside (more passive investing, lower asset management fees) and the sell side (less ability to pay for research and trading).

We will finish on an upbeat note: the current and most likely future environment for the US equity business is ripe for further wide-scale disruption. Asset owners have ripped most of the obvious costs out of the existing system, but if returns are really going to be 2.5% then there will need to be further innovation to incorporate that reality. In that respect, Wall Street is no different from any other American industry. Growth and success will belong to the disruptors rather than incumbents.

Argentina Blew A Billion Dollars To Rescue The Peso On Friday... And Failed

Argentina Blew A Billion Dollars To Rescue The Peso On Friday... And Failed

Even Eva Peron would be crying...

The last 24 hours have not been great for Argentina.

First - despite endless jawboning about The IMF bailout and how it will secure the nation's future and enable reforms, the currency collapsed to a new record low on Friday...

Second - the central bank decided to step in with their newly minted IMF funds and blew over a billion dollars to buy pesos, managing a very modest bounce (but ARS still closed down 3% on the day)

Third - IMF officials spoke with Argentina's union leaders, warning of the social impact of the ongoing disruptions.

IMF spokesman Raphael Anspach confirmed Werner and Cardarelli’s participation in the call, which “reiterated the main elements of the IMF support to the government’s economic plans, including the measures aimed at supporting the most vulnerable in Argentine society.”

And union officials told the media that The IMF was not worried about the ongoing collapse:

"They are betting on a virtuous behavior by private investors, with the economy falling in the third and fourth quarters of 2018, but rebounding 1.5% in the first quarter of 2019"

"They were not worried about the flight of capital"

Fourth, and finally, and perhaps worst of all - Argentina is now out of The World Cup

A nation mourns.