The Tight Rope Market
Sun, 19 Jan 2020 21:15:00 +0000
The Tight Rope Market

Authored by Sven Henrich via NorthmanTrader.com,

None of us can know where markets would be trading without the Fed’s constant massive liquidity injections, but now that the bubble recognition has gone mainstream (BloombergFT) and acknowledged by at least one Fed president (Kaplan) I think it’s fair to say: Lower, much lower.

But while investors continue to dance on the liquidity driven momentum rally right into major resistance currently ignored data keeps suggesting that risk is much higher than anyone is willing to acknowledge. Indeed these data points suggest investors may be walking a precarious tight rope without even realizing it.

I do my best to keep pointing out these data points, but so far admittedly in vain:

Since the Fed is currently hosting the most expensive frat party of all time it’s no wonder that investors are currently ignoring everything else consequences be damned.

I’ll let the reader be the judge, but below are a few charts I think are worth documenting as they highlight what investors are entirely ignoring at this stage.

And no I’m not talking about valuations. I’ve already made that point in the Ghosts of 2000, valuations are at records highs on many measures and that goes without saying. Valuations are high during any bubble, but rather there are underlying data trends that often precede coming recessions.

What recession? Everybody has declared recession risk to have faded. Why? Because stock prices have rallied to new all time highs? When has that ever be an indication that there is no recession risk ahead? Markets made new all time highs in the Fall of 2007. The recession started in December of 2007. Markets rallied to new all time highs in 2000. Did that mean there was no recession in 2001/2002? Of course now.

If anything high optimism is always a concern as it historically it is followed by, well, less optimism:

Yield curves have un-inverted and everybody declares recession risk to be over. Why?

The steepening has traditionally been the red flag ahead of a recession. Along with a slew of other data points that everybody is again ignoring.

In order for markets to grow into excessive valuations you need growth to follow suit. In order to see growth to emerge you need to see an expansion investment and credit.

Commercial and industrial loan growth shows none of that, it continues to decline:

Often associated with coming recessions it signals that companies are not as confident as markets who are hoping for a 2016 repeat. But then we didnt have a yield curve inversion and then steepening.

In context then it’s perhaps noteworthy that suddenly job openings have dropped hard, the most in this cycle:

This cycle remains very much long in the tooth and slowing employment growth is always a red flag at the end of a cycle. Where are the great new hiring plans?

May I remind everyone there’s a US election coming and this one may have consequences. I can’t predict elections, but depending on outcome it may bring about a  change in tax outlook.

Corporations surely must know that they were handed an unprecedented gift during the Trump presidency that may not last forever:

Uncertainty breeds risk and corporations may well hold off on big expansionary plans until after the election, especially considering that there a few signs that industrial production growth is picking up at this stage:

In fact, despite being awash in cash and in a tax nirvana corporations appear to dial it back on the buyback bonanza front:

As they do when they sense growth issues ahead (see 2007 into 2008).

On that note, here’s a little watched indicator, heavy weight truck sales:

Oddly enough that one dropped hard in front of the last 2 recessions following an aggressive ramp up. And it just did as well.

These data points are by far an exhaustive list, but they show a confluent picture of data points that suggest recession risk is not off the table. If anything they show factors that are entirely consistent with previous business cycles coming to an end.

And if this rally is all Fed driven, then it’s the Fed that will have brought about the final spurt of excess that will lead to an ugly reversion that could bring about the very recession it was so scared of in the first place.

It’s not like financial asset valuations versus the the underlying size of the economy are historically outsized or anything:

The New York Fed Nowcast keeps showing less than 2% GDP growth for Q4 2019 and Q1 2020. 1.2% and 1.7% respectively.

That’s the growth we get with a $400B expansion in the Fed’s balance sheet, 3 rate cuts and a trillion dollar deficit?

It’s almost as if the Fed’s power to stimulate growth is waning:

I submit investors, drunk at the latest Fed party, are walking a very tight rope. Who’s the designated driver once the party ends?

*  *  *

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Tyler Durden Sun, 01/19/2020 - 16:15
Never Before Seen Market Complacency, As Everyone Goes Even More "All In"
Sun, 19 Jan 2020 21:00:07 +0000
Never Before Seen Market Complacency, As Everyone Goes Even More "All In"

Last weekend, we pointed out that according to the latest flow data as compiled by Deutsche Bank's Parag Thatte, virtually every segment of the market - from institutional to retail investors, and systematics such as quants, risk-parity, vol-targeters, and CTAs - were essentially "all-in" stocks (if you missed it, please read "Institutions, Retail And Algos Are Now All-In, Just As Buybacks Tumble").

Fast forwarding to today, when the S&P just had another impressive meltup week, sending the S&P more than 3% higher YTD and for the 11th consecutive year blowing the professional investing community out of the water (hedge funds have underperformed the S&P on every single day of 2020 so far)...

... we find that investors are, inasmuch as that is possible, even more "all in" stocks. So without boring readers with the same narrative as we laid out last weekend, for the simple reason that nothing has changed since then, here is a quick rundown the key charts showing just how vested (and invested) everyone is in stocks as of this moment.

We start with consolidated equity positioning, representing a weighted average of Z-scores for positioning and flows indicators used by Deutsche Bank in tracking its entire positional universe:

A somewhat simpler and perhaps more accurate take, one based on the aggregated equity futures positioning as a % of Open Interest, shows that asset managers and levered funds have never been longer!

A similar picture emerges when looking at just net positioning in S&P 500 futures among asset managers and leveraged funds.

Curiously, while Discretionary investors are almost at all time highs, if not quite, Systematic investors have now thrown all caution to the wind, perhaps as a result of the sharp drop in VIX Y/Y, and have never been more invested:

Among the systematics, the bullishness of risk parity is now almost literally off the charts.

Likewise for vol-control funds, these are at the maximum of their theoretical maximum equity allocation.

And while CTAs have had a higher beta to equities in the past, this too is rising fast and approaching the all time high.

In one ominous sign that we are taking the stairs higher and will take the parachute on the way down, the higher we get, the lower overall market liquidity gets.

Another ominous signal: hedge funds are unable to keep up with the meltup in the broader market, with hegde fund shorts dominating performance ever since the summer of 2018, and preventing the 2 and 20 community to keep up with the S&P500.

And as a result of the negative contribution from shorts which are once again outperforming the broader market, hedge fund beta is near the lowest in the four years.

As a result of aggressive central bank intervention which has effectively wiped out risk, extreme put-to-call ratios indicate near record complacency...

... as does collapsing implied vol and skew.

This has also led to near all time low short interest across single stocks and ETFs:

Meanwhile, the biggest conundrum of 2019 has carried over into 2020, as massive equity outflows persist and offset tremendous inflows in bonds as well as money market funds, suggesting the primary buyer remains stock buybacks...

... despite stable inflows into tech, real estate and utilities.

Last but certainly not least, the biggest concern for stocks is the precipitous decline in announced buybacks: without this single biggest buyer of stocks over the past 10 years, just who will propell stocks to new all time highs once sentiment reverse and marginal traders start dumping?

 

Tyler Durden Sun, 01/19/2020 - 16:00
US Drug Overdose Deaths Drop For First Time Since 1990
Sun, 19 Jan 2020 20:25:00 +0000
US Drug Overdose Deaths Drop For First Time Since 1990

Authored by Paula Liu via NTD.com,

For the first time in nearly three decades, the deaths resulting from drug overdose in the United States have dropped, according to multiple reports.

As reported by The New York Times, according to government data that was published on Jan. 15, the total amount of deaths resulting from drug overdose dropped around 5 percent in 2019.

“[For the] first time in almost 30 years, we’ve seen a decline in the number of Americans dying from an overdose—its a 5 percent reduction,” said Jim Carroll, the director of the Office of National Drug Control Policy, according to The Hill.

The news outlet reported that Carroll was appointed director in 2018 by President Donald Trump.

“It’s a result of everything - its working on the supply of drugs that are coming in but it’s also working on demand. It’s getting more people into treatment and its spreading the message on prevention,” Carroll said.

Carroll commended some local officials for trying to look past incarceration as a means to solve the epidemic, and instead looking for ways to offer treatment. Instead of arresting drug users, the goal is to treat and educate them as an individual. Carroll stated that this method had made a difference in the community.

According to the report, the drop was primarily attributed to the number of deaths from prescription opioid drugs, one of the drugs that had set off an epidemic in the United States. The New York Times reported that the opioid epidemic was so catastrophic that the drug had decreased the life expectancy in the country.

The Centers for Disease Control and Prevention (CDC) stated that 67.8 percent of the drug overdose deaths back in 2017 (which was 70,237 deaths) was due to opioid drugs, according to data on drug overdose deaths. In addition, on average 130 Americans die every single day from an opioid drug overdose, according to the CDC.

As a result of the epidemic, some of the states have tackled the issue head on, and created programs to help counter the amount of deaths as a form of solution, according to The Hill.

Andrew Kolodny, the co-director of opioid policy research at Brandels University said that the drop in deaths could be a turning point, calling the decrease “light at the end of the tunnel,” but said that the decrease was still nothing to celebrate because the amount of people who died from drug overdoses is still very high, according to The New York Times.

Tyler Durden Sun, 01/19/2020 - 15:25
MSNBC Promotes Biden Lie That Sanders 'Doctored' Video; Politico Debunks, Sirota Simmers
Sun, 19 Jan 2020 20:00:00 +0000
MSNBC Promotes Biden Lie That Sanders 'Doctored' Video; Politico Debunks, Sirota Simmers

Bernie Sanders and Joe Biden are having an old man fight.

In a January 7 newsletter, Sanders' campaign wrote that Biden "lauded" former Republican House Speaker Paul Ryan's efforts to cut social security - claiming "In 2018, Biden lauded Paul Ryan for proposing cuts to Social Security and Medicare."

In truth, Biden said that Ryan was "correct" to have gone after Social Security and Medicare - as it's "the only way" to make the numbers work, though the former VP later clarified that America needs a progressive tax code that "raises enough revenue to make sure that the Social Security and Medicare can stay - still needs adjustments, but can stay."

Watch:

After Sanders' campaign claimed that Biden lauded Ryan's plan, Biden lied - claiming Sanders 'doctored' the video.

"PolitiFact looked at it and they doctored the photo, they doctored the piece and it’s acknowledged that it’s a fake," Biden falsely claimed.

Politifact didn't say the video was doctored, though they did suggest that Sanders had mischaracterized Biden's comments. Interestingly, Politifact omits Biden's mention that Social Security and Medicare would 'still need adjustments.'

Sanders' campaign hit back in a Saturday statement from Campaign Manager Fritz Shakir, who said "Joe Biden should be honest with voters and stop trying to doctor his own public record of consistently and repeatedly trying to cut Social Security," adding "The facts are very clear: Biden not only pushed to cut Social Security — he is on tape proudly bragging about it on multiple occasions."

Biden, meanwhile, said on Saturday "It is simply a lie, that video that’s going around. And ask anybody in the press, it’s a flat lie. They acknowledged that," adding "This is a doctored tape. And I think it’s beneath him. And I’m looking for his campaign to come forward and disown it. But they haven’t done it yet."

Politico set the record straight on Saturday, noting that the video was not doctored, and that Biden has a "long-standing record of entertaining cuts" to the programs - only for MSNBC to peddle the 'doctored video' accusation on air. Sanders speechwriter David Sirota called them out over Twitter on Sunday.

And on it goes...

In short:

Tyler Durden Sun, 01/19/2020 - 15:00
How The Supreme Court Could Be Pulled Into The Trump Impeachment
Sun, 19 Jan 2020 19:35:00 +0000
How The Supreme Court Could Be Pulled Into The Trump Impeachment

Authored by Jonathan Turley,

After its 2000 decision in Bush v. Gore, Justice David Souter reportedly “wept” when the role of the Supreme Court was raised in determining the outcome of the presidential election.

The court continues to grapple with the legacy – and controversy – of that decision. With the still developing Senate trial in President Trump’s impeachment, the court could soon be pulled into the flip side of Bush v. Gore, not who could be declared but who should be removed as president.

Despite what Trump counsel Rudolph W. Giuliani has declared in calling for the court to nullify the impeachment, the Constitution does not state any function of the court in impeachments other than the limited role of the chief justice as the presiding judge. That suits most justices just fine. Most justices would prefer to drink molten lead than get pulled into another presidential legitimacy case.

Yet, the Trump impeachment trial may force that cup to the lips of the justices. With a trial starting in the Senate on Thursday, the looming question over the Senate will be whether to allow witnesses. While I strongly disagreed with the House in rushing this impeachment forward rather than waiting a couple of months to complete its record, I still support a trial with witnesses in the Senate. If witnesses are called, however, the court could be forced to finally face a question more than 50 years in the making.

In 1974, the Supreme Court ruled in United States v. Nixon and ordered the release of the Watergate tapes to special prosecutor Leon Jaworski – and ultimately to Congress. Nixon resigned roughly two weeks later. That case has spawned a variety of interpretations of its rejection of executive privilege, including one interpretation I call the “Nixon fallacy.” The fallacy goes something like this:

Impeachment so exceeds in importance executive-privilege claims that the Supreme Court has already declared that criminal or impeachment investigations take precedence over privilege so any withholding of testimony or documents is per se obstruction.

In reality, the Supreme Court never said anything like that.

Yes, the court rejected what it described as the claim of an “absolute, unqualified Presidential privilege of immunity” to withhold relevant evidence in a criminal investigation. But it did not say that a president could not invoke privilege over the testimony in an impeachment proceeding or that such privilege assertions could not ever prevail. Indeed, it did not even categorically reject such claims in a criminal investigation but simply said that “without more” of a justification from Nixon, the tapes would have to be turned over to the Watergate special prosecutor.

A national security adviser speaking to a president about the delivery of military aid to a foreign country is the very definition of a core protected area of executive privilege. That does not mean the White House would win in a fight over John Bolton’s testimony. However, it does mean Trump has a viable and recognized basis for withholding information in this area – creating an issue capable of judicial review and resolution.

So, here is one scenario. The Senate crosses the Rubicon and both sides call witnesses from Bolton to Hunter Biden to give depositions. While Biden would not be able to refuse to testify absent a Fifth Amendment plea (which could be overcome by a grant of immunity), the White House would try to halt Bolton’s participation under a claim of privilege. The White House would presumably push the case into the federal district court, which would have to review each area of questioning to determine if executive privileges or congressional prerogatives should prevail. Appeals would follow. And all that assumes the Senate is willing to wait for those courts to rule.

The problem is time. It took only three months to litigate the Nixon tapes controversy from the district court to a final decision of the Supreme Court. By refusing to delay the impeachment vote, the House effectively gave up control of its own case. The Senate may have little time or patience to allow the House to correct that blunder.

In my view, Bolton should testify. Indeed, he should have been subpoenaed in the House. There are valid privilege claims to be raised, but he can clearly answer questions narrowly tailored to the issue of a quid pro quo.

The only body less eager to grapple with those claims than the Senate is the Supreme Court. The aversion is only enhanced by the possibility of recusal of Chief Justice John G. Roberts Jr. in any appeal, leaving the court with a risk of a tie vote on a critical impeachment question. Over a decade after she ruled in Bush v. Gore, Sandra Day O’Connor was still expressing regrets and wondered aloud, “Maybe the court should have said, ‘We’re not going to take it, goodbye.'”

But that may be difficult when the Senate is waiting roughly 1,500 feet away for an answer on what Bolton might say. Three branches of government would literally be locked in a constitutional hold with the curious figure of Bolton sitting in the center. Before he speaks, the court may have no alternative but to be heard.

Tyler Durden Sun, 01/19/2020 - 14:35
Syrian Jihadists Filmed Jet-Setting To Next Proxy War On Commercial Plane
Sun, 19 Jan 2020 19:10:00 +0000
Syrian Jihadists Filmed Jet-Setting To Next Proxy War On Commercial Plane

Turkish President Recep Tayyip Erdogan has continued warning that terrorist groups as well as a 'flood of refugees' will show up on Europe's shores if the Tripoli government were to fall to renegade General Khalifa Haftar, amid his continued offensive to control the Libyan capital. Erdogan's statement came a day before he heads to Berlin for a major peace conference which will attempt to halt the fighting. 

And yet look who's sending actual jihadists into the already war-ravaged country on comfortable commercial jets:

Middle East media outlet Arab News describes the footage as follows:

A video has emerged showing dozens of what appear to be Syrian rebels on an Afriqiyah Airways plane headed to Libya where they will allegedly fight alongside the country’s Government of National Accord (GNA), Libyan newspaper Al-Shahid has claimed.

In the video, the men — three of whom were seen wearing military uniforms — are on their way to Libya where they will reportedly fight as mercenaries for the GNA’s militias.

The shocking video of what is supposed to be a "covert" Turkey-sponsored mission to bolster the Tripoli GNA government with both Syrian jihadist FSA mercenaries (and separately Turkish national troops) confirms new reporting in The Guardian this week.

According to the bombshell Guardian report:

Two thousand Syrian fighters have traveled from Turkey or will arrive imminently to fight on the battlefields of Libya, Syrian sources in all three countries have said, in an unprecedented development that threatens to further complicate the north African state’s intractable civil war.

The deployment came after Turkey agreed last month to come to the aid of the Libyan prime minister, Fayez al-Sarraj, who is backed by the UN, in the face of a months-long campaign by his rival, the warlord Khalifa Haftar.

This perhaps makes Erdogan's latest 'warning' appear something more like a 'threat' in which he's the one actually holding the trigger

“Europe will encounter a fresh set of problems and threats if Libya’s legitimate government were to fall,” Erdogan said.

“Terrorist organisations such as ISIS [ISIL or Daesh] and al-Qaeda, which suffered a military defeat in Syria and Iraq, will find a fertile ground to get back on their feet,” he continued. “Keeping in mind that Europe is less interested in providing military support to Libya, the obvious choice is to work with Turkey, which has already promised military assistance,” Erdogan added.

Erdogan has long claimed Turkey's intervention in Libya is to "combat terrorism" — which for Ankara means defeating pro-Haftar forces. 

Meanwhile, journalist for The Sunday Times Hala Jaber has noted Turkey's latest foreign adventurism includes sending the same "guns for hire" once used to try and oust Assad to Libya.

Or we might even say many foreign fighters are going "back" to Libya, given in the early years of the Syrian war many thousands of jihadists from North Africa were allowed to enter northern Syria via Turkey to assist in the Western/Gulf military alliance in regime change efforts there. 

* * * 

Libyan Islamists backed by the West toppled Gaddafi and destroyed much of the country in the 2011 war. Here they are posing at Tripoli's international airport in 2014 after capturing and destroying airplanes

The rebel group Libyan Dawn in a 2014 bid to take Tripoli's airport, via Daily Mail.
Tyler Durden Sun, 01/19/2020 - 14:10
MSNBC Slammed For Featuring 'Body Language Expert' Who Calls Bernie Sanders A Liar
Sun, 19 Jan 2020 18:45:00 +0000
MSNBC Slammed For Featuring 'Body Language Expert' Who Calls Bernie Sanders A Liar

Authored by Jon Queally via CommonDreams.org,

MSNBC and weekend anchor Joy Ann Reid came under fire from progressives and members of the Bernie Sanders campaign Saturday after airing a segment with a "body language expert" who — citing "eye level" and the turtling of the 2020 candidate's shoulders — accused Sanders of lying earlier this week when he denied ever telling Sen. Elizabeth Warren that a woman could not be president.

"This is unhinged,tweeted Meagan Day, a staff writer for Jacobin magazine, in response to the segment. "Genuinely divorced from reality."

MSNBC weekend anchor Joy Ann Reid host invited Janine Driver on her show Saturday morning. Image source: MSNBC/Screenshot

The guest on Reid's show "AM Joy" was Janine Driver, who promotes herself as an "international communications expert" and the owner and president of the Body Language Institute. The segment sparked howls of criticism aimed at Driver, Reid, and the network.

Driver, who bills herself as a "body language expert," accused Sen. Bernie Sanders of being a liar on national television because he "turtles" his shoulders and lowers his "eye level" when he says certain things.

"So now the slant is that he's physically intimidating too, oh and sexist," said writer and activist Malaika Jabali. "Totally cool, normal interpretation of someone being spontaneously confronted on national TV. It's getting outrageous."

While both the Warren and Sanders camp have appeared desirous to put the dust-up about what was or wasn't said during a private 2018 meeting behind them, Day — who openly supports Sanders as the better and more progressive candidate — was among those unwilling to disarm so long as the corporate media outlets continue to air such blatant and irrresponsible attacks to their massive audiences.

"I know there's a big push to move on but if the mainstream media is gonna broadcast this fraudulent garbage," said Day, "then I don't feel particularly compelled to drop it."

She was hardly alone.

"MSNBC is a fucking disgrace," said journalist Glenn Greenwald of The Intercept. Greenwald said the use of "bullshit charlatan body language analysis" to call Sanders a liar was "appalling but typical" of the network.

Driver's performance in the interview led many to check her credentials, political leanings, and background:

Media critic Adam Johnson noted, "just to be clear 'body language experts' aren't actually a thing and MSNBC should stop having them on all the time in general."

Johnson — who has long documented the corporate media's bias against Sanders as a presidential candidate — added:

Sanders' national press secretary Briahna Joy Gray also denounced the segment and said the "campaign is owed an apology" by the network.

"What are they going to do next, phrenology?" Gray said. "This is why no one trusts the media."

Tyler Durden Sun, 01/19/2020 - 13:45
IMF Chief Warns Global Economy Faces New "Great Depression"
Sun, 19 Jan 2020 18:20:00 +0000
IMF Chief Warns Global Economy Faces New "Great Depression"

How's this for some New Years optimism?

The new head of the IMF, who took over from Christine Lagarde in November, warned that the global economy could soon find itself mired in a great depression.

During a speech at the Peterson Institute, IMF Chairwoman Kristalina Georgieva compared the contemporary global to the "roaring 20s" of the 20th century, a decade of cultural and financial excess that culminated in the great market crash of 1929.

According to the Guardian, this research suggests that a similar trend is already under way, and though the collapse might not be around the corner, when it comes, it will be impossible to avoid.

While the inequality gap between countries has closed over the last two decades, the gap within most developed countries has widened, leaving millions more vulnerable to a global downturn than they otherwise would have been.

In particular, she singled out the UK for criticism: "In the UK, for example, the top 10% now control nearly as much wealth as the bottom 50%. This situation is mirrored across much of the OECD (Organisation for Economic Co-operation and Development), where income and wealth inequality have reached, or are near, record highs."

She also warned about the potential for climate change to become a bigger obstacle for humanity, while increased trade protectionism instills more volatility in markets.

She added: “In some ways, this troubling trend is reminiscent of the early part of the 20th century – when the twin forces of technology and integration led to the first gilded age, the roaring 20s, and, ultimately, financial disaster."

She warned that fresh issues such as the climate emergency and increased trade protectionism meant the next 10 years were likely to be characterised by social unrest and financial market volatility.

"If I had to identify a theme at the outset of the new decade, it would be increasing uncertainty," she said.

Of course, the IMF isn't the first institution to try and gird the global financial system against the affects of climate change. It also isn't the first international institution to warn Britain about the possible economic fallout from Brexit.

Back in December, the Bank of England said it would set up "tough" climate stress tests for banks and insurers in the UK. The tests would involve three different scenarios stretching out over decades.

However, critics quickly pointed out that the tests would essentially be toothless. Regardless of whether institutions pass or fail, the results will initially only be published in aggregate without naming individual institutions, though the BoE hasn't ruled out naming and shaming in the future.

While geopolitical tensions are back in the headlines thanks to Iran, Hong Kong, and a rash of protest movements around the world, few would argue that the bull market that dominated the last decade was in any way impacted by geopolitics. Instead, the market largely ignored geopolitical tensions, and allowed itself to be carried ever-higher by a flood of easy money from central banks.

This is further evidenced by the fact that, every time the Fed has tried to wean the American economy off of rock-bottom interest rates or the central bank's ever-expanding balance sheet, markets have reacted with fury.

Having considered all of this, we'd like to present another scenario: if Trump loses in November, and the Fed regains the courage to raise interest rates now that President Trump isn't around to publicly browbeat and humiliate them, that might be enough to send markets into a tailspin, even if the Dems take the 'market friendly' road and nominate Joe Biden.

Tyler Durden Sun, 01/19/2020 - 13:20
"Buy The Dip" - An American Tradition Since 1987
Sun, 19 Jan 2020 17:55:00 +0000
"Buy The Dip" - An American Tradition Since 1987

Authored by Bruce Wilds via Advancing Time blog,

Buy the dip has been an American tradition since 1987. The first truly modern global financial crisis unfolded in the autumn of  that year. October 19, 1987, has become the day known infamously as “Black Monday. It set forth a chain reaction of market distress that sent global stock exchanges plummeting in a matter of hours. In the United States, the Dow Jones Industrial Average (DJIA) dropped 22.6 percent in a single trading session. This loss remains the largest one-day stock market decline in history and marks the sharpest market downturn in the United States since the Great Depression.

Note Where "Buy The Dip" Started (click to enlarge)

The important significance of this event lies in the fact Black Monday underscored the concept of “globalization,” which was still quite new at the time. The event demonstrated the extent to which financial markets worldwide had become intertwined and technologically interconnected. This led to several noteworthy reforms, including exchanges developing provisions to pause trading temporarily in the event of rapid market sell-offs. More importantly, it forever altered the Federal Reserve’s response on how to use “liquidity” as a tool to stem financial crises.

Leading up to this event the stock markets raced upward during the first half of 1987 gaining a whopping 44 percent in just seven months. This, of course, created concerns of an asset bubble, however, few market traders expected the market could unravel so viciously. Prior to US markets opening for trading on Monday morning, stock markets in and around Asia began plunging. In response investors rapidly began to liquidate positions, and the number of sell orders vastly outnumbered willing buyers near previous prices, creating a cascade in stock markets.

Thomas Thrall, a senior professional at the Federal Reserve Bank of Chicago, who was then a trader at the Chicago Mercantile Exchange later said, “It felt really scary, people started to understand the interconnectedness of markets around the globe.”

Without a doubt, several new developments in the market enlarged and exacerbated the losses on Black Monday. Things like international investors becoming more active in US markets and new products from US investment firms, known as “portfolio insurance” had become very popular. These included the use of options and derivatives. A number of structural flaws also fueled the losses. At the time of the crisis, stock, options, and futures markets used different timelines for the clearing and settlements of trades, creating the potential for negative trading account balances and forced liquidations.

That is when, Alan Greenspan, then Federal Reserve chairman, came forward on October 20, 1987, with a statement that would shape traders' actions for decades. Fed Chairman Alan Greenspan said, “The Federal Reserve, consistent with its responsibilities as the Nation's central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system” Prior to this markets were seen as a much riskier venture. The great legacy from the events taking place in 1987 is rooted in the actions and swift response of the Fed, that the central bank would backstop markets. This premise has grown over time.

After Black Monday, regulators overhauled trade-clearing protocols and developed new rules. One of the most important is known as circuit breakers which allow exchanges to halt trading temporarily in instances of exceptionally large price declines.  Under these rules, the New York Stock Exchange will temporarily halt trading when the S&P 500 stock index declines 7 percent, 13 percent, and 20 percent. This is done in order to provide investors time to make better informed decisions during periods of high market volatility and reduce the chance of panic. Risk managers also re-calibrated the way they valued options.

Unlike previous financial crises, the Black Monday decline was not associated with a deposit run or any other problem in the banking sector. Still, it was very important because the Fed’s response set a precedent that has over time when coupled with other events massively increased the moral hazard associated with intervention in free markets. Following the rout stock markets quickly recovered a majority of their Black Monday losses. In just two trading sessions, the DJIA gained back 57 percent, of the Black Monday downturn. Because of the Fed action in less than two years, the US stock markets surpassed their pre-crash highs and was not followed by an economic recession.

And now for the grand point of this post, we should not underestimate how the Fed’s response to Black Monday ushered in a new era of investor confidence in the central bank’s ability to control market downturns. The actions by Fed Chairman Greenspan galvanized the mantras "buy the dip" and "don't fight the Fed" and powered them to the top of trading lexiconsIt has also been a key factor in allowing the stock market to morph into a much larger symbol of the economy than it merits. This is reflected in how over the decades growth in the financial sector has soared dwarfing that in the real economy.

Decades Of Nikkei Action (click to enlarge)

To all those market aficionados that forget markets can fall and for decades fail to regain their luster I point to the Japanese markets and their fierce meltdown in 1990. The chart to the right would look far more depressing had the market trends over the last decade coupled with buying from the central Bank Of Japan not bolstered its performance. We should also remember many market high-flyers simply vanish into a deep hole and that during the 1930s the Fed was unable to bring the economy out of its funk.

Another often overlooked issue is how changes in tax laws over the years have moved more wealth into stocks. These include the often forgotten and seldom mentioned changes many made by the Bush administration following the dotcom bust and 9-11. These factors and money constantly funneled into markets by pension funds and such coupled with soaring central bank liquidity has levitated markets to record high, after record high, despite stagnant fundamentals. It seems the "fear of missing out" and exuberance has caused many investors to become blind to the idea that years of profits can vanish in a blink of the eye.

This should force us to question the utter madness displayed in the widening disconnect between current valuations and underlying fundamentals. It could be argued that because of these actions QE has amplified speculation as investors seeking yield now feel almost invulnerable to future losses. We can cast away all the terms and warnings about "moral hazards" and "slippery slopes," however that does not guarantee they will not return to haunt us. Historically our hubris and arrogance has shined  as a beacon illuminating the fact that every time those in high finance declare it is different this time they have been proven wrong.     

Tyler Durden Sun, 01/19/2020 - 12:55
Not Just Hunter: Widespread Biden Family Profiteering Exposed
Sun, 19 Jan 2020 17:30:00 +0000
Not Just Hunter: Widespread Biden Family Profiteering Exposed

Clinton Cash author Peter Schweizer is out with a new book, "Profiles in Corruption: Abuse of Power by America’s Progressive Elite," in which he reveals that five members of the Biden family, including Hunter, got rich using former Vice President Joe Biden's "largesse, favorable access and powerful position."

Frank Biden, Vice President Joe Biden, & Mindy Ward

While we know of Hunter's profitable exploits in Ukraine and China - largely in part thanks to Schweizer, Joe's brothers James and Frank, his sister Valerie, and his son-in-law Howard all used the former VP's status to enrich themselves.

Of course, Biden in 2019 said "I never talked with my son or my brother or anyone else — even distant family — about their business interests. Period."

As Schweizer puts writes in the New York Post; "we shall see."

James Biden: Joe's younger brother James has been deeply involved in the lawmaker's rise since the early days - serving as his the finance chair of his 1972 Senate campaign. And when Joe became VP, James was a frequent guest at the White House - scoring invites to important state functions which often "dovetailed with his overseas business dealings," writes Schweizer.

Consider the case of HillStone International, a subsidiary of the huge construction management firm, Hill International. The president of HillStone International was Kevin Justice, who grew up in Delaware and was a longtime Biden family friend. On November 4, 2010, according to White House visitors’ logs, Justice visited the White House and met with Biden adviser Michele Smith in the Office of the Vice President.

Less than three weeks later, HillStone announced that James Biden would be joining the firm as an executive vice president. James appeared to have little or no background in housing construction, but that did not seem to matter to HillStone. His bio on the company’s website noted his “40 years of experience dealing with principals in business, political, legal and financial circles across the nation and internationally…”

James Biden was joining HillStone just as the firm was starting negotiations to win a massive contract in war-torn Iraq. Six months later, the firm announced a contract to build 100,000 homes. It was part of a $35 billion, 500,000-unit project deal won by TRAC Development, a South Korean company. HillStone also received a $22 million U.S. federal government contract to manage a construction project for the State Department. -Peter Schweizer, via NY Post

According to Fox Business's Charlie Gasparino in 2012, HillStone's Iraq project was expected to "generate $1.5 billion in revenues over the next three years," more than tripling their revenue. According to the report, James Biden split roughly $735 million with a group of minority partners.

David Richter - the son of HillStone's parent company's founder - allegedly told investors at a private meeting; it really helps to have "the brother of the vice president as a partner."

Unfortunately for James, HillStone had to back out of the major contract in 2013 over a series of problems, including a lack of experience - but the company maintained "significant contract work in the embattled country" of Iraq, including a six-year contract with the US Army Corps of Engineers.

In the ensuing years, James Biden profited off of Hill's lucrative contracts for dozens of projects in the US, Puerto Rico, Mozambique and elsewhere.

Frank Biden, another one of Joe's brothers (who said the Pennsylvania Bidens voted for Trump over Hillary), profited handsomely on real estate, casinos, and solar power projects after Joe was picked as Obma's point man in Latin America and the Caribbean.

Months after Joe visited Costa Rica, Frank partnered with developer Craig Williamson and the Guanacaste Country Club on a deal which appears to be ongoing.

In real terms, Frank’s dream was to build in the jungles of Costa Rica thousands of homes, a world-class golf course, casinos, and an anti-aging center. The Costa Rican government was eager to cooperate with the vice president’s brother.

As it happened, Joe Biden had been asked by President Obama to act as the Administration’s point man in Latin America and the Caribbean.

Frank’s vision for a country club in Costa Rica received support from the highest levels of the Costa Rican government— despite his lack of experience in building such developments. He met with the Costa Rican ministers of education and energy and environment, as well as the president of the country. -NY Post

And in 2016, the Costa Rican Ministry of Public Education inked a deal with Frank's Company, Sun Fund Americas to install solar power facilities across the country - a project the Obama administration's OPIC authorized $6.5 million in taxpayer funds to support.

This went hand-in-hand with a solar initiative Joe Biden announced two years earlier, in which "American taxpayer dollars were dedicated to facilitating deals that matched U.S. government financing with local energy projects in Caribbean countries, including Jamaica," known as the Caribbean Energy Security Initiative (CESI).

Frank Biden's Sun Fund Americas announced later that it had signed a power purchase agreement (PPA) to build a 20-megawatt solar facility in Jamaica.

Valerie Biden-Owens, Joe's sister, has run all of her brother's Senate campaigns - as well as his 1988 and 2008 presidential runs.

She was also a senior partner in political messaging firm Joe Slade White & Company, where she and Slade White were listed as the only two executives at the time.

According to Schweizer, "The firm received large fees from the Biden campaigns that Valerie was running. Two and a half million dollars in consulting fees flowed to her firm from Citizens for Biden and Biden For President Inc. during the 2008 presidential bid alone."

Dr. Howard Krein - Joe Biden's son-in-law, is the chief medical officer of StartUp Health - a medical investment consultancy that was barely up and running when, in June 2011, two of the company's execs met with Joe Biden and former President Obama in the Oval Office.

The next day, the company was included in a prestigious health care tech conference run by the Department of Health and Human Services (HHS) - while StartUp Health executives became regular White House visitors between 2011 and 2015.

StartUp Health offers to provide new companies technical and relationship advice in exchange for a stake in the business. Demonstrating and highlighting the fact that you can score a meeting with the president of the United States certainly helps prove a strategic company asset: high-level contacts. -NY Post

Speaking of his homie hookup, Krein described how his company gained access to the highest levels of power in D.C.:

"I happened to be talking to my father-in-law that day and I mentioned Steve and Unity were down there [in Washington, D.C.]," recalled Howard Krein. "He knew about StartUp Health and was a big fan of it. He asked for Steve’s number and said, ‘I have to get them up here to talk with Barack.’ The Secret Service came and got Steve and Unity and brought them to the Oval Office."

And then, of course, there's Hunter Biden - who was paid millions of dollars to sit on the board of Ukrainian energy giant Burisma while his father was Obama's point man in the country.

But it goes far beyond that for the young crack enthusiast.

With the election of his father as vice president, Hunter Biden launched businesses fused to his father’s power that led him to lucrative deals with a rogue’s gallery of governments and oligarchs around the world. Sometimes he would hitch a prominent ride with his father aboard Air Force Two to visit a country where he was courting business. Other times, the deals would be done more discreetly. Always they involved foreign entities that appeared to be seeking something from his father.

There was, for example, Hunter’s involvement with an entity called Burnham Financial Group, where his business partner Devon Archer — who’d been at Yale with Hunter — sat on the board of directors. Burnham became the vehicle for a number of murky deals abroad, involving connected oligarchs in Kazakhstan and state-owned businesses in China.

But one of the most troubling Burnham ventures was here in the United States, in which Burnham became the center of a federal investigation involving a $60 million fraud scheme against one of the poorest Indian tribes in America, the Oglala Sioux.

Devon Archer was arrested in New York in May 2016 and charged with “orchestrating a scheme to defraud investors and a Native American tribal entity of tens of millions of dollars.” Other victims of the fraud included several public and union pension plans. Although Hunter Biden was not charged in the case, his fingerprints were all over Burnham. The “legitimacy” that his name and political status as the vice president’s son lent to the plan was brought up repeatedly in the trial. -NY Post

Read the rest of the report here.

Tyler Durden Sun, 01/19/2020 - 12:30
US Forces In Tense Showdown With Russian Convoy On Blocked Syrian Highway
Sun, 19 Jan 2020 17:00:00 +0000
US Forces In Tense Showdown With Russian Convoy On Blocked Syrian Highway

An extremely dangerous and rare incident played out in northeast Syria between the conflict's two most powerful rival forces on Saturday when opposing American and Russian military convoys encountered each other on a highway. 

The incident was filmed and published online by anti-Assad opposition group Syrian Observatory for Human Rights (SOHR), which described a major traffic jam outside the city of Al-Malikiyah, an oil-producing area of the country which has been occupied by American troops.

SOHR said the busy highway was halted "after US forces prevented a Russian patrol from continuing its way to countryside of Al-Malikiyah city."

Though not precisely clear which convoy was the aggressor side from the video — or which caused the blockage — needless to say it was a tense and potentially explosive encounter given Moscow sees US presence in Syria as illegal and as an act of military aggression, while Washington in turn sees Russian troops as enemies bolstering Assad and Iran in the Middle East.

Other regional outlets, for example in Turkish media, also blamed the US side for maneuvering to block the Russian troops' advance. Anadolu reports the Russian patrol was blocked from going near a key oil field in the area

According to information Anadolu Agency obtained from reliable local sources, U.S. soldiers blocked a Russian military patrol en route to the oil field.

Tension occurred between the two groups, when U.S. soldiers asked Russian soldiers to return to the Amuda district in the northwest of Hasakah.

Russian soldiers had to return to where they came from as their way to Rumeylan, where the U.S. airbase is located, was blocked.

Russian patrols have reportedly stepped up operations in sensitive areas with US troops still stationed nearby, specifically in places like the region's Rumeilan oil field, in Syria's far northeast near the Iraq border. 

Reporter for Voice of America news Mutlu Civiroglu noted Syrian Kurdish militia fighters intervened in order to ease tensions. 

Meanwhile, Russia-based military analyst Mark Sleboda pointed out just how many things could have gone wrong in the tense encounter. 

"Imagine how close this was to an international incident between nuclear armed great powers involving uniformed soldiers coming home in body bags," he commented on Twitter.

Tyler Durden Sun, 01/19/2020 - 12:00
Resistance Is Futile - When Does The FOMO Momo Say No Mo'?
Sun, 19 Jan 2020 16:30:00 +0000
Resistance Is Futile - When Does The FOMO Momo Say No Mo'?

Authored by Sven Henrich via NorthmanTrader.com,

Does a liquidity driven momentum market that seemingly does not care about valuationsriskopen gaps and technical extensions face any resistance at all? Are there technical limits for a market that goes up every day, every week and every month?

History teaches us that there are such limits and I’ll share a few charts to provide some context.

As it were this most recent OPEX week did what happens more often than not: Compress volatility further offering little to no 2 way price discovery exhibiting some of the most intra-day compressed price ranges ever:

The discussed repo and liquidity machine continues to relentlessly drive the market action:

As a result of the continuous one way action many individual stocks are not only historically valued, but also overbought.

These conditions have persisted for weeks, so little new on that front, but to give historic recognition its due a weekly chart of $AAPL showing a weekly 90 RSI has to be appreciated:

What’s the appropriate term here? Piling in? Buy till you die?

And yes I can’t resist but also show the same chart on a linear basis:

It is this point in time we get the FOMO treatment courtesy of Barron’s and Forbes:

Don’t be left behind, get on board. Reckless as far as I’m concerned, but nobody cares.

How do I know that nobody cares? Because demand for protection of any sort is scrapping at the bottom of the barrel.
See some of the put/call ratios:

Sometimes extreme complacency gets punished, sometimes it does not.

The faith in the Fed remains absolute, too strong is their influence on equity prices via their liquidity injections which do not appear to stop for months on end, so who’s to say when the dynamic shifts. Not until they withdraw liquidity is the conventional wisdom at the time.

Yes charts like $APPL leave little doubt that this market his very much overbought and reversion risk keeps increasing. Hence I maintain that the higher this market stretches without breathing the more dangerous it becomes.

So are there any signs of technical resistance?

Firstly recognize we have some of steepest and narrowest channels in history. One sizable down day or week and all of these patterns break to the downside with technical consequences:

$NYSE:

$NDX:

$NDX is of particular interest here as the furious rally has accomplished something very interesting on Friday:

$NDX futures tagged its 4 year trend line that has proven to be resistance time and time again. And $NDX has raced toward that trend line with a weekly RSI north of 81. Ironically an RSI not unlike the one seen in January 2018 when the index also tagged that very same trend line.

To expand on the historical rhyme $NDX components above their 200MA have reached 87 exceeding even the January 2018 level:

In 2017 readings of that magnitude did not mean the end of the bull run then, but these types of readings can clearly lead to trouble.

It is then the same measure for the 50MA that is of interest:

A negative divergence versus the year end highs in 2019.  These divergences can persist, but are an early signal that something is amiss.

Another signal indicator, the $BPNDX also has reached a level historically consistent with coming reversals:

All of these speak of resistance reached on the internal front.

Indeed its the cumulative advance/decline index for the Nasdaq that sends that same message clearly:

Not only overbought, but divergent as well.

All of these readings and signals are coming in context of a yearly chart for $NDX that has precisely zero price precedence in being able to sustain such a vast extension without ending in tears:

But don’t be left behind. Just jump on board they say.

No, it’s not different this time. This cycle is exactly like the previous ones. And hence it’ll end the same way as the previous ones: With bears being mocked while bulls being reckless and greedy throwing all caution to the wind.

We may not know the outcome for a while, but in the here and now markets are approaching some notable points of resistance while demand for protection is at a historic low.

Don’t be left behind? Don’t be left holding the bag more likely.

*  *  *

For the latest public analysis please visit NorthmanTrader. To subscribe to our market products please visit Services.

Tyler Durden Sun, 01/19/2020 - 11:30
Dramatic Video Shows Turkish Coast Guard Deliberately Smashing Into Migrant Boat
Sun, 19 Jan 2020 16:00:00 +0000
Dramatic Video Shows Turkish Coast Guard Deliberately Smashing Into Migrant Boat

After a week which tragically witnessed a sudden uptick in refugee and migrant incidents and drowning deaths in the Mediterranean, a dramatic video has been published online showing the Turkish Coast Guard resorting to extreme measures while intercepting migrant boats. 

The video, which first appeared via a Middle East Telegram or other social media channel, shows a small crowded motor boat full of Syrian refugees being rammed by a much larger Turkish patrol boat

The video appeared online and went viral on Sunday; however, it's uncertain the precise date or location, but it likely took place in the Aegean Sea. 

Women and children can be heard screaming in the video while trying to get away from the fast-approaching Turkish vessel, after which the larger coast guard boat rams into the migrants at high speed. It's unclear the extent of injuries suffered by those in the packed boat, and no one appears armed or to have been acting aggressively.

Turkey's coast guard has long been accused of taking harsh measures to prevent an estimated 60,000 to new refugees attempting to traverse the Mediterranean. It's hardly the first time migrant and refugee boats have been rammed during the dangerous trip; however, past incidents have involved human-trafficking boats or piracy-related groups and not state actors like in this case. 

Meanwhile, Europe has documented a significant rise in migrants attempting to enter the EU via the eastern Mediterranean throughout 2019:

More than 82,000 migrants attempted to enter the EU from the eastern Mediterranean route in 2019, driven by the situation in Syria, and instability in Afghanistan, the Frontex Executive Director Fabrice Leggeri said in Brussels.

In 2018, 55,900 unauthorised entries were detected from the same route, while three years ago, at the height of the migrant crisis, there were 885,386.

Source: Frontnex/Flourish data via EuroNews.

This after the peak of the migrant crisis in 2015 and 2016. Turkey's President Erdogan has recently warned a flood of refugees could impact Greece and other EU states if more is not done to help Turkey stave off the crisis, even lately voicing it as a "threat" if the EU doesn't support Ankara's Syria plans.

Many are predicting 2020 could mark a return to the worst of the past five year crisis, given the ongoing Turkish military incursion in northern Syria and a resumed Russia-Syria military offensive against jihadist militants in Idlib province. 

Tyler Durden Sun, 01/19/2020 - 11:00
Market Continues "Euphoric" Advance As 3500 Becomes Next Target
Sun, 19 Jan 2020 15:30:00 +0000
Market Continues "Euphoric" Advance As 3500 Becomes Next Target

Authored by Lance Roberts via RealInvestmentAdvice.com,

Market Continues Euphoric Advance

In last week’s missive, I discussed a couple of charts which suggested the markets are pushing limits which have previously resulted in fairly brutal reversions. This week, the market pushed those deviations even further as the S&P 500 has now pushed into 3-standard deviation territory above the 200-WEEK moving average.

There have only been a few points over the last 25-years where such deviations from the long-term mean were prevalent. In every case, the extensions were met by a decline, sometimes mild, sometimes much more extreme. 

The defining difference between whether those declines were mild, or more extreme, was dependent on the trend of financial conditions. In 1999, 2007, and 2015, as shown in the chart below, financial conditions were being tightened, which led to more brutal contractions as liquidity was removed from the financial system. 

Currently, the risk of a more “substantial decline,” is somewhat mitigated due to extremely easy financial conditions. However, such doesn’t mean a 5-10% correction is impossible, as such is well within market norms in any given year. 

This is particularly the case given how extreme positioning by both institutions and individual investors has become. With investor cash and bearish positions at extreme lows, with prices extremely extended, a reversion to the mean is likely and could lean toward to the 10% range.

One of the other big concerns remains the concentration of positions driving markets higher. Lawrence Fuller analyzed this particular extreme in the market. (H/T G. O’Brien)

“One similarity between the Four Horseman of 2000 and the mega-caps of 2020 is their tremendous influence on the overall market, as can be seen below by their cumulative weightings. The weighting of today’s top five names is now 17.3%. I’m not suggesting that history is going to repeat itself, but often it rhymes.

If you lived and invested through the 1990s, as I did, then you’ll understand what I am talking about when I say that the dot-com boom was a sentiment-driven rally. I’m starting to see the same explanation for the current rally, as there really haven’t been any concrete fundamental developments to explain or validate it. The momentum stocks are rising in price day after day on hopes and expectations, and Wall Street analysts are happy hop on board for the ride, as usual.”

Lawrence is correct. There has not been a fundamental improvement to support the rise in the market currently. As shown in the chart below, S&P just released its 2021 estimates for the S&P 500, which is estimated to come in at $171/share. 

What you should notice is that estimates for 2021 are now $3 LOWER than where estimates for the end of 2020 stood in April 2019. Importantly, between April 2019 and present, as earnings estimates were continually ratcheted lower, the S&P 500 index rose by 17.5%

While Apple, which we own, is the “cheapest” of the “4-horseman” currently, it is only “cheap” because of rather aggressive share repurchases. Here are some interesting stats:

In the 5-years from 2015:

  • Earnings per share (EPS) grew by just $2.69 per share or $0.53 per share annually.

  • Sales only grew by $26.45 billion or $5.29 billion/year.

  • Shares outstanding, however, declined by 1.13 billion

However, during that same 5-year period, Apple’s share price has risen by 210%.  

The only reason Apple “appears” to be cheap is because of the massive infusion of capital used to reduce the number of shares outstanding. As a business, it is a great company, but it is a fully mature company, which is struggling to grow revenues. With a P/E of 27 and price-to-sales (P/S) ratio of 5.36, investors are grossly overpaying for the earnings growth and will likely be disappointed with future return prospects. 

So why do we still own Apple? Because “fundamentals don’t matter” currently as the momentum chase, fueled by the Fed’s ongoing liquidity interventions, has led to a “runaway train.” But, understanding that eventually fundamentals will matter, is why we have taken profits out of our position twice since January 2019.

Just remember, “price is what you pay, value is what you get.”

Next Stop, 3500

As noted last week, in July of 2019, we laid out our prognostication the S&P 500 could reach 3300 amid a market melt-up though the end of the year. On Friday, the S&P 500 closed at 3329, with the Dow pushing toward 29,350.

With the Federal Reserve continuing to pump liquidity into the market currently, we are raising our 2020 estimate for the S&P to 3500 as “the mania” goes mainstream. There is absolutely NO FUNDAMENTAL basis for raising the target; it is ONLY a function of the momentum chase.

This urgency to take on “risk,” as investors pile into “passive indexes” under a “no market risk” assumption, can be seen in the extreme lows of the put/call ratio.

With the Federal Reserve’s ongoing “Not QE,”  it is entirely possible the markets could continue their upward momentum towards S&P 3500, and Dow 30,000. Clearly, the “cat is out of the bag” if CNBC even realizes it’s the Fed:

“On Oct. 11, the central bank announced it would begin purchasing $60 billion of Treasury bills a month to keep control over short-term rates. The magnitude of the purchases resembles the quantitative easing program the Fed conducted during and after the financial crisis.”

“The increase in the Fed’s balance sheet has been in near lockstep with the stock market’s climb. The balance sheet has expanded 10% since October, while the S&P 500 shot up 12%, including notching its best fourth quarter since 2013.”

With the Federal Reserve continuing to “ease” financial conditions, there is little to derail higher asset prices in the short-term. However, we continue to see cracks in the “economic armor,” like Friday’s plunge in “job openings,” continued deterioration in earnings estimates, weaker growth rates in employment, and negative revisions to data, like wages, which suggest the market is well ahead of the economy. (Last week, negative revisions wiped out all the wage growth for the bottom 80% of workers.)

But, as I said, “fundamentals” don’t matter currently. As CNBC noted:

“The problem front and center is how investors are looking past the continuous earnings rout, betting on a snapback as soon as the first quarter of 2020. S&P 500 earnings are expected to drop by 0.3% in the fourth quarter of 2019, marking the first back-to-back quarterly decline since 2016, according to Refinitiv.”

While “fundamentals” may not seem to matter much currently, eventually, they will.

Tyler Durden Sun, 01/19/2020 - 10:30
Troop Injuries "Emerged Days After": Pentagon's Shifting Iran Attack Casualty Narrative Gets More Absurd
Sun, 19 Jan 2020 14:55:00 +0000
Troop Injuries "Emerged Days After": Pentagon's Shifting Iran Attack Casualty Narrative Gets More Absurd

A mere days ago the American public was still being told there were no American casualties as a result of Iran's Jan.8 ballistic missile attack on an Iraqi base hosting US forces. 

And over a week ago, days following the attack, Secretary of Defense Mark Esper said there was only damage to property at Al-Asad air base, going so far as to underscore: "Most importantly, no casualties, no friendly casualties, whether they are US, coalition, contractor, etc.," according to an official statement at the time.

But after on Friday it was revealed that eleven US soldiers were injured in the attack some of them significantly given they were flown out of Iraq to be treated for head injuries  belatedly confirmed by US officials, the Pentagon is now pretending there was never a discrepancy in its clearly shifting accounts. Eight were actually flown all the way to medical facilities in Germany for advanced treatment, with three flown to Kuwait.  

Defense Secretary Mark Esper speaking at the Pentagon, via the AP.

"The Pentagon said on Friday there had been no effort to play down or delay the release of information on concussive injuries from Iran's Jan. 8 attack on a base hosting U.S. forces in Iraq, saying the public learned just hours after the defense secretary," Reuters reports. 

And then of course the gratuitous implication that anyone claiming otherwise has a conspiracy theory agenda: "This idea that there was an effort to de-emphasize injuries for some sort of amorphous political agenda doesn't hold water," Pentagon spokesman Jonathan Hoffman said.

Even CNN flatly charges that "Official US reports about the attack have shifted since it occurred." This much is obvious to anyone regardless on both sides of the aisle, whether supporters of Trump's Iran policy or not:

Asked about the apparent discrepancy, a Defense official told CNN, "That was the commander's assessment at the time. Symptoms emerged days after the fact, and they were treated out of an abundance of caution."

Now the Pentagon's explanation appears to be that Esper wasn't even informed of the eleven injured personnel until Thursday, as "only a certain set of injuries" are required to be reported to the Defense Secretary's office, according to CNN.

"Immediate reporting requirements up to the Pentagon are for incidents threatening of life, limb or eyesight, so actually (Traumatic Brain Injury) wouldn't rise to that threshold," Pentagon spokesperson Alyssa Farah said on Friday.

Photos which have emerged from Iraq's al-Asad airbase where US forces are stationed show extensive damage from the Iranian ballistic missile attack, via Scripps.

In summary, the Pentagon wants you to believe that the biggest military attack on US forces in the Middle East in years via Iranian ballistic wasn't really that closely monitored for casualties... as if the entire upper echelons of the DoD chain of command had better and "more important" things to do than to closely monitor and assess injuries from the strike.

Next we'll be informed there was some innocuous and casual Netflix binge-watching in Pentagon offices the days following Iran's major ballistic missile attack on American forces. When you've lost even CNN and the entire mainstream, you've most definitely lost the plot. 

Tyler Durden Sun, 01/19/2020 - 09:55
The Bank Of England's Governor Fears A Liquidity Trap
Sun, 19 Jan 2020 14:20:00 +0000
The Bank Of England's Governor Fears A Liquidity Trap

Authored by Frank Shostak via The Mises Institute,

The global economy is heading towards a “liquidity trap” that could undermine central banks’ efforts to avoid a future recession according to Mark Carney, governor of the Bank of England. In a wide-ranging interview with the Financial Times (January 8, 2020), the outgoing governor warned that central banks were running out of ammunition to combat a downturn:

If there were to be a deeper downturn, more than a conventional recession, then it’s not clear that monetary policy would have sufficient space.

He is of the view that aggressive monetary and fiscal policies will be required to lift the aggregate demand.

What Is a Liquidity Trap?

In the popular framework that originates from the writings of John Maynard Keynes, economic activity is presented in terms of a circular flow of money. Spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual's earnings.

Recessions, according to Keynes, are a response to the fact that consumers — for some psychological reasons — have decided to cut down on their expenditure and raise their savings.

For instance, if for some reason people become less confident about the future, they will cut back their outlays and hoard more money. When an individual spends less, this will supposedly worsen the situation of some other individual, who in turn will cut their spending. A vicious cycle sets in. The decline in people's confidence causes them to spend less and to hoard more money. This lowers economic activity further, causing people to hoard even more, etc.

Following this logic, in order to prevent a recession from getting out of hand, the central bank must lift the growth rate of the money supply and aggressively lower interest rates. Once consumers have more money in their pockets, their confidence will increase, and they will start spending again, reestablishing the circular flow of money, so it is held.

In his writings, however, Keynes suggested that a situation could emerge when an aggressive lowering of interest rates by the central bank would bring rates to such a level from which they would not fall further. As a result, the central bank would not be able to revive the economy. This, according to Keynes, could occur because people might adopt the view that interest rates have bottomed out and that rates should subsequently rise, leading to capital losses on bond holdings.

As a result, people's demand for money will become extremely high, implying that people would hoard money and refuse to spend it no matter how much the central bank tries to expand the money supply. As Keynes wrote,

There is the possibility, … that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest.

Keynes suggested that once a low–interest rate policy becomes ineffective, authorities should step in and spend. The spending can be on all sorts of projects — what matters here is that a lot of money must be pumped to boost consumers' confidence. With a higher level of confidence, consumers will lower their savings and raise their expenditure, thereby reestablishing the circular flow of money.

Is There Too Little Spending?

In the Keynesian framework, the ever-expanding monetary flow is the key to economic prosperity. What drives economic growth is monetary expenditure, and when people spend more of their money, it implies that they save less.

Conversely, when people reduce their monetary spending in the Keynesian framework, it is viewed as a sign of increased saving. In this way of thinking, saving is considered bad news for the economy — the more people save, the worse things become. (The liquidity trap comes from too much saving and a lack of spending, so it is held.)

Observe, however, that people do not pay with money but rather with the goods that they have produced. The chief role of money is as a medium of exchange. Hence, the demand for goods is constrained by the production of goods, not the amount of money. (The role of money is to facilitate the exchange of goods.)

To suggest that people could have almost an unlimited demand for money that supposedly leads to a liquidity trap is to suggest that people do not exchange money for goods anymore.

Obviously, this is not a realistic scenario, given the fact that people require goods to support their lives and well-being. People demand money not merely in order to accumulate it but to employ it in exchange.

Money can only assist in exchanging the goods of one producer for the goods of another. The medium of exchange service that it provides has nothing to do with the production of final consumer goods. This means that it has nothing to do with real savings, either.

What permits the increase in the pool of real savings is the increase in capital goods. With more capital goods, i.e., tools and machinery, workers' ability to produce more goods and of an improved quality is likely to increase. The state of the demand for money cannot alter the amount of final consumer goods produced — only the expansion in the pool of real savings can boost the production of these goods.

Likewise, an increase in the supply of money does not have any power to grow the real economy.

Contrary to popular thinking, a liquidity trap does not emerge in response to a massive increase in consumers' demand for money but comes as a result of very loose monetary and fiscal policies, which inflict severe damage to the pool of real savings.

The Liquidity Trap and the Shrinking Pool of Real Savings

According to Mises in Human Action,

The sine qua non of any lengthening of the process of production adopted is saving, i.e., an excess of current production over current consumption. Saving is the first step on the way toward improvement of material well-being and toward every further progress on this way.

As long as the growth rate of the pool of real savings stays positive, productive and nonproductive activities can be sustained.

Trouble erupts, however, when, on account of loose monetary and fiscal policies, a structure of production emerges that ties up much more consumer goods than it releases. That is, the consumption of final goods exceeds the production of these goods. The excessive consumption relative to production of consumer goods leads to a decline in the pool of real savings. This in turn weakens the support for individuals that are employed in the various stages of the production structure, resulting in the economy plunging into a slump.

Once the economy falls into a recession due to the falling pool of real savings, any government or central bank attempt to revive the economy must fail. Not only will these attempts fail to revive the economy, they will deplete the pool of real savings further, prolonging the economic slump.

The shrinking pool of real savings exposes the erroneous nature of the commonly accepted view that loose monetary and fiscal policies can grow an economy. The fact that central bank policies become ineffective in reviving the economy is due not to a liquidity trap, but to the decline in the pool of real savings. This decline emerges due to loose monetary and fiscal policies. To stave off personal bankruptcy, individuals are likely to increase their holdings of money — cash becomes king in such a situation.

The ineffectiveness of loose monetary and fiscal policies to generate the illusion that the central authorities can grow an economy has nothing to do with a liquidity trap. The policy ineffectiveness is always relevant whenever the central authorities are attempting to “grow an economy.” The only reason why it appears that these policies “work” is because the pool of real savings is still expanding.

Tyler Durden Sun, 01/19/2020 - 09:20
"We're Ready To Fight": 1000s Expected To Attend Massive Gun-Rights Rally At Virginia Capitol
Sun, 19 Jan 2020 13:45:00 +0000
"We're Ready To Fight": 1000s Expected To Attend Massive Gun-Rights Rally At Virginia Capitol

As various pro-gun rights groups prepare to gather at Virginia's state capitol in Richmond on Monday in what's expected to be one of the largest pro-gun rallies in recent memory, Democratic Gov. Ralph Northam has declared a state of emergency, police are busy setting up barricades and temporary holding pens - and one lawmaker has even arranged to spend most of the day in a safe house, according to the Washington Examiner.

The rally is expected to draw tens of thousands, and fears about Charlottesville-style violence are prompting police to scour the web for any signs of a violent plot.

Already, the FBI has arrested three alleged members of a violent white supremacist group who were planning on attending the rally.

As Republicans battle for the hearts and minds of the people against a state government that is unilaterally controlled by Democrats, Todd Gilbert, Virginia’s House Republican leader, warned on Saturday that white supremacist groups trying to spread "hate, violence, or civil unrest" would not be welcome at a pro-gun rally in the state’s capital on Monday, according to Reuters.

"Any group that comes to Richmond to spread white supremacist garbage, or any other form of hate, violence, or civil unrest isn’t welcome here," he said. "While we and our Democratic colleagues may have differences, we are all Virginians and we will stand united in opposition to any threats of violence or civil unrest from any quarter."

Organized by the Virginia Citizens Defense League, a group that annually lobbies the state legislature against new gun-control laws, this year's rally is simply a much larger manifestation of the group's annual gun-rights rally at the capitol.

As the Dems who control the state government plot a slew of new gun control measures in a state that has historically been more permissive about gun rights, Virginia has transformed into ground zero in the fight over gun rights in America. Already, gun owners across the state have been scrambling to buy up as many guns as they can before the new legislation takes effect, fostering a boom among gun sellers.

The tension even prompted President Trump to weigh in with a tweet on Friday: "That's what happens when you vote for Democrats, they will take your guns away."

One NRA member approached by a Washington Examiner reporter while rallying outside a legislative building earlier this week said gun-rights advocates in the state wouldn't stand by idly while their rights are stripped away.

"We’re not going to be quiet anymore. We’re going to fight them in the courts and on the ground. The illegal laws they’re proposing are just straight up unconstitutional," said Timothy Forster, of Chesterfield, Virginia, an NRA member who had one handgun strapped to his shoulder and another tucked into his waistband as he stood outside a legislative office building earlier this week. VCDL president Philip Van Cleave said he’s heard from groups around the country that plan to send members to Virginia, including the Nevada-based, far-right Oath Keepers, which has promised to organize and train armed posses and militia.

While the rally has attracted a substantial amount of media attention, Virginia's gun-rights activists have identified another strategy to try and subvert the state legislature's authority. As the New York Times reports, gun-control activist Philip Van Cleave and others are pushing municipalities around the state to pass or consider "2A Sanctuary" legislation that would in effect preserve certain gun rights in towns across the state.

Anyone planning on the attending the rally should keep this in mind: Dems have permanently banned guns inside the Capitol building, and Gov. Northam has declared a temporary state of emergency to ban all weapons from Capitol Square during the rally - a plea for the state SCOTUS to rule these measures unconstitutional was rejected on Friday - to prevent "armed militia groups storming our Capitol."

Of course, even though organizers have taken pains to block far-right militias and outright white supremacists from attending the rally, we imagine these efforts will be lost on MSNBC, which should waste no time declaring every participant a dangerous gun nut.

Perhaps, as Ben Garrison writes, the Democrats want to spark a Civil War in the hopes that public opinion will turn against the president. They are playing with fire. When tyrants create laws to remove our rights, it’s time to remove the tyrants.

Tyler Durden Sun, 01/19/2020 - 08:45
The Unexpected Consequences Of Germany's Anti-Nuclear Push
Sun, 19 Jan 2020 13:10:00 +0000
The Unexpected Consequences Of Germany's Anti-Nuclear Push

Authored by Irina Slav via OilPrice.com,

Germany, the poster child for renewable energy, sourcing close to half of its electricity from renewable sources, plans to close all of its nuclear power plants by 2022. Its coal-fired plants, meanwhile, will be operating until 2038. According to a study from the U.S. non-profit National Bureau of Economic Research, Germany is paying dearly for this nuclear phase-out--with human lives.

The study looked at electricity generation data between 2011 and 2017 to assess the costs and benefits of the nuclear phase-out, which was triggered by the Fukushima disaster in 2011 and which to this day enjoys the support of all parliamentary powers in Europe’s largest economy. It just so happens that some costs may be higher than anticipated.

The shutting down of nuclear plants naturally requires the replacement of this capacity with something else. Despite its reputation as a leader in solar and wind, Germany has had to resort to more natural gas-powered generation and, quite importantly, more coal generation. As of mid-2019, coal accounted for almost 30 percent of Germany’s energy mix, with nuclear at 13.1 percent and gas at 9.3 percent.

The authors of the NBER study have calculated that “the social cost of the phase-out to German producers and consumers is $12 billion per year (2017 USD). The vast majority of these costs fall on consumers.” 

But what are these social costs--exactly?

“Specifically,” the authors wrote, “over 70% of the cost of the nuclear phase-out is due to the increased mortality risk from local air pollution exposure as a consequence of producing electricity by burning fossil fuels rather than utilizing nuclear sources.”

The culprit is coal. According to the study, some 1,100 people die because of the pollution from coal power generation every year. This, the authors say, is a lot worse than even the most pessimistic cost estimates of so-called “nuclear accident risk” and not just that: 1,100 deaths annually from coal-related pollution is worse even when you include the costs of nuclear waste disposal in the equation.

The results of the study, which used machine learning to analyze the data, surprised the authors. The cost of human lives had not been expected to be the largest cost associated with the nuclear phase-out.

“Despite this, most of the discussion of the phase-out, both at the time and since, has focused on electricity prices and carbon emissions – air pollution has been a second order consideration at best,” one of the authors, economist Steven Jarvis, told Forbes.

Just two decades ago, air pollution was a top concern for many environmentalists. Now, carbon emissions and their effect on climate seem to have taken over the environmental narrative and, as the research from NBER suggests, this is leading to neglecting important issues. Meanwhile, there are voices—and some of them are authoritative voices—that are warning a full transition to a zero-emission economy is impossible without nuclear power, which is virtually emission-free once a plant begins operating.

None other than the International Energy Agency—a staunch supporter of renewables—said in a report last year that the phase-out of nuclear capacity not just in Germany but everywhere could end up costing more than just increased carbon emissions as the shortfall in electricity output would need to be filled with fossil fuel generation capacity, just like it is filled in Germany. 

Why can't renewables fill the gap? Here’s what the IEA had to say:

“If other low-carbon sources, namely wind and solar PV, are to fill the shortfall in nuclear, their deployment would have to accelerate to an unprecedented level. In the past 20 years, wind and solar PV capacity has increased by about 580 gigawatts in advanced economies. But over the next 20 years, nearly five times that amount would need to be added. Such a drastic increase in renewable power generation would create serious challenges in integrating the new sources into the broader energy system.”

Translation: we are not adding wind and solar fast enough and we can never add them fast enough without risking a grid meltdown.

Even Germany’s fellow EU members recognize the importance of nuclear power. Leaving aside France, where it is the single largest source of energy, accounting for 60 percent of electricity generation, the EU members agreed in December to include nuclear power in their comprehensive climate change fighting plan, which the union voted on at the end of the year.

“Nuclear energy is clean energy,” the Czech Prime Minister, Andrej Babis, said at the time. “I don’t know why people have a problem with this.”

The reason so many people have a problem with nuclear is, of course, obvious. Actually, there are two reasons: Chernobyl and Fukushima. One might reasonably argue that two accidents for all the years nuclear power has been used for peaceful purposes by dozens of nuclear plants make the risk of a full meltdown a small one, but statistics is one thing--fear is an entirely different matter.

The problem with nuclear plants, in most opponents’ minds, is that a meltdown may be rare, but when it does happen, it is far more disastrous than a blackout caused by a slump in solar energy production, for example. 

There is no way to remove the risk of a nuclear reactor meltdown entirely. Reactor makers are perfecting their technology, enhancing safety features, and making sure the risk will be minimal, but the risk remains, deterring politicians--those in the ultimate decision-making position--to make a pragmatic decision that, as the NBER research suggests, could actually save lives.

Tyler Durden Sun, 01/19/2020 - 08:10
Internal Boeing Emails Claim 777X Shares MAX Problem
Sun, 19 Jan 2020 12:35:00 +0000
Internal Boeing Emails Claim 777X Shares MAX Problem

Internal emails from Boeing staff members working on the 737 MAX were made public earlier this month have revealed new safety problems for the company's flagship 777X, a long-range, wide-body, twin-engine passenger jet, currently in development that is expected to replace the aging 777-200LR and 777-300ER fleets, reported The Telegraph.

Already, damning emails released via a U.S. Senate probe describes problems during the MAX development and qualification process. The emails also highlight how Boeing employees were troubled by the 777X – could be vulnerable to technical issues. 

Emails dated from June 2018, months before the first MAX crash, said the "lowest ranking and most unproven" suppliers used on the MAX program were being shifted towards the 777X program. 

The email further said the "Best part is we are re-starting this whole thing with the 777X with the same supplier and have signed up to an even more aggressive schedule."

Another Boeing employee warned about cost-cutting measures via selecting the "lowest-cost suppliers" for both MAX and 777X programs.

"We put ourselves in this position by picking the lowest-cost supplier and signing up to impossible schedules. Why did the lowest ranking and most unproven suppliers receive the contract? Solely based on the bottom dollar. Not just the Max but also the 777X! Supplier management drives all these decisions."

Like the MAX, the 777X is an update of an outdated airframe from decades ago, which is an attempt by Boeing to deliver passenger jets that are more efficient and provide better operating economics for airlines. 

Back in September, we noted how the door of a new 777X flew off the fuselage while several FAA inspectors were present to evaluate a structural test. 

Boeing's problem could stem from how it used the "lowest-cost suppliers" to develop high-tech planes on old airframes to compete with Airbus. The result has already been devastating: two MAX planes have crashed, killing 346 people, due to a malfunctioning flight control system, and 777X failing a structural ground test. 

Boeing's C-suite executives push for profitability (at the apparent expense of safety) has, by all appearances, been a disaster; sacrificing the safety of the planes to drive sales higher to unlock tens of billions of dollars in stock buybacks - that would allow executives to dump their stock options at record high stock prices.

Tyler Durden Sun, 01/19/2020 - 07:35
Can Africa Save The World Economy From 'Peak Growth'?
Sun, 19 Jan 2020 12:00:00 +0000
Can Africa Save The World Economy From 'Peak Growth'?

Authored by Jim O'Neill via Project Syndicate,

Whether or not the 2010s were a "lost decade," one thing is clear: many countries fell short of their potential, possibly squandering their last best shot of registering strong GDP growth. In the decade ahead, demographic realities will catch up to China and the West, and the world will need a productivity miracle to offset the effects.

At the start of a new decade, many commentators are understandably focused on the health of the global economy. GDP growth this decade most likely will be lower than during the teens, barring a notable improvement in productivity in the West and China, or a sustained acceleration in India and the largest African economies.

Until we have final fourth-quarter data for 2019, we won’t be able to calculate global GDP growth for the 2010-2019 decade. Still, it is likely to be around 3.5% per year, which is similar to the growth rate for the 2000s, and higher than the 3.3% growth of the 1980s and 1990s. That slightly stronger performance over the past two decades is due almost entirely to China, with India playing a modestly expanding role.

Average annual growth of 3.5% for 2010-2019 means that many countries fell short of their potential. In principle, global GDP could have increased by more than 4%, judging by the two key drivers of growth: the size of the workforce and productivity. In fact, the 2010s could have been the strongest decade of the first half of this century. But it didn’t turn out that way. The European Union endured a disappointing period of weakness, and Brazil and Russia each grew by much less than in the previous decade.

The prospects for the coming decades are not as strong.

China’s labor-force growth is now peaking, and the populations of Japan, Germany, Italy, and other key countries are aging and in decline. True, some countries and regions that underperformed in the teens could now catch up; but much will depend on the realization of several positive developments.

For example, given the EU’s demographics, it would take a significant improvement in productivity to boost the rate of GDP growth. More expansionary fiscal policies in many countries – including, possibly, Germany – could produce a temporary acceleration this year and perhaps through 2021. But it is hard to see how a stimulus-driven expansion could be sustained much beyond that point. Europeans can talk all they want about “structural reform.” But without effective productivity-enhancing measures, the EU’s growth potential will remain in decline.

As for Brazil and Russia, it would be highly disappointing if both countries were to register the same weak growth of the past decade. Yet, to get from around 1% annual growth to 3.5-4% annual growth would probably require another commodity-price boom, in addition to major productivity enhancements. Given that both countries tend to eschew reform whenever commodity prices are booming – a classic symptom of the “commodities curse” – it is doubtful that either will reach its potential this decade (though, if one had to bet, Brazil has a better chance than Russia).

In China, a further deceleration in trend GDP growth is highly likely, owing to demographic realities. When I offered my earlier assessment of the BRICs (Brazil, Russia, India, and China) at the start of this century, it was already clear that by the end of the 2010s, China would be feeling the growth-constraining effects of a peaking workforce. Accordingly, I estimated that its real (inflation-adjusted) annual GDP growth in the 2020s would be around 4.5-5.5%. To achieve growth above that range would require a significant increase in productivity. In light of China’s investments in technology and shift to more domestic consumption, productivity certainly could improve. But whether that will be enough to overcome China’s other well-known challenges remains to be seen.

For its part, the United Kingdom could achieve stronger growth this decade, but it could also suffer a slowdown, depending on how it deals with Brexit and its aftermath. In any case, the country’s influence on global GDP is likely to be modest.

Then there is the United States, where annual growth potential appears to be just over 2%. Without more fiscal stimulus and an indefinite continuation of ultra-easy monetary policies, it is difficult to see how the US could exceed this rate. Moreover, it has been more than a decade since the US experienced a recession. Were that to happen in the months or years ahead, the US would have an even smaller chance of reaching its growth potential for the 2020s.

Last but not least are the still-smaller economies with enormous growth potential. While countries such as Indonesia (and perhaps Mexico and Turkey) are becoming more relevant in an assessment of global GDP, it is India that promises to have the largest influence in the 2020s and beyond. The country’s demographics will remain in an economic sweet spot for at least another decade.

Were the Indian government to adopt the right mix of growth-enhancing reforms, it could easily achieve annual growth in the range of 8-10%. And, because India is already close to being the world’s fifth-largest economy, that would have a significant influence on global GDP growth. The problem, of course, is that the current government has shown no indication that it will pursue positive reforms. On the contrary, it has launched a debilitating new culture war.

That leaves Africa. As matters stand, no African economy is large enough to influence global GDP on its own. But, as a region, Africa’s GDP is close to that of India, which means that if enough of its major economies can achieve strong growth, the effects will be felt more broadly. The rise of Africa seems both desirable and inevitable to me. Whether the continent can drive global GDP growth will be a key question for the coming decade.

Tyler Durden Sun, 01/19/2020 - 07:00

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