The British, Australian, Ecuadorian and US Governments have made an ad about Julian Assange’s arrest and it’s surprisingly honest and informative!
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20 May 02:13
Why The Soaring Dollar Will Lead To An "Explosive" Market Repricing: A Flow Chart
by Tyler Durden
Something curious took place one month ago when the PBOC announced on April 17 that it would cut the reserve requirement ratio (RRR) by 1% to ease financial conditions: it broke what until then had been a rangebound market for both the US Dollar and the US 10Y Treasury, sending both the dollar index and 10Y yields soaring...
... which led to an immediate tightening in financial conditions both domestically and around the globe, and which has - at least initially - manifested itself in a sharp repricing of emerging market risk, resulting in a plunge EM currencies, bonds and stocks.
Adding to the market response, this violent move took place at the same time as geopolitical fears about Iran oil exports amid concerns about a new war in the middle east and Trump's nuclear deal pullout, sent oil soaring - with Brent rising above $80 this week for the first time since 2014 - a move which is counterintuitive in the context of the sharply stronger dollar, and which has resulted in even tighter financial conditions across the globe, but especially for emerging market importers of oil.
Meanwhile, all this is playing out in the context of a world where the Fed continues to shrink its balance sheet - a public sector "Quantitative Tightening (QT)" - further tightening monetary conditions (i.e., shrinking the global dollar supply amid growing demand), even as high grade US corporate bond issuance has dropped off a cliff for cash-rich companies which now opt to repatriate cash instead of issuing domestic bonds, with the resulting private sector deleveraging, or "private sector QT", further exacerbating tighter monetary conditions and the growing dollar shortage (resulting in an even higher dollar).
And while the latest incarnation of the dollar's "impossible trilemma" - rising dollar, rising oil, rising yields (not to be confused with its more conventional Chinese variant) makes a short, if perplexing appearance, ultimately it's all about the value of the dollar, and its impact on downstream assets and volatility.
This is the point made by Deutsche Bank's derivatives expert Aleksandar Kocic, who in his latest report writes that in the context to the Fed's normalization and monetary policy fine tuning, the "USD is emerging as the key variable -- it presents a compact summary of the underlying macro risks that could destabilize the current Fed path." In other words, the last thing the Fed wants right now as it accelerates its balance sheet normalization, is a sharp spike in the dollar. And yet, that's precisely what is happening. Kocic explains:
A strong USD corresponds to generally hawkish Fed in an environment where the US is recovering fast while the rest of the globe is still too slow or recessionary, or that the Fed is pushing rates above the neutral and causing excessive tightening of financial conditions and potentially triggering recession. A weak USD path, on the other hand, can materialize either as an inflation or credit (twin deficits) risk, a troubling possibility to which there is no adequate policy response.
For Kocic, the relative strength of the dollar is the exogenous event that could awake markets from their peaceful slumber, resulting in a violent reassessment of monetary conditions as the Fed quietly undoes the biggest monetary experiment in history, or as he puts it, "although unwind of stimulus and Fed exit continue without disrupting the markets, the underlying stability remains local, threatened potentially by the tail risk."
For now, the DB strategist notes, "the current market configuration appears to be cooperating with the Fed’s efforts in either scenario" and "market positioning and flows are likely to cause offsetting pressure to each macro risk and therefore help stability of the system."
In particular, strong USD, which is bullish for bonds, in terms of global sponsorship, is also bearish for EM currencies and reserve managers there are likely to defend local currencies by selling US assets, which goes against macro. Similarly, their response to weaker USD would stabilize bear steepeners on the back of defending their exports through stabilization of EM currencies and support for the US long end.
The bigger problem, one discussed by Kocic previously, and which also takes the shape of the yield curve in consideration, is that with every passing day of normalization manifesting itself in bear flatteners, the market gets closer to the tipping point of duration decrease in which a rotation from risk assets into the short-end of the curve threatens a forced "price discovery" of the new "Fed put" (which Kocic recently calculated was in the 2,300-2,400 range).
So in this context of a creeping bear flattener, Kocic observes that together with the stronger USD, these two discrete trends have a potential to create more volatility and discomfort across all market sectors than bear steepeners if they both remain localized and do not trigger tail risk.
How does this look schematically? Luckily, the Deutsche Banker has come up with a handy flowchart showing the next steps in how the stronger dollar could lead to an "explosive" move in not only the front end of the curve, but across all markets:
Causality chain of strong USD and its potential knock-on effect is shown in the chart. We start at the lower left corner. Fed hikes and strong USD open up the EM dilemma: Facing the outflows or defending the currency at expense of stifling the growth. This implies both, more volatility and potential sell off in EM, and bearish pressure on the long end of the UST that would offset the underlying bid for US bonds (strong USD is bullish). Turbulence in EM could have a knock-on effect on risk assets in the US.
Why is the above critical? Because if the cycle were to play out, it would result in the same set of conditions which led to a global bear market back in 2015 in the aftermath of China's devaluation (odd, there's China again precipitating a global market crisis):
An example is the 2015 episode where asset managers faced redemptions due to EM losses and had to sell the best performing assets (US equities) to cover those costs. This means more turbulence in developed markets and possible tightening of financial conditions, which could question the strength of the USD and possibly push Fed to take a pause.
But the real punchline is just how trapped the Fed now is, because should Powell "relent" and hint that the Fed may take a break in order to spare EMs and stocks, well the result would be an avalanche of short covering in the Eurodollar market, one which would lead to an even more dramatic, or as Deutsche calls it "explosive" move in the short end:
Given record shorts on the Eurodollar curve (Figure), Fed pause is likely to trigger unwind of these position which could be explosive and the front end of the curve could rally hard.
The punchline: the dollar surge, catalyzed by the April 17 PBOC RRR cut, has launched a feedback loop which, very much like the Chinese 2015 devaluation, culminates in one of two possible unpleasant - for the Fed - outcomes: a collapse in EMs should dollar strength not be arrested, which then morphs into a broad-based liquidation of all risk assets (the most likely result of this is Fed intervention, in the form of sharp rate cuts and/or more QE) or if the Fed verbally relents again, as it did in 2016 with the Shanghai Accord, and suggests that financial conditions are now too tight, it threatens to crush the biggest ED spec short position ever, leading to trillions in paper losses, and an unprecedented collapse in the short end:
The EPFR data reflecting the ETF and Mutual Funds Flows show continued outflows from the emerging markets and inflows into the short end of the UST curve, which is only increasing the stress in this sector. So, although we should see continued stability at the long end of the curve due to offsetting pressures between macro and flows, a slow grind of the front end, if persists, could morph into a volatile whipsaw. Further strength in the USD and the front end sell off on the back of more hawkish Fed could be potentially bearish for risk assets and act as a trigger for rates reversal.
In short, while the Fed has found itself trapped before, it was only the recent spike in the dollar (thanks China) that has forced the Fed to act, with either decision - either further hawkishness or a dovish relent - leading to major market pain. And the longer the Fed delays making the key decision, the more painful the outcome will eventually be.
09 Feb 22:07
Olympics Begin With Unified Korean Team Marching Together as Trump Continues to Threaten North Korea
In Pyeongchang, South Korea, the 2018 Winter Olympics have opened, with North and South Korean athletes marching together at the open ceremonies. The games are seen as a pivotal moment for relations between the two countries, who have been officially at war since 1950. In an effort to de-escalate tensions on the Korean Peninsula, North Korea has sent a 500-person delegation of athletes, musicians and performers to the Olympics. North Korean leader Kim Jong-un's influential sister attended today's opening ceremony and shook hands with South Korean leader Moon Jae-in; the pair are scheduled to have lunch together. But as the peninsula tries to de-escalate the threat of nuclear war, US Vice President Mike Pence warned the US is slated to impose another round of sanctions against North Korea. We speak to Christine Ahn, the founder and international coordinator of Women Cross DMZ, a global movement of women mobilizing to end the Korean War.
TRANSCRIPT
AMY GOODMAN: This is Democracy Now! I'm Amy Goodman. In Pyeongchang, South Korea, the 2018 Winter Olympics have opened, with North and South Korean athletes marching together at the opening ceremonies. The games are seen as a pivotal moment for relations between the two countries, who have been officially at war since 1950. In an effort to de-escalate tensions on the Korean Peninsula, North Korea has sent a 500-person delegation of athletes, musicians, performers to the Olympics. North Korean leader Kim Jong-un's influential sister attended this today's opening ceremony, shook hands with the South Korean leader Moon Jae-in; the pair are scheduled to have lunch together.
But even as the peninsula tries to de-escalate the threat of nuclear war, US Vice President Mike Pence warned the US is slated to impose another draconian round of sanctions against North Korea. Pence is set -- is leading the US delegation during today's opening ceremony and will reportedly attend the games with the father of Otto Warmbier, the American college student who died after being imprisoned in North Korea. This is Pence speaking Thursday.
VICE PRESIDENT MIKE PENCE: Allow me to just assure you and the people of South Korea that the United States of America will continue to stand shoulder to shoulder in our effort to bring maximum pressure to bear on North Korea, until that time comes when they finally and permanently and irreversibly abandon their nuclear and ballistic missile ambitions.
AMY GOODMAN: South Korean President Moon Jae-in held a meeting with Pence in Seoul soon after he arrived in South Korea. This is Jae-in speaking on Thursday.
PRESIDENT MOON JAE-IN: [translated] I would like to make an effort to use this opportunity, as much as I can, to bring North Korea back to the dialogue table for the North's denuclearization and to build peace on the peninsula. I always emphasize that the most important thing in this process is the airtight cooperation between South Korea and the United States. And I think this moment, being with Vice President Pence, shows the cooperation firmly.
AMY GOODMAN: Well, for more, we're joined by Christine Ahn, the founder and international coordinator of Women Cross DMZ, a global movement of women mobilizing to end the Korean War.
Christine Ahn, it's great to have you with us actually in studio today. So, talk about the significance of what's happening, as we speak, in South Korea. A 500-person North Korea delegation marching together with South Korea hasn't happened since 2006.
CHRISTINE AHN: It's extraordinary. I mean, they just -- and, I think, just happened, you know, within the past hour. North and South Korean athletes marched into the opening ceremony of the Olympics carrying a one-Korea flag. Apparently, the entire stadium just broke out in applause. You know, it's a just hugely momentous moment that we're in right now. And the only person that didn't allegedly clap was, of course, US Vice President Mike Pence.
AMY GOODMAN: Pence, who leads the US delegation. And talk about what he has done, first going to Japan with Shinzo Abe and making the announcement that, as North and South Korea come together, at least for these Olympics, the US is imposing more draconian sanctions against North Korea.
CHRISTINE AHN: Yeah, I mean, just the irony is so deep, to be stopping in Tokyo, meeting with Shinzo Abe, you know, whose grandfather was a Class A war criminal that hunted down North Korean independence fighters, and to have Shinzo Abe, a former -- you know, from Japan, a former colonial occupier, of Japan, be with the United States, who is basically throwing shade at this incredible inter-Korean peace process, and to say that we are going to just discontinue this policy of maximum pressure to force North Korea to denuclearize. I mean, that clearly isn't working. And what we do see is it having extraordinarily negative consequences for civilians in North Korea. So, you know, it feels like there is this incredible -- the winds of peace blowing across the DMZ, and then, of course, this like very dark cloud hovering over Washington, D.C., that is really trying to derail this hopeful inter-Korean peace process.
AMY GOODMAN: And you have North and South Korea forming a joint women's hockey team?
CHRISTINE AHN: It's extraordinary. I mean --
AMY GOODMAN: What about Moon Jae-in having lunch with Kim Yo-jong, the influential sister of Kim Jong-un? They just shook hands.
CHRISTINE AHN: Right. It's the first time that a member of the Kim family has stepped foot on South Korean soil. And, you know, she's not just like a figurehead. I mean, my understanding is that Kim Yo-jong is -- you know, she's in charge of the light industries in North Korea, so she wields tremendous influence over the country's economy. And, you know, I hope that this is -- I hope that they are able to talk about future developments. And, you know, it has been signaled that North Korea will receive -- or that North Korea will send an invitation to Moon Jae-in to go to Pyongyang later this year.
AMY GOODMAN: The Washington Post reports the White House's original choice for US ambassador to South Korea is no longer expected to be nominated, after he privately expressed disagreement with President Trump's North Korea policy. Can you talk about this nominee, Victor D. Cha?
CHRISTINE AHN: Victor Cha is -- I mean, what worries me so much is that Victor Cha is pretty well known to be pretty much a hawk. I mean, he's pretty hardline to the right. He served under the George W. Bush administration. He's a professor at Georgetown. And, you know, what frightens me is that his nomination to become the next South Korean -- you know, US ambassador to South Korea is because he opposed his "bloody nose" strike. And that signals to me that the Trump administration is very much making plans to wage a preemptive strike on North Korea.
AMY GOODMAN: I want to turn to President Trump's recent State of the Union.
PRESIDENT DONALD TRUMP: North Korea's reckless pursuit of nuclear missiles could very soon threaten our homeland. We are waging a campaign of maximum pressure to prevent that from ever happening. Past experience has taught us that complacency and concessions only invite aggression and provocation. I will not repeat the mistakes of past administrations that got us into this very dangerous position. We need only look at the depraved character of the North Korean regime to understand the nature of the nuclear threat it could pose to America and to our allies.
AMY GOODMAN: So, that's President Trump, his State of the Union, where the North Korean defector Ji Seong-ho was also honored. Christine Ahn?
CHRISTINE AHN: Yes. I mean, you know, as I watched that State of the Union speech, all I could think was this is so reminiscent of George W. Bush's, you know, "axis of evil" speech, where he basically sought to lay the moral grounds for a US invasion of Iraq. And calling the North Korean regime a "depraved" regime, you know, talking about North Korea's -- I mean, we know -- we know, clearly, North Korea has some pretty grave human rights abuses. But, you know, to kind of take the suffering of, whether it's the family of Otto Warmbier or the North Korean defectors --
AMY GOODMAN: Pence with the father of Warmbier.
CHRISTINE AHN: Right, absolutely.
AMY GOODMAN: At the Olympics.
CHRISTINE AHN: -- is, you know, basically, using them for their political agenda. And I think that what worries me is, you know, they're trying to build and convince the American people that the liberation -- quote-unquote, "liberation" of North Koreans is very much tied to the preservation of America's freedom. I mean, it's -- you know, there's no historical context. There's no recognition that the conditions facing so many North Korean people have very much to do with a long history of US economic blockade and aggression that has obviously enabled the country to have the people rally around the Kim regime.
AMY GOODMAN: Talk about who Ji Seong-ho is, this North Korean defector who was honored at the State of the Union.
CHRISTINE AHN: Well, he's a North Korean defector. He, obviously, just as tens of thousands and hundreds of thousands of North Koreans, suffered under the famine, you know, which there was inadequate food.
AMY GOODMAN: His financier, Thor Halvasson [phon.]?
CHRISTINE AHN: It's Thor Halvorssen, actually. Tim Shorrock, who is a, you know, renowned journalist for The Nation, just wrote a piece, that's up today, about the kind of -- you know, some shady back-channel dealings, and that Thor Halvorssen of the Human Rights Foundation, who has this history -- I believe his family was part of the attempted coup of Hugo Chávez in Venezuela and is financed, backed by very right-wing funders and has been part of a very right-wing campaign. They try to send balloons. And even during the Park Geun-hye administration, which is, you know, a very conservative administration, they had asked them, "Please, don't do this," you know, whether they're sending Bibles by balloons or other provocative material that North Korea views as a threat. You know, there is -- I think that there is a very concerted effort to try to use defectors to portray a certain narrative about North Korea that sometimes, you know, is on shaky ground.
AMY GOODMAN: Last month, you talked about the suffering of the people of North Korea. UNICEF, the United Nations Children's Fund, warned tens of thousands of North Korean children face potential starvation as sanctions slow the delivery of humanitarian aid. UNICEF's Manuel Fontaine said, quote, "We are projecting that at some point during the year 60,000 children will become severely malnourished. This is the malnutrition that potentially can lead to death. It's protein and calorie malnutrition. … So the trend is worrying, it's not getting any better," he said.
CHRISTINE AHN: Yeah, I mean, I think we're presented with kind of two false scenarios -- I mean, or, you know, the way that the Trump administration is saying. OK, we have this military option, which is the bloody strike, or, you know, the preventive war, that McMaster is advocating for, and then -- but we are on a diplomatic track. Well, this is not a diplomatic track, when it -- basically, it includes more and, you know,more draconian sanctions, that is not achieving the aim, which is the denuclearization of North Korea, but it is achieving the aim of hurting ordinary civilians, you know, children, women. And, you know, I think that we have to be very vigilant, because what we're going to see is the Trump administration say, "OK, we tried this diplomatic path of maximum pressure, but that didn't succeed, so the only option that's left is the one of the military one."
AMY GOODMAN: So, talk about how South Koreans feel about unification, and also young people.
CHRISTINE AHN: Well, I think it's mixed. I mean, obviously, they see what happened between East and West Germany. I'd say the young people grew up under a generation after the 1997 IMF crisis, and so they've seen their parents suffer, grew up with a lot of economic insecurity and instability. And so, you know, I would say that there is a desire for the eventual reunification of Korea. And I think seeing the two Koreas march together under a one-Korea flag, you know, we can't underestimate the power of that, as, I mean, a country that was divided by Cold War powers and that remains still in a state of war, because there has not been a peace treaty. And so, you know, I think that what they -- what we know, whether it's a mixed response about how Koreans feel about reunification, they don't want a new Korean War. And more South Koreans are worried about Donald Trump than they are about Kim Jong-un. And so, you know, I think that the Olympics is presenting a very hopeful opportunity. Hopefully, that is the beginning. But, obviously, a lot of this depends upon the US
AMY GOODMAN: Christine Ahn is the founder and international coordinator of Women Cross DMZ, a global movement of women mobilizing to end the Korean War.
When we come back, we go back 15 years this week to an infamous speech that then-Secretary of State General Colin Powell gave at the UN, which helped to begin the US invasion of Iraq. Fifteen years later, are we seeing this kind of rhetoric again, towards Iran? Stay with us.
19 Oct 08:20
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3 Drinks Flight Attendants Avoid When They're Flying
by Robin Scher, AlterNet
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You might think twice about ordering these beverages when you're on a plane.
Falling sick after a flight is not exactly news to regular travelers. Typically, we attribute this to the stale air and claustrophobic quarters which act like an incubator for infectious ailments. But what if that oxygenated vacuum isn’t the only disease-causing agent aboard?
“Flight attendants will not drink hot water on the plane. They will not drink plain coffee and they will not drink plain tea,” a member of that profession recently told Business Insider.
The problem has to do with the fact that these caffeinated beverages are brewed from the airplane’s own water supply, a source that first came into question following a study conducted by the Environmental Protection Agency back in 2004.
For that report, the EPA tested the onboard drinking water of 158 planes. According to the EPA findings, around 13 percent, or one in 10 airplanes, contained coliform (a hazardous form of E.coli bacteria) in its water supply. In that same Business Insider article it was further reported that through a Freedom of Information Act Request, a 2012 follow-up study by the EPA showed that the problems with airplane water had remained unchanged.
This issue largely comes down to regulation. Quoted by Business Insider, the Association of Flight Attendants-CWA explained that the EPA is responsible for implementing regulations to ensure “safe drinking water on the aircraft.” The AFA had insisted on these measures “over 15 years ago,” but because it “gives broad discretion to airlines on how often they must test the water and flush the tanks… [the AFA] does not believe this regulation goes far enough or is sufficiently enforced."
So how exactly is this regulation enforced? NBC 5 reported that the EPA “requires airlines to test for coliform and E. coli on every airplane at least once a year.” If the airline is found to contain either bacteria, the regulation requires that they flush the tanks and restrict water access until tests show the water is clean. The problem is that bacteria still enter the water supply through the hoses used to fill up the tanks at airports. A 2015 study published in the International Journal of Environmental Research and Public Health highlights this fact, indicating that the most harmful microorganisms found in an airplane’s onboard water come from the transport vehicles that deliver the water supply.
John Goglia, an aviation safety consultant, added his own concerns about onboard water in a column published on Forbes.
“Thirty years ago when I was working for USAir, we began a process to bleach the water tanks that hold the water and flush out the system,” wrote Goglia, who noted that this was done on a regular basis. The problem, he added, was that “a lot of sediment” began to accumulate in the tanks even after they were bleached and flushed. “It’s hard to drink anything made with water from those tanks after seeing what accumulates in there,” he noted.
Today, drinking coffee or tea on an airplane remains a risky endeavor. However, a recent Condé Nast Traveler article suggests that these concerns may be inflated. As a result of reported issues about onboard water, the magazine reported, the airline industry has come to implement “newer, stricter regulations.” A statement from Airlines for America, a Washington, D.C.-based lobbying group that represents the largest airlines in the country, was included in the article to back up this claim. According to the group, the “water received from municipalities for onboard systems is safe,” thanks to “rigorous sampling and management requirements.”
It’s probably wise to take this statement—from a group representing the business interests of airlines—with a pinch of salt. The best way to decide whether or not you should enjoy a hot beverage on your next flight is simply to use your better judgment.
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