Financial sources feeds
After October's "bloodbath across all strategies" resulted in the second-worst monthly hedge fund performance of the decade, many in the 2-and-20 crowd are bracing for the industry's worsening capital bleed to accelerate on Thursday as LPs scramble to request redemptions ahead of Thursday's deadline to get their money back before the end of the year. But as overpaid hedgies' paranoia about a feared culling of the herd reaches a fever pitch, one of the industry's most infamous figures isn't doing his competitors any favors.
During a talk at the 92nd Street Y on the Upper East Side of Manhattan on Thursday, former SAC Capital founder Steve Cohen revealed that he had successfully raised $5 billion in outside money since opening Stamford Harbor Capital (Cohen's new fund, which opened to outside capital earlier this year after a temporary ban on Cohen running outside money was lifted). Cohen raised this money at a time when redemptions for the industry as a whole had accelerated through the end of Q3.
While most funds have been struggling to keep the money that they already have, Cohen said he didn't have to try hard to raise the money.
Here's the FT:
"It was actually not hard," Mr Cohen told a sold-out audience of his fund-raising at a 92nd Street Y event, which included former New Jersey governor Chris Christie.
"I did only 10 or 15 meetings, it was really easy," he said. "I made one trip overseas to see one client and my staff did an amazing job and we raised probably $5bn."
Cohen said he's happy to be taking outside money again, because it has allowed his firm to grow.
"It never bothered me not having other people’s money because I had a lot of my own money" but "frankly we couldn’t grow."
But for any LPs who might have been in the room (Chris Christie reportedly attended the event), Cohen shared his market outlook, which was notably similar to that of his Fairfield County neighbor Bridgewater.
Like a growing number of funds, Cohen believe the US economy is "late cycle" and that a bear market could arrive some time within the next two years.
Mr Cohen said he sees the US economy as “late cycle”, and predicts a possible bear market in the next year and a half to two years.
"I’m not comfortable, I’m not uncomfortable, I’m somewhere in the middle," he said.
"I don’t think returns over the next two years are going to be very good. If the market hangs in there, there’s just going to be marginal returns."
According to the investing theory that helps hedge funds justify their existence, hedge fund investors see the most benefit during down turns, when their sophisticated stock pickers can more easily choose outperformers, allowing their ability to pick winning stocks to truly shine. In other words, as Cohen implied, everybody who is pulling their money from hedge funds is merely succumbing to panic. Now's the time to get in before the market's bottom falls out.
In what sounded like an attempt to check Cohen's ego, his interviewer jokingly pointed out during the talk that Cohen "isn't Warren Buffett."
"And Warren Buffett's not me," he replied.
North Carolina State University announced a Ph.D. in social justice education on Monday.
The program, which will debut in fall 2019, aims to teach educators, or "scholar-activists," about social justice and how they can bring about change in the classroom setting, according to an NC State news release.
“The goal of the program is to help educators recognize and disrupt systems of oppression by helping to foster and create equitable learning environments,” Jessica DeCuir-Gunby, a professor of educational psychology and director of graduate programs for the Teacher Education and Learning Sciences Department, said in the news release.
Faculty will come from various research areas, such as “social justice teacher education, multicultural education and literacy, education and immigration and diversity and equity in schools and communities,” according to the Ph.D. program’s webpage. The program also claimed it would focus on “equity in STEM” and “scholar activism.”
“This program area of study promotes social diversity while naming, interrogating and challenging oppression, exploitation and marginalization within education at the local, state, national and international levels,” the website states.
Courses that are required to attain the Ph.D. in social justice education include “Social Justice in Education,” “Diversity & Equity Scholar Leader Course,” and more.
NCSU College Republicans chairman Kye Laughter told Campus Reform he views this new Ph.D. program as a way to push social justice on future students.
“I think any person pursuing a degree or a Ph.D. in social justice already has an agenda in mind and this field will only allow bias to grow not only among those in academia but for those being taught this dangerous ideology,” Laughter said.
The chairman also suggested that the program shows that the university has a double standard, contending that a Ph.D. in a conservative thought field would never be created.
“Our university should not be afraid of discussing different ideas, but I am doubtful we will see any Ph.D. programs in conservative ideologies anytime soon, as academia has been infested with liberalism,” Laughter said, while noting that the university excels in fields like agriculture, engineering, and architecture.
After years of resolutely ignoring any adverse macro news and negative fundamental developments, bonds - whose spreads had touched decade tights at the start of October amid an unprecedented scramble for yield within the fixed income community - are suddenly being dumped with a passion. Indeed, it appears that the good times for bonds - both investment grade and high yield - are coming to an end, with this week’s turmoil in General Electric credit - first profiled here and subsequently in the WSJ - a clear sign that things can and likely will get much worse.
To see the sudden revulsion surrounding junk bonds in action, look no further than the spread on the Bloomberg Barclays Corporate High Yield index, which has spiked from a decade low of 3.03% on October 3 to 3.92% overnight, the widest since April 2017.
To be sure, there is some good news. According to Bank of America, it is far too soon to panic, because when the next slowdown strikes, investment-grade bonds will see a record-low rate of cuts to junk.
"The credit quality of high-grade companies is the best it has been in decades, as companies and industries have been tested and forced to improve,” BofA credit strategist Hans Mikkelsen wrote in a Nov. 14 note. And that’s "one key reason that in the next downturn the rate of downgrades to high yield is likely to be the lowest ever."
According to Mikkelsen, who dedicated his entire note to placate panicked bond investors, the reason not to worry about the energy sector - one of the biggest subsectors of the US high yield market - is because 4 years ago "it went through a major stress-test" when oil prices last plunged. "That forced companies to deleverage, be conservative about capex and work to aggressively lower break-even oil prices." Additionally, Mikkelsen argues that the financial crisis and Dodd-Frank greatly improved the credit quality of banks.
Of course, one could easily argue the opposite, namely that artificially low interest rates enabled a massive debt-issuance spree which has left most companies burdened with more debt than they can handle either during the next financial crisis or as rates keep rising, resetting the cash interest rate ever higher on existing debt along the way. This was precisely the argument behind Jeff Gundlach's most recent warning to corporate bond investors.
And while BofA's complacent take may be the good news, the bad news is that the market - having engaged its semi-panic puke mode, refuses to step off the gas and even though oil has stabilized in the past 48 hours after a record, 12-day rout, that's not helping high-yield energy.
As shown in the chart below, Bloomberg's HY Energy OAS Index soared this morning to the highest in 12 months, at just shy of 500 bps. And since energy is the third-largest sector in U.S high yield indexes, it's now dragging the whole market wider.
Commenting on this blow out, Bloomberg's Sebastian Boyd writes that while it's tempting to argue that bondholders are anticipating further declines in oil prices, the index has tracked oil prices pretty closely in the past 12 months, so "it's hard to say which one leads and which lags."
Separately, CreditSights analysts have joined Bank of America in advising bondholders to hang on and wait for the pain to pass while Wells Fargo also agrees with Mikkelsen that high-yield oil and gas companies are better placed to get through a price slump now than they were in 2014 after deleveraging and improving balance sheets.
As a counter to this optimism, Boyd presents the following chart showing ratings of bonds in the ICE BofAML index over time. While ratings are a simplistic reflection of reality, if one accepts that they're a decent enough proxy for credit risk then "the data does not show credit quality in the sector improving over time."
Boyd is not the only one who is skeptical on credit, which has been hammered not only in junk, but more notably also in high grade. In the aftermath of the previously noted rout in the bonds of GE, which is facing weak demand for gas turbines, high debt levels, a federal accounting probe and is no longer eligible for commercial paper issuance and so has to rely on bank revolving credit facilities...
...blue-chip company debt has been clobbered this week, and is on track for its worst year since 2008, largely due to concerns about some $2.5 trillion in BBB-rated bonds - more than double the size of the entire high yield bond market - which risk being downgraded to junk during the next crisis resulting in a yield explosion across the high yield space.
"GE is a harbinger for what’s going to happen when large capital structures get downgraded,” said Josh Lohmeier, head of U.S. investment-grade credit at Aviva Investors, which manages more than $480 billion. "It’s going to be messy, and it’s going to be painful."
Lohmeier isn’t the only one flagging such risks. Earlier this week, Guggenheim CIO Scott Minerd said that GE’s selloff is just the start of a “slide and collapse” in investment-grade credit. As we previously noted, Jeffrey Gundlach said corporate debt is the "most dangerous" part of the high-grade bond market.
What is notable is that for years, virtually nobody had anything bad to say about credit, whether IG or HY, and now - following the blow out in yields - it suddenly seems that everyone, with a few exceptions, is bearish as commentary once again follows price action (as usual).
Which is not to say that the bears are wrong: in fact, if the Fed indeed continues to hike rates and if oil continues to slide, if vol continues to rise and stocks continue to sell off, it is only a matter of time before the selling across credit hits a tipping point and the next widespread market puke hits, sending yields to levels that will force either the Fed, or other central banks, to step in and buy what investors have to sell. Because 10 years into the biggest central planning experiment in capital markets history, expecting traders to be able to price assets only on fundamentals, may be asking too much.
Throughout his career, Greenspan has mostly been a contrarian indicator. But he has been consistently right about trade.
Alan Greenspan says Trump's Tariff Policies are ‘Insane’ and I agree.
Former Federal Reserve Chairman Alan Greenspan called President Donald Trump’s tariff policies “insane” and said “why we’re doing it probably is very deep in the psyche of somebody.”
Responding to a question about China at an event in New York on Wednesday, he said both sides lose out in such a clash.
“It’s an excise tax, and people think of tariffs other than what it is, it’s a tax and everybody engaged in warfare of this type, it would mean that you’re withdrawing credit or purchasing power from a whole series of countries,” Greenspan said at New York University. “There are victors and there are losers in a tariff fight, but that doesn’t say that a more important issue is both are losing, it’s just the winner loses less.”
Greenspan also said the notion that China would outrace the U.S. in all economic respects “is a mistake,” pointing to their lower gross domestic product per capital.
Greenspan is correct on that as well.
Greenspan BS Detector
It's usually easy to detect when Greenspan is right or wrong about something.
Generally, if the public agrees with what Greenspan says, he's wrong, and vice versa.
Art of the Deal
In this case, Trump's die hard supporters believe the crazy notion that Trump really understands the "Art of the Deal".
Trump did not even wrote the book.
Arguably, that is carrying things too far, but Trump is no brilliant deal maker or businessman.
Enter the Democrats
The Democrats generally want to support the unions, and that's always the wrong thing to do.
The Wall Street Journal provides an interesting case in point: Democrats’ House Victory Complicates Passage of New Nafta, Trade Deals
Most Democrats, backed by unions, have voiced skepticism about liberalizing trade unless the deals allow workers in the other countries to take advantage of higher labor standards and wages. Passage “will depend on whether unions will want to push it,” a senior White House official said.
NAFTA liberalized virtually nothing. Rather, it is essentially the same deal we had before.
So here we are. Trump is bragging about a deal that changed nothing and Democrats want even more Tariff stupidity.
Democrats and Republicans Skeptical
With Democrats and Republicans skeptical of free trade but Greenspan an advocate, we have a clear winner.
Not only does this setup fit my Greenspan rule, it fits a more obvious rule:
When Democrats and Republicans both want the same thing, it's nearly always worth taking the opposite side.
Note that the EU and UK just finalized a 585 page document on a "customs union".
Yes, it's asinine.
Good Free Trade Agreement
A good free trade agreement can be written on a napkin with a crayon.
"Effective today, all tariffs and subsidies on all goods and services are eliminated"
That holds true no matter what any other nation does. The first nation to do so will have a monstrous advantage in jobs and wealth creation.
Greenspan was generally wrong!
Absolutely— Mike Mish Shedlock (@MishGEA) November 15, 2018
Greenspan was generally wrong!
He warned of Irrational Exuberance years early, then embraced the productivity miracle in 2000.
Consistently right about free trade. https://t.co/dKYP1XQ8IU
“The end of the 10-year run is going to be a really challenging time for policymakers going forward," warns billionaire hedge fund manager Paul Tudor Jones.
Speaking at at the Greenwich Economic Forum this morning, Jones explained to investors that another hike in interest rates triggered by faster growth from U.S. tax cuts may cause the bubble in credit to pop.
“We’re going to stress test our whole corporate credit market for the first time...”
“From a markets perspective, it’s going to be interesting. There probably will be some really scary moments in corporate credit.”
And thos cracks are starting to show - dramatically...
And unless The Fed stops its so-called 'normalization' of the balance sheet, yields are going to explode and credit conditions will collapse:
The hedge fund manager said the next trade will be a “front-end rates trade” of figuring out when policymakers will cease interest rate hikes.
Jones is not alone.
As Josh Lohmeier, head of U.S. investment-grade credit at Aviva Investors, which manages more than $480 billion, notes:
"GE is a harbinger for what’s going to happen when large capital structures get downgraded,” said.
“It’s going to be messy, and it’s going to be painful.”
Additionally, Guggenheim’s Scott Minerd said Tuesday that GE’s selloff is just the start of a “slide and collapse” in investment-grade credit.
Jeffrey Gundlach, CEO of DoubleLine Capital LP, said corporate debt is the "most dangerous" part of the high-grade bond market.
Distressed-debt investor Marc Lasry is eyeing an eventual sell-off in the investment-grade market for his next opportunities, including bonds sold by GE if they become even cheaper.
It had better be different this time - or credit is in big trouble!!
Credit markets are fundamentals have never been more decoupled.
In what is the most shocking geopolitical news of the day, NBC reports that the Trump administration is weighing extraditing the nemesis of Turkish President Recep Erdogan, cleric Fethulah Gulen who has been living for years in relative seclusion in rural Pennsylvania, from the U.S. in order to placate Turkey over the murder of journalist Jamal Khashoggi.
According to the NBC report, Trump administration officials last month asked federal law enforcement agencies to examine legal ways of removing the exiled Turkish cleric in an attempt to persuade Erdogan to ease pressure on the Saudi government. The effort includes directives to the Justice Department and FBI that officials reopen Turkey's case for his extradition, as well as a request to the Homeland Security Department for information about his legal status, four sources told NBC.
In hopes of finding immigration irregularities, the White House has requested details about Gulen's residency status in the U.S. Gulen - who has been living in Pennsylvania since the late 1990s - has a Green Card.
As NBC also adds, there was a certain level of incredulity at this sequence of events: career officials at the agencies pushed back on the White House requests, the U.S. officials and people briefed on the requests said.
"At first there were eye rolls, but once they realized it was a serious request, the career guys were furious," said a senior U.S. official involved in the process.
What is strange is that while Trump appears eager to appease Erdogan by handing him his arch enemy, the person whom the Turkish president has blamed for creating a "shadow government", and being responsible for the failed 2016 coup attempt, a Turkish official said the government does not link its concerns about the Khashoggi murder with Gulen's extradition case.
"We definitely see no connection between the two," the official said. "We want to see action on the end of the United States in terms of the extradition of Gulen. And we're going to continue our investigation on behalf of the Khashoggi case."
So why the extradition push? According to NBC, the secret effort to resolve one of the leading tensions in U.S.-Turkey relations – Gulen's residency in the U.S. – provides a window into how President Donald Trump is trying to navigate hostility between two key allies after Saudi officials murdered Khashoggi on October 2 at the kingdom's consulate in Istanbul.
It suggests the White House could be looking for ways to appease and contain Erdogan's ire over the murder while preserving Trump's close alliance with Saudi Arabia's controversial de facto leader, Crown Prince Mohammed bin Salman.
Trump has been desperate to brush aside the entire Khashoggi affair so Riyadh can continue to purchase billions in US weapons without complaints from Congress; Erdogan, meanwhile, has kept the pressure up by leaking pieces of evidence and repeatedly speaking out to accuse Prince Mohammed of orchestrating the murder of Khashoggi.
Of course, as regular readers know, Erdogan has for years demanded the U.S. send Gulen back to Turkey, however such requests have been regularly denied by both the Obama and Trump administration, at least until now.
The Turkish leader accuses the elderly cleric of being a terrorist who was behind a failed coup against Erdogan's government in 2016. After the coup attempt, Ankara made a formal request to the U.S. for Gulen's extradition.
Turkish officials made clear to Secretary of State Mike Pompeo during his Oct. 17 meeting with Erdogan in Ankara that they wanted the Trump administration to turn over Gulen, the U.S. officials and people familiar with the matter said.
"That was their number one ask," said a person briefed on the meeting.
One option that Turkish and Trump administration officials recently discussed is forcing Gulen to relocate to South Africa rather than sending him directly to Turkey if extradition is not possible, said the U.S. officials and people briefed on the discussions. But the U.S. does not have any legal justification to send Gulen to South Africa, they said, so that wouldn't be a viable option unless he went willingly.
Whether or not Gulen is ultimately extradited remains unclear, however the fact that Trump is even considering this shows just how much leverage the Turkish president now has over Trump. As a result, it will hardly come as a surprise that the Turkish Lira has surged on the news, rising to just above 5.300 after trading at 5.45 earlier...
... as Turkey slowly emerges as one of the most powerful nations in the middle east, engaged in friendly diplomatic relations with Moscow on one hand, while seemingly calling the shots in the US as well.
Following a shocking exposé in the New York Times revealing how Facebook resorted to guerilla tactics to deflect blame amid their various scandals, including hiring Republican PR firm Definers which cast liberal critics as operatives for liberal financier George Soros, top representatives for the Hungarian-American billionaire have demanded answers.
While Facebook was under fire on Capitol Hill for allowing Russians to purchase advertising during and after the 2016 US election, liberal critics blamed the company for Hillary Clinton's loss - including activist protesters who put a public face on liberal opposition to the social media giant.
Defenders sought to discredit the activists by linking them to Soros.
A research document circulated by Definers to reporters this summer, just a month after the House hearing, cast Mr. Soros as the unacknowledged force behind what appeared to be a broad anti-Facebook movement.
He was a natural target. In a speech at the World Economic Forum in January, he had attacked Facebook and Google, describing them as a monopolist “menace” with “neither the will nor the inclination to protect society against the consequences of their actions.”
Definers pressed reporters to explore the financial connections between Mr. Soros’s family or philanthropies and groups that were members of Freedom from Facebook, such as Color of Change, an online racial justice organization, as well as a progressive group founded by Mr. Soros’s son. (An official at Mr. Soros’s Open Society Foundations said the philanthropy had supported both member groups, but not Freedom from Facebook, and had made no grants to support campaigns against Facebook.) -NYT
Responding to the Times report, Soros adviser Michael Vachon responded Thursday, stating "It is alarming that Facebook would engage in these unsavory tactics, apparently in response to George’s public criticism in Davos earlier this year of the company’s handling of hate speech and propaganda on its platform."
The Times’ story raises the question of whether Facebook has used similar methods to go after other critics or public officials who have tried to hold Facebook accountable. Zuckerberg and Sandberg’s claim that they were unaware of what the company was doing is more alarming than reassuring. What else is Facebook up to?
The company should hire an outside expert to do a thorough investigation of its lobbying and PR work and make the results public.
Until then, this episode further demonstrates that Facebook continues to pursue its narrow corporate interests at the expense of the public interest. -Michael Vachon
Patrick Gaspard, president of Soros's Open Society Foundations wrote to Sandberg: "I was shocked to learn from the New York Times that you and your colleagues at Facebook hired a Republican opposition research firm to stir up animus toward George Soros," adding: "As you know, there is a concerted right-wing effort the world over to demonize Mr. Soros and his foundations, which I lead—an effort which has contributed to death threats and the delivery of a pipe bomb to Mr. Soros’ home. You are no doubt also aware that much of this hateful and blatantly false and anti-Semitic information is spread via Facebook."
The notion that your company, at your direction, actively engaged in the same behavior to try to discredit people exercising their First Amendment rights to protest Facebook’s role in disseminating vile propaganda is frankly astonishing to me.
It’s been disappointing to see how you have failed to monitor hate and misinformation on Facebook’s platform. To now learn that you are active in promoting these distortions is beyond the pale.
These efforts appear to have been part of a deliberate strategy to distract from the very real accountability problems your company continues to grapple with. This is reprehensible, and an offense to the core values Open Society seeks to advance. But at bottom, this is not about George Soros or the foundations. Your methods threaten the very values underpinning our democracy. -Patrick Gaspard
Which PR firm will Facebook call now?
Submitted by Robert Huebscher of Advisor Perspectives
Corporate bonds offer incredibly poor prospects under any scenario, according to Jeffrey Gundlach. If rates rise, prices will drop quickly because their durations are between 7 and 10 years. Falling rates are no better, he said, because they would be accompanied by a bear market in stocks with effects that would extend to corporate bonds.
Gundlach, the founder and chief investment officer of Los Angeles-based DoubleLine Capital, spoke via a webcast with investors on November 13. The focus of his talk was DoubleLine’s core and flexible fixed-income mutual funds, DFLEX and DBFLX. The slides from his presentation are available here.
The problem facing the corporate bond market is excessive debt and an oversupply of bonds. There is a lot of leverage among corporations, Gundlach said, which can be seen in “massive increases” in the size of the investment-grade market and a deterioration in the quality of debt. Spreads are tight, according to Gundlach, but are “tighter than you think, because quality has been systematically going down” in the covenants that are offered by corporate issuers.
“Spreads and debt levels are out of sync with one another,” Gundlach said.
That dichotomy is illustrated in the graph below. The shaded area depicts leverage (the corporate debt-to-GDP ratio) and the black line is the option-adjusted spread between high-yield (junk) and Treasury bonds. The two moved in sync from 1994 until 2013, after which leverage increased without a similar increase in spreads.
As a result, both corporate and high-yield bonds are at or close to their most extreme levels of overvaluation historically, based on DoubleLine’s proprietary methodology. That methodology looks at the spreads of those bonds relative to similar-risk Treasury bonds; those spreads are approximately two standard deviations above their normal level.
The BBB-rated market, which has the lowest rated corporate bonds, is two-times bigger than the high-yield market. If those bonds are downgraded to junk, Gundlach said, it will “flood” the high-yield market.
If corporate bonds were rated based on their degree of leverage, then 55% would be rated junk, according to Gundlach. They have not been downgraded by the ratings agencies because corporate issuers have made “soothing statements” to assuage the agencies. Gundlach called those statements “hopeful talk” about addressing debt in the future, which has kept ratings high. But a supply shock would lower junk bond prices, he said.
Gundlach said he doesn’t own a lot of corporate bonds relative to his fund’s normal weightings.
He also commented on the economy, politics and prospects for economic growth.
Deciphering the global stock markets
The driving force behind global economic performance is central-bank monetary policy.
The G4 central-bank balance sheets are now shrinking, largely due to the Fed’s $50 billion per month quantitative tightening (QT), which Gundlach said represents bond issuance that will add to the size of the deficit. On a cash-account basis, he said our $1.3 trillion deficit will increase to $2.0 trillion with QT, plus there is “hundreds of billions” of pending corporate-bond issuance. (By “cash basis,” he includes money which is borrowed to support the Social Security system.)
The global stock market has changed course, Gundlach said. Those markets rose in parallel with rising central-bank balance sheets, but are now falling across the globe, he said.
The NYSE composite is down 4% on a price-basis year-to-date. It peaked on January 26. Since then the U.S. and global equity markets followed one another until early May, at which point the rest of the world fell sharply. The S&P went up until early October, when the U.S. and the rest of the world fell and moved in sync, he said.
Why did the rest of the world fail to keep pace with U.S. markets until October? Gundlach said that it is because tariffs are clearly worse for other counties than the U.S., which has only 8% of its economy reliant on exports. For other counties, that percentage is much higher – he cited 43% for South Korea.
The U.S. has outperformed the rest of the world since 2009, as it has out-earned other countries on an EPS basis, he said. “But the most recent up-move was not justified on an EPS basis,” Gundlach said, in reference to the S&P gains until October.
The midterm election outcome will widen the deficit further, Gundlach said. Democrats will support a 10% middle-class tax reduction, as will Republicans and Trump. “I think that will go through,” he said.
Nancy Pelosi, the likely next speaker of the House, has been talking about infrastructure, he said, as has Trump. This could happen as well, he said, which would “get the deficit growing further.”
The outlook for deficit reform is cloudy. Four of the 2020 Democrat presidential candidates (Cory Booker, Kamala Harris, Bernie Sanders and little-known Andrew Yang) are all campaigning by advocating a form of “free money,” Gundlach said. Their programs range from negative income taxes to straight giveaways to segments of the population.
All quiet on the recession watch
All of the recession indicators are “flat-out positive” (not signaling a recession) or are not in a flashing-yellow warning zone, Gundlach said.
There has never been a recession without the leading economic indicators going below zero. “We are a long way from that,” he said. Small business optimism is just below its all-time high, CEO confidence is at a very high level and consumer confidence is its highest in 16 years, he said.
High-yield bond spreads over Treasury bonds rose approximately 400 basis points prior to the 2001 and 2007 recessions. Those spreads have recently widened by about 75 basis points, Gundlach said. “It looks a little bit like the 2007 recession, but it is not definitive,” he added.
As the Fed started its QT, the 10-year Treasury yield has risen pretty much in sync with the shrinkage of the Fed’s balance sheet, Gundlach said. When the stock market fell in October, the 30-year Treasury yield went up slightly, he said. It is very unusual for this to happen when equities are in distress, according to Gundlach.
As a result, he said it’s very possible yields could go up in a recession, if for no other reason than the large amount of pending bond issuance.
The deficit suicide mission
Strong economic growth in the U.S. is being caused by the growth in the deficit, Gundlach said. “This is good for the short term, but we are borrowing from the future.” Historically, the Fed has cut rates when economy was bad, and vice versa. That Keynesian view changed after the global financial crisis, according to Gundlach, when the Fed started raising rates while the deficit rose. That was because of Trump’s policies – specifically, the Tax Cuts and Jobs Act. As a result, he said the deficit is now 4% of GDP, “but if you include loans from Social Security it is 6%. This is why interest rates have been stubborn to fall.”
“These are very alarming trends,” Gundlach said. There are $7 trillion of Treasury bond maturities due in the next five years with a 2% average coupon, he said. With yields at 3%, those bonds will have to be replaced with higher cost debt, resulting, he said, in another $150 billion of interest-rate expense given current market conditions.
“We are on a suicide mission,” Gundlach said. “This will be an important issue in the next five years.”
How will the deficit crisis be resolved? Gundlach said it will be through devaluation – by entitlement reform “once the nation wants it, once the nation realizes that path we are on leads to catastrophe.”
Gundlach referenced “underlying problems in the core of the European banking system,” based on the fact that the stock prices of Deutsche Bank and Credit Suisse, two large European banks, have declined precipitously.
Emerging markets have been weak as the dollar has strengthened, he said. “The success and failure of emerging markets are with the fate of the dollar,” he said. “Bullishness on the dollar is extraordinary,” but he said he does not expect the dollar to rise to the level of its high in 1984.
China and the European central bank want to have a role as a reserve currency, according to Gundlach. China is trading oil futures of its own currency, the Yuan. “Once you start trading in global commodities,” he said, “you are taking steps to be a reserve currency.”
Treasury bonds are unattractive to foreign borrowers because of the U.S. trade policies and because hedging costs are too high, Gundlach said; the currency-hedged yields on foreign sovereign bonds are below zero. Domestic demand for Treasury bonds has been higher and has offset the lack of foreign demand.
There is a positive, albeit small, real rate of return on Treasury bonds. Unless inflation goes down (which Gundlach said is likely) Treasury bonds are unattractive to domestic buyers.
The 30-year yield could be 5% or 6%, he said, “but it may take a while. We are on track to hit 6% by 2021,” as per a prediction he made some time ago.
Those looking for a risk-free investment should opt for two-year Treasury bonds, he said, which yield 2.90%. When they mature, he said, there will be better opportunities.
* * *
Gundlach's full November 13 slideshow is below:
After 'oil god' Andy Hall shut down his main fund in 2017, Pierre Andurand has taken on the mantra of the world's largest oil trader. But the last few years have been tempestuous to say the least.
After facing huge losses in Q1 last year, Andurand blamed his losses on the irrational actions of CTAs and trend-followers. Well its Q3 2018, and as The Wall Street Journal reports, Andurand, who runs one of the last big oil-focused hedge funds, took significant losses in October as petroleum prices cratered.
Pierre Andurand, who earlier in 2018 predicted oil could soon hit $100 a barrel - and even predicted that $300 oil is "not impossible" - suffered the largest-ever monthly loss of his flagship fund in October. The $1 billion Andurand Commodities Fund lost 20.9% last month, taking the fund down more than 12% for the year, according to numbers sent to investors and reviewed by The Wall Street Journal.
The last few weeks have seen not only crude collapse but NatGas explode higher and lots of chatter of a 'behemoth' fund liquidating (buying back Nattie shorts and selling back WTI longs)...
Andurand confirms it was not his fund...
“It was nothing to do with us,” Mr. Andurand told The Wall Street Journal on Wednesday.
“I do not think the move is related to large funds in trouble.”
In addition to forecasting $100 oil in 2018, he also said that prices could hit as high as $300 a barrel in a few years, although that wasn’t his forecast.
Mr. Andurand’s new fund, the Andurand Commodities Fund, has gained every year since its 2013 inception, helped by bullish bets, including buying one day after oil hit a 13-year low in 2016. That year, the fund gained 22.1%. The fund is still up around 100% since its start.
So it appears his strategy is "buy oil"...
There was more than enough evidence that QE didn’t work fifteen years ago. The Japanese had accumulated these monetary experiments at the dawn of the 21st century. And there was even a time when US and Western central bankers were skeptical. What happened was 2008; a dislocation so big and widespread they had no choice but to embrace the failure for lack of any other options.
Once they did, what was most charitably ambiguous suddenly became genius. When the Japanese did these things, they were suspect; when Western central bankers did, they were awesome. Same planet, different worlds.
Only, the Japanese central bankers kept doing them, too. It’s much harder to hide in Japan than it has been in the United States or Europe. The decimated economic landscape there leaves little open to interpretation. This is not a positive comparison since Japan is merely our forerunner, a look into our future.
To begin with, the central bank is (largely) irrelevant. QE or QQE is nothing more than a series of tricks, smoke and mirrors glossed up to sound impressive and a little scientific (portfolio effects!) In reality, the world which we share with the impoverished (literally) Japanese, unfortunately, magic tricks can’t replace true economic processes. That’s why QE never worked to begin the millennium and it doesn’t now no matter how many additional letters and numbers are added to it.
The Bank of Japan, like Economists in the West, can’t admit it. They just can’t. To do so would mean to confess decades of incompetence and gross dereliction. It is a binary choice; we keep getting these non-answers until someone forces them to stop. They won’t do it voluntarily.
I wrote in April 2016, more than two wasted years ago:
Central banks have proven by their own actions, not their words, that they will only allow “their” recovery which in the end means none. As I have written before, if they were given a choice of maintaining power and control but only leading to more lost decades, or stepping aside and being guaranteed a full and sustainable recovery, they would choose the former every single time. True global economic recovery is purely a political action now; central banks will not restrain themselves no matter how much their schemes backfire and create only more disruption and havoc.
In Japan in 2018, the Bank of Japan forecasts:
Japan’s economy is likely to continue growing at a pace above its potential in fiscal 2018, mainly against the background of highly accommodative financial conditions and the underpinnings through government spending, with overseas economies continuing to grow firmly on the whole.
But instead that country’s Cabinet Office today reports that Japan’s economy isn’t growing at all, regardless of potential. The passage quoted above was prepared by the central bank at the end of October, meaning a full month after Q3 had ended. Japanese GDP in Q3? Minus 0.3%.
This is the second contracting quarter in the last three, meaning two out of the three so far in 2018. On a year-over-year basis, the economy has ground to a halt. It’s the timing of it that should be our global focus.
Japan’s economy peaked in Q3 2017. This had nothing whatsoever to do with monetary policy or even Japan specifically. That was the quarter when the eurodollar system began showing signs of distress. Japan, as Germany, is uniquely susceptible to trade disruptions; which is where turmoil churning within the global reserve currency system hits first.
Japan’s external slowdown predates any trade war concerns (by a lot). Growth in Final Sales of Domestic Product, for example, a GDP component that includes export sales, peaked in Q2 2017. It has been nearly flat over the last year, too.
QQE has been an utter disaster. Economic growth during its more than half decade run has actually been worse than the overall “recovery” as a whole from the 2009 trough.
The BoJ now practically owns companies and financial markets with what to show for it? GDP growth over the last five plus years since it started has been 0.9% per year compared to 1.5% since Q1 2009. Caught up in the mess are the regular Japanese citizens who are being stuck with the short end of the stick. And it’s not even close.
Since QQE, consumer spending growth has disappeared altogether. The opposite was supposed to happen, what with the inflation expectations supposedly attached to so much “money printing.”
This is because Japan’s economic fate has never been tied to the BoJ one way or another. Every single time the Japanese economy, meaning the global economy, begins to take a step forward (reflation) it doesn’t get very far for very long (eurodollar squeezes). The Japanese people, like Italians, Brazilians, or Americans, can sense these changes at the margins in a way that central bankers just aren’t capable (ideology).
It’s a total disaster not because QQE or the first QE in 2001 was the cause(s), rather by keeping the same ideological blindness in place nothing else is ever tried. There is never an honest search for answers. Central bankers can’t even admit there is a problem, even the obvious one for Japan in 2018.
The whole economic system rots for lack of imagination. And what Japan’s plight proves most of all is that it can go on and on far longer than you might otherwise think possible (a recovery has to happen at some point, right? NO.) It’s something out of Keynes; the economy can go without legitimate growth far longer than any peoples can remain rational.
For good measure, Destatis, Germany’s government bureau responsible for producing that country’s GDP estimates, also reports today a negative number for its last quarter (Q3). It is being dismissed as emissions and climate/weather, but Japan’s concurrent weakness shows otherwise. This is a growing global downturn.
This year is proving to be a trainwreck in too many important places. It was supposed to be the arrival of worldwide recovery. Worse, too many arrows are still pointing down for 2019. But you wouldn’t know it from the Bank of Japan, ECB, Federal Reserve, etc. Not until they are forced into some honest assessments for once.
What I wrote in 2016 still applies. There is plausible path back to full and complete recovery. It just has nothing to do with QE’s or even Economics, except the total purge of any thoughts about QE’s as well as to transform Economics back into economics (starting with monetary economics). It is purely political. And this is why populism becomes increasingly radical (in both directions, left and right) as all this economic pain goes unanswered each and every time.
NFA News Releases
Elite Forex Blog - Market Research & Analysis
- Malta is providing a way for those on the OFAC list to avoid / circumvent sanctions
- By providing an OFAC loophole, Malta is as a state, aiding and abetting criminals (who are criminals according to the United States)
- As a side business, it is easy for these participants to launder money directly (for themselves) or for their criminal network friends. It is possible, and likely, that copy cats of Pilatus have setup laundry businesses using similar and less obvious loopholes.
- On the regulated front, Malta is providing a backdoor to the European Union (EU) with light regulation. This isn’t necessarily, by itself, a bad thing – but combined with the other more serious problems, it becomes a matter of discussion.
- Malta’s financial system can survive Pilatus bank and Ali Sadr trial. But what’s next? What next scandal lies in the shadows, another fraud to be unraveled? Could it involve a high-profile Russian diplomat on DOJ’s black list? If Pilatus is isolated, Malta can survive. As soon as the next mole pops up in the garden, it will be impossible for Malta to whack them all.
- Not only is the case about Ali Sadr Hasheminejad disturbing by itself, his bank, which was financed with his own illegal gains, was used to open a bank. That bank, among other things, was a laundry for Iranian capital. The bank was approved by MFSA, Malta’s regulator, who recently asked the ECB to rescind its bank license.
- The creator of this passport program, Joseph Muscat, is accused of taking bribes from wealthy criminals from banned/blocked places due to his name appearing in the Panama Papers. We need to note here that we have not seen the contents of these documents, so there is no smoking gun evidence. But the timing is otherwise too coincidental for a forensic auditor.
- For Malta, this is a recent phenomenon, that started around 2013.
- Cyprus isn’t flagrantly taunting violating US rules. Russian Mafia has been in Cyprus for decades, but so are many other interests as well. Malta’s passport program and the Panama Papers leaks made Malta stick out as a world leader in EU passport selling to those on a black list OFAC or other.
- There is Mafia in Italy, but Mafia doesn’t run the government (anymore). What Muscat has done is created his own Maltese Mafia.
Important Reference Articles to read on this topic
Predator Arbitrage trading dashboard
Traditional Macro Economic Analysis
Arbitrage vs. Traditional Trading
Learn more @ www.totalcryptosuniversity.com
They wept in relief as the verdict was handed down in Manhattan federal court Friday after the jury deliberated for less than a day.
Jurors heard testimony that the men spent almost all of their work days in the chatroom, where they exchanged market color, inside jokes and personal information.
The three former traders told jurors that, at the urging of the defendants, they altered the rate or pressured others to submit false data to benefit trading positions held by Connolly and Black. Parietti said Connolly ordered him to disclose positions to the submitters in London because Connolly believed his team was being undermined by others at the bank who were rigging the rate in their favor.The defense argued that there were no clear guidelines on how banks should submit their rates for the calculation of Libor until at least 2008, and that they weren’t expressly forbidden from taking derivative trading positions into account when making the submission until 2013.During cross-examination, attorneys for Connolly and Black attempted to portray the government’s witnesses as liars who initially defended their practices to investigators and changed their stories only in exchange for a deal with prosecutors.
Good Friday claims a sacred spot on the Maltese calendar, and this year the holiday was casting its reliable spell. In the late afternoon, hundreds of people streamed from Baroque cathedrals outside the capital city of Valletta, forming slow parades through steep and narrow streets. Men in biblical robes lugged crosses, children clutched bright flowers, and small brass bands marched behind with raised trumpets and inflated cheeks. A breeze wrinkled the Mediterranean, and the sun slipped to a flattering angle, encasing all that charm in amber.
At the same time, the nation’s top-rated prime-time television show was wrapping up a special daytime broadcast: an annual telethon to raise money for children receiving cancer treatments abroad. In the bottom-left corner of the screen, a digital counter tallied the donations. When the number finally hit €1.26 million ($1.46 million), the studio audience began to stir, eager to applaud the fundraising record.
That’s when Prime Minister Joseph Muscat called into the telethon’s phone bank. He, too, seemed in a celebratory mood. The day before, the country had announced that it had registered a €182 million surplus for 2017, its second straight year in the black after decades of deficits. Patched through to the telethon’s host, Muscat pledged €5 million to the cancer charity on behalf of the government, nearly quadrupling the previous telethon record in an instant. The audience erupted. Some of the operators on the dais behind the stage removed their headsets and laid them on the table, as if to declare victory.
But these days in Malta, feel-good stories never seem to last. When Muscat hinted that the donated money would come from a fund fed by Malta’s Individual Investor Programme—a government initiative that sells Maltese passports to foreigners for €650,000 (less for additional family members), plus a €150,000 investment in government bonds—Good Friday took a turn.
Prime Minister Joseph Muscat and his wife, Michelle.PHOTOGRAPHER: DANIEL LEAL-OLIVAS/WPA POOL/GETTY IMAGES
An opposition Parliament member wrote on Facebook that, as a cancer survivor, he was disgusted by the possibility that the patients’ care was being financed by money from “criminals and the corrupt.” Another suggested Malta was trying to clean its dirty money by funneling it through a good cause. “It’s [like] thinking that prostitution is OK once part of the proceeds are donated by the pimp to charity,” Jason Azzopardi, a Parliament member, complained on Facebook.
The story of how Malta got to this point—where a holiday donation to a children’s charity can spark outrage and lament—starts brightly enough. A tiny country carves a small but lucrative niche in the global economy. Money flows in, thousands of jobs are created, and the government intensifies the strategy, opening the country to more partners and funding sources. Then comes the twist: Allegations of money laundering, political skulduggery, smuggling, organized crime, and even a murder.
Multiple investigations—by local magistrates, American prosecutors, and European politicians and banking regulators—have been rattling Malta’s financial and political networks for more than a year. Some of the most powerful countries in the world have suggested that a nation of about 450,000 people might pose a serious threat to global efforts to track money laundering, enforce economic sanctions, and maintain fair transnational standards.
A 15-month inquiry into one of the most contentious of the allegations—one suggesting that Muscat’s wife was directly involved in setting up a shell company for money laundering—wrapped up in late July without uncovering evidence that would justify criminal charges. “One hundred threads of suspicion don’t stitch together a single strand of proof,” the investigating magistrate concluded.
The story isn’t over yet, because some of those threads still dangle, and critics of the government both inside and outside Malta remain convinced that they tie into other scandals, other crimes. The government continues to try to nurse its battered reputation back to health, and how it all turns out will likely depend on how the Maltese ultimately answer the question lingering over their country: To supercharge its financial-services sector, did the smallest country in the European Union sell its soul?
Taking a sunset dip in Sliema Harbor, near Manoel Island.
Taking a sunset dip in Sliema Harbor, near Manoel Island.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
South of Sicily, east of Tunisia, and north of Libya, Malta’s three tiny islands have been eyed as well-placed steppingstones by the Phoenicians, Greeks, Romans, Byzantines, Arabs, Normans, French, and British. All coveted Malta as a staging ground, which makes its history a swashbuckling saga of raids, sieges, bombings, and rotating occupations. When the last British military base finally left in 1979, it took with it the country’s main economic engine. Malta turned to tourism, doing its best to sell ancient ruins, fortress walls, sloping medieval streets, and sheer limestone cliffs. The country eventually discovered, as most sunbaked islands do, that while it’s possible to get by on atmospherics, it’s hard to do much more.
In the early 1990s, Malta’s two major political parties argued over whether to take a shot at EU membership—generally speaking, the Labour Party didn’t like the idea and the Nationalist Party did. By the mid-’90s, with the Nationalists in power, the country began to prepare its application to join the bloc.
To convince the rest of Europe that it could be a trusted partner, Malta began instituting a series of financial and regulatory reforms. In the process, the country was reinventing itself as a new sort of steppingstone: a transit hub not for ships or soldiers but for money, in an environment of regulatory legitimacy, transparency, and stability. Malta discovered that the residue from centuries of turmoil (an ingrained adaptability, strong links to disparate cultures, the English language) was an asset, as was the country’s size, which allowed it to nimbly sidestep bureaucratic delays and cater to rapidly evolving industries that valued good computer connections more than natural resources. The traditional downsides of island economies—the high costs of transporting supplies in and out, for one—didn’t apply to the financial-services industry.
By the time the country’s membership in the EU was formally approved in 2004, Malta had staked out its place within Europe’s economy, and the nation’s attractive tax schemes—effective rates as low as 5 percent for foreign-owned companies, vs. an average of 22 percent for other European countries—helped attract investment funds, banks, and financial-services firms from all over the world. The steady influx of new business helped the local economy avoid a significant downturn during the 2008 financial crisis. Shortly after Muscat and his Labour Party took office in 2013, effectively ending 25 years of Nationalist electoral dominance, the country instituted the controversial passport-selling scheme, which was denounced by EU officials who feared it could create a back door for shady individuals or dirty money to gain access to Europe’s financial markets. But Muscat energetically pushed the plan, traveling abroad to sell it to prospective citizens, and it quickly took off. In 2014, Malta began a three-year run as the fastest-growing economy in Europe, and Muscat and his allies described the passport program as a complete success. By the beginning of this year, the government had collected about €600 million through it.
Muscat’s opponents in the Nationalist Party, as well as some members of the Maltese press, weren’t sold. In 2016 investigative journalist Daphne Caruana Galizia dug into the documents released in the Panama Papers leak and discovered that two of Muscat’s closest aides had established companies in Panama. She accused them of using those businesses to launder money from kickbacks she said they’d received for helping to arrange the sales of passports to Russian nationals. They denied it; a separate magisterial inquiry regarding those allegations is under way.
Later, Caruana Galizia reported that Muscat’s wife, Michelle, had established her own Panamanian shell company through the same middleman who’d set up those for Muscat’s aides—the accusation that the magistrate this summer said he’d found no proof to support. Caruana Galizia also accused Pilatus Bank, a Maltese institution founded in 2014, of handling much of the money in those alleged transactions, as well as those involving the shell companies set up by the prime minister’s aides.
Additionally, the journalist alleged that the first lady had received at least $1 million from Azerbaijan’s ruling family. Last year an international consortium of investigative journalists accused members of Azerbaijan’s ruling elite of operating a $3 billion scheme to launder money, pay off European politicians, and buy luxury goods; the reports cited “ample evidence” tying the ruling family to the schemes. Azeri President Ilham Aliyev last year labeled the accusations “totally groundless, biased and provocative.”
Caruana Galizia’s blog became the most-read news source in Malta. And even though she criticized both parties, it was a clearinghouse for critics of Muscat’s government. On any given day she might have accused a Maltese official of visiting a prostitute; or exposed an alleged local oil smuggling ring that helped Libya evade sanctions; or traced personal connections between government officials and suspected criminals; or slammed Muscat for trying to pitch Malta as a cryptocurrency capital, which she suggested would attract more corruption; or detailed alleged links between the country’s growing online gaming sector and the Italian Mafia. The list of her enemies was large and growing, and by last fall she faced 47 lawsuits—42 civil, 5 criminal—about 70 percent of them from government officials, according to her sister, Corinne Vella.
Prime Minister Muscat was one of those suing her, and he labeled her accusations as “the biggest lie in Malta’s political history.” Many in Malta seemed to believe him; in June 2017, as the allegations swirled, Muscat called for a snap election, and he was reelected with 55 percent of the popular vote.
Last October, as she drove away from her house, Caruana Galizia was killed by a car bomb. Police later arrested three men, low-level criminals, for planting and detonating the device. But no one in Malta considers the crime solved. Whoever ordered the killing remains unidentified. Some speculate that criminals involved with the Libyan smuggling ring might have targeted her, or that the Sicilian Mafia put out the hit. Many others blame the government.
Muscat and his administration loudly condemned the murder, calling it a tragedy and energetically denying any link to it. But the killing marked a turning point for Malta. The notion that corruption might have overtaken Malta’s economy now spread far beyond the confines of an opposition party, and the eyes of the world turned toward the tiny country. It has been struggling to clear its name ever since.
Protesters call for action following the killing of Caruana Galizia last October.
A recent protest over the killing of journalist Daphne Caruana Galizia, murdered last October.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
Everyone knows everyone in Malta. It’s an exaggeration, of course, but among the nation’s financial elite, the people who run the banks and institutions and sit on the governing boards, the notion is all but taken for granted. “There are, unofficially, some 10,000 people who work in Malta’s financial industry, and the guys in charge—there are maybe 50 or 70 of us—we know each other fairly well,” says Joseph Portelli, chairman of the Malta Stock Exchange.
In describing the financial community as small and closely knit, Portelli is defending it. He grew up in New York with his Maltese parents, and 15 years ago moved to Malta to manage his own fund, which specializes in emerging-market investments. He entered a financial-services industry that was fiercely protective of its reputation and keenly sensitive to insinuations of corruption. Now, as allegations of wrongdoing swirl, that defensive sensitivity is more acute than ever. Portelli has adopted it as naturally as any lifelong resident.
“We’re getting this blemish that we’re money launderers,” he says, “and that’s the worst irony.” There have been a few small problems, he concedes, with a handful of small banks. “You know what they all have in common?” he asks. “Not one of the principals was Maltese, they were all foreigners.” The locals, he suggests, police one another.
It’s a variation on an argument that’s been around since Plato and Aristotle. Small states tend to be less susceptible to corruption for two reasons: It’s more difficult to hide indiscretions, and higher levels of social cohesion discourage dishonesty. In the early 2000s several academic studies used data to support this theory, and some analysts suggested that globalization might be of particular benefit to small countries—freer trade and the increased mobility of labor and capital would reduce the costs of being small, they argued, while the advantages associated with less corruption could be retained.
An alternative theory is that small states will be susceptible to cronyism—all those close connections might enable, rather than discourage, financial subterfuge. More recent studies, including research conducted by the World Bank, have found that the data used in the earlier reports were incomplete, and the suggestion that smaller countries are statistically less corrupt than large ones remains unproven.
By the beginning of this year, the government had collected about €600 million through the passport program
For critics of Muscat, one powerful symbol of cronyism is Ali Sadr Hasheminejad, head of Pilatus Bank, the institution allegedly in the middle of the suspicious transactions involving the Panamanian shell companies linked to government officials. Sadr is an Iranian national, but when establishing and registering the bank in Malta he used a passport he’d purchased from St. Kitts. While Sadr was enmeshed in controversy in Malta, a parallel investigation into him and his bank culminated in his arrest by U.S. authorities, who charged him this spring with setting up a network of shell companies and bank accounts to hide money being funneled from Venezuela to Iran—transactions that allegedly violated economic sanctions against Iran. Prosecutors also alleged that Sadr established Pilatus Bank using illegal funds. Sadr pleaded not guilty and has been released on bail in the U.S.; his lawyer didn’t respond to requests for comment.
Malta’s government attempted to distance itself from Sadr, but the same sort of intimate connections found throughout the financial sector have undermined those efforts. Local news outlets reported that among the 250 guests at Sadr’s 2015 wedding in Italy were Muscat, his wife, and one of the aides accused of moving money from kickbacks related to the passport program through Pilatus Bank.
The July magistrate’s report stated that some of the evidence used by Caruana Galizia and others to implicate Michelle Muscat—including Pilatus Bank documents suggesting she was the owner of the shell company at the center of the scandal—bore falsified signatures. Muscat and the lawyers for Pilatus Bank immediately presented the findings as a “certification” that the whole story had been a lie cooked up by Caruana Galizia and foreign critics, and they denounced it in terms familiar to anyone conversant with the new vocabulary of political grievance: It was “fake news,” part of a “witch hunt.” They also drove home the point that the magistrate’s report identified serious improprieties on the part of their critics.
But the family of Caruana Galizia pointed out that the identity of the owner of the Panamanian shell company is still a secret. Furthermore, the European Banking Authority just weeks before had cited “serious and systematic shortcomings” in how Maltese regulators monitored Pilatus Bank before and after Sadr’s ties to Iran were exposed. A confidential 2016 regulatory report that was leaked last year confirmed that the bank’s profitability depended on politically involved clients from Azerbaijan. And the U.S. allegations that Sadr founded Pilatus Bank with criminal proceeds remain unaffected by that magisterial report.
The result of all this is a contagion of suspicion. Many of the allegations of money laundering and other financial crimes have proved difficult to either verify or dismiss outright, but collectively they make it increasingly hard to swallow the idea that corruption is strictly a foreign import here. The country’s only independent think tank, the Today Public Policy Institute, ceased operations in April. Its stated reason for closure was bluntly condemnatory: “a sense of defeatism over the government running roughshod over standards of professionalism, transparency, and accountability.”
Muscat and those in his government generally have responded to such criticisms by going on the offensive: Instead of putting the brakes on controversial policies, they’ve stomped on the gas. Muscat this year pushed for an expansion of the passport sales program, arguing that such investments and the economic activity they spur could help Malta become one of the wealthiest countries in Europe within his lifetime. Last year alone, private wealth in Malta jumped by more than 20 percent, thanks in part to its newly minted citizens.
“Globalization is like a treadmill—you can’t say you are tired, because the second you stop, you will fall off,” Muscat said during a press conference earlier this year. “Once in the race, we must not simply be there to take part, but we are there to win.” Previously he’d outlined the types of policies that would power Malta’s sprint toward success: “some sensible, others risky, yet others which might sound, and be, outright insane.”
In April, just as several Asian countries were cracking down on cryptocurrencies, Muscat announced that Malta would become the first country in Europe to create a regulatory and legislative framework specifically designed to attract virtual currencies. Shortly thereafter, Binance Holdings, the world’s largest cryptocurrency exchange, announced it was moving its headquarters from Hong Kong to Malta. Within weeks, Morgan Stanley analysts were reporting that a majority of the world’s crypto trading volume was moving through companies based in Malta.
There are people who insist that the government’s continued success in attracting investment and generating revenue is itself an answer to the disputed allegations of money laundering, kickbacks, and other financial crimes. “Luckily, this comes at a time when it washes off,” says Edward Scicluna, the country’s finance minister. “The false and fake parts are washing off, because Malta is being so successful that it’s very hard to accept them and to correlate them with a successful country. Normally corruption is rife in backward countries where there are no investments. So you find it very difficult to reconcile these two.”
A yacht moored in Sliema.
Yachts have largely displaced fishing boats in the harbor in Sliema.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
In Sliema, one of the most affluent towns in Malta, open-air restaurants line the harbor road. A few decades ago, diners here would look out upon dozens of Maltese fishing boats bobbing in the water, their prows upturned and their wooden hulls painted in rainbow stripes. Now the harbor is crowded with hundreds of fiberglass yachts—large, modern, colorlessly impressive.
The view helps explain why many Maltese are ambivalent about their country’s progress: They know that economic opportunities are more plentiful than they used to be, but they fear progress might be smoothing away the country’s distinctive edges. The skyline is dotted with cranes rising above the cathedral domes, and those cranes always seem to be hovering over the same sort of building: tall, rectilinear, and cut in clean angles. Malta is the most densely populated country in the EU, and the economic boom of recent years has intensified the pace of construction. Locals often complain of the dust from all of the building sites; when it rains, the drops sometimes hit windshields as small, powdery explosions—tiny puffs of brown smoke.
Competing real estate agencies line Sliema’s coast road, stretching for several blocks. Constantly changing listings for apartments and houses paper their windows. “There’s big demand, and the prices keep getting higher,” says Carl Peralta, director and founder of 77 Great Estates, one of the agencies.
Driving that demand is a new genus of Maltese resident that, Peralta insists, can easily be spotted in the cafes and restaurants of Sliema. Many are from northern Europe, and almost all are young—20s, maybe early 30s. They carry backpacks, they don’t drive cars, and they’re rarely spotted anywhere before 10 a.m. They work for the hundreds of internet gaming companies that have flocked to Malta in recent years. The companies offer the range of gambling services, from online poker and games of chance to sports betting.
In the early 2000s, only two online gaming companies could be found in Malta; now there are up to 300, and the sector accounts for an estimated 12 percent of the economy, according to the Malta Gaming Authority. Both the governing party and the opposition agree that the growth was a result of commendable foresight: In 2004, Malta became the first country in Europe to regulate online gaming, helping to legitimize an industry that previously stood on the fringes of respectability and legality.
“Laugh all you like, prime minister. But we will insist that you don’t get off scot-free”
The new arrivals who’ve bought citizenship through the passport program maintain a much lower profile than the gaming-industry workers. You can’t pick them out of a crowd on the street, and it’s difficult to even identify them in government documents. When Malta last released its annual list of new passport holders, it was maddeningly difficult to decipher; purchasers were listed in order of their first names, without a country of origin, and mixed among thousands of others who obtained their citizenship though birth or naturalization.
The Maltese press has discovered that the list of new citizens includes Russian oligarchs and even a woman who was suspended from the Vietnamese parliament for having dual citizenship, which is illegal in Vietnam. Roberta Metsola, who represents Malta in the European Parliament, suggests that many of the passport purchasers want nothing to do with Malta; they simply want the financial and travel access that an EU passport provides. “We’ve had cases of people arriving on a private jet, meeting a real estate agent, taking out a basement flat somewhere here for a year, never even seeing it, and leaving in the afternoon,” Metsola says.
Peralta, the real estate agent, says that rings true to him. Those who are buying passports, he says, know the minimum they must spend on housing—either €350,000 for a purchase or rental payments of at least €16,000 a year for five years. Meeting those minimum requirements, Peralta says, is often the only feature they’re specifically looking for in a property. “I know there are checklists they have that say they need to open the water taps once a month, or send a cleaner once a month,” he says. “But no one is living there.”
The town of Sliema is a popular destination for expats and new citizens.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
Jonathan Ferris speeds through Valletta’s darkened streets, jumps off his motorcycle, and walks briskly into the lobby of the Phoenicia Malta Hotel, where he finds a table in the noisy lounge. His features are lean, and he moves with a restless energy. His eyes scan the room, and he raises his voice just loud enough to be heard above the lounge singer, who is halfway through a slow and torchy version of Fleetwood Mac’s Songbird.
“I was the top man,” Ferris says, “the top investigator of financial crimes in the country. Type my name in the internet. All bloody hell comes up.”
The European Parliament is concerned enough about Malta to have sent an investigative delegation to the country multiple times this year. The committee’s report, issued recently, described an atmosphere of fear had settled over the country—and a sense that criminals could operate with impunity. Ferris believes his life during the past year perfectly represents the intersection of both phenomena.
He says that in 2017 his bosses at Malta’s Financial Intelligence Analysis Unit, the national agency tasked with policing money laundering, asked him to step aside from the investigation of the allegations involving Muscat’s wife and aides. He had told them he didn’t trust one of the known sources that had fed Caruana Galizia information regarding Michelle Muscat’s alleged ownership of the shell company—a source Ferris had investigated before and who, incidentally, was later discredited by the magisterial inquiry. Ferris’s bosses told him they believed his history with that source compromised his objectivity. That angered him, and he told his bosses that within 72 hours he could determine the true owner of the company that Michelle Muscat was allegedly involved in. He explained to them how he would consult tax returns, political party documents, and bank records. The next day, he says, he was fired and stripped of access to investigative documents and records. His firing further fueled suspicions against Muscat and his wife.
Investigator Jonathan Ferris.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
After Caruana Galizia was killed, Ferris says, he began to fear for his own life. He takes his bloodhound out for walks in the early morning, and several months ago he began to notice cars following him with the headlights off. “I decided, from now on, I’m always going to carry my gun around,” he recalls. Police officers now monitor his house for eight hours each night. “What good does it do? I don’t know, because for the rest of the 16 hours out of 24, I and my family are all alone.”
After Caruana Galizia’s murder a similar anxiety spread quickly among those seen as unfriendly to the government. Some of Malta’s neighbors pointed to that generalized unease as emblematic of the current state of the country. The European Parliament report described “systemized and serious deficiencies” in the rule of law in Malta, which had eroded the population’s general sense of security. Additionally, a police investigation in Italy has alleged that the Sicilian Mafia infiltrated companies in the online-gaming sector, using them to launder illicit funds.
When Muscat sat in front of European Parliament members during a plenary hearing to discuss the rule of law in Malta last June, he dismissed the allegations publicized by Caruana Galizia as politically motivated, setting a tone for his denials that he’s used ever since. His relaxed attitude—and particularly his periodic smiles—during the questioning rankled some of the politicians.
“You can laugh all you like, prime minister,” said Werner Langen, a German member. “But we will insist that you don’t get off scot-free.”
A vigil held to remember Caruana Galizia at the Great Siege Monument, nine months after she was killed.
A memorial for Caruana Galizia at the Great Siege Monument.PHOTOGRAPHER: NADIA SHIRA COHEN FOR BLOOMBERG BUSINESSWEEK
This past year was supposed to be Malta’s chance to showcase its economic gains to the outside world, to take a victory lap after years of growth. It assumed the presidency of the EU in 2017—a first for the country—and this year Valletta was named the EU’s Capital of Culture, another rotating title that was cast as a big deal for such a small country. Earlier this year Muscat went so far as to claim that national pride in Malta had hit an all-time high.
The country’s tourism authority kicked into high gear to take advantage of the promised attention. All sorts of cultural galas and grand openings were organized, and the National Museum of Archeology, a grand 16th century building in the middle of Valletta, became a nucleus for the celebrations.
One afternoon in April, tourists filed through the museum’s entrance and wound their way past exhibits that guided them along the country’s circuitous story. On the second floor, dozens of people entered the majestic Gran Salon, which centuries ago served as a banquet hall for the knights of the Order of St. John. Enormous tapestries, ancient and colorful, hung from the walls, and a small crowd gathered in front of a podium for a special event that had been organized just the day before. Scicluna, the minister of finance, stepped to the microphone.
“I’m very proud, and very pleased, to be the person to launch this national Anti-Money Laundering and Combatting of the Financing of Terrorism strategy and plan,” Scicluna said.
Despite the introduction, he didn’t appear to be particularly pleased to be delivering a speech denouncing money laundering, drawing more attention to a problem that he clearly sees as a threat to Malta’s reputation and livelihood. The reputational damage resulting from continued scrutiny from various quarters—the European Parliament, the European Banking Authority, Italian police, the U.S. Department of Justice—could trigger a backlash against the tiny country that might pose a real threat to its economic foundations.
As the investigation into Mafia involvement in Malta’s online-gaming sector continues, European lawmakers have several times proposed restrictions on cross-border betting, a change that would classify the services provided by many Maltese companies as illegal. Ana Gomes, a Portuguese parliamentarian who leads the EU commission investigating rule of law in Malta, has said the country’s low corporate tax rate is “anti-European” and saps billions in revenue from other member states. In March, the European Parliament voted to pursue a “tax harmonization” scheme that would create one common corporate tax rate applied throughout the EU. A U.K.-based nonprofit advocacy group, Tax Justice Network, issued a report estimating that such a policy would cut Malta’s tax base by more than half.
In the midst of these pressures, Scicluna stood at the podium and delivered a string of statements that should seem so self-evident that they’d never have to be uttered. “I’d like to say that Malta—and this is an important statement to make—is deeply committed to preventing, detecting, and prosecuting money laundering and terrorist financing activities. Financial crime threatens the safety of our society, the integrity of our financial system, and the stability of our economy.”
That economy, Scicluna hastened to add, was healthy and strong, and this year the International Monetary Fund’s executive board singled out the country’s “sound policies” as the root of its success.
When he wrapped up his remarks, the crowd in the Gran Salon filed out of the museum, where they joined the current of pedestrians flowing along Republic Street toward the Great Siege Monument, which sits in front of the main courts building in one of the city’s central squares.
Since last fall, people have been placing candles, flowers, and signs at the base of the monument as a makeshift memorial to Caruana Galizia. At least eight times since then, someone has swept away the items in the dark of night; each time, the flowers and candles and signs are quickly restored. Recently, a local governing council lobbied to ban the temporary memorial for good, arguing that it was time for the country to move on.
On this day, dozens of tourists stopped in front of the monument and faced the plaques that explained the historical significance of the statues. But none of them pointed their cameras up at the statues. Every one of them focused on the marble base and the makeshift memorial, and on the sign that read, “No Justice.”
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As Hurricane Florence bears down on the southeastern United States, nearly 759,000 homes are in the storm’s path, and a worst-case rebuilding scenario could cost more than $170 billion, according to an estimate from real estate data provider CoreLogic.CoreLogic calculated the reconstruction cost value, which is the total expense of completely rebuilding a property in case of 100% destruction, for 12 metro areas in the Carolinas and Virginia. The table below shows those estimates for a Category 4 storm, which is Florence’s current designation. Additional estimates based on other categorizations is available on CoreLogic’s web site.
Equity investors are closely tracking Hurricane Florence as the worst storm to hit North Carolina in decades could also have a menacing effect on the insurance, retail, agriculture and restaurant industries. More than 1 million people are evacuating their homes as the Category 4 storm is expected to make landfall over the weekend. Analysts say the event could also be a boon for companies that specialize in roof repairs or disaster-related services, as well as transportation providers.
According to National Hurricane Center, Hurricane Harvey is second only to Hurricane Katrina as the costliest hurricane to hit the United States at $125 billion. Katrina cost about $161 billion. By the time December 2017 had rolled around, the United States government had sent about $11 billion in federal disaster aid to Texas, and the state was asking for $61 billion more in federal assistance. After Hurricane Katrina, Louisiana had received almost $115 billion in federal aid. Multiple organizations and companies have raised money and provided aid for the people of Houston. The companies and aid listed below have provided a combined amount of at least $26.82 billion of the $125 billion that Harvey caused.
A protectionist policy that must be individually tailored to each product category requires large numbers of administrative staff, and a period must be established during which companies can apply for exemptions. Exchange rate-based adjustments, on the other hand, entail no such costs.In that sense, the more problematic administrative delays become and the more industry opposition mounts, the greater the likelihood that President Trump will replace tariffs with exchange rates as his main tool for addressing US trade imbalances.
Such a move would be a long shot by any stretch of the imagination, but with Trump invoking national security to impose tariffs, Patel says he can’t “completely rule out” the possibility.
"As of next Monday, Venezuela will have a second accounting unit based on the price, the value of the Petro. It will be a second accounting unit of the Republic and will begin operations as a mandatory accounting unit of our PDVSA oil industry."
- i) buy $30MM in tZero tokens,
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- iii) invest as much as $270MM for up to 18% of tZero’s equity at a whopping post-money valuation of $1.5 Billion.
Having concluded its Security Token offering, tZERO has raised aggregate consideration of $134 million. This figured includes $30 million from repayment of intercompany debt between tZERO and Overstock. GSR has signed a repurchase agreement to acquire these tokens. As I will diagram in our earnings call, we have designed quite an ecosystem with a scale that matches the enormous opportunity in front of it. When GSR completes its planned investments, we should have over half-a-billion dollars. We believe this will provide ample capitalization with which to build a company that can upend global capital markets.
Past performance is not necessarily indicative of future performance.
Past performance is not necessarily indicative of future performance.The risk of loss in trading commodity interests can be substantial. You should carefully consider whether such trading is suitable for you in light of your financial condition. This material does explain all the risks involved in futures and options trading. Please refer to the following for a fuller disclosure and our risk disclosure statement: https://alphazadvisors.com/risk-disclosure-statement/
About this podcast: EP 137: The horse bettor exploiting anomalies in financial markets – Dr. William Ziemba Dr. William Ziemba’s an academic, a practitioner, gambler, trader and an author. He’s worked with and consulted to many well-respected names in the field, such as; Edward Thorp, Blair Hull and the very successful horse bettor, Bill Benter. In the beginning, horse betting was William’s field of expertise (he even published a book titled, Beat The Racetrack!) And in many ways, for William, horse betting worked as a gateway to trading financial markets—which he’s been doing since 1983.
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Enter Crypto Currency which was relatively undeveloped as a traders' market until the huge rise of BTC/USD in the fall of 2017. Now there is a quickly growing community of Crypto Day Traders and Total Cryptos is here to facilitate that. The problem with trading Crypto vs. other markets is there is a huge amount of fake data in Crypto. As any trader knows, information is king - which is why it's important to have real-time information that matters. Just like in FX, that may mean looking at multiple exchange prices. It means having multiple sources of news and data. It means paying for information. How bad is the problem of bad data? Just look at today's news, from Coin Desk, where 'A CoinMarketCap "data issue" caused significant artificial inflation of several coins listed on the platform on Friday, with some prices inflated by nearly 1000 percent.':
While bitcoin's price spiked 12 percent on the crypto data site, other coins saw more drastic increases. The price of aeternity, the eighth most valuable cryptocurrency, increased more than 951 percent, while MOAC increased by 905 percent and bitcoin diamond saw an 876 percent jump on the site. The site's exchange tracker feature was also affected, and falsely indicated that bitcoin was trading above $73,000 on some exchanges. While crypto Twitter speculated about potential price manipulation, bugs and hacking, CoinMarketCap told CoinDesk that the inflation was caused by a data error. "There was a price calculation error on tether which caused any listing with a tether market to become artificially inflated," marketing vice president Carylyne Chan said in an email. While most of the data appeared to have normalized at press time, the 24 hour change percentage for VeChain's VET token was listed as a question mark and its price graph was unavailable on the home page. The VeChain page also had no historical data listed. The popular analytics platform has promised to release a "post-mortem" with further details in the near future.Imagine that happened in the stock market. So the good news, any new market presents new and uncharted opportunities. With that as always comes big risks, but it is a traders job to manage and maintain control of those risks. Having the right tools is par for the course. Or take a look at this article "Why intra-day trading crypto can be better than holding":
If you are relatively new to trading crypto currencies, then this tutorial is what you need. In this tutorial I will try to explain how you can use crypto to grow your capital base by at least 1% per day.The reason why holding isn’t a very practical move for well established coins is because of their volatility. For instance, Bitcoin (see chart below), increased by ±30% over a period of ±20 days. But it doesn’t mean it had a linear increase of 1.5% per day, some days went down while others went up.
Total Cryptos is extensively researching this new market as well as working on our development of real time trading systems for Crypto Day Traders. We've opened a public forum on the topic for open discussion which can be found here: https://portal.totalcryptos.com/forum/trading-cryptos Registration is free so join the discussion today!
- Private Equity investors or Pre-IPO investors may want to look at this hot new Crypto option.
- Cornucopia is an example of how Blockchain is really innovating the alternative investment space.
William B. Thompson, who was in Petrograd from July until November last, has made a personal contribution of $1,000,000 to the Bolsheviki for the purpose of spreading their doctrine in Germany and Austria ....Washington Post, February 2, 1918
As the digital money frenzy of the past few years cools, the crypto coin graveyard is filling up. Dead Coins lists around 800 tokens that are bereft of life, while Coinopsy estimates that more than 1,000 have bought the farm.The carnage is mostly the consequence of failed projects from the thousands of startups that used initial coin offerings to raise billions in funding, and a global regulatory crackdown on questionable practices and scams. Names like CryptoMeth, Droplex and Roulettecoin may have been a clue to the coins’ dim prospects.“There has obviously been a lot of fraud and hype in the ICO market,” Aaron Brown, a business author and investor who writes for Bloomberg Prophets, said in an email. “I accept figures I have seen that 80 percent of ICOs were frauds, and 10 percent lacked substance and failed shortly after raising money. Most of the remaining 10 percent will probably fail as well.”
CME’s bitcoin futures derive their final value from prices at four bitcoin exchanges: Bitstamp, Coinbase, itBit and Kraken. Manipulative trading in those markets could skew the price of bitcoin futures that the government directly regulates.
But virtual currencies may – will – become part of the economic practices of any country, anywhere. Let me repeat that: these currencies are not going away and they will proliferate to every economy and every part of the planet. Some places, small economies, may become dependent on virtual assets for survival. And, these currencies will be outside traditional monetary intermediaries, like government, banks, investors, ministries, or international organizations.We are witnessing a technological revolution. Perhaps we are witnessing a modern miracle. -Rostin Benham
Under the CEA and Commission regulations and related guidance, exchanges have the responsibility to ensure that their Bitcoin futures products and their cash-settlement process are not readily susceptible to manipulation and the entity has sufficient capital to protect itself. The CFTC has the authority to ensure compliance. In addition, the CFTC has legal authority over virtual currency derivatives in support of anti-fraud and manipulation including enforcement authority in the underlying markets.
http://Bitcoin.org just removed/censored the 2 largest US Bitcoin companies (@BitPay Payment processing and @coinbase Bitcoin Exchange). It’s a good move: Bitcoin Core is obviously no longer Bitcoin, and should ideally be removed from both @BitPay and @coinbase too.