Thursday, August 18, 2016

Today's links

1--Fed Policy is a 'dead duck'

Stephen Isaacs, the chairman of the investment committee at London-based alternative advisory firm Alvine Capital, told CNBC this month that monetary policy was a "dead duck" and investors should focus on a coming "fiscal reflationary trade".

The Basel-based Bank of International Settlements - known as the central bank of central banks - has been very critical of policy over the last few years and has hit out at quantitative easing (QE) programs. However, research for the Bank of England in 2012 did highlight some of the benefits.

In a report it said aggressive easing .... that inequality had widened during that period.
The benefits of loose monetary policy have not been shared equally across all individuals, however. Some individuals are likely to have been adversely affected by the direct effects of QE," the research said

2--Stock buybacks tumble to 4-year lows

The stock market may have a demand and supply problem.

Corporate America has stopped buying high, as the surge in the major stock-market indexes to record levels has coincided with a sharp drop in share-buyback announcements.

And with supply on the rise, in the form of a big jump in corporate share offerings, the drop in demand may bode badly for the broader market.

Through Monday, announced share repurchases during the second-quarter earnings season beginning five weeks ago has averaged just 3.3 announcements for about $1.8 billion in sum each day, the lowest level since the summer of 2012.

“Buyback activity has been disappointing [this] earnings season,” said David Santschi, chief executive officer of TrimTabs Investment Research, in an emailed statement. “The reluctance to pull the trigger on share repurchases suggests corporate leaders are becoming less enthusiastic about what they see ahead.”

That could be a worrisome sign for the outlook for the broader market, given that buybacks have been a key demand driver in recent years, and the tendency for buyback volumes to have a “high positive correlation” with stock prices.

“Buybacks aren’t likely to provide as much fuel for the stock market as they have in the recent past,” Santschi said. “The juice for further gains will have to come from central banks or somewhere else.”

Another concern about the market’s outlook is that the breakout rally in the major market indexes to record highs has led companies to rush to sell new shares. New equity offerings totaled $10.1 billion last week, the highest volume in 12 weeks and an “unusually high” level for early August, according to TrimTabs data.

3--US stock buybacks at lowest level in years: report

US companies have reduced stock buybacks to the lowest level in four years, according to a new report on Tuesday.

Share repurchases, a key driver for US bond issuance in recent years, are now down to about US$1.8bn daily on average, said stocks research firm TrimTabs.

That is the lowest level since 2012, it said.

"The reluctance to pull the trigger on share repurchases suggests corporate leaders are becoming less enthusiastic about what they see ahead," said TrimTabs CEO David Santschi.

"Buybacks aren't likely to provide as much fuel for the stock market as they have in the recent past."

It’s not a good sign" for the stock market, Santschi added. "Buyback volume has a fairly high correlation with stock prices

4--Japanese Imports, Exports Crash At Worst Rate Since 2009

For the 19th month in a row, Japanese Imports plunged - dropping 24.7% YoY (worse than expected), the biggest drop since Oct 2009. Exports were just as dismal, also missing expectations, plunging 14.1% YoY - worst since Oct 2009. The biggest driver of the collapse of Japanese trade was a 44% crash in the Chinese trade balance

why the Wall Street gamblers are so desperately hoping for helicopter money. The fact is, the Fed is out of dry powder via the “extraordinary” measures it has employed since the financial crisis.

To wit, in the event the economy is visibly drifting into recession, it cannot go to sub-zero interest rates without triggering a Donald Trump led domestic political conflagration. Nor can it abruptly shift to a huge new round of QE without confessing that $3.5 trillion of the same has been for naught.

Yet “helicopter money” isn’t some kind of new wrinkle in monetary policy, at all. It’s an old as the hills rationalization for monetization of the public debt—–that is, purchase of government bonds with central bank credit conjured from thin air.

It’s the ultimate in “something for nothing” economics. That’s because most assuredly those government bonds originally funded the purchase of real labor hours, contract services or dams and aircraft carriers.
As a technical matter, helicopter money is exactly the same thing as QE. Nor does the journalistic confusion that it involves “direct” central bank funding of public debt make a bit of difference.

Suppose Washington issues treasury bonds to the 23 primary dealers on Wall Street in the regular manner. Further, assume that some or all of these dealers stick the bonds in inventory for 3 days, 3 months or even 3 years, and then sell them back to the Fed under QE (and most likely at a higher price).

So what!

The only thing different technically about “helicopter money” policy is the suggestion by Bernanke and others that the treasury bonds could be issued directly to the Fed. That would just circumvent the dwell time in dealer (or “investor”) inventories but result in exactly the same end state. In that event, of course, Wall Street wouldn’t get the skim....

(helicopter money ) would amount to a central bank power grab like no other because it insinuates our unelected central bankers into the very heart of the fiscal process.
Needless to say, the framers delegated the powers of the purse—spending, taxing and borrowing—–to the elected branch of government, and not because they were wild-eyed idealists smitten by a naïve faith in the prudence of the demos.
To the contrary, they did so because the decision to spend, tax and borrow is the very essence of state power. There is no possibility of democracy—-for better or worse—-if these fundamental powers are removed from popular control.
Yet that’s exactly what helicopter money policy would do

6--We are in an epic bond bubble, Boockvar

We are in an epic bond bubble globally where higher inflation would be kryptonite. With the bond monster central bankers have created, the last thing they should want is higher inflation. Also, many U.S. citizens are literally living paycheck to paycheck and a higher cost of living without a corresponding increase in wages or any interest income would damage the largest component of the U.S. economy and the lives of millions.

Second, he said, "Conventional monetary policy has less room to stimulate the economy during an economic downturn." This we know is true.

But he then added, "This will necessitate a greater reliance on unconventional tools like central bank balance sheets, forward guidance, and potentially even negative policy rates

7--John McCain NGO banned as ‘undesirable group’ in Russia

8--Eurasia's Integration: North-South Corridor May Soon Replace Suez Canal

9--Clinton on the warpath

Since it is likely that there will be a Clinton administration in January, this Russian-Iran cooperation on Syria will pose a problem for a president Hillary Clinton. She is on record as wanting to overthrow Bashar al-Assad in Syria, to impose a no-fly zone over that country, and to support the remnants of the Free Syrian Army– exactly the opposite of the policies of Moscow and Tehran. You could imagine a clash

10-- Warpath cont...

It’s not credible to say that there isn’t much evidence for Clinton’s hawkishness. In almost every case for the last twenty years, Clinton has reliably sided with those favoring more rather than less aggressive measures in response to foreign conflicts and crises. She did this during her husband’s administration (“I urged him to bomb” [Kosovo]), she did it as a senator with her Iraq war authorization vote, and she did it as Secretary of State (see Libya, Syria, etc.). Unlike many presidential nominees, Clinton has not shied away from her hawkish record as a candidate. During the primaries, she touted the Libyan war as “smart power at its best” and as I mentioned earlier this week she has made no secret of her support for “no-fly” and “safe” zones in Syria that would entail a significant increase in the U.S. military role in that country. ...

last year she called for more military aid for Ukraine:
“I do think we should do more to help Ukraine defend its borders,” she said. “New equipment, new training for the Ukrainians. The United States plus NATO have been very reluctant to do that, and I understand it completely because it’s a very sticky, potentially dangerous, situation. But I think the Ukrainian army and the Ukrainian civilians who’ve been fighting against the separatists have proven that they’re worthy of some greater support.”
I think this is a bad position, and presumably liberal hawks think it’s fine, but this is Clinton’s position and it is not the same as current administration policy.
We know that in every internal administration debate Clinton was on the side of those favoring more aggressive measures whenever there was a question about initiating or escalating a conflict or sending weapons to one of the sides in an ongoing war. Since leaving the State Department, Clinton has typically sided with those calling for the U.S. to “do more” militarily in different parts of the world, and as far as we know she hasn’t seen a proposed U.S. military action in the last two decades that she thought was unwise or unnecessary. Of course Clinton is a hawk, and it is silly to pretend otherwise

11--Hillary:  The perfect GOP candidate

As Republican strategist Steve Schmidt noted on MSNBC, “the candidate in the race most like George W. Bush and Dick Cheney from a foreign policy perspective is in fact Hillary Clinton, not the Republican nominee.”

12--Growing disquiet in Washington over Russian-Iranian actions in Syria

The real concern in Washington is the emergence of an alliance that could potentially act as an impediment to the 25-year-old US drive to militarily assert its unquestioned hegemony over the Middle East. The Russian-Iranian agreement marks the first time that a foreign military has been allowed to operate out of Iranian bases since the 1979 revolution that overthrew the Shah’s US-backed dictatorship.

The basing agreement was preceded by Moscow’s provision to Teheran of its advanced S-300 surface-to-air missile defense system, which had previously been held back during the tightening of UN sanctions over Iran’s nuclear program. Components of the missile system have already been delivered, according to Iranian officials.

The situation is even more disagreeable for Washington as the Russian planes are flying from Iran over Iraqi territory with the permission of the US-backed government of Prime Minister Haider al-Abadi. Russian media have also reported that the Abadi government has given Moscow permission to fire cruise missiles from the Caspian and Mediterranean over Iraqi territory

Further complicating the situation from Washington’s perspective, the Chinese government announced on Tuesday that it is seeking closer military collaboration with the Assad government in Syria. Guan Youfei, director of the Office for International Military Cooperation of China’s Central Military Commission, visited Damascus, meeting with top Syrian officials and promising increased military aid as well as training for Syrian government forces. Guan also met with a senior Russian general while in Syria. Chinese officials have cited the participation of Islamists from the Uighur population in China’s Xinjiang region in both ISIS and the Syrian Al Qaeda affiliate as one of their reasons for seeking increased involvement in Syria.

Perhaps even more concerning is the rapprochement between Russia and Turkey in the wake of last month’s abortive coup against Turkish President Recep Tayyip Erdoğan, which by all indications enjoyed the support of Washington and its European allies. In his first trip abroad in the wake of the July 15 military uprising, Erdoğan visited Saint Petersburg, Russia’s second city, last week for talks with Putin. In the aftermath of the talks, Turkish Foreign Minister Mevlüt Çavuşoğlu said that a proposal was “on the table” for Turkey and Russia to carry out joint operations against ISIS.

This was followed Tuesday by a statement from a member of the Russian Federation Council Defense and Security Committee, Senator Viktor Ozerov, that “Turkey could provide the Incirlik base to the Russian Aerospace Forces for its use in counterterrorism operations [in Syria].” Incirlik currently serves as the base for thousands of US Air Force personnel and private contractors. Its status became a sensitive issue after it served as a base of operations for the abortive coup, which also called into question the safety of at least 50 US nuclear weapons stored there.

The unraveling of US policy in Syria was the subject of a paper issued Tuesday by the Center for Strategic and International Studies by its strategic analyst and longtime Pentagon adviser Anthony Cordesman.

Stating that the situation “seriously threatens the future of the MENA [Middle East and North Africa] region and US strategic interests,” Cordesman noted the lack of any serious public discussion over US war policy: “For the first time in its national history, the United States may get through a Presidential campaign amidst multiple wars without seriously debating or discussing where any of its wars are going, or what their longer-term impact will be.”

The developments in Syria, he added, represent “not simply a massive and lasting humanitarian nightmare, it is a strategic nightmare as well.” He pointed in particular to the growing Russian and Iranian role in the conflict and the likely survival of the Assad government.

“So far, the United States seems to have done little to address these issues,” Cordesman writes. “Secretary Kerry’s negotiations with Russia seem to have done little more than give Russia freedom of action in backing Assad while the United States focuses on ISIS—choices that also empower Iran and raise critical questions about who will really win in Syria if the United States does defeat ISIS.”

One indication that this same question is being asked in the US military command came with the report that after conquering the city of Manbij in northern Syria, US-backed forces, which are fighting with the support of American special operations troops, granted safe passage to a convoy of between 100 and 200 trucks and cars filled with ISIS members fleeing toward the Turkish border. The effect was to ensure that these forces lived to fight another day, presumably the Americans hope, against Assad.

13--"with a little help from my friends": US-backed forces give hundreds of ISIS fighters safe passage

Several hundred vehicles containing 100 to 200 Islamic State fighters were given safe passage by US-based forces, out of the northern Syrian city of Manbij, after surrendering their weapons, according to defense officials.
US Army Col. Carver, a spokesman for the US-led coalition fighters, told Pentagon reporters the decision to let Islamic State (IS, formerly ISIS/ISIL) convoys leave the city was made by commanders of the Syrian Democratic Force.
Col. Carver described how IS had civilians in each of the vehicles, and the military wanted to avoid casualties. He didn’t know how many of the civilians had been in the cars voluntarily but said some were likely hostages.
The 100 to 200 fighters left the city of Manbij last Friday under watch of coalition drones to ensure the militants didn’t regroup and try to return to the city

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