Category: ZeroHedge

Mueller Probably Has One More Bombshell Indictment Up His Sleeve

Mired in the prosecutorial equivalent of a blackout period, Special Counsel Robert Mueller and the remaining prosecutors assigned to his detail are said to be preparing their final report on their findings in the probe into whether the Trump Campaign colluded with Russia – a probe that has stretched into a now 18-month odyssey.

But lest reports that the imminent conclusion of the Mueller probe have left readers with a wholly unjustified sense of finality, the Hill is back with a piece published Thursday morning reminding us of all the loose ends that have yet to be tied up – including the fact that a grand jury has continued to interview associates of early Trump advisor Roger Stone.

Mueller

But the Stone’s fate, and whatever information he may have to offer on Trump, isn’t even the most important of these unresolved factors. As the Hill reminds us, we still don’t know what Paul Manafort – whose decision to cooperate with investigators was made only two months ago – is telling prosecutors. And given his extensive involvement with the Trump campaign, it’s very possible that the scope of the information he is providing stretches beyond Trump. According to the Hill, investigators are looking into the Republican Party’s decision to soften certain tenants of its platform pertaining to Russia and its annexation of Crimea. And it’s possible that Paul Manafort has the answers they seek. It’s also believed that Manafort could provide information on other issues like whether Trump was aware of the infamous June 2016 Trump Tower meeting (this after the president changed his story, saying Donald Trump Jr. may have organized the meeting to obtain opposition research, contradicting the Trumps’ initial denials), or whether the campaign had advanced knowledge of the hacks of the DNC and Clinton campaign.

While some witnesses, for example, George Papadopoulos, haven’t proven all that useful, as  far as witnesses go, Manafort is “leaps and bounds” above the others, one expert said.

Manafort, who attended the meeting along with Trump Jr. and Jared Kushner, would have been privy to discussions concerning the meeting and could potentially speak to Trump’s knowledge of it. The president claims he had no advanced knowledge of the meeting.

“He can talk about the conversations that took place before, during and after,” said Seth Waxman, a former federal prosecutor in D.C.

“I would put Manafort leaps and bounds above everyone else simply because of the time and effort the government put in to flip him,” Waxman said. “When the government goes as hard and as deep on someone like Manafort, it’s because they want him for a purpose and they believe he has very valuable information.”

Manafort’s value extends beyond his involvement in the Trump Tower affair. Having spent five months as campaign chairman, Manafort could answer questions about the softening of language in the Republican Party’s platform on Ukraine and any possible accords with the Russians.

Former federal prosecutors also expect Mueller’s team to question Manafort on whether the campaign had advanced knowledge of Democratic emails hacked by Russia.

It appears former Manafort assistant Rick Gates has also provided information ranging beyond his dealings with Manafort.

It was not initially clear whether Gates, who also worked on the Trump campaign and later on the transition, was cooperating beyond the Manafort case. However, a recent filing from his attorney suggests he is helping Mueller on other aspects of the investigation.

In a motion asking the court to remove Gates’ GPS tracker and lift some of his travel restrictions last week, his attorney, Tom Green, wrote that Gates’ interviews with the special counsel’s team “have been numerous and they continue to this day.”

Neither Manafort nor Gates have been sentenced, though Manafort will appear in federal court in Virginia on Friday as Judge T.S. Ellis looks to move forward with his sentencing for the bank and tax fraud charges.

it’s also possible that Mueller may have brought in other cooperators whose identity or identities are not yet known.

“Your job as a prosecutor is to go as high up the chain of the organization as you can and prosecute the most culpable people and put an end of their criminal conduct,” said Joyce Vance, a former U.S. attorney in Alabama.

“He’ll want to keep going so that the people who he prosecutes are the people who are the most responsible for any criminal conduct he uncovers. No prosecutor wants to stop at the midway point, [though] sometimes you have to because you don’t acquire enough evidence to go higher,” Vance said.

Given the recent shrinking of Mueller’s team and his delegations to other federal prosecutors (most notably involving Cohen), it appears that Cohen’s probe has continued to wind down. However, that doesn’t mean that Mueller doesn’t have one more bombshell indictment – perhaps even his biggest yet – still in reserve.


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Is The Greatest Bull Market Ever Finally Ending?

Authored by Charles Hugh Smith via OfTwoMinds blog,

The key here is the gains generated by owning US-denominated assets as the USD appreciates.

Is the Greatest Bull Market Ever finally ending? One straightforward approach to is to follow the money, i.e. global capital flows: assets that attract positive global capital flows will continue rising if demand for the assets exceeds supply, and assets that are being liquidated as capital flees the asset class (i.e. negative capital flows) will decline in price.

Global capital flows are difficult to track for a number of reasons. A significant percentage of global mobile capital is held in secretive offshore tax havens and “shadow banking,” and tracking global corporate capital flows is not easy. Capital held in precious metals may not be reported, and assets such as enterprises and collectible art may be grossly undervalued for tax purposes.

Toss in shadow holding companies, LLCs with obscure trails of ownership, etc. and a definitive account of global capital flows is ultimately a guesstimate.

Despite the limitations of tracking global wealth, Credit Suisse Research Institute’s (CSRI) issued Global Wealth Report 2017 gives us some clues about where capital is flowing in and where it’s leaving for safer, higher-yield climes.

The first step in measuring global capital flows is to note that conventional capital is denominated in currencies which fluctuate in relative value. Of the roughly $300 trillion in global assets (Credit Suisse pegs the total in 2017 at $280 trillion, but other estimates range well above $300 trillion), about $8 trillion or so is in precious metals, and a tiny sliver is in cryptocurrencies. (Bitcoin’s total market capitalization is currently around $112 billion and Ethereum’s market cap is around $21 billion–signal noise in the $300 trillion sloshing around the world seeking safety, low/zero taxes, capital gains and high yields.)

Foreign exchange matters. Say a money manager moves $1 billion out of U.S. Treasuries (denominated in the US dollar, USD) into bonds paying a hefty 15% in annual yield denominated in an emerging market currency.

If that currency loses 20% of its value vis a vis the USD annually, the capital loses 5% of its value / purchasing power despite the hefty yield.

The trick is to arbitrage yields and currencies so borrow in cheap currencies that are declining and buy higher-yielding assets denominated in currencies that are rising in value. For example, if a manager moved $1 billion out of a bond paying 4% in a currency that subsequently lost 30% of its value vis a vis the USD into a US high-yield bond paying 6%, the manager picked up 30% gains in FX and 2% in yield for a total gain of 32%.

For a variety of reasons, yields are rising in the US and the USD is gaining value relative to other currencies. Combine higher yields, relatively predictable safety and an appreciating currency, and the US has been attracting global capital.

These charts from Credit Suisse reflect this capital flow into the US and out of other nations. The phenomenal expansion of wealth in China is put into a different perspective here:with 4 times the population of the US and an economy roughly comparable in size, China’s wealth has registered only 20% of the gains accrued by the US.

If global capital was buying empty flats in China, etc., and selling US-based assets, these numbers would be reversed. This suggests mobile capital is leaving China and other nations and moving into US-denominated assets.

Most of the gains in global wealth have accrued to the US and to the top 1%.The wealthier the entity / individual, the greater the rewards and opportunities for moving wealth into tax havens and safe havens such as Switzerland and the US, which is a massive tax haven in its own right.

Here’s another snapshot of the global wealth pyramid: since the Pareto Distribution applies to wealth and income, we can guesstimate that roughly 40% of all global wealth is held by the top .2% or so. The top 8% (350 million people) own 85% of all global wealth.

Where is all this money coming from? Largely from debt which has expanded by over $100 trillion since 2001:

Corporations have poured earnings into stock buybacks at a torrid pace:

The net result is a gargantuan inflation in assets while real-economy wages and GDP have stagnated.

As long as US yields and the USD are ticking higher while the US economy continues expanding opportunities for capital to earn relatively safe yields and capital gains, capital will continue to flow into US assets, despite the nose-bleed valuations of assets such as stocks and left / right coast housing.

The key here is the gains generated by owning US-denominated assets as the USD appreciates. A 3% yield in US Treasuries isn’t all that great, but add in 10% annual FX gains and you’re netting a very healthy 13% annual return in relatively safe and liquid assets.

The greater the sums at risk, the more compelling these attributes become. If you need to protect $25 billion, and you want a liquid market you can exit without crashing the bid and exposure to FX capital gains, then USD-denominated bonds and stocks are an attractive option at this juncture.

Empty flats in China with zero yield and the potential downside of yuan devaluation–not so much.

In summary: follow the money. Smart money is mobile, opaque and constantly on the move seeking safety, tax shelters, yield and capital gains. If mobile capital continues flowing into US assets such that demand exceeds supply, the Bull Market will continue sloshing higher. Once supply exceeds demand and capital starts liquidating US assets, the Bull Market will end, perhaps with a whimper (stagnation) or with a bang (crash). Capital flows will dictate the outcome.

*  *  *

My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF). My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition.  Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.


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Pound Slides On Reports May ‘Worried’ EU Close To ‘Pulling Plug’ On Brexit Talks

EU negotiators (not to mention international investors) are finally being forced to reckon with the reality that the Gordian knot of conflicting interests that UK Prime Minister Theresa May must balance to secure a Brexit treaty with the EU might be an impossible task, and, already weary of wasting their time in fruitless negotiations when May can’t even rally unilateral support within her own party, EU negotiators could be close to pulling the plug on talks and accepting that a ‘no deal’ Brexit is an inevitable political reality.

May

After frenzied weekend-long negotiations to secure a draft agreement in the form of a nonbinding “political statement” that would have sketched out the details of a final treaty, including the controversial “backstop” provision that would govern how trade barriers are erected across the border between Northern Ireland and Ireland should continued negotiations during the transition fail to yield an agreement on trade, May and EU chief negotiator Michel Barnier affirmed that no agreement would indeed be forthcoming, despite a deal purportedly being “90%” of the way done. As has been the case since early this year, it’s that last 10%, chiefly pertaining to how Northern Ireland would be treated during the post-Brexit transition, and after Dec. 31, 2020, when the transition period is slated to end, that has proved to be an intractable sticking point.

After reports surfaced earlier this week that the EU was planning an emergency “no deal” summit to begin working out the logistics of a ‘no deal’ Brexit, European Council President Donald Tusk said earlier this week that he wasn’t optimistic about the prospects for a deal in the short term.

After last night’s EU meeting failed to yield any discernible progress, a reporter from the Sun sent the British pound sliding…

GBP

…when he tweeted Thursday that May is “very worried” that the EU is close to pulling the plug on talks – which is why she floated the idea of a transition extension, an idea that will almost certainly be vehemently opposed by the restive Brexiteers in May’s caucus, who favor a Canada-style trading relationship with the EU and are wary of a soft Brexit that could effectively leave the UK under the Continent’s thumb. This followed a report in the Financial Times  that the EU is shelving plans for a special Brexit summit next month, saying they were waiting for May to make a “decisive move” and that negotiations could continue for “weeks or months.”

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Meanwhile, a chart published by Jefferies in a recent research note showed the European economies that will be hardest hit by a ‘no deal’ Brexit by measuring the impact on both their banking systems and supply chains.

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As a reminder, the stalemate over the “backstop” agreement, which would sit beside agreements on immigration and the legal system fleshed out in May’s Chequers agreement, is over whether the backstop would keep the entirety of the UK within the EU customs union – which is opposed by both the EU and the Brexiteers – or whether the backstop would keep only Northern Ireland in the customs union, which the Democratic Unionist Party, which has helped to prop up May’s government, has likened to “annexation” by the Continent. Showing that bureaucrats can have a sense of humor, Tusk told May earlier this week that it was up to her to deliver a “creative” solution on this issue.

But it increasingly looks like creativity can’t change the fact that, for an agreement to be reached, one side would need to cave. And so far, nobody has proven willing to accept that risk.


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Blain: “Analysts Are Looking At A Cascade Crisis In China”… And That’s Great News For Trump

Blain’s Morning Porridge, Submitted by Bill Blain

“If you waste time to get people to love you, you’ll end up the most popular dead man in town.”

In the Headlights :

  • Saudi Arabia: Global condemnation mounts (must be serious if even the French pull out of The Conference), and secondary effects – see Softbank going flaccid on its second Vision Fund – mount.
  • Bond Markets: Market commentary increasingly focused on corporate bond illiquidity across EM, Hi-Yield and Investment Grade. What happens to Bond ETF’s in a liquidity squeeze – a moot point as investors seek to exit.
  • The Fed: Trump blames Fed for hiking rates. Fed is going to stay its course, and points out if anything will power down US growth, it will be trade issues.

Meanwhile, back in Westeros UK

I’m frankly surprised how long it takes Game of Thrones author George RR Martin to dream up his plotlines. They say he used the English War of the Roses for the original books. He might look at the current Brexit negotiations for the final chapters:

The tottering British PM struggles to hold together a fraxious coalition of the unwilling against The White Walkers from Brussels, who know all the have to do is drag it out, collapsing her government and its likely replacement by an anti-everything Labour government. Chaos results. House Scotland attacks from the North while London is distracted, (its been our historical speciality), while the mad-men of Northern Ireland do something spectacularly bad. A second referendum plunges what’s left of the UK into de-facto political civil war. The White Walkers from Brussels tightens their grip on their unwilling allies House’s Gaul and Proosia, secure in the knowledge they have removed the threat from the west through internal subterfuge – and declare an economic Jihad against Club Med.

Or something like that. How to play it? (Or does May have a Dragon egg somewhere?)

China vs US  

Meanwhile… let us cast our minds far to the East where the real story is probably China. Lots of stuff in the press about China and debt… and much of it casting doubt on the sustainability of China’s economic miracle – including its ability to continue as the major economic partner across Asia, Africa and the Middle East. 

But first, a diversion… I got taken to task by a US chum yesterday for being pro-Trump in recent comments. Harsh. Whatever I think of him is immaterial. It’s the political process that got him there, the geopolitical forces disturbed by his actions, and the real market effects he creates that matter. Loathe him or loathe him… he’s creating winds that move markets. Markets are about politics.

During the late summer we were treated to an American Aircraft Carrier (the USS Harry S Truman) moored in the Solent at the foot of our garden. A Nimitz class CVA is a great example of power projection. But, historically, the American’s don’t achieve their decisive victories through military muscle. Where they attempt to do so – in Afghanistan, Iraq and Vietnam, for instance, they proved the ineffectiveness of using a multi-billion dollar missile against an AK47, and that motivated guerrillas will win every time.

It’s very interesting to compare and contrast Trump rhetoric. In the last few days he’s pulled back from criticism of Saudi prince/thug MbS. He’s unapologetically told the American people that Saudi is a very important source of big defence contracts creating US jobs – therefore he will deal with them. Saudi is not a real threat. At the same time, he’s saying nothing about US jobs he’s willing to trade-off thru his Economic campaign against China.

Where America wins is in terms of economic muscle. The Japanese knew that before Pearl Harbour 80 years ago, the Russians learnt it in the 80’s. And now the Chinese are being treated to a similar lesson today.

The US can withstand declining energy exports to China far longer than Xi can withstand real growth tumbling from the Party’s mandated 7% to closer to 5.5% (or whatever it really is). The government are combating weakness by letting the currency fall – courting further Trump anger at perfidious currency manipulators.

Analysts are looking at a potential cascade crisis in China: falling growth, declining house prices, rising personality cult of Xi, increasing unrest, demographic crisis, nascent corporate debt crisis, banking weakness, and loss of confidence in stock markets. Some of them conclude it’s a binary game China is bound to lose – and a collapse in China will have catastrophic effects on the global economy.

Today the main headlines are about burgeoning China debt over the past years – how much hidden regional government lending is hidden within the financial system and how much has been squandered. Its also about unreported corporate debt linked to regional government and how overextended banks and domestic lenders are to companies now facing slowdown. As the Chinese economy relies heavily on corporate investment for growth, any slowdown caused by a banking crisis or even retrenchment creates a perception of weakness. As I’ve said before, debt is needed to fuel growth, but when it takes over.. its never a good thing.

A China in crisis plays well for Trump, demonstrating the success of his economic campaigns. Sure, he can afford a few job losses, or, who blinks first? Xi knows China won’t win an economic battle with Trump’s US. What other cards does Xi hold?  Not enough. Yet.


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Trump Threatens To Send Millitary, Close Southern Border As Migrant Caravan Approaches

As another “migrant caravan” has swelled to more than 4,000 hopeful “asylum seekers” marching toward the US’s southern border, recently prompting the Mexican government to dispatch 500 additional border guards to its border with Guatemala, President Trump threatened to send in the military and close the US’s southern border with Mexico in a tweet Thursday morning, after threatening to withhold aid from Honduras earlier in the week.

Migrant

After bashing Democrats for pushing for “open borders” and Honduras and Guatemala for having “almost no control” over their populations, Trump demanded that Mexico “stop this onslaught” at the country’s border with the US. If they fail, Trump threatened to (“in addition to stopping all payments to those countries”) “call up the US Military and CLOSE OUR SOUTHERN BORDER!”

The new caravan, which began in the Honduran city of San Pedro Sula with 150 migrants, has swelled in size. It’s the second caravan from Honduras this year. 

Trump added that “the assault on our country…including the Criminal elements and DRUGS pouring in, is far more important to me, as President, than Trade or USMCA,” adding “hopefully Mexico will stop this onslaught” before declaring it’s “all Democrats fault for weak laws!”

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It probably goes without saying that closing the southern border would be incredibly disruptive to trade between the US and Mexico, in addition to angering the most willing partner in the newly forged USMCA trade agreement. Then again, Trump is probably hoping that his staunch immigration stance will help galvanize his supporters to vote in the midterms, as reports about another migrant caravan have brought the immigration debate back to the forefront of the US political debate.


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China Crashes As Flood Of Margin Calls Sparks “Liquidity Crisis”, Panic Selling

The Treasury’s latest semiannual FX report may have spared China the designation of currency manipulator (for now… in a new twist, there was a section dedicated exclusively to China in the Executive Summary, a clear signal from the Treasury that China is the disproportionate focus of the report stating that ‘it is is clear that China is not resisting depreciation through intervention as it had in the recent past’), but the market was not as forgiving.

In the latest shock to Chinese confidence and stability, overnight Chinese shares extended the world’s worst slump as the yuan touched its weakest level in almost two years, testing the government’s ability to maintain market stability and calm as risks continued to mount for Asia’s largest economy.

Two days after we reported that concerns about pledged shares, in which major investors put up stock as collateral for personal loans – a disastrous practice when stock prices are dropping, emerged as a key pressure point for China’s market, overnight Bloomberg reported that “rising fears of widespread margin calls fueled a 3 percent tumble in the Shanghai Composite Index, which sank to a nearly four-year low as more than 13 stocks fell for each that rose.”

The concentrated selloff, sent the Shanghai Composite down 2.9%, closing at session lows of 2,486, the lowest level since November 2014, as China’s plunge-protecting “National Team” was nowhere to be seen.

Chinese stocks have dropped 30% below their January highs, as the spread between China’s market and the rest of the world grows alarmingly wide.

Meanwhile, local government efforts to shore up confidence in smaller companies failed to boost sentiment, while the yuan tumbled to 6.94, just shy of its one and a half year low of 6.9587 touched in August, after the U.S. Treasury Department stopped short of declaring China a currency manipulator, a move that some interpreted as giving Beijing breathing room to allow a weaker exchange rate.

“There’s a liquidity crisis in the stock market, and pledged shares are again starting to sound the alarm,” said Yang Hai, analyst at Kaiyuan Securities. “Stocks in Shenzhen typically bear the brunt of loss of confidence in the stock market because of their higher valuations.”

Even with its auto and housing sectors spiraling lower in recent months, crushing consumer confidence and leading to sporadic protests against declining real estate prices, Beijing has so far refrained from major market rescue efforts of the kind observed after China’s 2015 equity crash, but some investors are calling for bolder action.

The fear is that if Beijing does nothing, the self-reinforcing liquidation is only set to get worse: with $603 billion of shares pledged as collateral for loans – or 11% of China’s market capitalization, – traders are increasingly concerned that forced sellers will tip the market into a downward spiral.

China in June told brokerages to seek approval before selling large chunks of stock that have been pledged as collateral for loans, while the top financial regulator in August warned the industry that it’s closely watching corporate stock pledges. Neither of those warnings appears to have generated the desired outcome, and the result is that two-thirds of Shenzhen Composite stocks are now at 52-week lows or worse.

Meanwhile, Bloomberg notes that while the so-called “national team” plunge protection team has repeatedly intervened to support the market in the past, efforts recently have been led by local governments.

Officials in the southern cities of Shenzhen and Shunde as well as Beijing’s Haidian district have moved to help listed firms in their areas, according to local authorities and media reports. At least 36 companies have seen pledged shares liquidated by brokerages since the start of June, according to company filings.

Judging by the results, these sporadic rescue efforts leave much to be desired, especially coming in a time when the PBOC is forced to change the definition of its Total Social Financing credit aggregate to give the impression that credit growth is rising.

So what are investors to do in this time of panicked selling? Why demand more bailouts from The National Team to step in and rescue them (just like in the housing market)…

“If there are no real policies to cure the array of problems and ailments in our market, no one will be willing to take the risk,” said Hai. “Authorities keep saying that there is room for more polices, but where are they?

“It’s high time the state stepped in,” said Dong Baozhen, a fund manager at Beijing Tonglingshengtai Asset Management. “The national funds cannot just sit on the sidelines and watch this atmosphere of extreme pessimism.”

Ah, the horror: because how are “investors” expected to fare for themselves in a ‘free-market’ where the government does not come to their rescue every day.


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China Crashes As Flood Of Margin Calls Sparks “Liquidity Crisis”, Panic Selling

The Treasury’s latest semiannual FX report may have spared China the designation of currency manipulator (for now… in a new twist, there was a section dedicated exclusively to China in the Executive Summary, a clear signal from the Treasury that China is the disproportionate focus of the report stating that ‘it is is clear that China is not resisting depreciation through intervention as it had in the recent past’), but the market was not as forgiving.

In the latest shock to Chinese confidence and stability, overnight Chinese shares extended the world’s worst slump as the yuan touched its weakest level in almost two years, testing the government’s ability to maintain market stability and calm as risks continued to mount for Asia’s largest economy.

Two days after we reported that concerns about pledged shares, in which major investors put up stock as collateral for personal loans – a disastrous practice when stock prices are dropping, emerged as a key pressure point for China’s market, overnight Bloomberg reported that “rising fears of widespread margin calls fueled a 3 percent tumble in the Shanghai Composite Index, which sank to a nearly four-year low as more than 13 stocks fell for each that rose.”

The concentrated selloff, sent the Shanghai Composite down 2.9%, closing at session lows of 2,486, the lowest level since November 2014, as China’s plunge-protecting “National Team” was nowhere to be seen.

Chinese stocks have dropped 30% below their January highs, as the spread between China’s market and the rest of the world grows alarmingly wide.

Meanwhile, local government efforts to shore up confidence in smaller companies failed to boost sentiment, while the yuan tumbled to 6.94, just shy of its one and a half year low of 6.9587 touched in August, after the U.S. Treasury Department stopped short of declaring China a currency manipulator, a move that some interpreted as giving Beijing breathing room to allow a weaker exchange rate.

“There’s a liquidity crisis in the stock market, and pledged shares are again starting to sound the alarm,” said Yang Hai, analyst at Kaiyuan Securities. “Stocks in Shenzhen typically bear the brunt of loss of confidence in the stock market because of their higher valuations.”

Even with its auto and housing sectors spiraling lower in recent months, crushing consumer confidence and leading to sporadic protests against declining real estate prices, Beijing has so far refrained from major market rescue efforts of the kind observed after China’s 2015 equity crash, but some investors are calling for bolder action.

The fear is that if Beijing does nothing, the self-reinforcing liquidation is only set to get worse: with $603 billion of shares pledged as collateral for loans – or 11% of China’s market capitalization, – traders are increasingly concerned that forced sellers will tip the market into a downward spiral.

China in June told brokerages to seek approval before selling large chunks of stock that have been pledged as collateral for loans, while the top financial regulator in August warned the industry that it’s closely watching corporate stock pledges. Neither of those warnings appears to have generated the desired outcome, and the result is that two-thirds of Shenzhen Composite stocks are now at 52-week lows or worse.

Meanwhile, Bloomberg notes that while the so-called “national team” plunge protection team has repeatedly intervened to support the market in the past, efforts recently have been led by local governments.

Officials in the southern cities of Shenzhen and Shunde as well as Beijing’s Haidian district have moved to help listed firms in their areas, according to local authorities and media reports. At least 36 companies have seen pledged shares liquidated by brokerages since the start of June, according to company filings.

Judging by the results, these sporadic rescue efforts leave much to be desired, especially coming in a time when the PBOC is forced to change the definition of its Total Social Financing credit aggregate to give the impression that credit growth is rising.

So what are investors to do in this time of panicked selling? Why demand more bailouts from The National Team to step in and rescue them (just like in the housing market)…

“If there are no real policies to cure the array of problems and ailments in our market, no one will be willing to take the risk,” said Hai. “Authorities keep saying that there is room for more polices, but where are they?

“It’s high time the state stepped in,” said Dong Baozhen, a fund manager at Beijing Tonglingshengtai Asset Management. “The national funds cannot just sit on the sidelines and watch this atmosphere of extreme pessimism.”

Ah, the horror: because how are “investors” expected to fare for themselves in a ‘free-market’ where the government does not come to their rescue every day.


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Futures Drop After Asia Slides On Rate Hike, China Fears

10Y US Treasury yields climbed back toward seven-year highs after the Fed’s latest hawkish minutes suggested more rate hikes are coming, which pushed S&P 500 futures in the red following yesterday’s flat session, although they are well off session lows just above 2,800…

… while European equities shrugged off losses in Asia to advance amid a positive start to the region’s earnings season even as  Spanish banks dropped after the nation’s Supreme Court ruled they must pay mortgage-documentation taxes, sending Spanish banking giants Banco Santander and BBVA slumping more than 2%.

The Stoxx Europe 600 Index rose as much as 0.6% before fading the gain to just 0.2%, led by media stocks and drugmakers. Publicis Groupe jumped as much as 7.1% after announcing plans to sell a U.S. business alongside its third-quarter results. Roche gained 2% after sales beat estimates yesterday, while Novartis climbed as much as 2.2% after raising its 2018 sales guidance and agreeing to buy U.S. drugmaker Endocyte. Meanwhile, tech giant SAP was a big decliner, dropping 3.2% as profit underwhelmed. The FTSE 100 was up 0.2 percent even as Brexit talks between the U.K. and the European Union appeared deadlocked. For now, all European eyes remain are on earnings as investors try to gauge the state of global economic growth.

Asia did not share Europe’s optimism, however, as China’s stock markets were hit hard with the Shanghai Composite dropping to a new four-year low as it slid below 2,500 and closed at session lows with the plunge protecting National Team nowhere in sight, after China’s premier warned of risks to the economy from the escalating trade war with the US in a gloomy session for Asian equities, which dropped 0.6%

The yuan approached a two-month low after the PBOC fixed the currency unexpectedly lower, some 0.25% lower compared to yesterday and a fresh 21-month low, spooking traders that currency war is imminent even though the U.S. Treasury refrained from naming China a currency manipulator.

The 10-year Treasury yield climbed as high as 3.21% after minutes showed Fed officials appeared to favor an eventual move in rates above the level they see as neutral for the economy.

Wednesday’s Fed minutes left investors with little doubt that rates will keep rising, possibly beyond neutral, three weeks after central bankers signaled their intention to hike before year end. The outlook is testing equity markets again after last week’s sell-off.

“Corporates have done incredibly well but it’s clear we are going into monetary tightening in the U.S and that makes people worried about global debt having gone up so much in recent years,” said Peter Lowman, CIO at Investment Quorum, a UK wealth manager. At a time of simmering trade war tensions “people are perhaps taking chips off table and maybe going into cash and short-dated bonds,” he said.

Meanwhile, in the latest trade salvo, President Donald Trump announced plans to withdraw the U.S. from a postal treaty that gives Chinese companies discounted shipping rates for small packages sent to American consumers.

In currencies, the greenback bounced on Thursday before fading all gains and trading modestly in the red while finding support from emerging-market currencies under pressure as Federal Reserve members debate hiking rates past the neutral level. The BBDXY is up by 0.2% this week; a two-year rate differential between the dollar and its major peers widened to 280bps, the most since 1999, according to Bloomberg data on interest-rate swaps.

“The last thing emerging markets, or the US yield curve or equities want is a reminder that US rates are going to keep going up,” Rabobank told clients. The euro changed hands at $1.1518, holding steady versus the greenback, after losing 0.65 percent on Wednesday. The euro has lost just under 3 percent of its value versus the dollar over the last three weeks. As we noted last night, major currencies showed a limited reaction after the U.S. government late on Wednesday refrained from naming China as a currency manipulator.

In commodities, most metals traded lower in London after being hurt by a strengthening dollar and Chinese growth concerns. Emerging-market assets also fell. The British pound reversed losses as U.K. Prime Minister Theresa May said she is weighing a plan that would keep the U.K. bound to European rules for longer.

Expected data include jobless claims. BNY Mellon, Blackstone, Danaher, Philip Morris, American Express, and PayPal are among companies reporting earnings

Market Snapshot

  • S&P 500 futures down 0.3% to 2,808.25
  • STOXX Europe 600 up 0.3% to 364.69
  • MXAP down 0.6% to 153.58
  • MXAPJ down 0.4% to 481.89
  • Nikkei down 0.8% to 22,658.16
  • Topix down 0.5% to 1,704.64
  • Hang Seng Index down 0.03% to 25,454.55
  • Shanghai Composite down 2.9% to 2,486.42
  • Sensex down 1.1% to 34,779.58
  • Australia S&P/ASX 200 up 0.06% to 5,942.41
  • Kospi down 0.9% to 2,148.31
  • German 10Y yield rose 1.8 bps to 0.479%
  • Euro up 0.1% to $1.1512
  • Italian 10Y yield rose 9.3 bps to 3.174%
  • Spanish 10Y yield rose 1.4 bps to 1.663%
  • Brent futures down 0.8% to $79.40/bbl
  • Gold spot up 0.2% to $1,224.54
  • U.S. Dollar Index little changed at 95.52

Top Overnight News from Bloomberg

  • U.K. Prime Minister Theresa May said she is weighing a plan that would extend a transition period, which is already due to keep the U.K. bound to EU rules for 21 months after Brexit day, for a “matter of months.” The move, which would effectively prolong the terms of Britain’s EU membership, could come at a high political price in London
  • Brexit Secretary Dominic Raab angered backbench lawmakers in his own Conservative Party with a letter suggesting that the vote Parliament is given on Prime Minister Theresa May’s eventual Brexit deal will be a choice between that and a no-deal Brexit
  • The Treasury Department stopped short of declaring China a currency manipulator in its semi- annual report on foreign-exchange rates, averting an escalation of a trade war while serving notice that the U.S. will closely watch the yuan after its recent slide
  • The pound could see a “big fall” if the U.K. crashes out of the European Union in a disruptive Brexit, according to a deputy governor of the Bank of England
  • Japan’s consumer prices excluding fresh food are rising around 1 percent from a year earlier, says Bank of Japan Governor Haruhiko Kuroda, upgrading his view in a quarterly speech to the central bank’s branch managers
  • As Italy’s euro-skeptic government gears up for a confrontation with the European Commission over its budget, a separate clash has erupted between the two party leaders within the coalition. Luigi Di Maio, head of the Five Star Movement, used a popular political talk show Wednesday night to claim that a tax decree approved along with the 2019 budget Monday night had been secretly altered to extend the scope of an amnesty
  • Yen holds on to a two-day loss after the U.S. Treasury Department stopped short of declaring China a currency manipulator in its semi-annual report on FX rates, easing concern over a potential escalation of the trade war
  • U.S. President Donald Trump is facing increased pressure from Congress over his handling of journalist Jamal Khashoggi’s disappearance, exposing a widening rift between the White House and Capitol Hill over the U.S. relationship with Saudi Arabia.
  • Lawmakers from Trump’s own party, including the president’s ally Senator Lindsey Graham, are openly voicing their discontent and threatening to sanction the Saudi government and threatening to sanction the Saudi government.

Asian equity markets were downbeat following a lacklustre lead from Wall St where momentum in US stocks stalled as markets focused on mixed earnings and the FOMC minutes. ASX 200 (Unch) and Nikkei 225 (-0.8%) were subdued with Australia led lower for most the session by the energy sector after a slip in oil prices due to the larger than expected build in DoE crude inventories, while the Japanese benchmark was dampened by trade data in which exports missed estimates and contracted for the first time in almost 2 years. Shanghai Comp. (-2.0%) underperformed amid trade-related concerns as Trump plans to drop out of a 192-country treaty which provides Chinese firms discounted shipping rates for small packages bound for US, while losses in the Hang Seng (-0.2%) were cushioned as participants also took into account the prior day’s stock advances on return from the holiday closure. Finally, 10yr JGBs were softer as prices failed to benefit from the risk-averse tone and despite the firmer demand seen at today’s 20yr auction

Top Asian News

  • SoftBank IPO Banks Said to Back $9 Billion Vision Fund Loan
  • HSBC Gears Up for China Listing Through Shanghai-London Link
  • Thailand’s Richest Man Is Said to Plan $1.5 Billion Property IPO
  • Saudis Buy Into Chinese Mega Oil Refinery to Lock In Sales

European equities are mixed as the region failed to benefit from a slew of earnings. Spain’s IBEX (-0.8%) underperforms with banks plumbing the depths as traders cite a ruling by Spain’s supreme court as a potential catalyst, while Eurostoxx 50 (-0.7%) is pressured by heavyweights SAP (-2.3%) and Unilever (-1.3%) after Q3 numbers, and the Stoxx 600 (+0.2%) is kept afloat with post-earnings gainers dominating the top of the benchmark. In terms of sectors, healthcare names outperform on the back pharmagiants Novartis (+1.8%) and Roche (+1.7%) with the former raising FY guidance. Meanwhile, while the IT sector pulled back from the prior day’s gains and currently underperforms. Elsewhere, on the back of earnings, Carrefour (+7.6%) leads the gains in the CAC, closely followed by Publicis (+6.4%) which in turn is lifting WPP (+2.5%) in sympathy.

Top European News

  • Ramphastos Investments Intends to Acquire Hema From Lion Capital
  • Spanish Banks Drop After Supreme Court Ruling on Mortgage Taxes
  • Ericsson CEO Scores Third Straight Quarterly Earnings Beat
  • SAP Posts ‘Mixed Bag’ of Profit Miss, Raised 2018 Forecasts

In FX, the Dollar gleaned additional momentum from latest Fed minutes that kept a December rate hike firmly on the agenda, as FOMC members noted some data pointing to stronger than anticipated growth and also maintained the view that policy could become restrictive. However, the index has failed to extend recovery gains beyond near term technical resistance around 95.790 and has drifted back towards 95.500. AUD – In contrast, the Aud has rebounded relatively impressively from near 0.7100 lows vs the Usd and just extended post-Aussie jobs data gains towards 0.7150 having lost traction in wake of the rather mixed report overnight (headline employment change missed, but full time offset a drop in temps and the unemployment rate fell, albeit due to lower participation). NZD – The Kiwi has largely tracked its antipodean counterpart, but lagging, as the cross climbs further from recent lows and back into a 1.0850-1.0900 range, and Nzd/Usd continues to hit offers ahead of 0.6600. EUR/CHF – Both around 0.2% firmer vs the Greenback and also clawing back losses, with the single currency reclaiming 1.1500+ status and Franc off 0.9950+ lows. However, Eur/Usd remains weak chart-wise after losing several key supports at 1.1546, 1.1258 and 1.1505, and fundamentally as Italy’s budget remains a bone of EU contention, while option expiries at 1.1500 and 1.1550 (1.2 bn and 1.3 bn) may also factor into the NY cut. EM – The Try continues to outperform and after brief consolidation, the Lira has carved out fresh multi-month peaks vs the Usd near 5.5200. Conversely, the Yuan is back under pressure after a weaker PBoC fix on counter-cyclical factors, and perhaps with tacit permission from the US Treasury after China evaded being labelled as a currency manipulator.

In commodities, gold has stayed firm within a USD 5/oz range, tracking USD post-FOMC minutes reinforcing market expectations of slightly tighter US monetary policy. Copper is down nearly 1% amidst a stronger dollar and concerns from Chinese Premier Li that the US trade war is creating additional downward pressure on China’s economy. Elsewhere, iron ore has reached a 7-month high due to Chinese inventories dropping to their lowest level since December 2017. In the energy complex, WTI and Brent are in the red, down by over 0.5% following a larger than expected build in DoE crude inventories, trading below USD 70/bbl and USD 80/bbl. Although this drop may have been somewhat offset by continued tension arising from the missing Saudi Arabia journalist.

Looking ahead, we get the latest weekly initial jobless claims and continuing claims along with the September leading index. Away from the data, the Fed’s Bullard will be speaking about the US economic outlook. EU leaders will meet for a summit in Brussels to discuss the banking union and strengthening the euro-area’s bailout fund. American Express and Blackstone in the US and Novartis in Europe will be reporting earnings.

US Event Calendar

  • 8:30am: Philadelphia Fed Business Outlook, est. 20, prior 22.9
  • 8:30am: Initial Jobless Claims, est. 212,000, prior 214,000; Continuing Claims, est. 1.67m, prior 1.66m
  • 9:45am: Bloomberg Economic Expectations, prior 57.5; Consumer Comfort, prior 59.5
  • 10am: Leading Index, est. 0.5%, prior 0.4%

DB’s Jim Reid concludes the overnight wrap

Yesterday’s main course – the September FOMC minutes – wasn’t a game changer but 10yr yields did climb 3.5bps into the close after their release. A number of officials saw the need to hike rates above the long-run level, which was already evident from the dot-plot of FOMC member’s projections. Some participants talked about risks associated with a stronger dollar or stresses in emerging markets, but our economists don’t think we are yet at levels that would cause a change in the policy path. On inflation, three members now see the risks skewed to the upside and none see the risks as to the downside, although that was before the soft September CPI print, so this may be slightly dated. US Equities mostly ignored the Fed minutes and held their prior moves, with the S&P 500 closing down -0.03%, though a fair bit off the earlier lows of -0.99%. The DOW and NASDAQ also bounced off their intraday lows (of -1.24% and -1.08%, respectively) to close -0.36% and -0.04%. On the positive side, banks led gains (+1.25%) after mostly strong earnings from some mid-cap banks. M&T Bank and US Bancorp both posted lower-than-expected expenses and provisions, though revenues were mixed. Both stocks gained on the session.

On the other hand, lower oil prices weighed on the energy and materials sectors (-0.69% and -0.83%, respectively) and weaker US housing data weighed on the homebuilding sector (-2.49%, more color below). Brent crude oil fell -1.38% as the US Department of Energy said that US crude stockpiles rose by 6.5mn barrels over the last week, more than expected and the fourth consecutive weekly build – the longest such stretch in over 18 months.

As discussed above Treasuries sold-off, with 10-year yields trading 4bps higher on the day (most after the minutes), while 2-year yields rose 2.5bps to a new decade-high. The dollar rallied +0.57%, its best day in three weeks, putting the brakes on EM currencies, which fell -0.05% for their first loss in five sessions. The euro fell -0.48% and Bund yields declined -3.0bps (before the Treasury selloff) amid modest early risk-off sentiment, while European equities also closed lower, with the STOXX 600 falling -0.40% and the DAX down -0.52%.

This morning in Asia, markets are trading in sea of red with some blaming the renewed push higher in yields. The Nikkei (-0.65%), Hang Seng (-0.15%), Shanghai Comp (-1.99%) and Kospi (-0.63%) are all down. After US markets closed last night, the US Treasury released its semiannual FX report, which refrained from naming China as a currency manipulator. However in something new, there was a section dedicated exclusively to China in the Executive Summary – a clear signal from the Treasury that China is the disproportionate focus of the report stating that ‘it is is clear that China is not resisting depreciation through intervention as it had in the recent past’, but also notes that it is ‘deeply disappointed that China continues to refrain from disclosing its foreign exchange intervention’. So a bit of an escalation without being too dramatic.

In other markets, Taiwan’s Taiex (-0.27%), Indonesia’s Jakarta Comp (-0.59%) and ASX (-0.05%) are also trading lower. Elsewhere, futures on S&P 500 (-0.39%) are pointing to a weaker start. Overnight, BoJ Governor Kuroda said that the consumer prices excluding fresh food were currently rising at around 1%, compared with the BOJ’s existing view that prices are going up in a 0.5% to 1% range, lowered at the June meeting. This may prompt the BoJ to revise its assessment of price growth upwards at its next meeting. Yield on 10y JGBs has moved up +1.2bps to 0.148% with sovereign yields moving higher in much of Asia tracking the rise in US treasury yields. We’ll see Japan’s September CPI print tomorrow, which may be of interest given the remarks above.

In other news, US Secretary of State Michael Pompeo signalled that some sanctions imposed on Turkey over its detainment of the US pastor could be eased now since the pastor has been released while adding that no final decision on the same has been made yet. This helped the Turkish lira to gain as much as 1.79% and extended its daily winning streak to 9 days.

On Italy, European Commission Budget Commissioner Gunther Oettinger said “Italy’s draft budget for 2019 is not consistent with existing EU obligations,” indicating that the European Commission is likely to reject the country’s fiscal plan. Oettinger will not be the official to make the decision or lead negotiations, but 10-year BTPs still sold off 9.5bps and the FTSE-MIB dropped -1.33% to underperform the other major European indexes. Separately, German Chancellor Angela Merkel said, without naming any country, that Euro area member states are responsible for their own budgets, have a duty to promote stability, and must stick to rules in the stability pact while adding that ensuring the stability of the euro region and its ability to withstand financial crises is a central goal of the German government. Elsewhere, Italy’s Finance Minister Giovanni Tria said the government will maintain collaborative dialogue with the EU regarding the country’s 2019 budget.

On Brexit, German Chancellor Merkel said that “the opportunity to conclude a good, sustainable agreement in a timely fashion remains” while adding Germany “also has begun preparing” for a no-deal Brexit. So a big bid-offer here although there was a headline later saying that she thought the Brexit deal was 90% done. If the 10% is Ireland, final completion could still be a long  way off. Elsewhere, French Economy and Finance Minister Bruno Le Maire said that there is hope for a Brexit deal in the “coming weeks” after the UK has made concessions to the Chequers blueprint. Separately, Prime Minister May told Parliament that the “implementation period” might need to extend beyond its December 2020 deadline, through to the end of 2021. This will be difficult to sell to hard-line Brexiteers but something has to give in this highs stakes game.

Elsewhere, the UK’s Brexit Secretary Dominic Raab said, in a letter and a six-page memorandum outlining the procedure for the UK parliament vote on Brexit deal, that the vote will be a choice between accepting PM May’s deal or a no-deal Brexit. This didn’t go down well with the backbench lawmakers in the Conservative Party and the opposition Labour Party as it was interpreted as an  attempt to undermine Parliamentary authority on not being able to send PM May back to the negotiating table in case parliament rejects her Brexit deal.

As for data, the Euro-area’s final September CPI came in line with the flash at +0.5% mom (+2.1% yoy), though they were around 3bps softer on an unrounded basis. EU new car registrations came in at -23.5% yoy (vs. 31.2% yoy in August). In UK, September CPI surprised on the downside at +2.4% yoy (vs. +2.6% yoy expected) while core CPI stood at +1.9% yoy (vs. +2.0% yoy expected) and RPI at +3.3% yoy (vs. +3.5% yoy expected). The biggest drag for CPI came from transport prices, which contributed -30bps mom offset to some extent by clothing and footwear, and energy prices.

Elsewhere in the UK, the ONS reported that the August UK house prices rose +3.2% yoy (vs. +3.4% yoy in the previous month) smallest increase since August 2013, while the prices in London fell -0.2% yoy after stagnating for six months. UK home builder Crest Nicholson issued a profit warning and saw shares slump -8.24% illustrating the issues facing the London (and surrounding area’s) property market post Brexit and tax hikes. Good job I didn’t buy at the top of the market last year! Oh wait, I did.

Talking of housing, the US starts and permits were soft yesterday and this is one area where the economy is looking slightly less rosy of late. New building permits fell -0.6% mom in September, versus expectations for a 2.0% increase, and MBA mortgage applications declined -7.1% last week, the sharpest fall in over a year. The combination of higher rates and less favorable tax treatment under the new law are combining to weigh on activity, as our economists highlighted earlier this year. Housing starts also dropped -5.3% mom, but this was explainable given hurricane-related disruptions.

Today, we get UK’s September retail sales, the only release of note in Europe. In the US, we get the latest weekly initial jobless claims and continuing claims along with the September leading index. Away from the data, the Fed’s Bullard will be speaking about the US economic outlook. EU leaders will meet for a summit in Brussels to discuss the banking union and strengthening the euro-area’s bailout fund. American Express and Blackstone in the US and Novartis in Europe will be reporting earnings.


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US Intelligence “Increasingly Convinced” Saudi Prince Ordered Khashoggi’s Killing

By now, there’s little doubt that Jamal Khashoggi is dead – this despite reports that surfaced in the Daily Mail and a handful of other outlets last week claiming that Khashoggi was alive and had been renditioned to Saudi Arabia. And while the Turkish government has publicly assured the Saudis that they will pursue a cautious, thorough and transparent investigation, even inviting the Saudis to join as a partner in the probe, behind the scenes, Turkish media – which is tightly controlled by the regime – have spread details about a gruesome execution that they say occurred in the office of the (now former) Saudi consul, who was urged to leave the room under threat of reprisal by a member of the hit squad.

Pompeo

What’s more, a leak last week already suggested that the US knew about the Saudis’ plans to ambush Khashoggi – though whether US intercepts detailed a murder plot, or merely a plan to interrogate and rendition the government insider-turned critic, remains unclear.

If anything, the one thing that now appears certain about this situation is that, in a maneuver that’s reminiscent of the de-classification of an intelligence community report blaming Russia for interfering in the 2016 election, the US intelligence community is once again rebelling against the Trump White House – after Trump suggested that he would do everything he could to preserve the US-Saudi relationship (reportedly fearful of losing Saudi cooperation in a plot to undermine Iran) – and has effectively joined with the Turks to undermine the rule of Crown Prince Mohammad bin Salman.

The latest example of this appeared in Thursday’s New York Times, where a trio of national security reporters published a piece claiming that the US intelligence agencies have been “increasingly convinced” that MbS directly ordered Khashoggi’s killing – claims that were, admittedly, not based on anything other than circumstantial evidence, by the reporters’ own admission.

American intelligence officials are increasingly convinced that Crown Prince Mohammed bin Salman of Saudi Arabia is culpable in the killing of the dissident journalist Jamal Khashoggi, an appraisal that poses challenges to a White House intent on maintaining a close relationship with the kingdom.

Intelligence agencies have not yet been able to collect direct evidence of the prince’s involvement, American and European officials said. They also have not been able to conclude whether Prince Mohammed directly ordered the killing of Mr. Khashoggi, or whether his intention was to have Mr. Khashoggi captured and taken back to Saudi Arabia, according to one official.

But intelligence agencies have growing circumstantial evidence of the prince’s involvement — including the presence of members of his security detail and intercepts of Saudi officials discussing a possible plan to detain Mr. Khashoggi, according to American officials.

Of course, the intelligence agencies aren’t unique in possessing this so-called “circumstantial” evidence linking suspected members of the so-called hit squad to MbS. Evidence backing up these claims has been publicly available for more than 24 hours since the NYT “independently verified” allegations that were presumably leaked to its reporters by Turkish officials.

Before a final report on the “facts” of the case has even been completed, it appears US intelligence agencies are already working to box Trump in, as the following passage in the Times story appears to set Trump up for more (presumably leaked) accusations that he is disregarding the findings of his own intelligence community, just like he did with Russia.

American intelligence agencies are preparing the assessment of Prince Mohammed to present to President Trump. The work was described by a half-dozen officials on Wednesday, as Secretary of State Mike Pompeo concluded a trip to the kingdom that failed to deliver an immediate diplomatic resolution to the crisis.

Officials said the intelligence agencies are trying to take care not to limit the White House’s policy options, and just put forward facts about the case.

Intelligence reports are only one factor that a White House must consider in concluding matters of national security. Mr. Trump could ignore the classified assessment as he decides what policies he believes are in the American interest, or decide he is unpersuaded by the intelligence.

Mr. Trump has pushed an explanation that a so-called rogue killer could be responsible for the suspected killing, but the intelligence agencies’ assessments could undermine that theory, which in any case has been widely discredited.

The paper has also sought to paint Secretary of State Mike Pompeo’s visit with King Salman, MbS and the Saudi foreign minister as an uninspired propaganda ploy, though Pompeo reportedly told the prince in private that, even if he had nothing to do with the killing, his government would ultimately need to take responsibility.

At the State Department’s headquarters in Washington, some diplomats were dismissive when asked about Mr. Pompeo’s mission to Riyadh, the Saudi capital.

But a person familiar with the meeting said that privately, Mr. Pompeo sternly told the prince that even if he did not know whether Mr. Khashoggi had been killed, he would have to take responsibility to help the kingdom avoid the consequences of an international backlash.

The story concluded, in characteristic NYT fashion, with quotes from two foreign policy “experts” lambasting Pompeo and Trump for appearing to prioritize the US-Saudi relationship over humanitarian priorities.

“His instructions are clearly to preserve the U.S.-Saudi relationship at all costs,” said Wendy R. Sherman, a former top State Department official. “So his nonverbal cues and his remarks are intended to do that.” But, she said, “he could have taken off the grin, dispensed with small talk, said facts were important and the U.S. was committed to get them, and ended in a better place.”

[…]

R. Nicholas Burns, the third-ranking official at the State Department in the George W. Bush administration, said that Mr. Pompeo was “a serious and tough-minded person” — and that the public did not know what Mr. Pompeo said in private.

“But we have more important interests at stake. We can’t afford to have a business-as-usual attitude. This is a time to be stern with M.B.S., to disavow his government’s crime and to sanction Saudi Arabia,” Mr. Burns said, using the prince’s initials. “Our credibility as a democracy is at stake.”

While the NYT has certainly distinguished itself a the preferred vehicle for leaks out of the US intelligence community, it isn’t alone in trying to shape the narrative surrounding MbS. The Daily Mail published a lengthy report Wednesday night detailing the disappearances of three Saudi princes who had criticized MbS’s authoritarian crackdown on human rights. While the Mail doesn’t have the best record for accuracy, the larger point is clear: Western media is seeking to paint MbS as a serial murderer who will mow down anyone – particularly traitorous family members or former government insiders – who dares to criticize his still-unofficial reign. But one fact that has been mostly lost in the churn of reporting surrounding the Khashoggi case is that, in the days after the journalists’ disappearance, the Saudi government agreed to buy S-400 missile defense systems from Russia, spurning repeated American warnings to scupper the deal. That alone could be enough to invite reprisals from deep state operatives who have already demonstrated their distaste for Russia.

All of this will only provide more ammunition for lawmakers who are hoping to sanction Saudi Arabia over the killing, a move that would damage the longstanding US-Saudi relationship, perhaps irreparably.

With this in mind, it’s worth asking: Which country has the most to gain from a collapse in US-Saudi relations?


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US Intelligence “Increasingly Convinced” Saudi Prince Ordered Khashoggi’s Killing

By now, there’s little doubt that Jamal Khashoggi is dead – this despite reports that surfaced in the Daily Mail and a handful of other outlets last week claiming that Khashoggi was alive and had been renditioned to Saudi Arabia. And while the Turkish government has publicly assured the Saudis that they will pursue a cautious, thorough and transparent investigation, even inviting the Saudis to join as a partner in the probe, behind the scenes, Turkish media – which is tightly controlled by the regime – have spread details about a gruesome execution that they say occurred in the office of the (now former) Saudi consul, who was urged to leave the room under threat of reprisal by a member of the hit squad.

Pompeo

What’s more, a leak last week already suggested that the US knew about the Saudis’ plans to ambush Khashoggi – though whether US intercepts detailed a murder plot, or merely a plan to interrogate and rendition the government insider-turned critic, remains unclear.

If anything, the one thing that now appears certain about this situation is that, in a maneuver that’s reminiscent of the de-classification of an intelligence community report blaming Russia for interfering in the 2016 election, the US intelligence community is once again rebelling against the Trump White House – after Trump suggested that he would do everything he could to preserve the US-Saudi relationship (reportedly fearful of losing Saudi cooperation in a plot to undermine Iran) – and has effectively joined with the Turks to undermine the rule of Crown Prince Mohammad bin Salman.

The latest example of this appeared in Thursday’s New York Times, where a trio of national security reporters published a piece claiming that the US intelligence agencies have been “increasingly convinced” that MbS directly ordered Khashoggi’s killing – claims that were, admittedly, not based on anything other than circumstantial evidence, by the reporters’ own admission.

American intelligence officials are increasingly convinced that Crown Prince Mohammed bin Salman of Saudi Arabia is culpable in the killing of the dissident journalist Jamal Khashoggi, an appraisal that poses challenges to a White House intent on maintaining a close relationship with the kingdom.

Intelligence agencies have not yet been able to collect direct evidence of the prince’s involvement, American and European officials said. They also have not been able to conclude whether Prince Mohammed directly ordered the killing of Mr. Khashoggi, or whether his intention was to have Mr. Khashoggi captured and taken back to Saudi Arabia, according to one official.

But intelligence agencies have growing circumstantial evidence of the prince’s involvement — including the presence of members of his security detail and intercepts of Saudi officials discussing a possible plan to detain Mr. Khashoggi, according to American officials.

Of course, the intelligence agencies aren’t unique in possessing this so-called “circumstantial” evidence linking suspected members of the so-called hit squad to MbS. Evidence backing up these claims has been publicly available for more than 24 hours since the NYT “independently verified” allegations that were presumably leaked to its reporters by Turkish officials.

Before a final report on the “facts” of the case has even been completed, it appears US intelligence agencies are already working to box Trump in, as the following passage in the Times story appears to set Trump up for more (presumably leaked) accusations that he is disregarding the findings of his own intelligence community, just like he did with Russia.

American intelligence agencies are preparing the assessment of Prince Mohammed to present to President Trump. The work was described by a half-dozen officials on Wednesday, as Secretary of State Mike Pompeo concluded a trip to the kingdom that failed to deliver an immediate diplomatic resolution to the crisis.

Officials said the intelligence agencies are trying to take care not to limit the White House’s policy options, and just put forward facts about the case.

Intelligence reports are only one factor that a White House must consider in concluding matters of national security. Mr. Trump could ignore the classified assessment as he decides what policies he believes are in the American interest, or decide he is unpersuaded by the intelligence.

Mr. Trump has pushed an explanation that a so-called rogue killer could be responsible for the suspected killing, but the intelligence agencies’ assessments could undermine that theory, which in any case has been widely discredited.

The paper has also sought to paint Secretary of State Mike Pompeo’s visit with King Salman, MbS and the Saudi foreign minister as an uninspired propaganda ploy, though Pompeo reportedly told the prince in private that, even if he had nothing to do with the killing, his government would ultimately need to take responsibility.

At the State Department’s headquarters in Washington, some diplomats were dismissive when asked about Mr. Pompeo’s mission to Riyadh, the Saudi capital.

But a person familiar with the meeting said that privately, Mr. Pompeo sternly told the prince that even if he did not know whether Mr. Khashoggi had been killed, he would have to take responsibility to help the kingdom avoid the consequences of an international backlash.

The story concluded, in characteristic NYT fashion, with quotes from two foreign policy “experts” lambasting Pompeo and Trump for appearing to prioritize the US-Saudi relationship over humanitarian priorities.

“His instructions are clearly to preserve the U.S.-Saudi relationship at all costs,” said Wendy R. Sherman, a former top State Department official. “So his nonverbal cues and his remarks are intended to do that.” But, she said, “he could have taken off the grin, dispensed with small talk, said facts were important and the U.S. was committed to get them, and ended in a better place.”

[…]

R. Nicholas Burns, the third-ranking official at the State Department in the George W. Bush administration, said that Mr. Pompeo was “a serious and tough-minded person” — and that the public did not know what Mr. Pompeo said in private.

“But we have more important interests at stake. We can’t afford to have a business-as-usual attitude. This is a time to be stern with M.B.S., to disavow his government’s crime and to sanction Saudi Arabia,” Mr. Burns said, using the prince’s initials. “Our credibility as a democracy is at stake.”

While the NYT has certainly distinguished itself a the preferred vehicle for leaks out of the US intelligence community, it isn’t alone in trying to shape the narrative surrounding MbS. The Daily Mail published a lengthy report Wednesday night detailing the disappearances of three Saudi princes who had criticized MbS’s authoritarian crackdown on human rights. While the Mail doesn’t have the best record for accuracy, the larger point is clear: Western media is seeking to paint MbS as a serial murderer who will mow down anyone – particularly traitorous family members or former government insiders – who dares to criticize his still-unofficial reign. But one fact that has been mostly lost in the churn of reporting surrounding the Khashoggi case is that, in the days after the journalists’ disappearance, the Saudi government agreed to buy S-400 missile defense systems from Russia, spurning repeated American warnings to scupper the deal. That alone could be enough to invite reprisals from deep state operatives who have already demonstrated their distaste for Russia.

All of this will only provide more ammunition for lawmakers who are hoping to sanction Saudi Arabia over the killing, a move that would damage the longstanding US-Saudi relationship, perhaps irreparably.

With this in mind, it’s worth asking: Which country has the most to gain from a collapse in US-Saudi relations?


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