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Just last week, Jeff Gundlach - in his latest DoubleLine investor call - cracked jokes that Deutsche Bank's imploding stock which has been hitting fresh all time lows virtually every day, has a major support area at €0.

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Just last week, Jeff Gundlach - in his latest DoubleLine investor call - cracked jokes that Deutsche Bank's imploding stock which has been hitting fresh all time lows virtually every day, has a major support area at €0.

Once again, he was on to something because now, just a few days later, the FT reports that the bank which was this close to nationalization in 2016, and failed to consummate a merger with that "other" German bank, Commerzbank, is preparing to roll out Plan Z: amid a deep overhaul of its trading operations (read: mass terminations), the biggest German lender is set to roll out a "bad bank" holding some €50 billion in toxic assets, in a plan that was quite popular in the depths of the global financial crisis.

Meanwhile, as part of CEO Christian Sewing's ongoing restructuring of DB away from investment bank, "the bank's equity and rates trading businesses oustide continental Europe will be severely shrunk or closed entirely as part of the revamp", while managers are also set to unveil a new focus on transaction banking and private wealth management.

Of course, it will hardly come as a surprise that the German bank best known for housing €43.5 trillion in gross derivatives notional (something we first pointed out way back in 2013)...

... will stuff its "bad bank", known internally also as "the non-core asset unit", with - drumroll - long-dated derivatives.

According to the FT, the CEO will likely to announce the changes with the bank’s half-year results in late-July.

While the final scale of the bad bank has not been decided and the number “continues to oscillate”, executives are reportedly discussing at least €30bn of risk-weighted assets with an eventual size of €40bn to €50bn most likely, at the high end almost exactly 4 times greater than DB's current market cap, and accounting for 14% of Deutsche’s balance sheet.

"The cuts need to be radical,” one senior banker told the FT. “It makes sense for us to put all these long-term, nil-revenue assets in a non-core unit.” The person added: “We now have the capital and liquidity freedom to do what needs to be done; we couldn’t have acted decisively much sooner because we needed to have built up those buffers.”

"Nil-revenue" but far more than nil expenses.

Recall that last April, IFRE reported that then CEO John Cryan "came clean" about a €60 billion portfolio of years-old trades that were costing the German lender about €500 million a year. Never previously disclosed, the revelation stunned analysts. Deutsche had done several clean-ups since the crisis – including one by Cryan just 17 months earlier – but had never mentioned the trades, some of which were over a decade old.

It got worse: although a relatively small piece of its balance sheet, which at the time stood at €1.6 trillion, the positions were consuming between €4bn and €5bn of equity – equivalent to 10% of the bank’s entire core equity Tier 1 capital base, and more than half the amount shareholders were being asked to cough up.

Worse still, Cryan admitted that some of the positions wouldn’t run off until after 2030, more than two decades after some were initially booked.  Christian Sewing, who was running Deutsche’s private and commercial bank and oversaw the failed efforts to spin off its Postbank subsidiary, said at the time: “We just want to create the transparency that these are things we are going to work out.”

Unfortunately, as of last April, and shortly after raising €8bn in a critical rights offering which Deutsche at the same said is all the funds it would need, the bank had not updated investors on the portfolio, other than to say late last year that it “continues to roll-off as planned”.

It now appears we know the fate of this €60 billion toxic derivative portfolio: it will be rolled up and into the "bad bank" of a bank many already call "bad" (so bad bank squared perhaps). While the derivatives destined for the non-core unit still provide some cash flow, all the profit on the deals — and therefore the associated bonuses for those who arranged them — were booked up-front.

Now that the bank is sitting on €260bn of cash and similarly liquid securities, it no longer relies on these assets for cashflow and can attempt to run them down or sell them to other banks with lower funding costs and capital pressures, or to private equity investors eager to scoop them up at a discount, one of the people said.

In response to the FT article, DB said in a statement: “Deutsche Bank is working on measures to accelerate its transformation so as to improve its sustainable profitability. We will update all stakeholders if and when required.”

Of course, DB's derivative woes are just a small - if costly - part of the equation: once a Wall Street gem, Deutsche’s investment bank has weighed on earnings in recent years, and made losses in the past two quarters. Along with a series of fines for misconduct scandals, the poor performance of its core business has driven down the bank’s share price to the lowest in its 149-year history. Sentiment darkened in April when a long-rumoured merger with Commerzbank collapsed.

The lender is targeting a return on tangible equity — a measure of profitability — of at least 4 per cent this year, below most rivals. But it generated only a 1.3 per cent return in the first quarter. None of the analysts that cover the group forecast it can achieve its goal without major structural changes.

So why now? Deutsche Bank believes it can divest the assets without taking large hits to its profit or capital "because the long-dated interest rate derivatives are not toxic and have a predefined run-off plan", an FT source said.

Of course, it is debatable whether a €60 billion derivative portfolio which is bleeding half a billion each year and will continue doing so for decades is "not toxic", but we'll leave that discussion for the semantic purists... and whoever is Germany's Chancellor in a few months when the nationalization of Deutsche Bank is once again sprung upon the German government.

Additionally, a reason the bank has waited so long to make the changes was a fear it would close down large parts of the equities and rates businesses at the bottom of the cycle, people briefed on the plan said.

In another amusing tangent, sources said the new non-core unit "comprises mainly non-strategic assets and would be different to its prior bad bank, which contained far more loss-making and toxic assets. From 2012 to 2016, Deutsche ran down a non-core unit with about €125bn in risk-weighted assets — including a $4.3bn Las Vegas casino it took over when the developer defaulted — resulting in a cumulative pre-tax loss of €14.6bn over the period. When Deutsche dissolved the bad bank, the roughly €10bn of assets left were reintegrated into the core businesses."

All we know, is that if Deutsche Bank is the "good" bank, it's becoming impossible to track its "bad banks."

Meanwhile, the bank will retain its better-performing bond trading business — which is ranked in the global top-five by industry monitor Coalition — and its currency-trading operation, which reclaimed the second spot in the Euromoney FX survey last year.

Will that help DB become viable? Probably not: JPMorgan recently estimated that Deutsche’s US operation was losing 25 cents for every dollar of business it does and its global equities business alone loses about €600m annually.

There is one final problem: in the summer of 2016, just a month before fears about the viability of DB sent its stock careening lower and prompting Angela Merkel to discuss whether or not DB will be nationalized, the IMF found that Deutsche Bank is "the bank that poses the greatest risk to the global financial system":

Network analysis suggests a higher degree of outward spillovers from the German banking sector than inward spillovers. In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country.

Here is the IMF's chart showing the key linkages of the world's riskiest bank:

Since then, the gross notional value of derivatives on DB's balance sheet has indeed shrunk, but so has its equity market cap... which has never been lower and the buffer to absorb losses is virtually nil - DB's market cap is now just €12.5 billion, the same as Friday's IPO star, Chewy. Which makes sense: one creates dog shit, the other is collateralized by it.

So should things turn bad, it is virtually certain that Germany's taxpayers will once again be on the hook for the most important bank bailout in European history.

But the biggest irony of all, is that Deutsche Bank may actually have a chance of survival, if the ECB were to ever hike rates. As it stands now, however, with the ECB set to cut rates in the near future and possibly resume QE, the Frankfurt banking giant is as good as nationalized.

A Dutch MP is still fuming over Formula One's 2018 decision to remove grid girls from the sport due to "female patronizing." 

A Dutch MP is still fuming over Formula One's 2018 decision to remove grid girls from the sport due to "female patronizing." 

"Grid girls belong in Formula 1 as much as the cars do," exclaimed Roy van Alast - a member of the Party for Freedom in the house of representatives.

"Only an idiot sees a beautiful woman as a problem. The rest of the people love it." 

Van Alast isn't just complaining either that grid girls are "part of motor sport," he says that his party wants to "ensure that this beautiful tradition will be restored." 

As we noted last February, F1 struck a blow to the patriarchy by depriving heterosexual male fans - the sport's largest demographic - the pleasure of watching an adrenaline-filled race while smoking hot women parade around the event. 

Replacing the grid girls is F1's "Grid Kids" initiative, designed to entice younger fans to "get involved" with racing. 

In April, we reported that a Spanish advertising agency was in hot water after stipulating that grid girls "must have a size 95 or 100 chest," which is roughly 36" - 38" according to La Vanguardia. 

"For a car and motorcycle event we are looking for two ladies who will be available from Friday April 5 through Sunday April 7," reads the ad. "There is a payment of €200 net, plus any additional costs. There is one requirement: you must have a chest circumference between 95 and 100 cm."

Perhaps an argument can be made that depriving grid girls of their livelihoods is a human rights violation?

Oh the humanity!

Authored by Jason Ditz via AntiWar.com,

US military intelligence agency the DIA has issued a new statement directly accusing the Russian government of conducting low-yield nuclear tests in the course of developing more advanced nuclear arms.

"The U.S. government, including the Intel Read more.....

Millions of people and entire cities descended into darkness as a massive, unprecedented power failure kept Argentina and Uruguay in the dark on Sunday morning, the same day as provincial elections were to be held in parts of Argentina. Parts of Brazil and Paraguay also were affected, according to the BBC.

Ahora en Boedo se ve como CABA está sin luz, aún no hay información oficial de Read more.....

Millions of people and entire cities descended into darkness as a massive, unprecedented power failure kept Argentina and Uruguay in the dark on Sunday morning, the same day as provincial elections were to be held in parts of Argentina. Parts of Brazil and Paraguay also were affected, according to the BBC.

Ahora en Boedo se ve como CABA está sin luz, aún no hay información oficial de @OficialEdesur . Estoy esperando al medicio a domicilio por mi hija de 2 años con 39 de fiebre. Vivo en un 9° piso. #SINLUZ #APAGON pic.twitter.com/aTFYbU2cDL

— Nicolás (@NicRigl) June 16, 2019

According to Buenos Aires-based electricity supplier company Edesur, Argentina suffered a “nationwide” blackout, which also affected neighboring Uruguay, said the company's spokesperson, Alejandra Martinez, adding that "Something like this has never happened before."

Absolutamente todo sin luz!!! Increíble pic.twitter.com/cY3gNrq3uO

— Lucas (@lucas_m_rod) June 16, 2019

The company had earlier explained that the massive power outage happened due to a failure in the electrical interconnection system. The blackout itself started at 7:07am local time on Sunday, according to Argentinian officials.

VIDEO: ???? Residents of Uruguay's capital #Montevideo wake up to no electricity after a massive electricity cut left Argentina, Uruguay and some parts of neighbouring countries in the dark, according to Uruguayan and Argentine electricity companies #apagon #SinLuz pic.twitter.com/tvyxuMjTts

— AFP news agency (@AFP) June 16, 2019

In a subsequent tweet, Edesur said that power is gradually being restored, starting with an initial 34,000 customers.   Electricity in Buenos Aires and the greater capital area is also coming back online. “The process of normalization, which will require several hours, is beginning,” according to Edesur.

Nuestro Centro de Control inició las demandas de normalización y lentamente comienza a restaurarse el servicio de energía eléctrica a la red. Ingresamos los primeros 34.000 clientes.

— Edesur Argentina (@OficialEdesur) June 16, 2019

Argentina’s Civil Protection Minister Daniel Russo estimated that it will take between six and eight hours to fully restore power in the country of over 44 million.

Argentina, South America’s second-largest economy, shrank 2.5% last year, and its economic contraction - the worst since 2014 when the nation defaulted on its debt - has only accelerated since then, prompting question if the IMF's largest ever bailout of a sovereign nation will also be its biggest disaster.

According to Argentina’s Civil Protection Minister Daniel Russo, it would take between six and eight hours to fully restore power in the country of over 44 million.

Authored by Andrew Sheets, global strategist at Morgan Stanley

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Authored by Andrew Sheets, global strategist at Morgan Stanley

Last Friday the US economy produced significantly fewer jobs than expected. And the markets cheered. The S&P 500 jumped 1.1%, capping its best four-day run all year, credit spreads tightened,and bond prices rose. A distinct line of
reasoning drove these moves – the idea that “bad is now good”, and that worse economic data make it more likely that the Federal Reserve will reduce interest rates. How much more likely? Bond markets now expect the Fed to cut rates by 86bp over the next 12 months.

We strongly disagree with this “bad is good” logic. The expectation that easing central bank policy can offset weaker data is at odds with both a broad swath of historical data and basic monetary theory. But since many in the market disagree, this feels like a good time to restate our case.

The first thing to note is that markets have faced a backdrop of weakening economic data and lower or easier central bank policy on quite a few occasions. That’s no coincidence. Central banks usually cut interest rates when economic data are weakening, attempting to provide an offset. Therefore, the question of how often "bad is good" is testable.

There are many ways to define the periods when central bank easing faced off against weaker economic data. For simplicity’s sake, we focus on instances where the central bank had reduced interest rates at some point over the prior three months, and the unemployment rate was either stagnant or worsening. We do this over the last 30 years, in both the US and the UK.

So how did things go? In the US, these "bad-data-but-easier-policy" periods saw the S&P 500 post above-average returns only 38% of the time – a win rate that, if it were for a baseball team, would put it near the bottom of the current major league standings. In the UK, the experience was similar, with the FTSE 100 underperforming 58% of the time when the BoE was cutting but unemployment was sideways or worse.

That’s hardly a great track record for the “bad is good”argument. But we also think that there are theoretical reasons to be suspicious of this idea.

• First, most economists agree that monetary policy works with a lag, perhaps as long as 12 months or more. If that’s the case, lowering rates today might not have an impact on the economic data until mid-2020. By the same token, the Fed hike in December (seven months ago) may still be working its way through the system. And don't forget that the Fed's balance sheet is still set to shrink through September, another (modest) form of tightening.
• Second, weaker economic data have a major impact on confidence, causing further softness as businesses and consumers pull back,and making investors less inclined to pay up for promises of future growth. No economist, at least none we’ve met, will tell you that central bank policy is intended to eliminate swings in the business cycle. Rather, it aims to dampen them. To this end, we'd note the sharp decline in the most recent readings of the Morgan Stanley Business Conditions Index,a proprietary diffusion index that our US economists compile based on how Morgan Stanley equity analysts view companies within their coverage universe.

What would qualify as good news and make us more positive? That’s easy – better data. As strongly as we believe it's dangerous to root for weaker conditions to bring lower interest rates, we firmly believe that markets will ultimately prefer stronger global data, even if it means that interest rates go up. This remains our view and our operating  framework. And it also connects the periods where interest rate cuts were most helpful for markets, notably in 1995 and  1998, when the economy held up well as the Fed cut. Now it’s just a question of what the data bring.

Via InternationalMan.com,

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Via InternationalMan.com,

International Man: For many years, President Trump has made no apologies for trying to pay the least amount of taxes possible. He’s clearly stated this in many interviews.

His desire to minimize his taxes has brought scorn from many in the mainstream media, and politicians from both sides of the aisle. These people are of the opinion that paying taxes is an honorable and necessary responsibility. It brings to mind the wrongheaded saying “taxes are the price we pay for a civilized society”, which came from US Supreme Court Justice Oliver Wendell Holmes. Many people believe this.

But if that’s true, how come low tax locales like Singapore, the Cayman Islands, Monaco aren’t backward hell holes, but rather sophisticated and civilized?

Doug Casey: Almost any lie can be accepted as truth if it’s said often enough and with enough certainty. That absolutely applies to what Holmes said. It’s shameful how people don’t think about its meaning, but slavishly repeat it.

Taxes aren’t the price we pay for civilized society. They’re a sign of the fact that society is becoming uncivilized. A civilized society is based on voluntarism. Taxes are all about coercion.

People don’t seem to recognize or remember that before 1913 there was no income tax in the US. There was no reporting of any kind to the US government. It was a much more civilized and far freer country then.

As far as Trump minimizing his taxes, congratulations to him. The object should be to cut the size of the US government in half, and cut it in half again, and again. And along with it, cut the tax burden that it imposes on the average American.

Trump should be proud of himself for cutting his taxes. It's your patriotic duty as an American citizen to deny revenue to the State and the kind of people that are drawn to it and populate it.

The fact that some people resent others for not paying taxes is just evidence that they’ve been consumed by the vice of envy, which is one of the worst of the vices. Jealousy says “if you have something that I want, I’ll try to take it from you, just because I want it." Envy says “if you have something that I want, and I can’t take it from you, I’ll destroy it and hurt you."

It’s speaks poorly of the ethics of the average American, that they’ll self-righteously shame their neighbors for not paying “enough” taxes to the State.

International Man: We often hear from politicians and the media that some people aren’t paying their “fair share” in taxes. Who gets to define what “fair” is, and based on what justifications?

Doug Casey: Whenever you hear the word fair, start running the other way. Everybody has a different idea of what’s “fair”— it’s an arbitrary concept. People manipulate its definition to their advantage. The only way to determine what might be fair is voluntary mutual agreement. That’s not possible with taxes—there’s no voluntarism involved. They are, in fact, a levy enforced at the point of a gun.

The most creative and productive people tend to have the highest incomes—unless they’re crony capitalists, which means they’re basically using the government to steal from everybody else.

Productive people shouldn’t be penalized for supplying more goods and services to their neighbors—to the market. The money they give to the government in taxes would have otherwise been used to create more wealth for the whole world. When it’s taken from them by taxes it’s mostly squandered on welfare and warfare.

The bottom half of the US really doesn’t pay any income tax. They only pay Social Security taxes, roughly a flat 15%. It’s theoretically a pension program, although in fact it’s a Ponzi scheme. Social Security is bankrupt. If anyone gets it in the years to come it will be at the expense of future taxpayers—not because any capital has been set aside.

Social Security is, and always has been, a swindle. It makes it harder for people to save on their own. And makes them feel they don’t have to. But it’s not a real pension plan; it’s a highly politicized welfare program. People have been propagandized into believing not just what isn’t true, but actually believing the opposite of the truth. The situation is actually pretty hopeless from a philosophical point of view and it’s getting worse. The average American believes Social Security and the income tax are both moral and necessary.

International Man: Doesn’t this system—which diverts wealth from productive use into government, which is naturally unproductive—make everyone worse off? You would think the lower and middle classes would be clamoring for more wealth creation that would also benefit them. Instead, many are asking for more wealth to be destroyed.

It seems this sort of thinking helps solidify a backwards system.

Doug Casey: Absolutely. The US government and its welfare programs are actually cementing the lower classes to the bottom of society.

You get what you encourage. When you give people free money for doing nothing, that’s what they’ll do. Take personal responsibility away from a man, and he’ll tend to act irresponsibly. The next step seems to be a guaranteed annual income for everybody where—presumably—where everybody can just sit around Starbucks all day sipping latte and playing with their iPhones, and be paid for it.

This trend has been building almost 100 years, and the curve is starting to go parabolic. To use a fashionable word, it’s “unsustainable” for everyone to try living at the expense of everyone else.

International Man: Another misnomer we often hear is that “deficits don’t matter”, a saying popularized by Dick Cheney, an ostensible fiscal conservative.

Doug Casey: Well, deficits do matter. In order to become wealthy you have to produce more than you consume and save the difference. Saving the difference builds capital. And you need capital to create more wealth.

Countries without capital are poor. Places like Zimbabwe, Cuba, and Mauritania. The only capital they have is sticks and stones.

The US government is in effect training people to consume more than they produce. Now, you can do that in basically two ways. One, by borrowing capital that’s been saved and created in the past, and consuming it. Or, two, you can do it by mortgaging your future.

It's not a pro-survival policy to consume more than you produce. It’s possible for a while, of course, but will wind up in disaster. The US government is encouraging people to do just that, however, directly and indirectly.

International Man: Yet another misguided, yet popular, saying is that we shouldn’t worry about the national debt because “we owe it to ourselves.” What’s your take Doug?

Doug Casey: It's another glib, gigantic, lie. “We” don’t owe it to ourselves. Some people owe it to some other people. If it’s not paid back somebody is going to walk away disappointed.

In fact, most of the debt is owed to non-Americans. Directly, in the form of the national debt. And indirectly, in the form of US dollars outside the US. For many years the major export of the US hasn’t been Boeings, or IBMs, or wheat. It’s been US dollars. We run a trade deficit of about $800 billion every year. In exchange, foreigners send us electronics, Mercedes, cocaine, and other real goods. This has artificially propped up the average American’s standard of living.

Those dollars circulate in other countries; the US dollar is the de facto currency of 50 other countries around the world.

At some point—since the US dollar is backed by nothing—if confidence goes away, those foreigners are going to want to get rid of their dollars. They’ll necessarily come back to the US where legal tender laws force Americans to accept them.

There are many trillions of dollars that are now abroad are a liability. Someday they’re going to be traded for US shares of stock, US real estate, US technology, and US labor.

Americans, who have grown accustomed to an artificially high standard of living for many years, are going to have a very real drop in their standard of living when those dollars come home.

We’re sending dollars to the Chinese and other foreigners. We’re also selling US government debt to the Federal Reserve, which then credits the government’s accounts at commercial banks with dollars. But that’s another story. It’s all a moving paper fantasy. It’s going to end badly, and end soon.

It could easily destroy everybody’s savings. And that, in turn, could destroy the very basis of society.

*  *  *

The days of the US Dollar as the reserve currency are numbered. When that happens, the US will experience an economic crisis unlike we’ve seen before. The window to prepare yourself is still open. That’s why Doug’s Casey and his team have created this urgent video on what to expect and how to protect yourself. Click here to watch it now.

It's been known for some time that the US Government based its conclusion that Russia hacked the Democratic National Committee (DNC) on a report by cybersecurity firm Crowdstrike, which the DNC paid over a million dollars to conduct forensic analysis and other work on servers they refused to hand over to the FBI. 

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It's been known for some time that the US Government based its conclusion that Russia hacked the Democratic National Committee (DNC) on a report by cybersecurity firm Crowdstrike, which the DNC paid over a million dollars to conduct forensic analysis and other work on servers they refused to hand over to the FBI. 

CrowdStrike's report made its way into a joint FBI/DHS report on an Russia's "Grizzly Steppe", which concluded Russia hacked the DNC's servers. At the time, Crowdstrike's claim drew much scrutiny from cybersecurity experts according to former Breitbart reporter Lee Stranahan. 

Now, thanks to a new court filing by longtime Trump adviser Roger Stone requesting the full Crowdstrike analysis, we find out that the US government was given a redacted version of the report marked "Draft," as reported by the Conservative Treehouse. 

What makes the whole thing even more hokey is a footnote admitting that "counsel for the DNC and DCCC informed the government that they are the last version of the report produced." 

So to be clear - the entire narrative that Russia hacked the DNC is based on a redacted draft of a report which Crowdstrike appears not to have even finalized. 

I missed the previous DOJ filing, but this seems significant.

The DOJ informed the court it doesn't have the unredacted Crowdstrike reports. https://t.co/xJHC6ntroc

— Techno Fog (@Techno_Fog) June 15, 2019

And as the Conservative Treehouse notes: "This means the FBI and DOJ, and all of the downstream claims by the intelligence apparatus; including the December 2016 Joint Analysis Report and January 2017 Intelligence Community Assessment, all the way to the Weissmann/Mueller report and the continued claims therein; were based on the official intelligence agencies of the U.S. government and the U.S. Department of Justice taking the word of a hired contractor for the Democrat party….. despite their inability to examine the server and/or actually see an unredacted technical forensic report from the investigating contractor."

The entire apparatus of the U.S. government just took their word for it…

…and used the claim therein as an official position….

…which led to a subsequent government claim, in court, of absolute certainty that Russia hacked the DNC.

Think about that for a few minutes. -Conservative Treehouse

Meanwhile, the Crowdstrike analyst who led forensics on the DNC servers is a former FBI employee who Robert Mueller promoted while head of the agency. It should also be noted that the government of Ukraine admonished Crowdstrike for a report they later retracted and amended, claiming that Russia hacked Ukrainian military. 

In connection with the emergence in some media reports which stated that the alleged “80% howitzer D-30 Armed Forces of Ukraine removed through scrapping Russian Ukrainian hackers software gunners,” Land Forces Command of the Armed Forces of Ukraine informs that the said information is incorrect.

Ministry of Defence of Ukraine asks journalists to publish only verified information received from the competent official sources. Spreading false information leads to increased social tension in society and undermines public confidence in the Armed Forces of Ukraine. –mil.gov.ua (translated) (1.6.2017)

Amazing...

We pointed out earlier this year that "factor based" quant funds were having difficulty finding strategies to beat the market – especially now that all quant funds are doing the same thing. But now, the computer scientists at Cantab Capital, based out of Cambridge, have taken on another challenge: trying to create the next "bond king" out of algorithms and Read more.....

Authored by Sven Henrich via NorthmanTrader.com,

Fed Games

Clever markets. Many index charts have camped themselves inside tight key price zones ahead of the Fed meeting this coming week leaving potential for important breakouts or equally important breakdowns. The trigger to render the decision next week: The Fed of course.

Read more.....

Authored by Sven Henrich via NorthmanTrader.com,

Fed Games

Clever markets. Many index charts have camped themselves inside tight key price zones ahead of the Fed meeting this coming week leaving potential for important breakouts or equally important breakdowns. The trigger to render the decision next week: The Fed of course.

Be very clear: What happens next week is a giant gaming exercise in expectations, confidence, control and reactions. But it won’t stop here for following next week’s Fed meeting markets will move straight onto gaming the upcoming G20 meeting at the end of June and its related potential for trade war progress or escalation. But the fun doesn’t stop there either as it’s then on to the next Fed meeting in July.

If you’re expecting a sleepy summer in markets let me disavow you of that notion. How these 3 events play will have a massive impact on prices, either to the upside or the downside.

But one event at a time.

This coming week markets will not only contend with the Fed, but also quad witch options expirations always a week for traders to expect the unexpected although OPEX weeks generally have an upward bias.

But make no mistake: This week’s about the Fed. In 2019 Jay Powell has bent over backwards to appease the market beast. First the stunning reversal in January following the December flush indicating flexibility on the balance sheet, then the March confirmation that QT will be ended in 2019 and then his speech following the steep May correction indicating readiness to act on rate cuts, all of which were cheerfully greeted by markets who want an interventionist Fed to extend the cheap money game that has dominated equity markets for the last 10 years.

But this move here is different. The Fed is on the defensive, not only having been forced to do a 180 on policy as the macro economic backdrop has deteriorated faster than they expected, but also because they have limited room to work with compared  to previous cycles. The implications are profound and I’ve discussed this in Global Fail and in Curveball.

And now that the Fed has shown itself again beholden to the beast they’ve been feeding for years it can ill afford to disappoint markets that expect, want and demand that the Fed pleases them with dovish action, talk and positioning:

HOW MANY RATE CUTS DO YOU WANT???? pic.twitter.com/KnIBqSJtwC

— Sven Henrich (@NorthmanTrader) June 14, 2019

The outcome may be binary here: A surprise rate cut or surprise immediate ending of QT may be dovish enough to force equity markets higher on to new highs or a market disappointment that may lead to a larger sell-off with grave uncertainty ahead of the upcoming G20 meeting. The calculus: Should the G20 disappoint then the Fed may again be seen being behind the curve rendering a July rate cut a desperate measure to catch up to volatile markets under pressure. Cut now, get the rally and be seen ahead of the curve, but then get a positive resolution on the G20 and appear to have wasted precious rate cut ammunition on a cut that was not needed and set markets on a path to a massive bubble blow-off perhaps creating larger financial market imbalances.

When in doubt count on the Fed to rather have a bubble then risk a sell-off?

One can game all this until the cows come home. Either way Jay Powell and the Fed will spend this week carefully weighing their options and crafting language to aim to minimize any market disappointment. It is all about confidence at the end of the day and the reaction may well be measured in how the US dollar reacts.

I’ll throw you another potential scenario: If the Fed cuts here it may well produce a quick spike higher, but it may not have the calming reaction the Fed would intend. Why? Because cutting here may ultimately send a very different signal. A signal that says the Fed is scared and knows recession risk is much higher than they are willing to admit. Don’t forget sudden rate cuts at the end of a cycle have seen recessions follow within 3 months on average during the last 3 cycles.

Even BAML, which is all bullish and is telling investors to jump into stocks and to sell volatility, has gamed wider price ranges as a result of the upcoming events:

There’s of course a 5th scenario that BAML is not mentioning here: One that says that a dovish Fed is not enough. One that says a global recession is unfolding into 2020 anyways, one that says central bank efficacy after 10 years of nonstop intervention is diminished. After all the current global economic troubles have come despite rates remaining near historic low levels, indeed negative rates are still in place in many places. Europe is in trouble despite negative rates and can only cut to more negative.

So while the Fed may manage to lift equity markets once again previous market cycle history suggests that initial Fed cuts are not a sign of good things to come, but rather are an opportunity to sell.

And so here we are coming into this Fed meeting and markets are at an interesting juncture, take the $WLSH the all market index:

The recent rally following Jay Powell’s “ready to act” speech has parked itself tightly between the January 2018 highs above and the 50MA just below.

An added twist: Many signal charts are neither overbought nor oversold, example $BPNDX:

…leaving plenty of room for both price expansion or contraction.

So then here’s a genius prediction: At the end of the next week we’ll either close below the 50MA or above the January 2018 price range in $WLSH.

If the Fed succeeds in appeasing the beast price will close above and may embark on another run at highs or make new highs. If the Fed fails the recent rally will fail and risk major topping structures to kick in.

Yes it’s that binary. Once again the central bank overlords will be the arbiter of price and many investors once again believe the Fed will succeed in keeping the troubles away.

Understanding the technical backdrop then is key to assess how to navigate the possible ranges.

Welcome to the Fed Games:

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Certain users of online forum 8chan may want to lawyer up, after a recently unsealed affidavit reveals that the FBI served the website with a search warrant in April for the IP addresses and metadata information on Chabad of Poway shooter John Earnst, along with "all of the individuals who responded to his posts on the forum. 

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Certain users of online forum 8chan may want to lawyer up, after a recently unsealed affidavit reveals that the FBI served the website with a search warrant in April for the IP addresses and metadata information on Chabad of Poway shooter John Earnst, along with "all of the individuals who responded to his posts on the forum. 

lmaooooooo 8chan just got search warranted pic.twitter.com/Rhi6g2OWKo

— shoshanot at cannes, pls stop asking ?? (@swodinsky) June 14, 2019

On April 27, 19-year-old John Earnest opened fire on the Chabad of Poway, located in a suburb of San Diego, killing one and injuring three others. Earlier in the day, an 8chan user believed to be Earnest posted "It's been real dudes. From the bottom of my heart thank you for everything. Keep up the infographic redpill threads," along with a link to a livestream of the attack broadcast over Facebook and an "open letter" manifesto. 

Earnest's post and anyone who replied to it, "and/or commented about it" were swept up in the search warrant. 

"Anyone had a decent read of his manifesto yet?" wrote one user. Another replied "It's very much written for /pol/" - referring to the "Politically Incorrect" forum where Earnest posted. 

"Several people responded, both individuals who were taken aback about the posting as well as people who were sympathizers. As a result, some of the individuals may be potential witnesses, co-conspirators and/or individuals who were inspired by the subject posting." 

"There is probable cause to believe that within 8chan, more fully described in Attachment A, will be found evidence of violations of federal law," reads the affidavit. 

The search warrant for 8chan is going to sweep up a lot of people.

Feds are seeking "IP address and metadata for all commenters" on the shooter's thread, saying they may be "potential witnesses, co-conspirators, and/or individuals who are inspired by the subject posting." pic.twitter.com/BzqvOmeeEh

— Caroline Orr (@RVAwonk) June 14, 2019

The affidavit also notes that Earnest was inspired by the Christchurch mosque attack in New Zealand which left 51 dead. Prior to the incident, 28-year-old Brenton Tarrant uploaded a 74-page manifesto to 8chan replete with memes and dark humor used exclusively on the forum. 

8chan currently only has one rule when posting: “Do not post, request, or link to any content that is illegal in the United States of America and do not create boards with the sole purpose of posting or spreading such content.” Any form of moderation is near nonexistent. -Daily Dot

Meanwhile, it appears that the thread was deleted quickly after it was created. 8chan's said via Twitter that the shooter's post was taken down "NINE minutes after creation," adding "There are only screencaps available and no archives exist since the post was deleted so quickly." 

Here's what 8chan's Twitter account posted when the agents were working on getting this search warrant. pic.twitter.com/K2MC8iWkBS

— JJ MacNab (@jjmacnab) June 14, 2019

Read the affidavit below: