Global Risks 2019 – World Economic Forum

Nice chart and table of what the World Economic Forum (WEF) deems as the major risks with their respective probabilities for the coming year.  Environmental, global warming and cyber are the most likely high impact events, complicated by a backdrop of rising nationalism and fading global cooperation.

Is the world sleepwalking into a crisis? Global risks are intensifying but the collective will to tackle them appears to be lacking. Instead, divisions are hardening. The world’s move into a new phase of strongly state-centred politics, noted in last year’s Global Risks Report, continued throughout 2018. The idea of “taking back control”— whether domestically from political rivals or externally from multilateral or supranational organizations— resonates across many countries and many issues. The energy now expended on consolidating or recovering national control risks weakening collective responses to emerging global challenges. We are drifting deeper into global problems from which we will struggle to extricate ourselves. – The Global Risks Report 2019

The term “sleepwalking” makes us very nervous.

Usually pays to bet against the prevailing narrative of the January Davos event.

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free rider_2

 

 

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Bolsonaro speaks at Davos, World Economic Forum

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S&P500 Key Levels

The S&P gave up 22 percent of its 6.54 percent YTD gain today.

We nailed it in our 3 AM post, The Increasing Risk of A Major China Trade Debacle,

Look to the government shutdown as your template as to how Trump & Co. have painted themselves into a corner with potentially disastrous consequences.

We know the president has trouble with the public perception that he has “caved,” which now raises the risk of a complete debacle and sharp market sell-off.  — GM

The administration trotted out Larry Kudlow with the Dow down over 400 points today. We think this weakens the administration’s negotiating position as China clearly understands Trump can’t stand a bear market and is obsessed with every 10 point move in the S&P.

Moreover, Xi and China play the long game and are not obsessed with every tick in the   Shanghai and oversee a command economy not subject to market discipline.

We fear that Trump is painting himself into a corner and is one who can’t appear to have blinked.  The Chinese can delay and wait for another 10 percent flop in the S&P and bet Trump caves.

That makes for some unstable nonlinear dynamics.

Uninvestable and hard to trade, unless it’s scalping.

We’ve been burnt twice on the “fake” tape bombs of an imminent trade deal. We are waiting and watching.

A test of the December low?   Moreover, then some.


Key Levels

The marker is on the upside with Thursday’s high at 2675.47.

The first level of support down is the 50-day at 2623.00, which broke but managed to claw back and retake it at the close.   We are looking at 2594.40 as a new Fib retracement, which needs to hold for this rally to remain intact.

Stay tuned.

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s&p_chart
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The Increasing Risk of A Major China Trade Debacle

In case you missed our Week In Review, let us reiterate our concern about a potential major debacle in the U.S.-China trade negotiations.

It appears President Trump and his negotiating team have, once again, painted themselves into a corner with no exit unless to make major concessions.  Just as the White House is boxed itself in with a government shutdown disaster.   Bad negotiating tactics and strategy.

China Now Has The Upper Hand

The Chinese negotiating team carries a reputation as “professional, productive and ruthless and has been described by a group of their international counterparts as “among the best in the world.”   They have clearly outmaneuvered the American team, in our opinion.  We’re not rooting for this, we are rooting for good governance and a positive outcome for the global economy, ergo the country.

Potemkin Deal At Best

The China trade deal, which should be a sell the news event, will most likely be another Potemkin Village, just as we expected.

WASHINGTON — As a critical round of talks with China kicks off next week, the Trump administration is increasingly pessimistic that Beijing will make the kind of deep structural changes to its economy that the United States wants as part of a comprehensive trade agreement, according to officials involved with the talks.

The United States is now weighing whether large Chinese purchases of American goods and more modest economic changes will be enough for a deal to end a damaging trade war between the two nations and help calm volatile markets. 

A Chinese delegation led by Liu He, China’s vice premier, will meet with Robert Lighthizer, the Trump administration’s top trade negotiator, and Steven Mnuchin, the Treasury secretary, on Jan. 30 and 31. The two countries are racing to strike an agreement by March 2, a deadline set by President Trump and President Xi Jinping of China.  – NY Times, Jan 21th

Mnuchin and Malpass are in way over their heads and outmatched by these guys.

And this nonsense is really starting to get old,

 

Pleeeeaaazzzzze!

It is definitely not helping in overnight trading as S&P futures are down 18 handles.

Moreover,  Xi and China play the long game and are  not obsessed with every tick in the S&P  Shanghai and he oversees a command economy not subject to market discipline.  The Chinese negotiators know it.

The indicator to watch is China’s international reserves, which are not observable in real time,  but will be reflected indirectly in the currency.  If CNY moves back above 6.90, to say, 6.95, advantage Trump.

rmb

 

But Mr. Trump is also under pressure and the window for him to use market-rattling tariffs as leverage is likely to shrink as his re-election campaign heats up next year.

“The damage to U.S. business, consumers and exporters is real and ongoing,” Scott Lincicome, a trade lawyer and scholar at the Cato Institute, said, noting that the risks of this approach only increased if negotiations with China dragged into 2020. “If you’re the Chinese, delay is your best friend.”  – NY Times, Jan 21st

 

How do say ” delay, delay, and delay, and they will fold faster than a lawn chair” in Chinese?
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Expectations Too High
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Expectations are way too high for a “good” China deal.
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In our opinion, at best, there will be a “fake deal” as in Potemkin.
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You know,  something like China agrees to raise the ceiling on American imports to $600 billion per year from the current level of around $130 billion.
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Completely meaningless and nonbinding nonsense, such as the so-called Korean concessions in the Korea-U.S. free-trade deal,
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South Korea, meanwhile, negotiated a permanent steel-tariff exemption in exchange for allowing additional U.S. auto imports. But the claim of a “renegotiated” Korea-U.S. free-trade agreement should be viewed with skepticism. U.S. automakers already don’t export the allowable number of cars into South Korea today, let alone the expanded number. And South Korean car exports, the main sources of the trade imbalance, were left alone. It was a limited, face-saving deal that everyone can tout as “preventing” a trade war.  – New Republic
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potemkindeal
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Look to the government shutdown as your template as to how Trump & Co. have painted themselves into a corner with potential disasterous consequences.
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We know the president has trouble with the public perception that he has “caved,” which now raises the risk of a complete debacle and sharp market sell-off.
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“Mad King” Premium
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It’s time to increase “the Mad King” premium, folks.
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Starting to feel the bell is ready to ding and those overhead lights are about to come on.
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As always, we reserve the right to be totally wrong.
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Seat Belts_Mar24
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The Greatest MLK Weekend Of All-Time

During my Lehman days as a bond strategist, the firm’s research group would do a January roadshow in many of America’s major cities to present our ideas to institutional investors.   One particular year, we were in Atlanta at the end of the week and scheduled for another “greatest show on earth” in Chicago the next Tuesday.

A Weekend In The Peachtree Hyatt

Rather than flying home to New York, I decided to stay over in Atlanta and migrate north on Monday evening.   It was MLK weekend and I wanted to attend services at the Ebenezer Baptist Church, where Martin Luther King, Jr. was baptized as a child and gave his first sermon. If my memory is correct, I believe his father also pastored the church.   His mother was shot and killed while she played the organ in that church in 1974.

Dr. King’s tomb is located just outside the side door of the church in the middle of a reflecting pool.

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Three Memories Of Ebenezer

I recall three of my main takeaways from that Sunday morning.

First,  I was maybe one of ten whites out of 600-700 people sitting in the pews.  Sadly, as Dr. King said almost 60 years ago.

I think it is one of the tragedies of our nation, one of the shameful tragedies, at 11 o’clock on Sunday morning is one of the most segregated hours, if not the most segregated hour in Christian America.  – MLK, Jr  Meet the Press, April 17, 1960

Nevertheless, I felt incredibly welcome and never — not for one nanosecond —  was conscious about such a silly thing as the difference of the color of my skin.  During the greeting time, the Ebenezers made me feel so welcome and a part of their family.

Second, not to contradict Dr. King, but I believe the service started at 9:30 AM and went to almost 1:00 PM!  Maybe it was a special MLK weekend service.  The pastors in the mostly white churches I have attended have trouble keeping the attention of the congregation for more than 20 minutes.

Third, the sermon was entirely different from those I had experienced in middle-class white churches.  Less doctrine, though similar theology, and more real life.  The struggles of raising children in poverty.  Grandparents raising their grandchildren. Troubles with children with drug addiction. The struggles of being black in white America.   No pretense of being sinless and perfect, no holier than thou vibe, no judgment, no condemnation, no guilt, no shaming.  All love, compassion, kindness, and forgiveness.  Just like the real Jesus.

Also, the sharing of the same joys and blessings.  New babies, college graduates, marriages, medical recoveries, and others.

Daddy King” was referred to several times.

It truly echoed the genius and saintliness of Dr. King.

I walked away convinced the Church for the African-American community was much more — that is a considerable part of their life — than what I had experienced in white evangelical America.

Yes, maybe some of us attend more than just Sunday services, but many, such as yours truly, often do so with the dubious motive of seeking the blessings of personal peace and personal prosperity.  The community of the Church, as it for the African-Americans, though not always, is secondary.

The next day, Martin Luther King Jr Day, I spent across the street at the King Center.

More Empathy, Less “Being A Dick

What great memories from that unforgettable MLK weekend.

I grew up lower middle class in the white suburbs of Los Angeles, attending an almost all white high school.  Fortunately, I had a father, who was politically left of the salad fork (out of a rebellion,  I became a conservative in college),  and also spent my first 25 years playing sports, fighting in the baseball trenches with, pulling for, breaking bread, and busting beers with my teammates of color; or as I grew to learn colorless.

I am very thankful for those experiences.  It helped me integrate into and see the real greatness of America.

I feel sad for my many brothers and sisters who have not had the same privilege and are stuck still watching black and white television:  unable or unwilling to embrace and enjoy the tremendous diversity of this great country.

Ditto for the similar ignoramuses from other races and ethnic groups.

 

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I can’t imagine eating steak and potatoes every day and every night.

Ignorance And Racism Know No Boundaries

Let me finish by qualifying all of the above.

Racism is such a prominent feature of so many human societies that some evolutionary psychologists have concluded it is “natural” or “innate.”  We don’t know about that but are certain it is not just a “white thing”, a “black thing, or a “brown thing,” etc.

I have shared the story of my brother who was murdered by an undocumented worker, who stated, after stabbing him, “all anglos need to be exterminated.”   This sociopathic asshole killed my brother not because he was brown, or undocumented, but because he was one sick and crazy mother f$@ker.

Now, more than ever it is time to commit to expanding our menu.  Let’s make it a point to understand and enjoy the perspectives and various cultures of all the different races and ethnic groups.

Allegorically, and literally, let’s eat more balaedas, falafel, babaghanoush, borscht, moussaka, and bouilli, among others.  The steak and potatoes will taste sooo much better.

Sorry to end on a note that violates the spirit of Dr. King but I can’t help myself.

Any white man (probably less so for a white woman) who think they know what it is like to be an African-American growing up and living in America, has their head…well…you know. 

 

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Bring on the hate mail.

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QOTD: MLK

Men often hate each other because they fear each other; they fear each other because they don’t know each other; they don’t know each other because they can not communicate; they can not communicate because they are separated. – Dr. Martin Luther King, Jr, circa 1958

QOTD = Quote of the Day

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Week In Review – January 18

Better late than never.  The markets are closed today, not much goin’ on.

Summary

  • The risk markets still in bounce mode, led by emerging
  • The U.S. bank index up big for the week
  • Energy and biotech continue to ramp

Commentary – Getting up into for sale territory but need a catalyst to move lower.

Waiting on China deal, which should be a sell the news event, and another Potemkin Village, just as we expected.

WASHINGTON — As a critical round of talks with China kicks off next week, the Trump administration is increasingly pessimistic that Beijing will make the kind of deep structural changes to its economy that the United States wants as part of a comprehensive trade agreement, according to officials involved with the talks.

The United States is now weighing whether large Chinese purchases of American goods and more modest economic changes will be enough for a deal to end a damaging trade war between the two nations and help calm volatile markets. 

A Chinese delegation led by Liu He, China’s vice premier, will meet with Robert Lighthizer, the Trump administration’s top trade negotiator, and Steven Mnuchin, the Treasury secretary, on Jan. 30 and 31. The two countries are racing to strike an agreement by March 2, a deadline set by President Trump and President Xi Jinping of China.  NY Times, Jan 21th

Mnuchin and Malpass are in way over their heads and outmatched by these guys.

And this nonsense,

Pleaaaazzzeeee.  Xi is not obsessed with every tick in the S&P  Shanghai and oversees a command economy not subject to market discipline.  The Chinese negotiators know it.

But Mr. Trump is also under pressure and the window for him to use market-rattling tariffs as leverage is likely to shrink as his re-election campaign heats up next year.

“The damage to U.S. business, consumers and exporters is real and ongoing,” Scott Lincicome, a trade lawyer and scholar at the Cato Institute, said, noting that the risks of this approach only increased if negotiations with China dragged into 2020. “If you’re the Chinese, delay is your best friend.”  – NY Times, Jan 21st

Expectations are waaay too high for a “good” China deal.  At best a “fake deal” as in Potemkin.

Look to the government shutdown as your template as to how Trump and the White House paint themselves into a negotiating corner.

The will be blood sellers.  Count us in.

 

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Check out 2019 v 2018 in Country ETF land.

week_2019_etfs

2018 Year-End: Only Three Country ETFs w/ Positive Return

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TOTD: Black Swan Risk

I’ll  take this Black Swan.

https://twitter.com/hipster_trader/status/1087126501835849730?s=12

 

 

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Song For The Week: Balls To The Wall

I won’t back down
Hey Nancy, balls to the Wall, no easy way out
I won’t back down
Hey Rush I will stand my ground
And I won’t back down

 

SFTW – Song for the Week

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How Democrats Should Counter Trump

The Dems need to counter Trump.

It’s a no-brainer.   They can draw it up with a crayon.

  1. Open the government (a deal breaker)
  2. $2 billion for border security
  3. Complete resolution of DACA, including a path to citizenship

The president can’t win politically but the above provides Trump with a way out of the corner he has painted himself into.  Intense negotiations begin on  #2 and #3 provided the government opens on Monday.

Not A Normal Negotiator

The “best dealmaker of all-time” has committed almost every conceivable error of negotiating during the shutdown.   See Harvard Law’s,  10 Hard-Bargaining Tactics to Watch Out for in a Negotiation.

The Speaker needs to realize she is dealing with a non-normal opponent, one who lacks empathy and doesn’t seem to care about blowing up the country.  She has to allow for a face-saving out in which he can boast about a “win” on Fox and Friends.  Who really cares as 70 percent of the country know it is all bull shit anyway.  The other 30 percent are growing smaller by the day.

Learn From JFK 

jkf_niki

 

Chuck and Nancy can learn from President Kennedy during the “thirteen days” in October 1962.  Put something on the table that allows Rush and Ann to get off the president’s back.

After sizing up Khrushchev after his meeting a year earlier,  JFK knew he had to appease the Soviet hardliners to give Khrushchev some room to maneuver — even though it would come at a political cost —  by removing the U.S. Jupiter missiles from Turkey,  the country’s first nuclear-tipped, medium-range ballistic missiles — or risk nuclear war.

Because the alternative was a nuclear holocaust. Kennedy believed and said so to those he trusted that nuclear weapons, if contained in a country’s arsenal, would eventually be used. And he had first-hand reason to believe that Khrushchev was just the man to pull the trigger. At their meeting in Vienna the prior year this has been made stunningly clear. “I talked about how a nuclear exchange would kill seventy million people in ten minutes,” he later told Time’s Hugh Sidey, “and he just looked at me as if to say, ‘So what?’ My impression was that he just didn’t give a damn if it came to that.”

And that’s why he was willing to offer  a trade. If the Russians removed their missiles from Cuba, Kennedy told Krushchev that he would remove American missiles stationed in Turkey. Kennedy’s calculation paid off. Khrushchev accepted the trade. 

…  This is the lesson of the Cuban Missile Crisis that gets overlooked but should be the key to all future confrontations with a dangerous enemy: Always leave the other side a way out. Otherwise, they will only have a way in.  – The New Repulbic

The new Democratic House along with the majority of the country don’t like that “F$@ken Wall” just as much as the former president of Mexico, Vincente Fox.

Tabling the above proposal, however, or something similar puts the onus back on the White House to get the government open, which is the country’s most pressing issue.

If the president rejects the proposal, his poll ratings drop another five points.

If the Dems don’t counter, they lose the high ground.   Just Do It.

 

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