Saturday, March 23, 2019

Hazard lifts Belgium in Euro qualifying as Depay triggers Dutch rout

Paris (AFP) - Eden Hazard ensured Belgium kicked off their qualifying campaign for Euro 2020 in style on Thursday with a brace in a home victory over Russia, while a Memphis Depay-inspired Netherlands romped to a 4-0 win over Belarus.
World Cup semi-finalists Belgium earned a battling 3-1 win over Russia in Brussels as Hazard struck twice for Roberto Martinez's side in their opening game in Group I.
Youri Tielemans rounded off a flowing move with a crisp low strike to fire Belgium ahead on 14 minutes at the King Baudouin Stadium, but Thibaut Courtois gifted Russia an immediate equaliser.
The Real Madrid goalkeeper, put under pressure by Artem Dzyuba, panicked and scuffed the ball straight to Denis Cheryshev who duly swept home into an empty net.
Michy Batshuayi had a shot cleared off the line, and later hit the post, but Hazard restored Belgium's lead just before half-time after drawing a foul from Yuri Zhirkov in the area.
The Chelsea playmaker sealed the three points two minutes from time with an alert finish, while Aleksandr Golovin was sent off for Russia just before the end.
"I enjoyed myself tonight. I take a lot of pleasure from this victory, in which I scored two goals," said Belgium captain Hazard.
"After our last game against Switzerland (a 5-2 defeat), we had to respond in front of our own fans."
Cyprus thrashed San Marino 5-0 to provisionally seize top spot in the group, while Scotland crashed to a humiliating 3-0 loss in Kazakhstan -- a nation ranked 117th in the FIFA rankings.
Yuriy Pertsukh and Yan Vorogovskiy notched early goals for Kazakhstan before Baktiyor Zainutdinov's terrific header extinguished any chance of Scotland recovering.
- Depay dazzles -
In Rotterdam, Memphis Depay pounced on a sloppy backpass to put the Dutch ahead inside 60 seconds against Group C opponents Belarus.
The Lyon forward set up Georginio Wijnaldum for their second on 21 minutes, with Depay tucking away a penalty after half-time following a foul by Mikhail Sivakov.
Depay whipped in a cross for skipper Virgil van Dijk to nod in a fourth late on, leaving the Netherlands level on points with Northern Ireland, who beat Estonia 2-0 with Niall McGinn and Steven Davis on target in Belfast.
"It's hard to choose between the goals and the assists," said Depay. "The first goal was good because it was the outside of my foot, but I also enjoyed the flick that set up the second."
Krzysztof Piatek continued his magnificent season as he came off the bench to grab the only goal in a 1-0 win for Poland away to Austria in Group G.
The AC Milan forward, already with 19 goals in 27 Serie A appearances this term, has now scored twice in three outings for his country following his international debut in September.
"This was a first step in qualifying. It was a very important game and a very important win. We took three points and so we're very happy," said Poland striker Robert Lewandowski.
World Cup runners-up Croatia, relegated from the top tier of the Nations League last year, ground out an unconvincing 2-1 victory against Azerbaijan in Zagreb.
Rami Sheydaev put Azerbaijan on top on 19 minutes before Croatia hit back through Borna Barisic and a 79th-minute effort by Andrej Kramaric in Group E.
Slovakia top the section on goal difference following a 2-0 defeat of Hungary in Trnava, as Ondrej Duda and Albert Rusnak scored for the hosts.

North Korea Seeks to Split Alliance Between South Korea and U.S.

SEOUL, South Korea — North Korea on Saturday escalated its attempt to create a rift between South Korea and the United States, as Washington sent mixed signals over whether it would tighten or relax sanctions on the North.

Ever since the summit meeting between the North’s leader, Kim Jong-un, and President Trump in Hanoi, Vietnam, late last month abruptly ended without a deal, North Korea has ceaselessly urged South Korea to distance itself from the United States and to push ahead with joint economic projects that have been held back by American-led United Nations sanctions.
North Korea’s official trade has been devastated by international sanctions imposed since 2016. The country has tried to circumvent them by importing refined fuel or exporting coal through ship-to-ship transfers on the high seas, a move banned under United Nations sanctions. It has also sought to undermine the sanctions by boosting economic cooperation with South Korea.
President Moon Jae-in of South Korea remains eager to boost inter-Korean economic ties, raising fears at home and abroad that he may steer his government away from international efforts to enforce sanctions against the North. But in reality, Mr. Moon’s hands are tied unless the United States and North Korea reach an agreement on denuclearizing the North and Washington helps to ease sanctions.
On Saturday, DPRK Today, a North Korean government-run website, accused Mr. Moon’s government of reneging on its promise to improve inter-Korean ties and giving priority to “cooperation with a foreign force” over “cooperation among the Korean nation.”
“The South Korean authorities’ behavior is deeply deplorable,” it said. “The only things the South will get from cooperating with the U.S. will be a deepening subordination, humiliation and shame.”
North Korean state media has been issuing similar messages in recent days, even denigrating Mr. Moon’s efforts to mediate talks between his “American boss” and North Korea, and advising Mr. Moon’s government to throw its policy “in a garbage can.”
Mr. Moon suffered another slap in the face when the North abruptly withdrew its staff from a joint inter-Korean liaison office on Friday.
“The South’s authorities can’t do anything without approval or instruction from the United States, so how do they think they can be a mediator or facilitator?” the North Korean website Meari said on Friday. “They should know their place.”
Mr. Moon has dedicated his diplomatic resources to facilitating dialogue between Washington and Pyongyang, and has promoted building peace on the Korean Peninsula as his main policy goal. But his mediator’s role has run into a wall since the breakdown of the Hanoi meeting between Mr. Trump and Mr. Kim.
He faced accusations that he had oversold Mr. Trump on Mr. Kim’s willingness to give up his nuclear weapons, even as North Korea accused him of working on behalf of Washington. But Mr. Moon remains determined to keep the momentum for diplomacy alive.
The Hanoi summit meeting broke down when Mr. Kim insisted that the most punishing United Nations sanctions against his country should be lifted in return for a partial dismantlement of his country’s nuclear program.
Before the Hanoi meeting, analysts had feared that Mr. Trump might sign onto a partial denuclearization deal and claim it as a victory. But in the end, he listened to his aides’ advice and walked away without signing a deal.
After the Hanoi meeting, Mr. Trump has continued to reaffirm his good relationship with Mr. Kim and his willingness to make a deal. But the American president’s aides remain firm against lifting sanctions, arguing that it would deprive Washington of its most powerful tool to force North Korea’s complete denuclearization.
On Thursday, the United States Treasury Department demonstrated Washington’s determination to keep squeezing the North by designating for punitive measures two Chinese shipping companies that had helped North Korea evade sanctions through deceptive methods like ship-to-ship transfers of cargo.
South Korea was thrown into confusion after Mr. Trump tweeted that he ordered his government on Friday to withdraw “additional large scale sanctions” against the North. The tweet was initially taken as overruling the Treasury’s announcement the day before.
But United States officials later explained that Mr. Trump had been referring to additional North Korea sanctions that were under consideration but not yet formally issued.
“President Trump likes Chairman Kim, and he doesn’t think these sanctions will be necessary,” Sarah Huckabee Sanders, the White House press secretary, told reporters.
That raised hopes among Mr. Moon’s domestic supporters, who took Mr. Trump’s latest move as a sign that Washington did not want to antagonize North Korea with new sanctions. During a news conference in Hanoi immediately after his meeting with Mr. Kim, Mr. Trump said he didn’t want to talk about increasing sanctions partly because there were “a lot of great people in North Korea that have to live also.”
“By withdrawing additional sanctions against North Korea, President Trump showed his firm will to continue dialogue to realize the denuclearization of North Korea,” Lee Hae-sik, a spokesman of Mr. Moon’s governing Democratic Party, told reporters on Saturday.
But the main opposition Liberty Korea Party said that Mr. Moon has been used as “a pawn” by Mr. Kim and had ended up creating a fission in the alliance with Washington.
“President Moon Jae-in and his Blue House still don’t grasp the reality and have a delusional belief that he is a mediator or facilitator,” Jun Hee-kyung, a spokeswoman for the opposition party, said in a statement.
By dropping North Korea-related sanctions, Mr. Trump was trying to defuse growing tensions between Washington and Pyongyang after the Hanoi breakdown, said Harry J. Kazianis, director of Korean studies at the Washington-based Center for the National Interest.
Recently, Vice Foreign Minister Choe Son-hui of North Korea threatened to suspend negotiations with Washington and said that Mr. Kim would soon decide whether to resume nuclear and missile tests, which it has not carried out in more than a year.
“Trump’s canceling out of sanctions might have been a bid to get North Korea to change its thinking,” Mr. Kazianis said.

Tuesday, January 15, 2019

Understanding global and US economic sanctions programmes

 Over the latter half of 2018, and into 2019, there has been much talk in the local public domain, and in Parliament, about matters that touch on the topic of sanctions. Indeed, where very little was known about sanctions, it is clear that more citizens — and parliamentarians and government technocrats — have come to appreciate the fundamentals and nuances that attend to economic sanctions. The following comments and observations are presented in furtherance of a wider and deeper understanding of this topic as it doth appear that it will continue to be an unwelcome irritant for Jamaica and the economies of the world for the foreseeable future.
Sanctions are not new, and perhaps can be traced back at least to 432 BC when Pericles, the Greek statesman and general, issued the so-called “Megarian Decree” in a partial response to the abduction of two women of the house of Aspasia, she being a courtesan and the reputed mistress of Pericles. The decree, levied upon Megara by the Athenian Empire, was a set of economic sanctions that included the restriction of access to the Attic market and the use of the Athenian shipping harbours by the Megarians.
By way of definition, economic sanctions and trade embargoes (generally sanctions) are government actions to prevent economic support of certain foreign countries and governments and targeted individuals, entities, and organisations (eg, terrorists, narcotic traffickers, nuclear weapons proliferators) as a means of implementing foreign policy and protecting national security interests. Sanctions can be comprehensive — restricting interactions with an entire country, region or government — or they can be targeted to specifically named businesses, groups or individuals, eg list-based such as the UN Security Consolidated Sanctions List, and the US Office of Foreign Assets Control (OFAC) Sanctions List. Sanctions can include arms embargoes, import/export bans, travel bans, and the freezing of assets.
Every country, economy, local financial institution, individual and every entity is potentially vulnerable to sanctions. Even if sanctions are not legally binding in a local jurisdiction, the reality of our inter-connectedness and dependency on access to global financial markets and services puts that jurisdiction in scope via the extra-territorial reach of certain sanctions laws and regulations. US sanctions issued by the OFAC and European Union (EU) sanctions are such examples. The fact that Jamaica's major trading partners are the US, UK, Canada and the EU puts Jamaica and other countries in scope of US sanctions and EU sanctions. Generally, all UN sanctions programmes passed by the UN Security Council are in scope for Jamaica as all member states are obligated to comply with council decisions.
The main reason for our interest in sanctions is that there is a real risk that arises from violations of, or non-compliance with applicable UN and country-specific sanctions. Consequences of non-compliance or breaches of economic sanctions can be severe with direct and indirect impact on individuals, corporations and financial institutions in particular, governments and entire countries. For the individual, the consequences include the imposition of fines, loss of job and possible loss of career due to regulatory prohibitions, criminal prosecution, conviction and imprisonment. For companies and banks, they can be excluded from financial markets. In addition, for governments, they can be denied access to global trade and financial services.
As the United States currently has the most active and biting economic sanctions programmes, it is instructive to focus on some key elements of the US OFAC sanctions programme and regimes. OFAC is a financial intelligence and enforcement agency of the US Treasury Department that administers and enforces economic and trade sanctions in support of US national security and foreign policy objectives. All US persons must comply with US OFAC sanctions regulations, including all US citizens and permanent resident aliens (green card holders), regardless of where they are located. Under US sanctions regulations, any person and any entity in the US jurisdiction is considered a US person. All US incorporated entities and their foreign branches are considered to be US persons and are in scope of US sanctions.
OFAC administers and enforces over 30 economic and trade sanction programmes worldwide. These programmes innovatively target specific actors and regimes to separate them from access to the US financial system. These programmes include comprehensive initiatives against the Crimean region, Iran, Syria and North Korea; list-based programmes targeting individuals and entities such as the Global Magnitsky, the Palestinian Legislative Council and Hizhallah; sectoral programmes targeting a country's economy (public sector, financial services, energy, defence, etc) with examples being the Government of Venezuela and sectors within the Russian Federation.
Property that is subject to US sanctions require the US person, among other things, to do one or more of the following: entities that are in scope of US sanctions can be directed to block, reject or freeze transactions; or to avoid the facilitation of financial services, all at the direction of OFAC.
According to 2017 OFAC reporting, US$119 million in fines were imposed on individuals for violations of US sanctions. Reports are that for the period 2009- 2018, the US Treasury and other US government agencies extracted fines of approximately US$19.4 billion in comparison to US$8.5 million extracted by non-US governmental authorities for the same period.
US sanctions can impact Jamaica in the ordinary course of business by increasing the cost of remitting funds to Jamaica and, in particular, US dollar clearings of cheques and electronic funds transfers. Jamaicans and other nationals who cross US borders can be detained for enhanced interrogation if their names or other personal identifiers match any of the names or identifiers on US sanctions lists. Incidentally, the US sanctions list is not a secret list; it can be authoritatively accessed via the Internet at the website for the US Treasury Department using the URL
Bringing the commentary back to Jamaica, the Venezuela-related sanctions programme represents the implementation of multiple legal authorities, some in the form of presidential executive orders and some in the form of public laws (statutes) passed by the US Congress. These authorities are further codified by OFAC and, as of now, several individuals and government entities in Venezuela are sanctioned by the US. Included is Petróleos de Venezuela, SA (PDVSA), which is the Venezuelan State-owned oil and natural gas company which owns a 49 per cent stake in Petrojam. So while Petrojam is not sanctioned by OFAC, there is a geo-political nexus as a sanctioned entity is a joint partner with Petrojam.
In April 2018 OFAC imposed a sanction designation on United Company Rusal Plc, which exercises ownership of UC Rusal Jamaica Limited and operates in Jamaica. This is the first time that a Jamaican company has been sanctioned by the United States and the severe and adverse effects of the sanctions have been widely publicised.
It is likely that, over time, entities will be removed from the OFAC list but, for sure, other entities will be designated and placed on future OFAC lists. It behoves us all, including our government representatives and technocrats, our financial firms, and our emerging global entrepreneurial class to become aware of the risks inherent to global sanctions programmes and the US economic sanction regime in particular.

Monday, January 14, 2019

Trump Vows He'll 'Never Ever Back Down' On Border Security

WASHINGTON (AP) — President Donald Trump kept his hard line Monday on the partial government shutdown, now in a fourth week over his insistence on billions of dollars for a long, impregnable wall at the U.S. Mexico border. “When it comes to keeping the American people safe, I will never, ever back down,” Trump said, repeating his strong view that the wall is needed on both security and humanitarian grounds. He spoke to farmers attending a convention in New Orleans.
As Congress returned to Washington for a second week of legislative business since House control reverted to Democrats, the shutdown hit Day 24, affecting federal workers and services. Trump has demanded $5.7 billion for his long-promised wall, while Democrats, who oppose the wall as both immoral and ineffective, insist Trump re-open the government before they negotiate further border security.
Before leaving for the speech, Trump said he had dismissed a proposal from Republican Sen. Lindsey Graham to reopen the government for several weeks and continue dealing with Democrats over money for the wall.
“I did reject it, yes,” Trump said. “I’m not interested. I want to get it solved. I don’t want to just delay it.”
Trump also backed further away from the idea of declaring a national emergency as an escape hatch, saying: “I’m not looking to call a national emergency. This is so simple we shouldn’t have to.”
From the White House, Trump argued that he alone was ready to negotiate, noting that a group of House and Senate Democrats were touring hurricane-ravaged Puerto Rico.
“A lot of the Democrats were in Puerto Rico celebrating something. I don’t know, maybe they’re celebrating the shutdown,” Trump said.
Democratic House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer were not on the trip to Puerto Rico. Pelosi spokesman Drew Hammill tweeted Monday: “Speaker Pelosi has been in DC all weekend working from the Capitol.”
Trump asserted weeks ago that he would “own” the shutdown, and polls show that he is taking most of the blame from Americans. But he now blames his political foes. He targeted Pelosi and Schumer Monday on Twitter, arguing that the shutdown “has become their, and the Democrats, fault!”
Trump has kept Washington on edge over whether he would resort to an emergency declaration, citing what he says is a “crisis” of drug smuggling and the trafficking of women and children at the border. The president initially sounded as though such a move was imminent, but then pulled back. He has said several times since he first mentioned the idea in public this month that he prefers a legislative solution.
A key question is how long Trump is willing to hold out in hopes of extracting concessions from Democrats. Graham, who spoke with Trump by telephone on Sunday morning, said the legislative path “is just about shut off” and blamed intransigence by Pelosi.
The speaker’s office had no immediate comment.
Democrats oppose an emergency declaration and would likely challenge the move in court. Some Republicans are wary, too, fearing how a future Democratic president might use that authority.
Sen. Chris Coons, D-Del., called Graham’s idea to reopen the government a “great place to start.”
“I do think if we reopen the government, if the president ends this shutdown crisis, we have folks who can negotiate a responsible, modern investment in technology that will actually make us safer,” Coons said.
Trump says technology is nice, but that the border can’t be secured without a wall.
The White House has been laying the groundwork for an emergency declaration, which is feared by lawmakers in both parties.
Senate Homeland Security Committee Chairman Ron Johnson, R-Wis., said he’d “hate to see” a declaration issued because the wall wouldn’t get built, presumably because of legal challenges. Democrats voted in the past for border security and should again, he said.
“I actually want to see this wall get built,” Johnson said. “I want to keep pressure on Democrats to actually come to the negotiating table in good faith and fund what they have supported in the past.”
Graham favors a declaration and said the time for talk is running out.
“It’s the last option, not the first option, but we’re pretty close to that being the only option,” he said.
Graham and Coons spoke on “Fox News Sunday” and Johnson appeared on CNN’s “State of the Union.”

Stormy Daniels sues over Ohio strip club arrest, calling it political

(Reuters) - Ohio police officers were politically motivated when they arrested Stormy Daniels, the porn star who has described having an affair with President Donald Trump, at a strip club last year, the actress said in a lawsuit on Monday.
FILE PHOTO: Adult film actress Stormy Daniels attends the Venus erotic fair in Berlin, Germany, Oct. 11, 2018. REUTERS/Fabrizio Bensch/File Photo
The Columbus vice unit officers who arrested Daniels on July 12, 2018, were registered Republicans as is the president, Daniels, whose real name is Stephanie Clifford, said in her lawsuit filed in federal court in Ohio.
“Defendant officers believed that Ms. Clifford was damaging President Trump and they thereafter entered into a conspiracy to arrest her during her performance in Columbus in retaliation for the public statements she had made regarding (Trump),” the suit said.
The legal action against the officers could bring to light further details about the circumstances of Daniels’ arrest, which made headlines at the time.
Columbus police had accused Daniels of committing a misdemeanor sex offense while performing at the club Sirens by touching three customers who were undercover vice detectives.
The charge was dropped hours later. Daniels had committed no crime because she did not perform regularly at the club, as required under the law, a city attorney said at the time.
The Columbus Division of Police launched an internal investigation soon after the incident.
“The Columbus Division of Police internal affairs bureau continues its investigation, therefore it would be inappropriate for us to comment on this matter at this time,” the division said in a statement about the lawsuit.
The division, in Ohio’s state capital, was not named as a defendant in Daniels’ lawsuit, which accused the officers of violating her civil rights.
A representative for the police union for the officers could not immediately be reached for comment.
Daniels sued Trump for defamation in March 2018, before her arrest, and was seeking release from a non-disclosure agreement she signed before the 2016 presidential election to remain silent about the affair she said she had with Trump.
Trump has denied having an affair with Daniels, saying she was paid to stop “false and extortionist accusations.”
A federal judge in Los Angeles dismissed Daniels’ defamation lawsuit last year.
Daniels’ attorney, Michael Avenatti, has described her arrest as a politically motivated set-up since the day it happened.
“Here in America, unlike in Russia, we don’t arrest citizens for political purposes in order to silence them,” Avenatti said in a statement on Monday.
Reporting by Alex Dobuzinskis in Los Angeles; Editing by James Dalgleish

Sunday, January 6, 2019

China's economic slowdown: How worried should we be?

Sign in Chinese saying "new era in China"Image copyright Reuters Image caption The sign says "new era in China", but will it be a welcome one?
The cracks in China's economy appear to be widening, with signs of weakening growth amid a background of trade tensions.
Adding to the worries, China's stock market was the world's worst performer last year, ending with a loss of 28%.
This week Apple said slowing sales in China meant it would not meet sales expectations, triggering sharp falls on global stock markets.
The tech giant isn't alone.
A string of other companies have issued warnings recently over China's slowdown and the impact of the trade war with the US.
Among those are carmakers such as General Motors, Ford and Fiat Chrysler. Luxury vehicle maker Jaguar Land Rover has also warned of slowing Chinese sales.
This week, Robin Li, chief executive of Chinese search engine Baidu, used an infamous phrase from Game of Thrones to warn employees that "winter is coming" as the local economy cools.
However, not all Western brands are struggling in China.
In September, Nike said sales in Greater China shot up 24%. Lululemon, another activewear maker, also reported strong sales growth in China last year.
Image copyright Reuters Image caption The US trade war is not helping business What shape is China's economy in?China's economic growth has been slowing in recent years and is now running at 6.5% annually, still a breakneck pace compared with anything in the developed world but about half the rate the country had been racking up for more than 20 years.
And the latest batch of economic news suggest this slowdown is deepening, not helped by the trade war with the US.
Data out this week showed manufacturing activity contracted for the first time in 19 months. New orders have fallen and retail sales eased. Firms have reported softer demand despite some discounting.
Louis Kuijs, head of Asia economics at Oxford Economics, sees GDP growth "bottoming out" around the second quarter of this year, and expects an annual growth rate of 6.1%.
But he does not see it deteriorating much further: "While China's economy is slowing down, it is not tanking and Apple's profit warning is not a good proxy for the health of the overall economy or even overall consumer spending."
Long-term challengesThe Chinese economy also has deeper problems that need addressing.
George Magnus, research associate at Oxford University's China Centre, points to serious and growing worries over the lack of regulation that sets doing business in China apart from that of the rest of the world.
These include China's complex and shady "shadow banking" problem of unregulated lenders, its cyber espionage activities and lax protection of intellectual property rights.
The authorities are not standing idle. They are spending more on infrastructure to spur demand and have been cutting interest rates.
Image copyright Reuters Image caption China buys a hefty percentage of global natural resources Why does China's slowdown matter? Serious turbulence in China now would matter a great deal more than it would have 10 or 20 years ago.
At the turn of the century, China accounted for about 7% of global economic activity. This year the figure is likely to be 19%.
And Chinese industry is closely integrated into international supply chains.
The rapid growth over the past 25 years has propelled China to second place in the league table of the world's biggest economies.
Mr Magnus says that China's economy is now so large it pretty much determines the global price of a huge range of products.
Half of all the world's steel, copper, coal and cement goes to China, as well as about half of the world's pork output and a third of its rice.
So if it isn't buying, the price is likely to fall.
DBS Bank strategists Taimur Baig and Nathan Chow say the key issue for the global economy is "the depth of China's economic malaise".
"A steadily slowing China imparts a major drag to the world economy in any case. Add to this fears of the decline being disorderly, all other risks pale in comparison."
However, Mr Magnus says fears shouldn't be overstated: "I don't think anyone is thinking at the moment that China's economy is about to fall off a precipice, it's just that everything has come off considerably from elevated levels it has been at for the last decade or more."

The US economy has been exposed for what it is — a complete facade

There is no doubt in my mind that what happened last Friday, as in the Dow moving above and below the zero-line no fewer than 19 times, was emblematic of this roller-coaster ride for the year as a whole. A surge in January on the back of deficit-financed tax cuts. That was followed ‎by a February-March correction and then a rebound led by a handful of growth stocks that took the S&P 500 to fresh highs in September. And since then, it has practically been a straight line down, punctuated by sessions of huge short-covering rallies along the way as we saw right after Christmas Day.
In fact, readers may be interested to know that the worst year for the market since 2008 — after its best start in January since 1987 — just enjoyed its single best point session ever the day after Christmas (+117 points for the S&P 500). That was a 5% bounce that followed a December 24 half-session (it actually ranked 38th on the list in per cent terms) when the index sagged 2.7%, which had never happened before on this date.
Not to mention the 7.1% market plunge in the December 17 week being the worst in over seven years. Just three weeks earlier, during the week of November 26, the S&P 500 experienced its best five-day period in seven years — as if in perfect symmetry. Talk about a meat grinder of a market!
While that whippy gain on December 26 had the cheerleaders on bubble vision crowing again, we have seen rallies like this (+4.5% or more) 24 times in the past four decades; and declines of at least 4.5% no fewer than 29 times. Let's see when we last saw the S&P 500 jump anywhere close to what it did on December 26th in the past:
Four times in 2008 and six times in 2018.
What about in percent terms?
How about three times in 1987, six times in 2008 and once in 2009.
So the market is behaving as it did during the worst collapse for the market since 1929 and/or the worst recession since the Great Depression.
As an aside, the debate over whether we are in an official bear market because the S&P 500 fell 30 basis point shy of dropping 20% on a closing basis from September 20 to December 24 obscures the major point. We have had declines like this, or worse, without there being a recession like in 1987...but the Fed eased aggressively, and we were in year five of the recovery with plenty of slack, not year ten with a closed output gap and now the Fed remains bent on still tightening. We also had a sub-20% decline in the S&P 500 between July and October of 1990 and we had a recession in any event. There is nothing magical about 20% -- what matters is what the catalyst is that causes the carnage to cease.
As the folks at Bespoke Investment Group told Barron's (see page 7 of this week's edition), as of last week, investors had wiped out $5 trillion or 20% of GDP from market capitalization. "To paraphrase Warren Buffet: If this isn't a bear market, then what is it?"
Even the father of the ETF industry, Jack Bogle, has turned very cautious. Either you see this as a positive contrary development or you heed the advice of someone who has had seven decades of experience in the markets. See A Warning From Jack Bogle on page 29 of Barron's. To wit: "...trees don't grow to the sky, and I see clouds on the horizon...a little extra caution should be the watchword."
It's not too late to de-risk. If we move into recession, which I believe is a base-case by the spring, this bear market is little more than half-done, at best. These types of downdrafts do not end with P/E multiples of 14x-15x but rather closer to a 10x-12x range. So even a flat earnings backdrop can take this market down to 1,800 on the S&P 500 or even lower. Again, either heed the lesson from history or be doomed to repeat the mistakes of the past - that is the choice.
I have been accused by some of being overly bearish and this is not the first time I warned of double-dip risks. This happened in 2010 and 2011 when the economy was fragile and susceptible to shocks, but each time we had a market setback and a sputtering in growth, Ben Bernanke could be relied upon to step in and intervene with massive doses of monetary stimulus. Then after he was done, Mario Draghi picked up the mantle, and the ECB's incredible monetary accommodation acted as a valve for global risk-takers once the Fed was finished with QE.
This is when I turned bullish from 2012 to 2016, catching 50% of this bull market, which is a step up from missing the entire run from 2002 to 2007 while at Mother Merrill. Maybe in the next bull market, I'll capture 75% of it. We'll see. But I started to turn cautious once the Fed started to tighten policy in 2015 and 2016, and without trying to time when things roll over, I had a strong feeling that normalizing the abnormal was not going to be a very smooth transition.
So between the unwinding of the balance sheet and the Fed's rate hikes since late 2015, the net policy tightening has approached 350 basis points. If the Fed does all it wants next year, the cumulative tightening will be 500 basis points, and no cycle ever managed to emerge unscathed by this sort of monetary policy restraint.
The Fed actually had the temerity of raising rates on December 19 even though, since the prior tightening in late September, financial conditions in aggregate had tightened 125 basis points. So the Fed actually raised rates 25 bps after the financial markets had already raised rates 125 bps (worthy of five tightenings!) for the central bank over the prior twelve weeks.
I do expect the Fed to be cutting rates in 2019 and the futures market has priced this as one-in-ten odds at the moment. But the die is cast because the Fed has already overshot neutrality in our view and there is a risk it will not ease as quickly as we think. I think that the Powell Fed is determined to burst all the market bubbles created under the Bernanke era and then nurtured in Yellen's short tenure.
I am hearing that the President wants to have a lunch meeting soon with Jay Powell and that he is (reluctantly) willing to have the opportunity to break bread (and maybe a few if meetings like this went well for James to have this thing taped).
The question is whether Mr. Powell will ask the president if he did any due diligence and actually read what the current Fed chairman had to say about the bubbles the Fed was generating years ago when he was Governor? Oh, I forgot, we have a President who doesn't like to read.
Here's an example of what Mr. Powell had to say (from the October 23-24, 2012 FOMC meeting - just one month after the Fed announced QE3):
"I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy."
There's more:
"I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons."
First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated. And we will be able to tell ourselves that market function is not impaired and that inflation expectations are under control. What is to stop us, other than much faster economic growth, which it is probably not in our power to produce?
[W]hen it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it's not so much the sale, the duration; it's also unloading our short volatility position.
My third concern—and others have touched on it as well—is the problems of exiting from a near $4 trillion balance sheet. We've got a set of principles from June 2011 and have done some work since then, but it just seems to me that we seem to be way too confident that exit can be managed smoothly. Markets can be much more dynamic than we appear to think.
When you turn and say to the market, "I've got $1.2 trillion of these things," it's not just $20 billion a month— it's the sight of the whole thing coming. And I think there is a pretty good chance that you could have quite a dynamic response in the market."
Well, it seems as though the Powell Fed has a new strategy, and before it eases again, let alone pauses, the market pullback will have to show definitive impairment to the central bank's relatively optimistic economic forecast. So for the here and now, take note of the historical record, every bear market or major correction did not end on their own...the Fed eased and at some point, enough to put a floor under the situation.
The fundamental low in August 1982 only took hold after Volcker massively slashed rates -- like by over 1,000 basis points!
The lows following the October 1987 collapse was after the Fed cut rates, not once or twice, but three times.
The cyclical bear market of 1990 ended once the Fed started to cut rates aggressively (by nearly 700 bps that whole cycle).
The Fed did the unthinkable and cut rates three times in the second half of 1995 to early 1996 to reverse the market jitters it created when it doubled the funds rate to 6% from early 1994 to early 1996.
The stock market almost corrected 20% in the summer and fall of 1998 and in the face of a fully-employed four-percent growth economy, the Fed again cut rates three times. Only then was a floor established under risk asset prices.
It goes without saying that the Fed was forced to slash rates more than anyone would ever have thought in the 2000-2003 cycle (to 1%) and again from 2007-09 (0% with QE) to stem not just the market slide, but also terminate (asset-based) recessions that proved difficult to emerge from.
But also look at this past ten-year cycle. The market dips in 2010, and then we get QE2. Every single market correction this cycle was met with additional policy easing — QE3 was then followed by Operation Twist to bring long-term yields down. And then Mario Draghi stepped in to act as a surrogate when the Fed was done. But for the time being, this story of central bank support is over.
And we are seeing the results of the Fed's balance sheet, the G-4 central bank balance sheet, and the global monetary base are all in contraction mode. The liquidity constraints are acute, and occurring just as the global economy has swung in the past year from synchronized expansion to synchronized slowdown. Surely it is not lost on the bulls that the OECD leading indicator has declined now for eleven months in a row.
To repeat, we have seen a significant tightening in financial conditions that will have implications for global growth, cash flows, debt-service, credit ratings and defaults/recovery rates. And central banks have not responded with anything more than a pledge to keep a close eye on things and be prepared to pause. They clearly don't want to be seen as supporting asset markets any longer -- this goes double for the Federal Reserve. At some point, the monetary authorities will have no choice but to ease, but it may take more concrete signposts that recession risks have materially risen.
We have experienced nearly 10 years of a bull market and economic expansion. The unemployment rate has gone from 10% to 3.7%. We have seen records set for stock buybacks, M&A and dividend payouts. Credit spreads tightened back towards the levels we saw in 2007.
That last bubble, which was related to housing and mortgages, lasted for five years. This bubble was related to overextended corporate balance sheets, growth stocks, private equity, and CLO's which exceeded the high yield market at the peak and with record-low investor protection, and the shadow banking system.
The Fed undertook an experiment which produced a 'sugar high' that lasted a long time, extended and accentuated by the even more aggressive ECB, but now the movie is in rewind mode. It stands to reason that if zero (or negative!) rates along with central bank asset buying would create a certain bullish environment for investor risk appetite, that the opposite will occur once this monetary policy moves in the opposite direction.
The problem, of course, is that mean-reversion means that we go through the mean -- and this is true for credit spreads as it is for the P/E multiple. When you move to one or two standard deviation events in the bull market, you do the exact same in the ensuing bear market. This is why the terms "overshoot" and "undershoot" exist in our business.
Back in August 2005, Alan Greenspan (at his last Jackson Hole symposium), in classic early fashion, saw what was coming down the pike:
"Thus, this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent. To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy."
"But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."
Well, my friends, we are living through history yet again. But with a twist this time.
We experienced an abnormal recession from 2008 to mid-2009. We then incurred an abnormal policy response — unprecedented to the extent that the Fed's balance sheet expanded to a record size and Federal Government debt relative to GDP soared to all-time highs for a peacetime nonrecessionary economy.
And we still had a totally abnormal recovery — the weakest of all time. ‎So abnormal that the tax cuts of this year produced just two-quarters of decent capex growth and all signs suggest that the relief has already been spent by consumers, with no multiplier effects on spending at all, but a debt and debt-service hangover for years to come.
This was never a normal recovery nor a normal bull market. Ben Bernanke took on the role as Grigor Potemkin who built fake cities in Crimea for Catherine the Great four centuries ago. But we are seeing first-hand that normalizing monetary policy has exposed this economy and marketplace for what it is, and has been for years — a complete façade. This remains an abnormal economy that remains chronically dependent on easy money policies and ongoing asset price inflation for its survival. Either Jay Powell reverses course to allow the economy and Mr. Market to once again suck at the central bank teat, or we have to accept more pain ahead -- asset prices that are allowed to find their intrinsic values.
Imagine that all we are seeing today is occurring with the Fed not even yet hitting its estimate neutral rate target and with the real policy rate barely above zero. This has never happened before. And here we are, with the Fed still claiming that monetary policy is still mildly accommodative, coming off a year of rampant fiscal accommodation, and the economy is sputtering and the equity, credit and commodity markets sinking. All because of the Fed's attempts to 'normalize' its policy. But maybe the economy and market are so abnormal that they can't handle the move back towards policy normalization. That is the real story here - the economy and the financial markets, a full decade after the crisis, still need the training wheels. Remember - the Fed also made an attempt at policy normalization in 1936, and then look at what happened in 1937-38. It was not a pretty picture.
The bottom line: Northing is normal about normalizing an abnormal policy setting in the context of an abnormal economic recovery. This clearly is proving to be a very difficult transition, and the risk is that the Fed has already over-reached, as it did, despite its best intentions, in 1990, 2000, and again in 2006.

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