08/9/17

Obama Blew All Opportunities with China and N. Korea

By: Denise Simon | Founders Code

Obama along with Hillary Clinton and John Kerry gave us trade deals and climate change stuff….Obama did not understand Thucydides Trap and chose to ignore it. Steve Bannon and H.R. McMaster, along with General Mattis, are experts on it and President Trump is confused. Trump tells President Xi, he will honor the one China policy.

Obama launched an Asia Pivot, remember that? Others called it a ‘re-balance’. Well…

The “rebalance” policy not only aims to protect the region from unwanted security threats, but also to secure commercial sea lanes for American imports and exports flowing in and out of the region.

It is increasingly important for the U.S. to maintain freedom for navigation from the Arabian Sea to the Pacific Ocean. The economic aspects of the “rebalance” under the Obama Administration have been largely shaped by U.S. participation in the TPP talks aimed at institutionalizing regional free trade practices. The vision of the U.S. Trade Representative for the TPP is an FTA for the twelve negotiating parties –Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S., and Vietnam – which will form the basis for a broader agreement that eventually could eventually include all the economies of the Asia -Pacific region, including China.

If successful, the TPP could provide the US with a number of benefits. It would include U.S. access to growing markets in Asia, help stimulate the growth in U.S. exports, generate export – related jobs, and foster an economic recovery, while enhancing measures to protect U.S. intellectual property rights, and ensuring that business competition occurs in a fair regional market.

The third major component of the U.S. “rebalance” policy falls in the “dignity basket” that seeks to uphold democratic and human rights and the rule of law. The Obama Administration’s emphasis on universal rights targets the credibility of the Chinese government in the midst of its rapid growth and intends to apply pressure on Beijing to adhere to right practices as a responsible stakeholder. In this way, China’s rise would be perceived as less of a threat to regional and global powers and more as a constructive member of the international community. The Administration’s “rebalance” to the Asia- Pacific region is in essence a hedging strategy towards China, one that combines engagement with Beijing with the creation of a network of bilateral military partnerships and alliances in the Asia-Pacific as a potential counterweight against the rise of China.

The U.S. “rebalance” has endowed smaller nations who are claimants of the South China Sea territories with more political capital without becoming directly involved in such territorial disputes.

As a result, Chinese and western analysts are concerned about the “rebalance” being an actual policy of containment against China. Obama Administration officials, in response, repeatedly make clear that “rebalance” to Asia is not a containment strategy, but a policy aimed at strategically placing the U.S. in a favorable position as the Asia-Pacific becomes one of the major centers of global activity. More here.

*** So, with all that early on, the Obama administration got a TPP agreement…okay swell…what came next…

Well, after all the Obama administration personnel changes and additional changes in region leaders including Japan, China and S. Korea….and the rise of the Islamic State, the best then Obama and John Kerry could do was a Paris Agreement.

The United States and China announced Saturday that they are formally joining the Paris Agreement to combat climate change, significantly increasing the likelihood that the accord will take effect this year.

The announcement, made by U.S. President Barack Obama and Chinese President Xi Jinping before the start of the G20 summit in Hangzhou, China, adds momentum to ongoing international discussions surrounding climate change. The accord requires 55 countries to join, representing 55% of the world’s greenhouse gas emissions, before it enters into force. Together the U.S. and China represent nearly 39% of the world’s emissions. They join 24 other countries that have already signed on to the agreement, according to a count from the World Resources Institute.

The announcement is the latest in an unlikely partnership on climate change between the two countries. Chinese opposition to strong global warming measures, at least in part, prevented efforts to reach a strong climate deal in Copenhagen in 2009. But climate became an area of cooperation when Xi took office in 2013. The alignment between Obama and Xi has been credited with building support from other countries in advance of the Paris conference in 2015 that yielded the world’s strongest agreement on climate change. More here.

Where the hell were those consequences Obama talked about in September of 2016?

In part from ABC: North Korea confirmed its fifth nuclear test explosion early Friday, its largest yet. The provocation brought instant condemnation from the country’s neighbors and a call from President Obama for “serious consequences.”

Pyongyang also said it has made strides that could bring it closer to mounting a warhead on one of its ballistic missiles and launching a long-distance nuclear strike.

“We successfully conducted a nuclear explosion test to determine the power of [the] nuclear warhead,” a female anchor announced on North Korea’s state television. “We will continue to strengthen our nuclear capabilities to protect our sovereignty. We have now standardized and minimized nuclear warheads … We can now produce small nuclear warheads any time we desire.”

“Today’s nuclear test by the Democratic People’s Republic of Korea, if confirmed, is its second this year and the fifth since 2006,” said International Atomic Energy Agency Director General Yukiya Amano. “This is in clear violation of numerous UN Security Council resolutions and in complete disregard of the repeated demands of the international community. It is a deeply troubling and regrettable act.”

North Korea previously conducted nuclear tests in 2006, 2009, 2013, and most recently in January 2016.

South Korean President Park Geun-hye called the explosion an act of “fanatic recklessness.”

The White House said National Security Adviser Susan Rice briefed Obama on the incident.

“The president also consulted with President Park of the Republic of Korea and Prime Minister Abe of Japan in separate phone calls,” White House press secretary Josh Earnest told ABC News. “The president reiterated the unbreakable U.S. commitment to the security of our allies in Asia and around the world. The president indicated he would continue to consult our allies and partners in the days ahead to ensure provocative actions from North Korea are met with serious consequences.”

The U.S. State Department also told ABC News it was aware of the explosion.

“We are aware of seismic activity on the Korean Peninsula in the vicinity of a known North Korean nuclear test site,” State Department spokesman John Kirby said. “We are monitoring and continuing to assess the situation in close coordination with our regional partners. The Secretary has been briefed on this incident.”

China’s foreign ministry condemned North Korea’s nuclear test and said it will lodge a diplomatic protest with Pyongyang’s ambassador in Beijing. The foreign ministry issued a statement saying it “resolutely opposes” the test and “intensely urges” Pyongyang to abide by its non-proliferation promises.

Japanese Prime Minister Shinzo Abe said the test explosion “could not be tolerated.”

So, now Guam is a target of North Korea due to fear of Thucydides Trap, there are 60 nuclear weapons in play, there are 10 hour trilateral air missions daily and the U.S. nuclear triad is in active deployment.

For a list of what the United States has at the ready, go here. It all sounds good and comforting until someone asks what is on the menu of strategies going forward….the time for talk is over or is it?

08/9/17

Are The Markets On A Knife’s Edge?

By: Kent Engelke | Capitol Securities

Are the markets on a knife’s edge? There was little reaction to the headlines that North Korea has successfully produced a miniaturized nuclear warhead that can fit inside its missiles, crossing a key threshold on the path to becoming a full pledged nuclear power. The US has declaratively stated it would not permit North Korea to cross this boundary.

And then there is oil. Venezuela is on the verge of total anarchy threatening the viability of its oil industry. All foreign oil workers from various countries have been ordered home by their respective organizations. Russia stated it will not advance Venezuela more funds, advances secured by future oil production. Venezuela is the third largest provider of crude to the US, supplying about 750,000 barrels a day.

OPEC stated that Iraq and the UAE — the biggest violators of their production pledges — will now honor their commitments. Libya and Nigeria’s production has been capped. Saudi Arabia announced reduced shipments to China, similar in scope to the reduced deliveries to the US.

Oil demand is at a record high and supplies are contracting where according to the EIA demand is about 1 million barrels greater than supply.

Will we wake up one day and see oil at $60?

What about equities as yet another high profile firm is questioning the narrowness of the markets, narrowness based upon the massive impact of ETFs and high frequency traders?

And then there is the bond market. The two largest asset managers, firms that manage over $7 trillion, have remarked the bond market is grossly overvalued partially predicated upon the record number of US job openings, rising to 6.163m in June from 5.702m. The vast majority of employers stated finding qualified drug free applicants is “difficult.” [Note: FRB Chair testified last month between 25% and 40% of job offers are rescinded because of opioid and other drug use.]

As stated so many times, all markets are dominated by cross-correlated technology based trading; trading involving massive use of derivatives and futures.

I am not bearish, but rather greatly concerned about the large imbalances that I believe exist.

About 20 months ago, Barclays Bank presented a scenario where certain sectors of the markets would “melt up” at the expense of the vastly over-owned sectors that threaten the stability of a money center bank. Barclay’s scenario was presented around the same time that both the FDIC and Federal Reserve began questioning all money center banks about their exposure to HFTs and ETFs.

The passivity via ETFs and complacency is great. Is this about to be shattered?

Only history will answer this question.

Last night the foreign markets were down. London was down 0.72%, Paris was down 1.57% and Frankfurt was down 1.26%. China was down 0.19%, Japan was down 1.29% and Hang Sang was down 0.35%.

The Dow should open moderately lower on geopolitical concerns. Oil is up on a greater than expected inventory draw. The 10-year is up 7/32 to yield 2.24%.