Sunday, December 1, 2019

Beware The 'Unholy Alliance' Of Trump & Powell

From Zero Hedge:

Some things can’t be proven, but they can be observed. Correlation is not necessarily causation, but when the evidence keeps mounting so does credulity. And the cumulative evidence increasingly points to an unholy alliance between Donald Trump and the US Federal Reserve with the Fed succumbing to political pressure and delivering Donald Trump what he needs most: A soaring stock market to ward off political problems and to help ensure a 2020 re-election.
Fantasy talk? Let’s examine the evidence and take a closer look at the historicity of it all. Nobody has done it and I sense it needs to be done for all to see and judge for themselves. May as well be me doing the legwork here.
It all began in October of 2018. The S&P 500 had made new all time highs in September of 2018. The $DJIA made an all time new high in early October 2018. Things were going well. The US tax cuts rewarded corporations with massive tax benefits which many of them unleashed on US markets in the form of record buybacks and markets were soaring, US GDP growth was moving above 3% all was well.
Indeed Donald Trump, known for having tweeted critically about the Fed dozens of times in 2019, had not mentioned the Fed once in 2018. Not until this happened:
Markets sold off in October and suddenly the first tweet about the Fed, a subtle hint quoting a Wall Street strategist:
Backing off of course referring to the Fed’s efforts to use market and economic strength to finally attempt to normalize its bloated balance sheet from $4.5 trillion to something more in line with pre financial crisis levels.
The larger hint: Use the Fed to re-inflate asset prices.
Whatever you may think of of Donald Trump he knows quite well the power of the Fed and its impact on asset prices. Sinking stock prices are bad for business, bad for the economy and bad for a president.
And what better way to increase stock prices than to have the Fed increase its balance sheet. Here, Donald Trump in 2012:
QE creates artificial numbers for short term gains. His words. He knows.
QE was needed, especially as markets collapsed into late 2018:
Suddenly the pace of Fed tweeting increased, the tone more direct with specific instructions:
Stop the 50 B’s. The 50 B’s of course referring to the Fed’s quantitative tightening program on “autopilot” as Jay Powell had declared it to be.
The collapse in markets now prompted more aggressive signaling as only 4 days following the above tweet Trump threatened to fire Powell.
Pressure was on. Treasury Secretary Mnuchin was hitting the phones hard only a day later with his now infamous liquidity calls with banks. It doesn’t take a conspiracy theorist to presume Jay Powell’s phone was on speed dial as well.
Markets, vastly oversold and technically disconnected, bottomed following these phone calls. And Jay Powell’s autopilot program crumbled in principle and suddenly signaled being “flexible” on the balance sheet roll-off only a few days later.
Stop the 50Bs. Yes sir. A message received and likely very well reinforced during an ‘informal dinner” in early February.
And thus began a long windy road to ensure asset price levitation and stop any corrective activity in its tracks and Jay Powell became the savior at every low in 2019:
But the Fed ran into problems during its initial rate cuts in 2019 as each time markets sold off.
All the while the present kept the pressure on in dozens of tweets. Type in “Fed” in the tweet archive and see for yourself.
Here are a few select goodies again linking market performance to the Fed:
Jay Powell is claimed to be clueless as markets were correcting in August:
Powell has let us down, need a big cut:
No, the pressure was on to deliver big, not only on rate cuts but also on QE:
And Powell delivered. 3 rate cuts, and then came the big repo program and then QE, although the Fed sheepishly claimed it not to be QE. The Fed increased its balance sheet hard, over $290B now and markets listened.
Indeed the only down week markets have had since then was precisely the only week the Fed actually reduced its balance sheet. Correlation is not causation?
Hardly, especially considering the Fed is running a massive daily liquidity program on top of QE, called repo:
As markets volumes have dwindled in the run up of the rally the Fed is relentlessly injecting liquidity into these markets with over $106B added just on the Wednesday in front of the Thanksgiving holiday. My question:
My larger point: “The Federal Reserve Bank of New York added $108.95 billion in temporary liquidity to the financial system on Wednesday.”. If it’s temporary, but happens every single day it’s not temporary, it’s a permanent daily liquidity boost.
It’s distorting markets.
And indeed it is.
Following the introduction of QE not only went markets on a tear to new highs, but left the weekly 5EMA in the dust, not touching it for 6 weeks in a row:
Weekly 5 EMA disconnects happen during big rallies and during big sell offs. Nothing unusual about that. How often do weekly 5 EMA disconnects happen 6 weeks in a row? Well, never:
Not even during the blast off rally into January 2018 did this happen, but since the Fed has been drowning markets in liquidity with its daily liquidity injections and treasury bills buying markets have blasted off into the melt-up/combustion scenario.
And suddenly we get to witness a miraculous conversion. From Jay Powell the beaten puppy, the clueless terrible communicator and derelict if he doesn’t stimulate...
...to getting a very good and cordial meeting:
We’re all friends again, cause that’s where you meet with friends, not in the Oval office, but in the private residence of the White House.
I submit the timelines, the actions, the words, the results speak for themselves.
The US Fed under Jay Powell has manufactured a massive market rally producing vast P/E multiple expansion in the face to declining earnings and growth:
Wall Street gets to celebrate, wealth inequality is made great again, Powell’s no longer clueless, his job is safe and the president gets to take victory laps on twitter:
Will it last for the long term?
Not according to this guy:
It just needs to last until November 2020.
And the Fed claiming political independence? That claim rings as hollow as its September declaration of repo being just temporary. Sure Sherlock:
Look, I can’t prove an unholy alliance between Trump and the Fed. I’m not sitting at the dinner table or in the White House residence or listen to phone calls. There are no transcripts, no minutes, nothing of the transparent sort.
But we have dates, we have tweets, we have price action, we have speeches and we have policy actions and we can see the correlations between all these things and the impact on US stock markets and all of these lead to an inevitable conclusion: The Fed has been doing the administration’s bidding, willingly or not is besides the point. They have for the ultimate reason: No bull market without central bank intervention, for they know the larger truth:
I’ll aim to post a technical update separately in the days ahead, but know that this rally is not based on fundamentals or growth, it’s a manufactured melt-up that is stretching charts far above the historic mean and therefore increase risk of a massive reversion. Melt-ups are awe-inspiring, but they are also dangerous if not supported by fundamentals and the Fed may come to regret the liquidity monsters it has unleashed for the Fed will ultimately take the blame blowing the largest asset bubble since 2000.
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Wednesday, November 20, 2019

Bombshell Report Alleges Russian Oligarch Laundered $860 Million Via Swedbank

The money-laundering scandal sweeping across the Scandinavian banking system reached another milestone on Wednesday. The Organized Crime and Corruption Reporting Project, an organization that helped break the story, has dropped another bombshell report about Sweden's Swedbank.
The report describes how one Russian oligarch and ex-government minister managed to hide his wealth via a network of 70 shell companies situated all over the world. The companies had one thing in common: They all had accounts with Swedbank's Estonian branch.
The oligarch in question was former energy magnate Mikhail Abyzov, who was accused of being part of Russian organized crime a few years back, and allegedly used his network of shell companies to shuffle millions of dollars stolen from business partnerships and other businesses safely to Europe.
The report goes on to accuse Swedbank of tacitly aiding Abyzov via mysterious insider employees within the bank who seemed to help his companies avoid the bank's due diligence. Over the years, roughly $860 million flowed into these accounts, and only $770 million flowed out.
Since the questionable transactions involved dollars, it's possible that the Treasury could decide to investigate after reading the OCCRP report. That could create problems for Swedbank.
But the bank said on Wednesday that it was not aware of any violations of US sanctions on Russia, like the above-mentioned report alleged, and said that it would continue to investigate accusations of money laundering made by these reporters.
In a statement, the bank said it is unaware of any violations.
"The Bank is not aware of any OFAC (Office of Foreign Asset Control) violations arising out of the continuing internal investigation," Swedbank said in a statement.
The bank did, however, leave open the possibility that an employee acting as an insider could have done something wrong.
"How individual employees have acted in different situations is also part of the ongoing internal investigation," Swedbank said. "If there has been unethical behavior as described in Uppdrag Granskning, we should of course get to the bottom of it."
"It is a good thing that the bank is being investigated and I welcome Uppdrag Granskning’s reporting,” CEO Jens Henriksson added.
The bank's internal investigation, which has been ongoing for some time now, is expected to wrap early next year.

Ukrainian Indictment Claims $7.4 Billion Obama-Linked Laundering, Puts Biden Group Take At $16.5 Million

An indictment drawn up by Ukraine's Office of the Prosecutor General against Burisma owner Nikolai Zlochevsky claims that Hunter Biden and his partners received $16.5 million for their 'services' - according to Ukrainian MP Alexander Dubinsky of the ruling Servant of the People Party.
Dubinsky made the claim in a Wednesday press conference, citing materials from an investigation into Zlochevsky and Burisma.
"Zlochevsky was charged with this new accusation by the Office of the Prosecutor General but the press ignored it," said the MP. "It was issued on November 14."
"The son of Vice-President Joe Biden was receiving payment for his services, with money raised through criminal means and money laundering," he then said, adding "Biden received money that did not come from the company’s successful operation but rather from money stolen from citizens."
According to Dubinsky, Hunter Biden's income from Burisma is a "link that reveals how money is siphoned [from Ukraine]," and how Biden is just one link in the chain of Zlochevsky's money laundering operation which included politicians from the previous Yanukovich administration who continued their schemes under his successor, President Pyotr Poroshenko.
"We will reveal the information about the financial pyramid scheme that was created in Ukraine and developed by everyone beginning with Yanukovich and later by Poroshenko. This system is still working under the guidance of the current managerial board of the National Bank, ensuring that money flows in the interest of people who stole millions of dollars, took it offshore and bought Ukrainian public bonds turning them into the Ukrainian sovereign debt," said Dubinsky, adding that "in both cases of Yanukovich and Poroshenko, Ms. Gontareva and companies she controls were investing the stolen funds."
Franklin Templeton named
According to Interfax-Ukraine, MP Andriy Derkach announced at the same press conference that deputies have received new materials from investigative journalists alleging that the 'family' of ex-President Yanukovych funneled $7.4 billion through American investment firm Franklin Templeton Investments, which they claim have connections to the US Democratic party."
"Last week, November 14, the Prosecutor General's Office (PGO), unnoticed by the media, announced a new suspicion to the notorious owner of Burisma, ex-Ecology Minister Zlochevsky. According to the suspicion, the Yanukovych family is suspected, in particular, with legalizing (laundering) of criminally obtained income through Franklin Templeton Investments, an investment fund carrying out purchases of external government loan bonds totaling $7.4 billion," said Derkach, adding that the money was criminally obtained and invested in the purchase of Ukrainian debt in 2013 - 2014.
"The son of Templeton's founder, John Templeton Jr., was one of President Obama's major campaign donors. Another fund-related character is Thomas Donilon. Managing Director of BlackRock Investment Institute, shareholder Franklin Templeton Investments, which has the largest share in the fund. It is noteworthy that he previously was Obama's national security advisor," Derkach added.
Derkach then demanded "President Zelensky must pick up the phone, dial Trump, ask for help and cooperation in the fight against corruption and fly to Washington. The issue of combating international corruption in Ukraine with the participation of citizens, businessmen and U.S. officials should become a key during the meeting of the two presidents."