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What I am about to write and the words I use to express my thoughts may anger a lot of progressive radicals because I am going to defend Trump, not for the way he says what he says, because I too find him crude, overly "egoistic," too quick to label those with whom he disagrees and who attack him ( I often do the same, ie Up-chuck Schumer.) and you know the rest.

That said, I still am able to separate the man, his words and persona from his actions and policies which I continue to mostly favor and support.

Trump has become a punching bag for all those who find him repulsive because he managed to beat their favorite princess. Unlike so many presidents, Trump is pugilistic and he fights back and counter punches.He is driven by an "uge"ego and a belief in America. He is more than willing to enforce laws regardless of whether doing so is politically correct. Democrats love to pass laws but then object to when many are enforced.

From my perspective, I believe the political divide our nation finds itself in is driven by several main reasons.

To begin with, Congress has abdicated much of it's authority and has relied upon The SCOTUS to legislate from the bench. Congress has avoided hard decisions because they were unwilling to touch the third rail and as long as they could depend upon Liberal Justices to do the heavy lifting they were able to avoid their responsibilities. They placed winning above the interests of nation.

Now that Trump and Sen. McConnell have the upper hand, when it comes to judicial appointments, the tide has turned and progressives are losing power and this is frightening and disturbing. Their response is to attack and resort to character assassination, ie the Kavanaugh Hearings. Trump's response to Charlottesville gave nourishment to his detractors who have labelled him a racist and the mass media have gone beyond that.

The second reason the discord has heightened is because we have a president who is willing to touch the third rail, and this puts him in direct confrontation with those who have chosen to kick the ball down the field.

I can think of no better example than in the case of illegal immigration. While I was on vacation a district judge, from the liberal 9th Circuit, chose to ignore the president's sworn oath to protect and defend our nation. This ruling effected the entire nation and bars the president from taking action in keeping with his Constitutional responsibility. As is Trump's tendency, he did not take this action laying down and castigated the judge drawing a rebuke from the Chief Justice who felt compelled to defend all judges. I have two criticisms: first, court shopping was engaged and I find that repugnant. That one can choose a judge who is favorable to their cause who then can rule in a manner that ties a president's hands offends my sense of fair play and justice.

On the other hand this judge has probably interpreted the law correctly and Trump should have based his actions on his constitutional right to defend our nation and he did not.

https://youtu.be/SD5BMDKsmf0

For The Chief Justice to respond selectively is equally despicable and hypocritical.

Where was Chief Justice Roberts when Justice Ginsburg ranted and raved about candidate Trump?

It has become all too easy for everyone to believe they are justified in punching Trump for everything he does and says. Hillary talks about decorum one day and then viciously attacks the next. Obama, likewise .When Trump haters come into court with clean hands then, and only then, will I be willing to give their comments their due.

It is time for vicious Trump haters to cool their heels.

The third reason for national discord and divide is of Trump's own doing. He goes out of his way, in defending himself, in offending whose who, themselves, go off the charts in their calculated and unwarranted attacks. Trump has a hard core of loyalists who Hillary labeled "deplorables." I consider myself one. However, he has driven away a large number of those who previously voted for him and he will need them come 2020 unless Democrats select unappealing candidates in the vein of Hillary.

Based on poll results, a large number of "vaginal voters" (urban females) are so turned off by Trump they are unwilling to/cannot think rationally. The mass media bias continues unabated. They have resorted to distortion in attacking Trump and In doing so they provide more Kool Aid for those prone to hate Trump..

Trump's nature is combative, however, there comes a time when one needs numbers and it is very difficult to win back "haters" and/or irrationals.

One other instance when Trump truly showed his bluntness was in the Khashoggi matter. He chose commercialism over recognizing the Saudi Prince was involved in murder. He was in a terrible bind and chose our relationship with the Saudis but, in doing so, made a very poor case for defending his decisions and even disregarded the CIA's finding. I believe his decision was correct but he was very weak in his justification of same. No matter which way he would have decided he was going to expose himself to criticism and damned if he did and damned if he did not..

I see nothing on the horizon that is going to alter the scene. Trump at 72, is not going to change and the incoming Democrats, who now control The House, show no inclination to smoke a peace pipe.

Members of my own family reflect my observations. My wife is a devotee of Limbaugh but is repulsed by Trump. My son remains a conservative but the events in Pittsburgh have impacted his thinking. He would rather prefer Trump be the best president he is capable of being than be so combative and so it goes.

Finally, the mass media must entertain and make money so they have already begun focusing on 2020. Meanwhile, Democrats believe they smell blood as a result of the the mid year election results which still are not 100% resolved.

If I were advising Trump I would urge four things:

a) First, send senior Cabinet members out to talk with black and Hispanic voters and have them cite incontrovertible facts about the improvement in their own personal lives as a result of this administration's economic policies..

b) Second, Trump needs to soften but he also should press forward on legislative initiatives and challenge Democrats to meet him for the good of the nation. They either will, which would be good for everyone, or they will not which will reveal their true colors and questionable intentions.

c) Third, Trump needs to tie up loose ends when it comes to some trade issues, and seek a health care agreement that is rational and which will not break the nation fiscally. Again, let the Democrats sing the siren song of socialism and propose giving free "stuff."

Fourth, I would advise he make every effort to cut deficit spending and again challenge Democrats to join. If this means goring some golden oxen and restoring sanity so be it. We cannot continue to spend and rely upon others to fund our profligacy.

https://overcast.fm/+JfkI9O8TY

Stay tuned as matters unfold because, I believe, it is going to be another two years of heightened discord.

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In terms of the market, I always felt if The House turned Democrat the market would not respond kindly and I believe that is partly what we are experiencing. Nothing has changed except The House is now in their hands and everything is seen through that less appealing prism.

Yes, FANG stocks were extended, The Fed is pressing forward with increasing interest rates which, in my opinion, is not wise at this time. Europe is slowing and the trade issue with China remains unresolved. What is new? The House is now in Democrat hands and they want blood - their pound of flesh? Retribution is no way to run our government but Democrats are not deterred by irresponsibility.

I suspect the market will have a Santa Claus Rally but from that point forward,psychologically speaking,, the glass is half empty even though there is no current evidence of a recession etc.

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I thought this article by rick Erickson very worthwhile posting.

The black candidate for governor displayed poor breeding in the. manner in which she acknowledged her ultimate defeat.(See 1 below.)

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Another Rant.

I agree with most everything Ross has written but he did not mention the negative psychological impact of the Democrat take over of The House (See 2 below.)

And:

Edited market interview of Stan Druckenmiller. (See 2a below.)

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Has the fox been placed in charge of the chickens? (See 3 below.)

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An objective op ed regarding mass media bias? You decide. (See 4 below.)

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I continue to post these because they make sense and common sense is a commodity no longer in vogue. (See 5 below.)

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Dick

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Where Do We Go When Journalism Fails Us?

By Erick Erickson

This election should remind us how vital and necessary local journalism is to factual reporting. National media outlets routinely fell for stories about topics outside their knowledge base -- stories specially crafted by political operates wanting to shape narratives about campaigns.

All one need do is look at Georgia, where Secretary of State Brian Kemp won a closely watched governor's race against progressive darling Stacey Abrams. National reporters breathlessly reported stories about Kemp engaging in campaign shenanigans to such an extent that progressives are convinced he stole the race. What is most interesting is Georgia reporters never covered the stories or covered them with such a command of the facts that the national implications were shown to be partisan spin.

In southern Georgia, national reporters covered the tale of Kemp trying to close a county's black voting precincts, forcing black voters to drive or walk many miles to predominantly white polling locations. The truth? The Democratic county commissioners and Democrat-controlled local board of elections hired a consultant to review polling locations for compliance with the Americans with Disabilities Act. The consultant recommended consolidating several locations deemed unfriendly to handicapped voters. The locations were all the Republican precincts that voted for Donald Trump. The Democrat majority precincts were not touched.

The Associated Press reported the story of a woman who was denied voter registration because of Georgia's "exact match" law that requires a voter exactly match their voter registration form to the information on their driver's license. This voter had a hyphenated last name and she was denied voter registration because she failed to include the hyphen. The truth? She was actually denied voter registration because she had already registered to vote and the computer system flagged her new registration as a duplicate. The Associated Press never corrected the story.

53,000 voters had their voter registration paperwork held up as "pending voters," according to the same Associated Press story. They claim it overwhelmingly impacted minority voters. The truth? There was a surge of minority voter registrations, so they were disproportionately affected. But the underlying data tells a different story. Seventy-five percent of the pending voters were placed there because they put down bad social security numbers. Twenty-three percent were actually on the list from the 2014 election and had been submitted by the 2018 Democratic candidate's own voter registration efforts from 2014. In four years, despite notice from the secretary of state to the voters that they needed to fix their information, none of those voters ever showed up to fix the information or tried to vote.

National media outlets also reported the Georgia secretary of state had thrown voters off the election rolls this year. The truth? The secretary of state is prohibited from removing people from voting rolls in election years. Local election officials do remove people from the rolls during election years, but only if the voter dies, is convicted of a felony or is deemed incompetent by a court.

Finally, for the past two months, national outlets have run stories suggesting Kemp has a conflict of interest because he runs Georgia's elections and is on the ballot. The truth? The secretary of state runs for office and is on the ballot every four years. No one complained till now. But what about the merits of the allegations?

In Georgia, local boards of election control elections, not the secretary of state. All the election year complaints about voting equipment, long lines, voters denied the right to vote, etc. are all local issues. The secretary of state only gets involved once an election is concluded, when he becomes the chairman of the state's election board. Kemp resigned two days after the election to avoid the conflict of interest.

Local media in Georgia got these stories right while national outlets flubbed them. They distorted the facts and got basic facts wrong. The national reporters wanted to build narrative arches with protagonists and villains instead of just giving people the facts. As local news outlets rely more and more on national reporters, or fade away, more stories like these will be reported and even more people will distrust the press.

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The past several weeks have not been fun in the market, and there are all sorts of theories as to why. The Fed, slowing world economy, trade issues with China, US economy to slow next year, potential recession in 2020, high dollar, fading impact of tax cuts and fiscal stimulus, the election, Brexit, Italy, slowing cap ex by corporations, slower housing market, or overpriced tech stocks. Probably all had some influence, but it is still not clear that selloff should have been so major. The US economy remains doing very well. Consumer sentiment is still very near record high. Gas and oil prices are the lowest they have been for a very long time just as heating season starts. Consumers are in good shape financially, and wages continue to rise and unemployment continues to decline. There was a 10% rise in consumer satisfaction and optimism among lower and middle income households last month, but a decline among upper income. Christmas should be excellent, and should cause retail stocks to rebound. While earnings were up 26% this past quarter, there is no way that can go on at that level, and everyone already should know that earnings growth of 8%-10% in 2019 is still very good. While all of these issues are legit, we need to keep perspective. There was never any possible way earnings can keep growing at 26%. Everyone has known the China trade issues will take many months to sort out, but the issues with China are very real, and Trump is the only one in decades willing to confront China on behalf of the rest of the world. Cap ex is likely slower due to the uncertainty about the long term -2 years. However it will possibly increase once Christmas sales are in. The Fed is possibly going to pause in March, and to say something more dovish in Dec in their statement. Brexit is a completely unknown now, as is the Italy fiscal mess. There is no question fiscal stimulus runs out in 2019, but that does not mean recession. Lower taxes still apply. Earnings will continue to grow. There is a real risk of a shut down when the Dems demand tax increases and other things in the budget.

I think a lot of the problem in the stock market is so many analysts and traders were in high school or college in the crash, and do not understand business does very well with a 5% ten year, and 8% mortgage rates that we had for decades. For many, their whole working experience is ultra-low rates and recovery, and now a strong growth economy with continued low rates. There is currently very little stress with loans, none with banks, consumers are in good fiscal shape, and jobs are secure and plentiful with take home pay finally rising faster than inflation. Their home value is well in excess of their mortgage in almost all cases, and their 401K is well above where it had been even three years ago. Even if things slow, there are not going to be mass layoffs. Just less hiring, which may be good, as that would ease the potential for faster inflation. If the Fed pauses, then debt service on all the massive corporate debt now outstanding will still be serviceable. It is largely fixed rate at low rates, and not all floating debt that would get into trouble as rates rise. The high dollar will keep import costs low. With the fear of a recession in a year, capital is moving to the Treasury market, and that keeps the ten year lower than we would expect in a booming economy. A low ten year, around 3.1% right now, means corporations and real estate can refi long term fixed at still very low and easily handled rates. That is a great help to preventing a debt crisis next year, or 2020. There is still plenty of time for borrowers to replace their floaters with fixed, and avoid a problem. Home mortgages at 5% should also not be much problem for most homeowners, so we will avoid the 2007 issues of reset floaters, over borrowing based on liar loans and phony appraisals, and interest only going to amortization. Those were what killed many home owners and developed into the crash. Oil remains very low, so consumers will have considerable extra cash to spend or save, and to pay off the credit card debt from Christmas. In short, in my view, recession is not close to happening. The Fed may stop for a while next year if it looks like things are slowing too much, or if the recession scenario becomes too prevalent in the markets.

The counter argument of some leading economists is, labor shortages will raise wages and then inflation, that will cause the Fed to raise rates much further, that will cause leveraged loans and other loans to default, shadow lenders will get into a liquidity crisis, slowdown in housing due to high rates, and the fiscal stimulus of the tax cuts and budget deficits will end in 2019 –(they had added 1% to GDP in 2018 and into 2019, but zero in 2020), and add on slow economies around the world and a trade battle with China, and all together these factors will cause the economy to fall into recession in mid-2020, just as the election looms. Maybe they are correct. The Fed matters.

In my view the problem with housing is not mortgage rates which are now just at 4.81%. Not high. It is a combo of high home prices, needing 20% down, student debt burdens, and real appraisals, and real credit underwriting, and income verification, instead of what we saw in prior 2007. In short, now there is a real lending market, and real credit required to borrow. Too many young people have student debt and not enough savings. The refi market has slowed a lot due to many people already refinanced at 4% or less over the past 7 years, and so there is not much refi demand left at 4.81%. It is not a sign that rates are too high, or that the housing market is crashing. It is more a result of the ultra-low rates of the past ten years having fulfilled most of the refi pipeline.

Trump is correct in his policy to Saudi Arabia. As bad as the murder may have been, there are far bigger strategic issues than one murder. Without an alliance with the Saudis and their being very well armed, then the entire policy against Iran has problems. The Saudis are the offset to Iran along with Israel, and those two are working together these days on intelligence and possibly undercover actions against Iran along with the CIA. The entire future of the Mideast and avoidance of Iran having even more influence in Iraq, Lebanon and Syria, depends on a close relationship of the US, Saudis and Israel. If we blow the Saudi relationship a lot more people are going to die than one reporter. Besides, Turkey, Russia, China and Iran kill or torture reporters more than once. In Mexico many reporters who have reported on drug cartels got killed. Where is the outrage. Cutting off arms deals with the Saudis only weakens them against Iran and invites in the Chinese and Russians. In short, sanctioning and cutting off arms would be stupid and short term thinking. Trump is taking advice from Pompeo and Bolton on this, and has the guts to do what is strategically needed, not what is politically pretty. Critics claim he is being crass, and so Schiff is going to claim Trump is getting paid off somehow, and he will open another useless investigation. He was instead being strategic, and doing what is good for the US and the world. If Obama were still in power, the US would have done all the wrong things, just as he did in Syria and Iraq, and, as with both of those situations, lots more people would die. As Pompeo said- the Mideast is a very rough place. Maybe Trump might have stated things differently, but what matters is not to lose sight of the reality in the Mideast, as Pompeo has made clear.

Betsy DeVos has issued new guidance for colleges to handle claims of sexual assault. The new guidelines actually allows due process for the boy, instead of the Obama guilty as charged, and based on preponderance of evidence- usually the say so of the girl. Up to now the boy was not allowed a lawyer, cross examination, or any other constitutional rights. He was guilty and the girl was a “victim’ and survivor. The judge was a school appointed person tasked with finding guilt. In most cases on campus, it was an incidence of the two being drunk at a frat party, and girls not having any boundaries until the next day, or until their real boyfriend found out. It is not a case of some boy stalking a girl on a dark night on campus and violently attacking her. In many cases the girl later dates the same boy again. Colleges set up sex assault teams with their own dean, so they need to have a purpose, which means encouraging girls to file claims, and the convicting, and expelling boys. They refer to the girls as survivors making it seem as though in many of these cases they were attacked by a real rapist in some violent act. Now the Me Too groups are attacking DeVos for stating that the accused has a right to being presumed innocent, cross examination, a lawyer, and a real standard of evidence. Imagine that-college boys have constitutional rights just like every other American!!! There have been over 50 cases taken to federal court to force the colleges to pay the boys who were falsely accused and expelled improperly, and there are over 75 more cases in court, but the progressive female movement has labeled giving boys their constitutional rights as an attack on the “victims”. If you have not been following this, you have no idea how bad it has gotten for boys on most campuses, and the damage to their lives based on false accusations. I have seen it first hand with the son of a friend who was eventually exonerated, but lost a full year of school, and had to change schools. You saw this victim mantra play out in full view with Kavanaugh. That is exactly what happens to boys on campus as a result of the Obama guidelines that DeVos has now corrected.

2a)

Stan Druckenmiller – Pieces of the Puzzle

Stan: Everything for me has never been about earnings, has never been about politics, it’s always about liquidity. My assumption is one of these hikes, I don’t know which one, is going to trigger this thing. I am on triple red alert, because we are not only in the time frame, we are in the part (of the cycle), maybe markets don’t anticipate the way they used to. There’s no more Euro ECB money spilling over into the U.S. equity market. If we get a blow-off at the end of the fourth quarter, which typically tends to happen especially for the NASDAQ, particularly if theses bombs keep going off in the emerging markets, I could see myself taking a big shot somewhere around year end. But that’s still a long way off, right now I’m licking my wounds from the last shot I took.

Looks like yields are breaking higher on Japanese yields. For the world, this is part of the puzzle I’m talking about. In and of itself, I don’t know. But since it looks like this is happening, and at the same time the ECB will stop buying bonds, and it looks like at the same time we’ll be shrinking our balance sheet $50 billion a month. All of these pieces fit together for a reckoning. I’m not in the business to make a fortune if something goes from 10 bps to 20 bps, that’s not something I’m going to make a lot of money on. I might have a short on to amuse myself, but I do think it is very important in terms of the overall narrative. It’s also instructive as to why they are doing it. It looks like, from my read, that they are not doing it for economic reasons. They finally understand that it is killing their banks, which is the blood and the oxygen you need to run the economic body. And that’s causing a political problem. (In the U.S.) I sure hope it doesn’t take us 25 years of that kind of evidence before we normalize.

They’re all (Japanese Central Bank, ECB, Fed) going in the same direction which is why I made the (short to market) bet in June and July and I was wrong on a trading basis. But psychologically I’m still there. It is going to be the shrinkage of liquidity that triggers this thing. And frankly it has already triggered this in emerging markets. And that is kind of where it always starts. What I haven’t seen yet, and where I think we should see it before we see it in the equity markets, and God knows, talk about a crazy priced market it’s the credit market… and it’s amazing… probably since the 1880s-1890s, this is the most disruptive economic market in history, there are hardly any bankruptcies. So that Warren Buffett line about swimming naked when the tide goes out? There are probably so many zombies (companies) swimming out there and there is going to be some level of liquidity that triggers it… who knows, it might start with Tesla. I don’t know. I mean, could this Tesla thing happen in any other environment in history? It’s just ridiculous what’s been going on there in the last few weeks. But I don’t look at it so much that it’s Tesla, it just describes the environment to me. It’s just nuts.

Kiril: With all of the malinvestments and trillions of dollars that were spent without a cash return, you just can’t imagine how many zombies there really are out there and corporations buying back their stock to the tune of $5 trillion, running down their balance sheet. And then you go to the high yield market where it is covenant-lite and huge amount of issuance, what happens when interest rates start to reflect credit risk?

Stan: Intuitively, you can make a case that we are going to have a financial crisis bigger than the last one because all you did was triple down on what, in my opinion, caused it. Bernanke and I have a big disagreement over what caused that crisis, but to me the seeds of it were born in 2003 when we had 9% nominal growth in the fourth quarter and we had rates at 1%. And with that stupid “considerable period” thing attached to it (keeping rates low for a considerable period of time).

This caused serious malinvestments for three or four years. Subprime was pretty easy to identify if you had the right people showing you which, fortunately, I was lucky enough to have. I don’t know who the bogeyman is this time. I do know there are zombies out there. Are they going to infect the banking system the way they did the last time? I don’t know. What I do know is we seem to learn something from every crisis and this one we didn’t learn anything. In my opinion, we tripled down on what caused the crisis and we tripled down on it globally.

Kiril: We tried to solve the problem with more debt. That’s what we did in the 1920s and that didn’t work out.

Stan: With Wall Street just cheering them on.

Kiril: We’ve got this huge unfunded liability problem. A hundred trillion of Medicare, Medicaid and Social Security. That’s five times GDP. It’s just as bad in the rest of the world. Worst demographics in 500 years. Dependency ratios rising. You are going to have a battle between creditors and debtors at some point. Up to now the creditors have been winning but they are starting to lose a couple. When that plays out we are going to have some really tough times. Which brings me to this whole idea of populism. I want to try to bring this all together.

I started following populism back in 2011. That’s when I thought it was coming. Then we had Brazil. I came back from Beijing in October 2012 and it was clear to me that the new leadership was planning to clamp down on corruption to save the communist party. The word was to give a little bit now rather than a lot later. Unfortunately, in America, that didn’t happen. We’ve just gotten more wealth disparity. So populism, some people think it is represented by Trump and other people have different theories. My feeling is that populism is really about wealth divide. And an unequal sharing in the economy.

For 30 years the worker didn’t really get a wage increase. Now starting to get some, but it is being taken away from the higher cost of living. So when you look at this whole debt situation, you also have to look at it through this populism and this creditor vs. debtor situation. So how do you see this all playing out?

Stan: First of all, I think you nailed the cause of it because the previous populous periods we had required much worse economic situations to set them off. When I was running money for Soros, at year end for the first few years we had a fixed system for sharing the percentage of the profits. The rage the high performers felt about the low performers, even though they were all ridiculously overpaid, taught me that envy is one of the strongest human emotions. And when you look at the wealth disparity today, in my opinion, the biggest accelerant has been QE… it’s not even debatable. Then you have the internet broadcasting this disparity through millions of bits of information on an ongoing basis. I personally think Jeff Bezos deserves every penny he has. It’s one of the greatest companies ever. But there have been 20 articles in the last 40 hours, I bet you, that say he’s worth more than $150 billion. How does a normal citizen look at that and even contemplate it. So I think that is the seed of it. It’s not some economic malaise, it’s the disparity. It’s never been worse and probably one of the most disturbing books I’ve ever read was Charles Murray’s Coming Apart. This is going to get worse and it can’t stop. I don’t see what stops this until you end up with some major, major dislocations politically and economically because of it.

I agree with you that it’s not about Trump. Trump is clearly a populist but it’s globally. It’s everywhere. Other than Macron, there have been surprise after surprise to the elites on these elections and I wonder why they are surprised anymore.

Kiril: This leads me to America’s shift towards nationalism under Trump. The rest of the world is focusing on maintaining multi-lateral alignments. Japan has just signed with the EU and Mexico. TPP is powering ahead. We have the China One Belt. There is much controversy about it but I think it is tremendous, I think it is real. I understand why they are doing it. My question is, which is destined to win in the end (nationalism or globalism)?

Stan: The answer is I don’t know. Probably the most destructive thing Trump has done in the global trading system is figured out how powerful a weapon the U.S. banking system was and how powerful sanctions are… but he doesn’t understand that weapon is so powerful… Since the Marshall Plan on, we have been the only country that all the others, no matter how they might bad mouth us, trusted us to do the right thing. We are the only nation in history who handled success the way we did. And yes, you should use this weapon once in a while, but when you start just shooting it all over the place and you are now shooting it at Canada, at Europe, at here, there and everywhere, it’s a lot different than shooting it at Iran. He’s like a little kid that found this water gun and is just running around all over the place with it. The biggest danger I see is that we lose that trust. That America is good and in the end, they are going to do the right thing. I don’t think that trust can be lost in four years. But if Trump is reelected or maybe even worse if another populist on the very hard left is elected and they use the weapon the same way I think by 2024, by the way it is exactly when the entitlement thing will start to get crazy, this thing could be very bad. I’m open minded… let’s see who the Democrats put up. Let’s see if Trump’s in office. But I don’t think the world will give up on us in four years. I’m open minded to Trump having been a one-off and our great system can survive this but it’s not like that’s an 80% probability, it’s probably somewhere between 40% and 55% that it works out. It’s sad.

Kiril: For sure. The whole supply chain issue is complicated. I’m concerned that the administration doesn’t understand the complexity and by trying to pull out all of the sensitive components from China and relocate them to the U.S. or to Vietnam, or wherever else is so immensely disruptive and dangerous, then you start a process… During the first part of the worst meeting in the trade negotiations between the Chinese and the Americans, I was in Beijing and then South Korea and I meet with Samsung. Already China was moving aggressively to create their own semiconductor business (having invested $150 billion). I asked Samsung what are you going to do if the Americans forbade you to sell semiconductors to China, will you continue to do so? I was told that they would. But they would also help China build their own industry even though it would cannibalize them. So I see these trends that are taking place that won’t be reversed. Europe, who would normally be an ally of America to try to hold back China’s advances, is now being forced more towards China and these are things that are not going to shift back because once you start to take these positions you are not going to reverse yourself.

Stan: I agree with you on the semiconductors and it emphasizes what you said earlier about these sort of “now” policies. Even if they worked and I could make an argument that they won’t work because if you disrupt the supply chain, everything is going to blow up. What you have done is absolutely put in force the creation of the Chinese semiconductor industry that didn’t need to happen in the time frame it is going to happen. I think there has been enough frustration with the Chinese that the Europeans could look at this and be right back there with us as allies again. But you are right, there are a lot of other things that are set in force that we are not going back to. I think you can make a good argument that some of the aspects of the China dispute are a fight worth fighting; you could also make an argument that they are not. But they are not a fight worth fighting without Europe and Canada and all these allies we’ve had… If you want to take on China, and fair people can debate on whether that should be done… but if you want to take on China, you can do it with a united front. You don’t do it by alienating all of your partners as the process gets underway.

Kiril: Especially when the U.S. is a net debtor to the tune of $8 trillion. Is running fiscal deficits that are close to what they were running in 2009…

(Stan jumps in: At full employment.) If we are in a recession, that thing can go to $2 trillion in a heartbeat. That’s when deficits explode (sorry to interrupt Stan says). I think we are rolling over something like $10 trillion in nominal and new debt each year. We sold $130 billion in new debt in July, which is a record. And so the holders of our debt are the very people we are having a trade war with. Seems a little ironic to me.

Stan: It is what it is.

The interview concludes with Kiril asking Stan about him and his wife’s charitable interests. When I wrote the above, it required me to watch and replay the interview a number of times. I shared what I personally felt were the most important parts. I hope you got as much out of the interview as I did.

Watch Credit Conditions and High Yield Bond Market Signals

In my nearly 28 years of trading high yield bond instruments, it is the credit markets that signal first. Let’s keep a close eye on credit conditions. When funding disappears, we’ll quickly learn who the zombie companies are… it will be difficult for them to refinance. Defaults will follow. Two important charts follow, the first looks at credit conditions and the second the trend in the high yield space.

Credit Conditions

Here is how you read the chart:

• Pay attention to the bottom section. It plots NDR’s Credit Conditions Index, which is a composite of many different types of indicators, ranging from valuation, to debt service, to balance sheet capacity, to the willingness of banks to lend.

• The yellow circles highlight when the index dropped below a reading of 50.
• Note how that occurred just prior to the last three recessions (gr

ey vertical shaded areas).
• Note the red “We are here” arrow.
• Bottom line: Credit conditions remain favorable today.

High yield market via PIMCO HY Bond Fund

Here is how to read the chart:

• Plotted is the total return price line of the PIMCO High Yield Bond mutual fund.
• The green line is a 50-day smoothing of the price line.

• Red arrows mark sell signals. I’ve selected several points in time when the price dropped below the smoothed moving average price line.

• The green arrows mark buy signals. Here, too, I selected several points in time.

• Note that there are many more signals, points when the price crossed the moving average line, than I’ve indicated. A trading strategy such as this has a high probability win rate at the cost of many whipsaws.
• Given the enormous amount of poorly rated and covenant-lite debt (meaning bond holders get little asset recovery protection in default), keep a very close eye on the change in trend. Credit markets precede equity markets and the high yield market typically signals first.

• Bottom line: High yield is in a sell signal. If credit conditions deteriorate (above chart), there will be no available liquidity for refunding. Defaults will hit record levels and the opportunity on the other side will be awesome.

Source: StockCharts and CMG

Bottom line: Watch recession indicators, watch high yield prices. Stay alert…
Not a recommendation to buy or sell any security.

Trade Signals – No Major Changes to Signals; Equity Signals Remain in Buy, Though Weakening
November 14, 2018 S&P 500 Index — 2,737

Equity market trend remains in an uptrend. The Ned Davis Research CMG U.S. Large Cap Long/Flat Index and 13/34-week EMA on the S&P 500 Index both signal bullish.

High yield and high-quality fixed income signals remain in a sell.

This week, the Don’t Fight the Tape or the Fed has moved to a neutral “0” reading. You’ll see when you view the data that it is when the reading reaches -2 that we should become most concerned.

Click here for this week’s Trade Signals.

Important note: Not a recommendation for you to buy or sell any security. For information purposes only. Please talk with your advisor about needs, goals, time horizon and risk tolerances.

If you listen to the entire Druckenmiller interview, you’ll see the same “Great Reset” theme. Debt and pension liabilities that must get reset.

Druckenmiller now trades just for his own personal money. He said some of the biggest gains he has made have come from betting on the downside.

There is increasing evidence that we’ve entered a global bear market. Absent U.S. recession, history tells us to expect minus 20% or so in the U.S. markets. A non-recessionary bear market may have begun. It’s in the next recession that I believe we will see the real fireworks begin. I’ll keep posting the “recession watch dashboard” each week in Trade Signals.

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Maxine Waters Unfit to Chair House Financial Services Committee

Considering her record and documented history of poor ethical and moral fitness, it’s outrageous that Maxine Waters is up for chair of the ultra-powerful House Financial Services Committee, which has jurisdiction over the country’s banking system, economy, housing, and insurance. With Democrats taking control of the House of Representatives, come January the 14-term California congresswoman is expected to head the committee, which also has jurisdiction over monetary policy, international finance, and efforts to combat terrorist financing.

Throughout her storied political career, Waters has been embroiled in numerous controversies, including abusing her power to enrich family members, getting a communist dictator to harbor a cop-murdering Black Panther fugitive still wanted by the Federal Bureau of Investigation (FBI) and accusing the Central Intelligence Agency (CIA) of selling crack cocaine in black neighborhoods. A few months ago, the 80-year-old Democrat from Los Angeles encouraged violence against Trump administration cabinet members. “If you see anybody from that Cabinet in a restaurant, in a department store, at a gasoline station, you get out and you create a crowd and you push back on them and you tell them they are not welcome anymore, anywhere,” Waters said at a summer rally in Los Angeles. Judicial Watch filed a House ethics complaint against Waters for encouraging violence against Trump Cabinet members.

Among her most corrupt acts as a federal legislator is steering millions of federal bailout dollars to her husband’s failing bank, OneUnited. Waters allocated $12 million to the Massachusetts bank in which she and her board member husband held shares. OneUnited ended up stiffing American taxpayers and will probably never repay the bailout money. Judicial Watch investigated the scandal and obtained documents from the U.S. Treasury related to the controversial bailout. The famously remiss House Ethics Committee, which is charged with investigating and punishing corrupt lawmakers like Waters, found that she committed no wrongdoing. The panel bought Waters’ absurd story that she allocated the money as part of her longtime work to promote opportunity for minority-owned businesses and lending in underserved communities even though her husband’s bank was located thousands of miles away from the south Los Angeles neighborhoods she represents in Congress.

The reality is that without intervention by Waters One United was an extremely unlikely candidate for a government bailout through the disastrous Troubled Asset Relief Program (TARP). The Treasury Department warned that it would only provide bailout funds to healthy banks to jump-start lending and One United clearly didn’t meet that criteria. Documents uncovered by Judicial Watch detail the deplorable financial condition of One United at the time of the government cash infusion. The records also show that, prior to the bailout, the bank received a “less than satisfactory rating.” Incredibly, after that scandal Waters was chosen by her colleagues to hold a ranking position on the House Financial Services Committee she will soon chair. The only consequence for blowing $12 million on her husband’s failing bank was a slap on the hand to Waters’ chief of staff (her grandson) for violating House standards of conduct to help One United.

Waters, who represents some of Los Angeles’ poorest inner-city neighborhoods, has also helped family members make more than $1 million through business ventures with companies and causes that she has helped, according to her hometown newspaper. While she and her relatives get richer (she lives in a $4.5 million Los Angeles mansion), her constituents get poorer. The congresswoman was also embroiled in a fundraising scandal for skirting federal election rules with a shady gimmick that allows unlimited donations from certain contributors. Instead of raising most of her campaign funds from individuals or political action committees, Waters sells her endorsement to other politicians and political causes for as much as $45,000 a pop.

It wouldn’t be right to part without also noting some of Waters’ international accolades. She has made worldwide headlines for her frequent trips to communist Cuba to visit her convicted cop-assassin friend, Joanne Chesimard, who appears on the FBI’s most wanted list and is also known by her Black Panther name of Assata Shakur. Chesimard was sentenced to life in prison after being convicted by a jury of the 1979 murder of a New Jersey State Trooper. With the help of fellow cult members, she escaped from jail and fled to Cuba. Outraged U.S. lawmakers insisted she be extradited but Waters always stood by her side, likening the cop-assassin to civil rights leader Martin Luther King. In fact, Waters wrote Cuban Dictator Fidel Castro a letter to assure him that she was not part of the group of U.S. legislators who voted for a resolution to extradite the cop murderer. Waters told Castro that she opposed extradition because Chesimard was “politically persecuted” in the U.S. and simply seeking political asylum in Havana, where she still lives.

In the 1980s Waters accused the CIA of selling crack cocaine to blacks in her south-central Los Angeles district to raise millions of dollars to support clandestine operations in Latin America, including a guerrilla army. During the infamous 1992 Los Angeles riots the congresswoman repeatedly excused the violent behavior that ironically destroyed the areas she represents in the House. She dismissed the severe beating of a white truck driver by saying the anger in her district was righteous. She also excused looters who stole from stores by saying they were simply mothers capitalizing on an opportunity to take some milk, bread, and shoes.

Should this ethically and morally challenged individual, who has repeatedly displayed behavior unbecoming of a federal lawmaker, be at the helm of an influential congressional committee that oversees the financial sector?

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