From New York, SVR agent Lidiya Guryeva had Clinton in her sights. Guryeva had a real-life job, under the assumed name Cynthia Murphy, as vice president of a high-end tax services company in lower Manhattan. Guryeva’s prime targets, FBI evidence and later news reports show, were Clinton and no fewer than five members of her inner circle.
Guryeva was far more important than a fellow agent would become the most famous member of the spy ring. The publicity would go to Anna Vasilyevna Kushchenko, who after her arrest would be become a glamourous spy princess under her married name, Anna Chapman.
While the FBI’s unclassified information is vague, it is clear that Guryeva’s target was an early Obama administration member from New York who handled foreign policy after having run for high-level public office. Clinton is the only person fitting that description.
Clinton became secretary of state on January 21, 2009. Two weeks later, on February 3, Guryeva sent an encrypted message to the SVR’s Moscow Center. The agent reported “several work-related meetings” with a New York-based “financier” who was “prominent in politics,” an “active fundraiser” for a major political party whose name the FBI redacted, and “a personal friend” of an Obama cabinet official whom the FBI did not publicly identify. Guryeva told her bosses that she would seek to use that personal friend to “provide” inside information on American foreign policy and the White House, and invite her to major political events.
Guryeva and her husband would sell their New Jersey house and follow Clinton to the nation’s capital. There, she could get a job with a Washington, DC-based company or policy shop. A tasking message dated October 18, 2009, from Moscow Center sought agents to seek out information “unknown publicly but revealed in private by sources close to State Department, Government, major think tanks.”
As the FBI told the court, “the SVR requested information on the U.S. position with respect to a new Strategic Arms Limitation Treaty, Afghanistan, and Iran’s nuclear program.” Moscow Center specifically asked Guryeva for intelligence concerning “approaches and ideas” of what the FBI called “four names of sub-cabinet United States foreign policy officials, omitted,” meaning that all four were deputies to Secretary Clinton whose identities had been redacted.
Hillary Clinton was mining Kremlin cash for her personal benefit while secretary of state, at the exact time Putin’s SVR spies were targeting her and penetrating her inner circle. She had every personal motivation to make the spy problem disappear and deny that she had been a target.
I watched this over at Irish’s Blog and started to think about ‘date night’.
My wife and I go out on date night every couple of weeks. It’s not always big and fancy, for example last weekend we snuck out of the house to our neigborhood pub for drinks and a bit of dinner after I got home from work.
The place was packed. I’m a people watcher so as we are chatting I’m looking about and watching other people interact.
Mostly they are Gen X’ers and Boomers. I never noticed anyone with their faces buried in their phone. Every table was full of people eating, drinking and conversing with one other. At least that I could see.
I wonder if the key is alcohol :-)? Drink more, text less?? Or maybe it was just the environment? Maybe it was both?
Whatever it was it was good to see and a nice change from the video below…
The moment the first Russian jet landed in Syria at the invitation of the Assad government in 2015, Putin placed himself in the driver’s seat concerning the international proxy war in the Levant. From a strategic standpoint the armed opposition stood no chance of ever tipping the scales against Damascus from that moment onward. And though US relations with Russia became more belligerent and tense partly as a result of that intervention, it meant that Russia would set the terms of how the war would ultimately wind down.
Russia’s diplomatic and strategic victory in the Middle East was made clear this week as news broke of “secret” and unprecedented US-Russia face to face talks on Syria. The Russians reportedly issued a stern warning to the US military, saying that it will respond in force should the Syrian Army or Russian assets come under fire by US proxies.
The AP reports that senior military officials from both countries met in an undisclosed location “somewhere in the Middle East” in order to discuss spheres of operation in Syria and how to avoid the potential for a direct clash of forces. Tensions have escalated in the past two weeks as the Syrian Army in tandem with Russian special forces are now set to fully liberate Deir Ezzor city, while at the same time the US-backed SDF (the Arab-Kurdish coalition, “Syrian Democratic Forces”) – advised by American special forces – is advancing on the other side of the Euphrates. As we’ve explained before, the US is not fundamentally motivated in its “race for Deir Ezzor province” by defeat of ISIS terrorism, but in truth by control of the eastern province’s oil fields. Whatever oil fields the SDF can gain control of in the wake of Islamic State’s retreat will then used as powerful bargaining leverage in negotiating a post-ISIS Syria. The Kurdish and Arab coalition just this week captured Tabiyeh and al-Isba oil and gas fields northeast of Deir Ezzor city.
The race is underway for Syria’s most oil rich province. Syrian War Report (9/22/17) courtesy of SouthFront.
At various times the Syrian-Russian side has come under mortar fire from SDF positions, even as Russia and the US are theoretically said to coordinate through a special military hotline. The SDF for its part claims it too has come under attack from the Syrian Army. The most significant event occurred just over a year ago when the US coalition launched a massive air attack on Syrian government troops in Deir Ezzor near the city’s military airport at the very moment they were fighting ISIS. The US characterized it as a case of mistaken identity while Syria accused the US coalition of directly aiding ISIS by the attack. The end result was about 100 Syrian soldiers dead and over a hundred more wounded while ISIS terrorists were able to advance and entrench their positions.
Though US officials disclosed few elements of this week’s unusual meeting, the US side did confirm Russia’s threat of returning fire should Syrian soldiers come under attack. US coalition spokesman Colonel Ryan Dillon confirmed that, “They had a face-to-face discussion, laid down maps and graphics.” But the Russians publicly delivered further details outlining its message to the US military. Russian Major-General Igor Konashenkov said in a statement,“A representative of the U.S. military command in Al Udeid (the U.S. operations center in Qatar) was told in no uncertain terms that any attempts to open fire from areas where SDF fighters are located would be quickly shut down.” He added that, “Fire points in those areas will be immediately suppressed with all military means.” Russia has further openly accused the US of violating previously agreed to ‘de-escalation’ zones in Idlib (as part of Astana talks) using al-Qaeda proxies to engaged the Syrian Army in Idlib.
The US coalition hinted in its statements that future military-to-military talks could continue regarding coordination in Syria. Though Russian warnings sound alarmist, and though the situation is increasingly very dangerous for the prospect of escalation, the US side appears to be in a vulnerable enough position to listen. The fact that the meeting occurred in the first place and was publicly acknowledged by the Pentagon is hugely significant as a US ban on such direct military talks was put in place after the collapse in relations between the two nations following the outbreak of the Ukraine proxy war in 2014.
In reality some degree of US-Russian back channel communication and intelligence sharing probably existed long before the SDF made gains in Syria’s east – this according to Seymour Hersh’s 2016 investigation entitled, “Military to Military”. Though (ironically) the CIA’s push for regime change against Damascus was still operational and presumably in full gear at that time, the Pentagon’s actions in Syria were always perhaps more humble regarding pursuit of regime change.
But what are current Pentagon plans for its SDF proxy?
It’s no secret that the core component force of the SDF – the Kurdish YPG – has at times loosely cooperated with the Syrian government when the situation pragmatically served both sides. At the same time Damascus has over the past few years recognized the Kurds as a militarily effective buffer against both ISIS and other powerful jihadist groups like al-Nusra Front and Ahrar al-Sham. While many Russian and pro-Damascus analysts have accused the SDF of being a mere pawn of US imperialism meant to permanently Balkanize the region, this is only partially true – the truth is likely more nuanced.
No doubt, the US is laying plenty of concrete in the form of forward operating bases across Kurdish held areas of northern and eastern Syria (currently about a dozen or more). And no doubt the US is enabling the illegal seizure of oil fields formerly held by the Islamic State, but Kurdish and US interests are not necessarily one and the same. The Kurds know that the best they can hope for in a post-war Syria is a federated system which allows Kurdish areas a high degree of autonomy. They also know, as decades of experience has taught them, that they will eventually be dumped by the US should the political cost of support grow too high or become untenable. For now the Kurds are gobbling up as many oil fields as possible before they are inevitably forced to cut deals with Damascus.
That is it. #Kurdistan referendum has gone ahead. Diaspora Kurds can begin early voting. First vote has been cast in China.
— Namo Abdulla (@namo_abdulla) September 22, 2017
Though the US endgame is the ultimate million dollar question in all of this, it appears at least for now that this endgame has something to do with the Pentagon forcing itself into a place of affecting the Syrian war’s outcome and final apportionment of power: the best case scenario being permanent US bases under a Syrian Kurdish federated zone with favored access to Syrian oil doled out by Kurdish partners. While this is the ‘realist’ scenario, there’s of course always the question that an independent Kurdistan could one day be realized out of the merging of Kurdish northern Iraq and Syria. But this would be nothing less than a geopolitical miracle. For now, early voting has begun in the Kurdish diaspora ahead of the planned for September 25th referendum on Kurdish independence, with the very first votes reportedly being cast in China.
According to Bernie Sanders, Saudi Arabia has “funded terrorism” around the world and is “not an ally of the United States.”
Bernie Sanders broke with the bipartisan consensus on Capitol Hill in an exclusive interview with The Intercept.
The United States has long considered Saudi Arabia to be a loyal friend, supporter, and partner in the so-called war on terror.
Sanders issued a scathing denunciation of the Gulf kingdom, which has recently embarked on a new round of domestic repression.
“I consider [Saudi Arabia] to be an undemocratic country that has supported terrorism around the world, it has funded terrorism… They are not an ally of the United States.”
The Vermont senator accused the “incredibly anti-democratic” Saudis of “continuing to fund madrasas” and spreading “an extremely radical Wahhabi doctrine in many countries around the world.”
“They are fomenting a lot of hatred,” he added.
Speaking to The Intercept, Sanders called for a “rethink, in terms of American foreign policy … vis-a-vis Iran and Saudi Arabia.”
The senator suggested the United States should consider a pivot toward long-standing adversary Iran and away from traditional ally Saudi Arabia.
[Saudi Arabia] “has played a very bad role internationally, but we have sided with them time and time and time again, and yet Iran, which just held elections, Iran, whose young people really want to reach out to the West, we are… continuing to put them down.”
Tesla you have a problem, well several actually.
But, before we get into all the competition that is about to flood your market, lets take a look at some basic math surrounding your valuation. Ford currently generates roughly $1,800 of EBITDA per vehicle and trades at a total enterprise value of $35 billion, roughly 3x their median EBITDA forecast for 2017.
Now, clearly Tesla is a way better company than Ford could ever dream to be…but, just for fun, lets consider what kind of sales volumes Tesla will eventually have to achieve in order to grow into its current valuation of $66 billion (roughly 2x that of Ford mind you). If we assume that even a mature Tesla should trade at 2 times the prevailing Ford multiple, or 6x EBITDA, that implies that Tesla needs to generate about $11 billion of annual EBITDA once it hits maturity. Now, if Ford can generate $1,800 of EBITDA per vehicle then surely Tesla can find a way to do $3,000…which implies that Tesla’s current valuation requires 3.7 million of annual auto sales versus the 80,000 it managed to sell in 2016…or just over 45x it’s current run-rate. To put that into perspective, BMW sells roughly 2.4 million cars per year.
And while we don’t like to be nitpicky, that doesn’t even include the billions of dollars worth of negative cash flow that Tesla would have to incur to reach those sales volumes or the pesky effects of compounding, both of which would make the valuation even more bleak.
Meanwhile, achieving 3.7 million in annual sales would be a daunting task even if every other luxury auto maker in the world weren’t looking to viciously attack your market, which, unfortunately for Tesla shareholders, they are. As Bloomberg notes, Daimler recently announced plans to spend $1 billion to ramp up electric car production at their plant in Alabama.
Daimler AG plans to spend $1 billion to start production of Mercedes-Benz electric vehicles at its Alabama factory, setting the world’s largest luxury-car maker up to battle with battery-car specialist Tesla Inc. on its home turf.
The German automaker will build its fifth battery plant globally and create more than 600 jobs in the region, the company said Thursday in a statement. The Alabama factory will assemble electric sport utility vehicles, taking on Tesla’s Model X and making Stuttgart-based Daimler the first European company to assemble plug-in autos in the U.S.
“We’re celebrating our 20th anniversary at our production facility in Tuscaloosa, Alabama, and we’re taking this as an opportunity to expand the operation and further fuel growth,” production chief Markus Schaefer said in a Bloomberg TV interview. “We’re very confident for future growth in the U.S. in the long-term. ”
Daimler’s investment shows the carmaker’s shift to electric vehicles is taking shape. The German manufacturer is also in talks to expand its Denza joint venture with BYD Co. in China with additional models, Chairman Wang Chuanfu told a group of reporters in the southern Chinese city on Thursday.
As Sanford Bernstein analyst Max Warburton noted, the investment is all part of Mercedes’ “anything Tesla can do, we can do better” strategy.
The company is pursuing an “anything Tesla can do, we can do better” strategy, Sanford Bernstein analyst Max Warburton said in a recent note to investors. “Mercedes is convinced it can match Tesla battery costs, beat its manufacturing and procurement costs, ramp up production faster and have better quality. It is also confident its cars will drive better.”
Meanwhile, Porsche is even closer to launching competitive, all-electric vehicles with the “Mission E” scheduled to hit dealer floors by the end of 2019.
While automakers have been not-so-quietly making promises to catch up to the likes of Tesla when it comes to electric vehicle range, a sports car maker may be the first to beat the startup at its own game. A production version of the 2015 Porsche Mission E electric concept is scheduled to go on sale at the end of 2019, with a price expected to start in the $80,000 – $90,000 range, according to CAR Magazine.
That apparently means in performance terms, too. Unlike Porsche’s current range of hybrids the Mission E won’t be offered with any internal combustion engine assistance. And yet the concept promised a 0–60 time of less than 3.5 seconds and a top speed of around 155 mph through a dual-motor setup that also allows for all-wheel drive. While a Tesla Model S P100D may beat it off the the line in its most ludicrous of modes, the Porsche would ultimately keep up on an unrestricted stretch of Autobahn. Yet like Tesla, Blume says Porsche will offer the Mission E with different power levels, so your “basic” $90,000 version may not be quite as powerful.
Blume also didn’t rule out expanding the Mission E range to include other styles, which may include a coupe or wagon or SUV. Porsche may be known for sports cars, but its Cayenne SUV has been pretty successful over the years. And being part of the vast Volkswagen Group that has promised to electrify everything by 2030, a slew of electric-only Porsches by then wouldn’t be so surprising.
Perhaps Tesla shareholders are starting to realize that the jig is up…or is this just another blip on the way to an inevitable $100 billion valuation?
September 20th, 2017 will likely be a day that goes down in market history.
It will either be remembered as one of the greatest achievements in the history of monetary policy experiments, or the beginning of the next bear market or worse.
Given the Fed’s inability to spark either inflation or economic growth, as witnessed by their dismal forecasting record shown below, I would lean towards the latter.
The media is very interesting. Despite the fact there is clear evidence that unbridled Central Bank interventions supported the market on the way up, there is now a consensus that believes the “unwinding” will have “no effect” on the market.
This would seem to be naive given that, as shown below, the biggest injections of liquidity from the Fed have come near market bottoms. Without the proverbial “punch bowl,” where does the “support” come from to stem declines?
I tend to agree with BofA who recently warned…” the paint may be drying but the wall is about to crumble.”
“This point can be summarized simply as follows: there is $1 trillion in excess TSY supply coming down the line, and either yields will have to jump for the net issuance to be absorbed, or equities will have to plunge 30% for the incremental demand to appear.”
“An unwind of the Fed’s balance sheet also increases UST supply to the public. Ultimately, the Treasury needs to borrow from the public to pay back principal to the Fed resulting in an increase in marketable issuance. We estimate the Treasury’s borrowing needs will increase roughly by $1tn over the next five years due to the Fed roll offs. However, not all increases in UST supply are made equal. This will be the first time UST supply is projected to increase when EM reserve growth likely remains benign.
Our analysis suggests this would necessitate a significant rise in yields or a notable correction in equity markets to trigger the two largest remaining sources (pensions or mutual funds) to step up to meet the demand shortfall. Again, this is a slower moving trigger that tightens financial conditions either by necessitating higher yields or lower equities.”
Of course, as I have discussed previously, a surge in interest rates would lead to a massive recession in the economy. Therefore, while it is possible you could experience a short-term pop in rates, the end result will be a substantial decline in equities as money flees to the safety of bonds driving rates toward zero.
“From many perspectives, the real risk of the heavy equity exposure in portfolios is outweighed by the potential for further reward. The realization of ‘risk,’ when it occurs, will lead to a rapid unwinding of the markets pushing volatility higher and bond yields lower. This is why I continue to acquire bonds on rallies in the markets, which suppresses bond prices, to increase portfolio income and hedge against a future market dislocation.”
My best guess is the Fed has made a critical error. But just as a “turnover” early in the first-quarter of the game may not seem to be an issue, it can very well wind up being the single defining moment when the game was already lost.
In the meantime, here is what I am reading this weekend.
- The Fed Is Peddling “Tinker Bell Economics”by Caroline Baum via MarketWatch
- What Did We Learn From The Fed by Tyler Durden via ZeroHedge
- The Fed Is On A Missionby Wolf Richter via Wolf Street
- Reform The Debt Ceiling by Maya McGuinness via Washington Post
- Politics & Your Portfolio, It’s Complicated by Joe Calhoun via RCM
- Why Are Economists Always So Wrong by Jeff Harding via An Independent Mind
- Senate Embraces $1.5 Trillion Tax Cut Plan by Rappaport & Kaplan via NYT
- Don’t Be Fooled By The Fed’s Magic Show by Brandon Smith via Alt-Market
- Free Health Care Is Very Expensive by Dan Mitchell via International Liberty
- When The Market Implodes, Don’t Say You Weren’t Warnedby Shawn Langlois via MarketWatch
- Rogers: ETF Holders Will Get Mauled In Next Bear Market by Barbara Kollmeyer via MarketWatch
- This Is Your Last Warning by Thomas Kee via MarketWatch
- Mass Psychology Is Driving The Market by Robert Shiller via NYT
- The Everything Bubble Is Ready To Pop by Jared Dillian via Mauldin Economics
- Little Things Mean A Lot by Cliff Asness via AQR Capital Management
- Investor Returns: The Failure Endures by James Picerno via Capital Spectator
- 4-Charts Could Signal Markets Endby Michael Kahn via Barron’s
- Buffett Predicts DOW 1,000,000 In 100-Yearsby Tyler Durden via ZeroHedge
- Key Lessons From 2nd-Longest Bull Market by Sue Chang via MarketWatch
- Stock Market Bubbles In Perspective by Howard Mia via Meritocracy Capital
- The Folly Of Hiring Winners & Firing Losers by Rob Arnott via Research Affiliates
- Ways To Navigate An Aging Bull Marketby Michael Brush via MarketWatch
- Scent Of Group Stink As Strong As It Was In 2000 & 2007by Doug Kass via RIA
- Bull Market Depends On The Fed by Mark DeCambre via MarketWatch
Research / Interesting Reads
- The Alarming Implications Of The Equifax Breachby The Economist
- 5-Common Mental Errors by James Clear
- The Case For Stock Buy Backs by Harvard Business Review
- Why Is Value Investing So Difficult by Behavioral Investment
- AI Can Listen To Earnings Calls Better by Institutional Investor
- The Death Of Active Management Is Greatly Exaggeratedby Jeff Troutner via Index Funds
- Forget Full-Time Work, Gigs Can Be Safer by Simon Constable via Forbes
- Mauldin: The Pension Crisis Is Comingby John Mauldin via Zerohedge
- Big Brother Is Coming For BitCoin by James Rickards via Daily Reckoning
- BitCoin Is Probably Worth ZERO by James Mackintosh via WSJ
- SEC Admits EDGAR System Was Hackedby Tyler Durden via ZeroHedge
- Walking Into A 2007-08 Scenario by John Hussman via Hussman Funds
- A Silver Lining In Precious Metals Sell-Off? by Dana Lyons via Tumblr
- All You Need To Know About The Fed In Two Charts by Jesse Felder via The Felder Report
“If you are playing the rigged game of investing, the house always wins.” ? Robert Rolih
In an otherwise boring day, when Theresa May failed to cause any major ripples with her much anticipated Brexit speech, moments ago it was Moody’s turn to stop out countless cable longs, when shortly after the US close, it downgraded the UK from Aa1 to Aa2, outlook stable, causing yet another flash crash in the pound.
As reason for the unexpected downgrade, Moodys cited “the outlook for the UK’s public finances has weakened significantly since the negative outlook on the Aa1 rating was assigned, with the government’s fiscal consolidation plans increasingly in question and the debt burden expected to continue to rise.”
It also said that fiscal pressures will be exacerbated by the erosion of the UK’s medium-term economic strength that is likely to result from the manner of its departure from the European Union (EU), and by the increasingly apparent challenges to policy-making given the complexity of Brexit negotiations and associated domestic political dynamics.
Moody’s now expects growth of just 1% in 2018 following 1.5% this year; doesn’t expect growth to recover to its historic trend rate over coming years. Expects public debt ratio to increase to close to 90% of GDP this year and to reach its peak at close to 93% of GDP only in 2019.
And so, once again, it was poor sterling longs who having gotten through today largely unscathed, were unceremoniously stopped out following yet another flash crash in all GBP pairs.
Full release below:
Moody’s Investors Service, (“Moody’s”) has today downgraded the United Kingdom’s long-term issuer rating to Aa2 from Aa1 and changed the outlook to stable from negative. The UK’s senior unsecured bond rating was also downgraded to Aa2 from Aa1.
The key drivers for the decision to downgrade the UK’s ratings to Aa2 are as follows:
- 1. The outlook for the UK’s public finances has weakened significantly since the negative outlook on the Aa1 rating was assigned, with the government’s fiscal consolidation plans increasingly in question and the debt burden expected to continue to rise;
- 2. Fiscal pressures will be exacerbated by the erosion of the UK’s medium-term economic strength that is likely to result from the manner of its departure from the European Union (EU), and by the increasingly apparent challenges to policy-making given the complexity of Brexit negotiations and associated domestic political dynamics.
Concurrently, Moody’s has also downgraded to Aa2 the Bank of England’s issuer and senior unsecured bond ratings from Aa1. The rating on its senior unsecured medium-term note (MTN) program was downgraded to (P)Aa2 from (P)Aa1. The short-term issuer ratings were affirmed at Prime-1. The ratings outlook was also changed to stable from negative.
The foreign and local currency bond ceilings and the local-currency deposit ceiling remain unchanged at Aaa/P-1. The foreign-currency long-term deposit ceiling was lowered to Aa2 from Aaa, and the short-term deposit ceilings remain P-1.
RATIONALE FOR THE DOWNGRADE TO Aa2
FIRST DRIVER: WEAKENING PUBLIC FINANCES WITH HIGHER BUDGET DEFICITS IN THE COMING YEARS AMID PRESSURE TO RAISE SPENDING
Moody’s expects weaker public finances going forward, partly linked to the economic slowdown under way but also reflecting the increasing political and social pressures to raise spending after seven years of spending cuts. Since 2015, the government has been finding it increasingly difficult to implement the spending cuts that it has been targeting, in particular on welfare spending. More recently, the government has yielded to pressure and raised spending in several areas, including for health and adult social care. It also agreed to above-budget pay increases for some public sector workers. While these additional expenditures will be funded out of current budgets, the pressure to continue to increase spending in the coming years is likely to remain high, in particular on health care and the public sector wage bill.
In addition, in order to secure a working parliamentary majority, the new government agreed a ‘confidence and supply’ arrangement that increases public spending by GBP1 billion for Northern Ireland. It also abandoned a pre-election promise to review the costly so-called “triple lock” on state pensions after 2020. Overall, Moody’s expects spending to be significantly higher than under the government’s current budgetary plans and higher than the rating agency expected when the negative outlook was assigned in June 2016.
At the same time, revenues are unlikely to compensate for higher spending. Earlier this year, the government abandoned a planned increase in national insurance contributions for the self-employed. Instead, the government has become reliant on highly uncertain revenue gains from tackling tax avoidance to fund tax cuts, as the Office for Budget Responsibility recently pointed out. Hence, while last year’s general government budget deficit turned out somewhat lower than expected (3.0% of GDP on a calendar year basis), Moody’s expects the (general government) budget deficit to remain at levels of 3-3.5% of GDP in the coming years, against the government’s plan of a gradual reduction to below 1% of GDP by 2021/22.
The UK’s broader fiscal framework — previously one of the strengths of the sovereign’s credit profile — has also weakened in recent years as illustrated by repeated revisions to medium-term fiscal targets and delays in reversing the rising debt trend. In contrast to the government’s earlier plans to have public sector net borrowing in surplus by 2019-20, the current objective is for the structural deficit to be below 2% by 2020-21; and the supplementary objective of having net debt as a percentage of GDP decline every year has been delayed to 2020-21 (from 2015-16 before). While these targets may be more realistic, the changes signal weaker predictability.
Weaker public finances will imply a further delay in reversing the rising public debt ratio. This places the UK among the few highly-rated European sovereigns where the public debt ratio continues to rise. Moody’s expects the ratio to increase to close to 90% of GDP this year and to reach its peak at close to 93% of GDP only in 2019, two years later than the latest government plans. Moreover, while the UK government benefits from one of the longest average maturities of its debt stock among advanced economies, the cost of the debt is comparatively high with Moody’s preferred metric — interest payments as a share of government revenues — at 6.3% compared to a ratio of around 3.6% for most other Aa2-rated peers.
SECOND DRIVER: EROSION OF ECONOMIC STRENGTH AS A RESULT OF EU EXIT DECISION AND INCREASING CHALLENGES TO POLICYMAKING
Moody’s believes that the UK government’s decision to leave the EU Single Market and customs union as of 29 March 2019 will be negative for the country’s medium-term economic growth prospects. Aside from the direct impact on the UK’s credit profile, the loss of economic strength will further exacerbate pressures on fiscal consolidation.
Growth has slowed in recent months, with average quarterly growth of just 0.26% in the first two quarters, versus an average of 0.6% over the 2014-2016 period. Private consumption has slowed sharply and business investment has been weak since 2016, most likely linked to the Brexit-related uncertainty. While future years may see some recovery, Moody’s expects growth of just 1% in 2018 following 1.5% this year and 2.25% on average in recent years.
More importantly for the UK’s credit profile, Moody’s does not expect growth to recover to its historic trend rate over the coming years. The UK is a relatively open economy, and the EU is by far its largest trading partner. Research by the National Institute of Economic and Social Research (NIESR) suggests that leaving the Single Market will result in substantially lower trade in goods and services with the EU. In a similar vein, both the NIESR and the Bank of England estimate that private investment will be materially lower in the coming years than in a non-Brexit scenario.
Moody’s is no longer confident that the UK government will be able to secure a replacement free trade agreement with the EU which substantially mitigates the negative economic impact of Brexit. While the government seeks a “deep and comprehensive free trade agreement” with the EU, even such a best-case scenario would not award the same access to the EU Single Market that the UK currently enjoys. It would likely impose additional costs, raise the regulatory and administrative burden on UK businesses and put at risk the close-knit supply chains that link the UK and the EU. Also, free trade arrangements do not as a standard cover trade in services — which account for close to 40% of the UK’s exports to the EU and 80% of Gross Value Added in the economy — given the prevalence of non-tariff trade restrictions and the need to align regulations and standards. In Moody’s view, the differences of outlook between the UK and the EU suggest that the most likely outcome is now a rather more limited free trade agreement which may exclude services: the UK’s desire to pursue its own regulatory policies and to avoid the jurisdiction of the European Court of Justice will make finding an agreement on services challenging. Moreover, any free trade agreement will likely take years to negotiate, prolonging the current uncertainty for businesses.
Aside from the direct impact on the UK’s credit profile, weakening growth prospects are likely to exacerbate the government’s evident fiscal challenges. And this is likely to be happening during a period in which policymakers will be increasingly distracted by the twin challenges of sustaining a domestic political consensus on how to operationalise Brexit and reaching agreement with EU counterparts.
Brexit carries with it a heavy policy and legislative agenda which will dominate policymaking in the years to come. In addition to ensuring a smooth exit from the EU, the UK authorities aim for significant changes to the UK’s immigration policy, its broader trade policies as well as regulatory policies. With Brexit dominating the government’s legislative priorities for the coming years, there is likely to be limited political capital and civil service capacity to address other challenges relating to the UK’s growth potential and weak productivity growth. While Moody’s continues to assess the UK’s institutional strength to be very high, the challenges for policymakers and officials are substantial and rising. The recent loss of the UK government’s parliamentary majority further obscures the future direction of economic policy.
RATIONALE FOR STABLE OUTLOOK
The fiscal deterioration that Moody’s expects is balanced by the UK’s continued economic and institutional strengths, that compare well to peers at the Aa2 rating level. While the ongoing Brexit negotiations introduce a high level of uncertainty over the economic outlook for the UK, Moody’s base case remains that some form of a free trade agreement is in the interest of both sides and will ultimately be agreed. Such a scenario would mitigate the negative economic implications of the UK’s departure from the EU to some extent.
In that context, Moody’s notes that the UK government may be softening its negotiating stance in a number of areas, including on the European Court of Justice, on continuing budget contributions in the transition phase and most importantly on the need for a transitional agreement beyond March 2019 to limit the disruption to trade following the UK’s exit.
WHAT COULD CHANGE THE RATING UP/DOWN
The combination of eroding fiscal and economic strength which drove today’s action implies limited upside to the rating following the downgrade. Over the longer term, a more rapid and sustained recovery in fiscal strength, together with evidence that the economic impact of Brexit is less material than Moody’s currently estimates would be positive for the rating.
The rating would come under further downward pressure if Moody’s concluded that public finances were likely to weaken further than Moody’s currently expects. It would also be under pressure if Moody’s concluded that the economic impact of the decision to exit the EU would be more severe than Moody’s currently expects, perhaps because the negotiations with the EU failed to secure an effective transition agreement that would allow for an orderly transition to new trade arrangements.
With electricity and cell phone service still offline across most of hurricane-damaged island, NBC reports that a dam in northwest Puerto Rico has failed, causing even more flash flooding and prompting emergency evacuations.
Guajataca Dam operators said it failed at 2:10 pm ET, prompting the NWS to issue a flash flood emergency warning for Isabela and Quebradillas municipalities.
“This is an EXTREMELY DANGEROUS SITUATION. Busses are currently evacuating people from the area as quickly as they can,” NWS San Juan said.
A warning was also issued for residents living in areas surrounding the Guajataca River who, according to NEW San Juan “should evacuate NOW” as their lives are in danger.
— NWS San Juan (@NWSSanJuan) September 22, 2017
At 210 PM, dam operators reported the Guajataca Dam is failing causing flash flooding downstream on the Rio Guajataca. #PRWX
— NWS San Juan (@NWSSanJuan) September 22, 2017
This is an EXTREMELY DANGEROUS SITUATION. Busses are currently evacuating people from the area as quickly as they can #prwx
— NWS San Juan (@NWSSanJuan) September 22, 2017
All Areas surrounding the Guajataca River should evacuate NOW. Their lives are in DANGER! Please SHARE! #prwx
— NWS San Juan (@NWSSanJuan) September 22, 2017
According to federal reservoir data, the lake behind the dam, Lago de Guajataca, rose more than three feet between Tuesday and Wednesday, when the storm was still directly over the island. More recent data were unavailable.
More than 95% of Puerto Rico’s wireless cell sites are currently out of service, according to the FCC. That is worse than the aftermath of Hurricane Irma, which knocked out 56% of the island’s wireless network. Federal Emergency Management Agency Administrator Brock Long said restoring electricity to the island “could take weeks or many, many months.”
A major, M5.7 earthquake has struck off the coast of Northern California, just days after a devastating M7.1 quake hit Mexico, resulting in hundreds dead and at least 50 buildings collapsed.
While the quake was luckily too far offshore to cause any damage, the Sacramento Bee writes that after Tuesday’s devastating earthquake in Mexico and the following smaller quakes that shook parts of California, “the West Coast is bracing for the worst.”
Time spoke to experts who pointed out that Southern California, Los Angeles and San Francisco were the most at-risk areas in the country for the next destructive quake. It’s been 160 years since the magnitude 7.9 earthquake near the San Andreas Fault, meaning a lot of pressure has built up over the years.
The Bee writes that multiple smaller earthquakes have been reported throughout the state as Mexico continues to recover and rescue victims from Tuesday’s disaster, and today’s “larger” quake appears to have been a culmination of the Mexico aftermath. A number of earthquakes were reported in the Bay Area on Wednesday, including one measuring magnitude 2.5 near San Jose, according to NBC Bay Area.
On the central coast, a magnitude 3.2 quake hit San Juan Bautista on Wednesday morning, and a magnitude 2.8 earthquake rumbled between Gilroy and Morgan Hill about 10 a.m. Thursday, television station KSBW-8 reported.
Stronger earthquakes were reported in Northern California, with a magnitude 3.8 earthquake reported in Shasta County and a 3.0 in Humboldt County.
Still, John Bellini, a geophysicist with the U.S. Geological Survey, told SFGate the smaller quakes don’t necessarily mean the “big one” is in the near future. “It looks like normal activity,” Bellini said. “They’re all over the place. It’s not unusual.”
Increased seismic activity doesn’t typically signal an impending larger seismic event, he said.
“We can’t predict or forecast earthquakes,” Bellini said. “Sometimes before a large earthquake you’ll have a foreshock or two. But we don’t know they’re foreshocks until the big one happens.”
Which, of course, is why California residents have been especially on edge in recent days.
Bitcoin cash has existed for barely 24 hours. Yet its price has doubled as an increasing number of digital currency exchanges have enabled trading in the bitcoin twin, making it the new third-largest cryptocurrency by market capitalization (supplanting Ripple).
Bitcoin cash, which started trading yesterday on the Chinese exchange OkCoin at $270 a coin peaked above $900 early Wednesday before retreating to $660 in recent trade. Bitcoin cash’s performance shows that torrid demand for digital currencies hasn’t been affected by the SEC’s ruling that ICOs must now register as securities. Bitcoin cash was created after a small group of bitcoin users who rejected a competing proposal to update the bitcoin software opted to “fork” bitcoin into two separate digital currencies with slightly different features.
But some analysts are saying that relatively thin trading volumes are distorting bitcoin cash’s price. Bitcoin users received free bitcoin cash as part of the split, but are having trouble accessing the coins as exchanges scramble to update their wallet software.
“We just had the fork 24 hours ago. Price discovery in these markets isn’t optimal because you can’t withdraw bitcoin cash yet. The exchanges haven’t figured out their wallets. It’s a super illiquid market. I wouldn’t read into the price of bitcoin cash just yet,” said Chris Burniske, former blockchain analyst at ARKInvest and author of the book “Cryptoasset.”
The rise in price could also be due to a “wealth effect” brought on by the launch of the new currency. As part of the network split, all bitcoin holders received a sum of bitcoin cash. But investors needed to have their coins stashed on the right exchange, or possess a certain degree of tech savviness, to access those coins, said Charles Hayter, CEO of CryptoCompare.
“Bitcoin and BCH should see negative correlations. Perhaps the hold up on bitcoin and rise of BCH has been the thin supply of the latter,” Hayter said.
Hayter published an explanation of how bitcoin cash works and how it differs from bitcoin on his website, CryptoCompare.com.
“Bitcoin Cash (BCH) is a hard forked version of the original Bitcoin. It is similar to bitcoin with regards to its protocol; Proof of Work SHA-256 hashing, 21,000,000 supply, same block times and reward system. However two main differences are the the blocksize limits, as of August 2017 Bitcoin has a 1MB blocksize limit whereas BCH proposes 8MB blocks. Also BCH will adjust the difficulty every 6 blocks as opposed to 2016 blocks as with Bitcoin.
Bitcoin Cash is a proposal from the viaBTC mining pool and the Bitmain mining group to carry out a UAHF (User Activated Hard Fork) on August 1st 12:20 pm UTC. They rejected the agreed consensus (aka BIP-91 or SegWit2x) and have decided to fork the original Bitcoin blockchain and create this new version called “Bitcoin Cash”. Bitcoin Cash can be claimed by BTC owners who have their private keys or store their Bitcoins on a service that will split BCH for the customer.”
Some investors are looking at last summer’s split between Ethereum and Ethereum classic for clues to how bitcoin cash might trade. Ethereum classic has consistently traded at a small fraction of the price of its more popular twin.
Ethereum (12 Months):
Will the same dynamic play out with bitcoin? Investors should have a better idea as some of the technical issues are resolved during the coming days and weeks.