Friday , July 19 2019
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Mike Shedlock

Mike Shedlock

Mike Shedlock (Mish) is a registered investment advisor representative for SitkaPacific Capital Management (http://www.sitkapacific.com/). Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Articles by Mike Shedlock

Half-Point Rate Cut Odds Explode to 71% – So What? It Doesn’t Matter!

6 hours ago

The odds of a 50 basis point rate cut on July 31 topped the 70% mark in the wake of a dive in leading indicators.
CME Fedwatch notes a huge jump in the odds of a 50 basis point cut by the Fed on July 31.


This is an edited post. In the hour or so that it took me to write this, the odds jumped from 49% to 71%.
Increasing Odds of 50 BPs Cut
Today (one hour ago) 49.3%
Now (2:48 PM central) 71.0%
Yesterday: 34.3%
1 Week ago: 19.9%
1 Month Ago: 17.9%
Why?
The odds jumped yesterday from the prior week on news Housing Slowly Rolling Over: June Permits Down 6.1%, Starts Down 0.9%
The odds jumped today from yesterday on news Leading Economic Indicators (LEI) Unexpectedly Dive Into Negative Territory
What’s Really Happening?
Traders are front-running the Fed.
History shows the Fed is highly likely

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Leading Economic Indicators (LEI) Unexpectedly Dive Into Negative Territory

7 hours ago

The Conference Board’s LEI index turned negative in June. The yield curve finally made a negative contribution.
The conference board provides this press release on Leading Economic Indicators for June.
“The US LEI fell in June, the first decline since last December, primarily driven by weaknesses in new orders for manufacturing, housing permits, and unemployment insurance claims,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “For the first time since late 2007, the yield spread made a small negative contribution. As the US economy enters its eleventh year of expansion, the longest in US history, the LEI suggests growth is likely to remain slow in the second half of the year.”
The consensus estimate was for LEI of +0.1.
Ten LEI Components
Average

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Junk Bond Bubble in Pictures: Deflation Up Next

1 day ago

The widely discussed "everything bubble" is, in reality, a corporate junk bond bubble on steroids sponsored by the Fed.
The highest grade AAA corporate bonds yield 2.75%. BBB-rated corporate bonds, just one step above junk, 3.5%. BB-rated bonds yield just 4.28%.
Corporate Bond Spreads


The spread between Prime AAA bonds and lower-medium grade bonds (see chart below) is just 0.77 percentage points.
The spread between BBB lower-medium grade bonds and non-investment grade, speculative BB-rated bonds is just 0.69 percentage points.
The spread between BBB and BB-rated bonds hit six percentage points in the great recession.
Bond Rating Steps

Chart from Wikipedia’s Bond Credit Ratings.
Volume of Negative-Yielding Debt Rises Sharply

In the real world, yields would never be negative. In the

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Housing Slowly Rolling Over: June Permits Down 6.1%, Starts Down 0.9%

1 day ago

Today’s new residential construction report spotlights a housing sector that is slowly rolling over.
The New Residential Construction report for June isn’t all bad news, just mostly bad news. Permits lead the downside.
Building Permits
Privately‐owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,220,000. This is 6.1 percent below the revised May rate of 1,299,000 and is 6.6 percent below the June 2018 rate of 1,306,000. Single‐family authorizations in June were at a rate of 813,000; this is 0.4 percent above the revised May figure of 810,000. Authorizations of units in buildings with five units or more were at a rate of 360,000 in June.
Housing Starts
Privately‐owned housing starts in June were at a seasonally adjusted annual rate

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British Pound Dives as Brexit Reality Sinks In

2 days ago

The pound is the worst-performing major currency in the world since March. Brexit reality is starting to sink in.
Worst Performing Currency
On March 12, the British pound hit 1.3385. It’s now 1.2410. That’s a decline of about 7.3% making the British Pound the Worst-Performing major Currency in the World.
Johnson and Hunt Rule Out Backstop Completely
The Pound sank following Comments of Boris Johnson and Rival Jeremy Hunt in last night’s debate.
Johnson: “The problem is really fundamental. The backstop needs to come out. It has been devised by this country as an instrument of our own incarceration in the single market and customs union.”
Hunt: “The backstop, as it is, is dead. I don’t think tweaking it with a time limit will do the trick. If we are going to get a deal we must have an

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Retail Sales Post a Solid Month Led by Autos and Amazon

2 days ago

Retail sales posted another strong month in June, led by autos, up 0.7% and nonstore retailers up 1.7%.
The odds the US is currently in recession took a hit today based on the Advance Retail Sales report.
Advance estimates of U.S. retail and food services sales for June 2019, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $519.9 billion, an increase of 0.4 percent from the previous month, and 3.4 percent above June 2018.
Total sales for the April 2019 through June 2019 period were up 3.4 percent from the same period a year ago.
The April 2019 to May 2019 percent change was revised from up 0.5 percent to up 0.4 percent.
Retail trade sales were up 0.4 percent from May 2019, and 3.3 percent above last year.
Nonstore retailers were up

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Import and Export Price Weakness Continues in July

2 days ago

Import and export prices fell for the month. Year–over-Year comparisons are increasingly negative.
The BLS report on Import and Export Prices shows more weakness in July.
Import Prices

Index: Prices for U.S. imports declined 0.9 percent in June, the first monthly decrease since the index fell 1.4 percent in December 2018. Import prices decreased 2.0 percent over the past 12 months, the largest over the-year drop since the index fell 2.2 percent from August 2015 to August 2016.
Fuel Imports: Import fuel prices fell 6.5 percent in June following a 2.3-percent advance the previous month. The June downturn was the first monthly decline since the index decreased 13.3 percent in December 2018. Lower petroleum and natural gas prices in June both contributed to the overall fall in fuel prices.

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Trucking Bloodbath: 2,500 Truck Drivers Lose Jobs

3 days ago

At least 2,500 truck drivers have lost their jobs in 2019 as the transportation ‘bloodbath’ unfolds
Alleged Truck Driver Shortage
Flashback February 11, 2019: NPR says Facing A Critical Shortage Of Drivers, The Trucking Industry Is Changing.
Amusingly, such nonsense persisted even last month.
Flashback June 13, 2019: Will the Trucker Shortage Continue in 2019?

​Will the shortage continue into 2019? All signs point to yes.

Transportation Bloodbath
With the above silliness out of the way, please consider Transportation ‘Bloodbath’ Unfolds
Truck drivers are suffering in 2019 — especially those who own or work at small businesses.

Rates in the spot market, in which retailers and manufacturers buy trucking capacity as they need it rather than through a contract, sank by about 18%

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Recession Looms: Cass Freight Index Negative for 7th Month

3 days ago

According to Cass, "Freight shipments signal economic contraction".
The Economic Outlook from Freight’s Perspective is not promising.
With the -5.3% drop in June following the -6.0% drop in May, we repeat our message from last month: the shipments index has gone from “warning of a potential slowdown” to “signaling an economic contraction.”
May and June’s drops are significant enough to pose the question, “Will the Q2 ’19 GDP be negative?”
We acknowledge that all of these negative percentages are against extremely tough comparisons; and the Cass Shipments Index has gone negative before without being followed by a negative GDP.
The weakness in spot market pricing for many transportation services, especially trucking, is consistent with the negative Cass Shipments Index and, along with

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UK, Philippines Side With Huawei: Why is the US Behind on 5G?

3 days ago

In a global 5-G battle, Trump has forced nations to take sides. The EU, UK, and the Philippines will buck Trump.
The Wall Street Journal reports Philippines Has Chosen Sides: Not the U.S.

The U.S.-China technology war is raging around the world, but the Philippines is no longer torn. It is binding its telecommunications future to China’s.

The country got its first taste of next-generation 5G services in late June with gear supplied by Huawei Technologies Co. This month, a new carrier backed by state-owned China Telecommunications Corp. will begin rolling out a network largely designed in China, to be executed by Chinese engineers in the Philippines.

The moves are a blow to the U.S., which has in recent months pushed allies to shun Huawei. U.S. officials contend Chinese companies could

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Another Trump Tariff Success Story: Vietnam

4 days ago

Today, we have another Trump "success story" to report. To the detriment of China (and the US), Vietnam benefits.
Tariff costs prompt executives to shift production to other countries; ‘Once you move, you don’t go back’ is the often head claim.
As a result of Trump’s tariffs, Manufacturers Move Supply Chains Out of China but who is the beneficiary?

Companies that make Crocs shoes, Yeti beer coolers, Roomba vacuums and GoPro cameras are producing goods in other countries to avoid U.S. tariffs of up to 25% on some $250 billion worth of imports from China. Apple Inc. also is considering shifting final assembly of some of its devices out of China to avoid U.S. tariffs.

Furniture-maker Lovesac Co. is making about 60% of its furniture in China, down from 75% at the start of the year. “We have

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Trump Targets 4 Democrat Congresswomen: “Go Back”

4 days ago

In a series of Tweets, Trump tells a group of Democrats "Go Back" to your crime-infested countries and fix the problems.
Message to Progressive Congresswomen


Fix Your Own Crime-Infested Countries


Pelosi will Work Out Free Travel Plans


Trump Accused of Racism
Please consider Trump Tells Group of Democrats, Who Are Minorities, to ‘Go Back’ to Fix Problems.

President Trump said on Twitter Sunday that a group of liberal lawmakers currently at odds with House Speaker Nancy Pelosi should “go back and help fix the totally broken and crime infested places from which they came” before arguing for how the U.S. should be governed.

Democrats immediately denounced the comments as racist, with Mrs. Pelosi calling them “xenophobic.” The four Democratic women at whom Mr. Trump apparently

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Lesson On How to Look Like a Pompous Ass, Bitcoin Style

5 days ago

Please pay attention: Here’s a valuable lesson on how to make yourself look like a pompous ass.
Let This Valuable Lesson Sink In


Now tell me again how anyone has an excuse to be poor?
Even if someone perfectly timed the bottom, just how many poor people had money to buy Bitcoins?
And if they had "balls" to borrow the money to speculate on Bitcoin, they would now only need the "balls" to HODL until it hit $1,000,000 or so.
Macro’s Tweet is the epitome of Bitcoin arrogance.
Can’t Take the Heat


Bitcoin Macro could not take the heat. So he banned 100 people or so for disagreeing with him.
Not to worry, he is going to do a separate post about it.
Gee, I can hardly wait. Yet, I can predict it in advance.
What Bitcoin Macro Will Say
To the Moon Baby
Bitcoin is going to $1,000,000 if not

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Remainer Dogs Now Meowing Like Brexit Cats

5 days ago

This was bound to happen and finally did. Avid Remainer political dogs are now meowing like Brexit-loving cats.
Boris Johnson announced that he would not have anyone in his cabinet who did not fully endorse Brexit by October 31.
In response, career politician, and Former Avid Remainer Amber Rudd Embraced No-Deal in Pitch to Johnson.

Rudd, one of the leading cabinet opponents of hard Brexit, publicly ditched her opposition to no deal on Thursday in a move that appeared designed to show she would be willing to serve with Johnson as prime minister. Rudd had previously joined with her cabinet colleagues David Gauke and Greg Clark to force Theresa May to take no deal off the table and stop the UK crashing out at the end of March.

But with Johnson on the brink of No 10, she has changed her

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Housing Bubble Reblown: Last Chance for a Good Price Was 7 Years Ago

6 days ago

Housing prices have far outstripped wage growth and rental prices. Something has to give. So it will.
Every month I am amused by the comments from NAR chief economist Lawrence Yun regarding housing fundamentals, especially job growth.
Forget about strong jobs. Toss Yun’s views in the ashcan.
Compared to wage growth, homes are nearly as unaffordable now as they were at the peak of the housing bubble.
That’s without factoring in student debt and attitude changes regarding debt, assets, and mobility.
January 1987 to January 2000


In the 13-year period between 1987 and 2000, home prices, rent and wages all rose together. Homes were home, not speculative playthings, not a retirement vehicle.
That changed in 2000.
January 2000 to July 2006​


In the 6.5 year period between January 2000 and

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PPI for Goods and Services Diverge

6 days ago

The discrepancy between goods and services widened further this month as costs to produce good fell while services rose.
The Producer Price Index for final demand advanced 0.1 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. In June, the rise in final demand prices is attributable to a 0.4-percent increase in the index for final demand services. Conversely, prices for final demand goods fell 0.4 percent.
Final Demand Goods
Prices for final demand goods moved down 0.4 percent in June, the largest decrease since falling 0.6 percent in January. The June decline is attributable to a 3.1-percent drop in the index for final demand energy. Conversely, prices for final demand foods climbed 0.6 percent.
The index for final demand goods less foods and energy

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Trump Slams Bitcoin in Tweet Storm: What Does It Mean? Anything?

7 days ago

In a series of three Tweets, Trump went after Bitcoin. Does it matter?
Trump went after Bitcoin today.
I am not surprised, except by the timing.


Bitcoin Doesn’t Care


I discussed Bitcoin on live national radio Tuesday night on Coast-to-Coast with George Noory.
I am a frequent Coast-to-Coast guest, typically for a few minute economic update about 4-5 times a month, going all the way back to 2007.
On Tuesday, George and I discussed the economy and upcoming recession for two full hours.
A caller asked about Bitcoin.
I replied that it was a free-market construct, but if governments or central banks ever felt that it was a threat, they could squash it.
The caller said it couldn’t be done.
I disagreed. I stated that if governments ever felt threatened they would make up excuses to

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Boris Johnson has Already Won the UK PM Election With 12 Days Remaining to Vote

7 days ago

Johnson is headed for a landslide victory based on votes already cast. Hunt can’t win even if he gets 100% of the rest.
Unlike a general election, held on a single day plus a variable number of postal votes, a conservative party election is entirely postal. The voting period ends July 22.
On the basis of votes already cast, the Conservative Home Page says "Johnson has Won Already".

Today, our survey shows Johnson on 72 per cent and Hunt on 28 per cent. We have varied the standard question and added one to ask whether or not respondents have already voted. Seventy-one per cent of respondents say that they have done so

If the survey is accurate, it would be reasonable to assume, on the evidence available at the moment, that Johnson will win somewhere between 67 per cent and 72 per cent of

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Deflation Coming: CPI Supposedly Headed Nowhere, But Let’s Dive Inside

7 days ago

The CPI did much of nothing but some are cheering the rise in apparel prices and rent. Let’s investigate further.
This month the BLS Says the CPI Rose 0.1%.
The Fed’s preferred way of looking at things (All Items Less Food and Energy) has been heading nowhere on a year-over-year basis for a long time.
The details are interesting.
CPI Weights and Percent Changes


Econoday Comments

Jerome Powell back in May was right, apparel prices were destined to recover which headlines a June consumer price report that will not be raising expectations any further for a rate cut at the month-end FOMC.

The jump in apparel will be getting the headlines but housing is the important key, rising 0.4 percent for rents (3.9 percent on the year) and up 0.3 percent for owners’ equivalent rent (3.4 percent on

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One Heck of a Recession Party!

8 days ago

Stocks are on a tear. Celebrating rate cuts. With the rate cuts comes a recession. No recession? No more rate cuts.
It’s been one hell of a party.
Hold on, John Hussman says Warning: Federal Reserve Easing Ahead

Of all the distinctions that investors might make in the coming few years, one that I expect will serve investors particularly well is the distinction between how the market responds to monetary policy when investors are inclined toward speculation, versus how the market responds when investors are inclined toward risk-aversion.

Be very careful not to assume that ‘easy money’ means ‘rising market.’ Easy money amplifies speculation, provided that investors are already inclined to speculate. But if investors are inclined toward risk-aversion, safe, low-interest rate liquidity isn’t

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Today’s Brexit Non-News: The “Precious” Irish Backstop Must be Defended

8 days ago

Ursula von der Leyen, the European Commission President candidate, says she will not reopen Brexit talks.
Please consider Ursula Von Der Leyen Signals She Will Not Reopen Brexit Talks.

Ursula von der Leyen, the nominee to lead the European commission said she still hoped the UK would remain in the European Union, while indicating she had no intention to renegotiate the withdrawal deal agreed by Theresa May and EU leaders.

“I think it’s a good deal, but it is your responsibility and your noble task to sort this out,” she told a British Liberal Democrat MEP in the European parliament, in her first public comments on Brexit.

In a thinly veiled message to the Tory leadership candidates Jeremy Hunt and Boris Johnson, Von der Leyen said the tone and attitude with which Brexit happens were

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Boris Johnson Accused of Being “Donald Trump’s Poodle”

8 days ago

Kim Darroch, the UK’s Ambassador to the US, resigned today. Boris Johnson is accused of wrongfully sacking Darroch.
Kim Darroch, Britain’s ambassador to the US, called Trump "clumsy and inept".
Darroch’s leaked assessment started a feud which culminated today when Darroch resigned.
Boris Johnson, nearly certain to become the UK’s next prime minister at the end of the month, is accused of sacking Darroch.
Not PM Yet


Donald Trump’s Poodle


Craven Subjugation


Nigal Farage – Right Decision


YouGov Poll


Five Points
The YouGov Poll is fairly evenly split, well within the margin of error to conclude much of anything.
Nigel Farage is correct, perhaps for the wrong reasons.
The problem is not the statement by Darroch but the purposeful leak of the statement.
Darroch needed to

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Powell Testifies to Congress: July Rate Cut Odds Jump

8 days ago

Jerome Powell told Congress "Risk that weak inflation will be even more persistent than we currently anticipate."
Powell Testifies to Congress
Odds of a 50 basis point cut jumped up to 27.6% following Fed Chair Jerome Powell’s Semiannual Monetary Policy Report to the Congress.
Key Snips from Powell’s Speech
The economy performed reasonably well over the first half of 2019, and the current expansion is now in its 11th year. However, inflation has been running below the Federal Open Market Committee’s (FOMC) symmetric 2 percent objective, and crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook.
While growth in consumer spending was weak in the first quarter, incoming data show that it has bounced back and is now

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Net Wealth Distribution: The Bottom 50% Have 1% of the Wealth

8 days ago

Those in the bottom half have nothing. The top 10% have 70% of the wealth.
Between the second quarter of 2010 and the second quarter of 2012, the bottom 50 had negative combined net wealth.
Here is the same chart in dollar terms.

Unfathomable?
Someone posted a similar chart on Twitter with the comment "this is unfathomable".
Why?
Many people have no savings and close to half the population (48%) own no stocks.
Please consider What Percent Of Americans Own Stocks?

As of 2019, the top 10 percent of Americans owned an average of $969,000 in stocks. The next 40 percent owned $132,000 on average. For the bottom half of families, it was just under $54,000. Stock ownership has fallen to only around 52% overall since the financial crisis.

It’s easy to believe that those in the 40-50% range

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Epstein Sex Scandal: Flight Logs Show Clinton, Not Trump, More Likely Involved

9 days ago

The Epstein sex scandal gets increasingly curious every day. Who’s on the hook?
Yesterday, I commented Billionaire Epstein, Charged With Sex-Trafficking Teen Girls, May Name Names
In my posted I cited this Bloomberg article: Epstein Arrest Is a Worry for Donald Trump
The entire slant of the article seemed very biased against Trump. I commented:

Speculatively speaking, looking back to 2005 and 2006, is it more likely someone wanted to protect Bill Clinton or Trump? I don’t know, nor does anyone else (except those who may have been directly involved).

It’s unwise to go down these lines of thoughts, I only did so to balance out the Bloomberg slant against Trump.

Flight Logs
Two more articles came out today. Neither is damaging to Trump, and I am hardly a Trump defender in general.
Please

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Zombification Perfected: Negative Yield Junk Bonds Take Hold in Europe

9 days ago

Expectations of further monetary stimulus depress yields. There are now 14 junk bonds in Europe with a negative yield.
The number of negative-yield euro-denominated junk bonds reached fourteen, up from zero at the beginning of the year as the ECB prepares still more stimulus.
Ardagh Packaging Finance plc /Ardagh Holdings USA Inc.
Altice Luxembourg SA
Altice France SA
Axalta Coating Systems LLC
Constellium NV
Arena Luxembourg Finance Sarl
EC Finance Plc
Nexi Capital SpA
Nokia Corp.
LSF10 Wolverine Investments SCA
Smurfit Kappa Acquisitions ULC
OI European Group BV
Becton Dickinson Euro Finance Sarl
WMG Acquisition Corp.
Illogical Situation
It is illogical for any bond to trade with a negative yield.
Think of it this way: Negative-yield bonds imply it is better to have 99 cents ten years

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Jeremy Corbyn Supports a Conditional “People’s Choice” Second Referendum

9 days ago

Labour leader Jeremy Corbyn now supports a People’s Choice vote. Well, sort of, conditionally, provided he is not PM.
Party of Choice , Conditionally
In an interview with the BBC’s John Pienaar, Mr Corbyn said Labour was now the "party of choice" when it came to Brexit.
Ah yes, but under what conditions?

Jeremy Corbyn has challenged the next Tory leader to hold another referendum before taking Britain out of the EU, saying Labour will campaign for Remain. Mr Corbyn says the party will take this position to stop "no deal or a damaging Tory Brexit".

But he does not say what he would do if he won a general election and was placed in charge of the Brexit process. Some senior members of his team want him to take a pro-Remain stance in all circumstances.

Conditions Explained
Corbyn not PM: He

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Trump Feuding With UK Over Leaked Ambassador’s Statements: Rude Farewell to May

9 days ago

Kim Darroch, Britain’s ambassador to the US, called Trump "clumsy and inept". His leaked assessment started a feud.
In a leak, U.K. Ambassador to U.S. Calls Trump Administration ‘Inept’ and ‘Clumsy’.

In a series of leaked diplomatic cables, Britain’s ambassador to the United States, Kim Darroch, described President Trump as “radiating insecurity” and his administration as diplomatically “clumsy and inept,” a withering assessment that threatened to damage bilateral relations at a delicate moment for Britain.

The cables were published late on Saturday by The Mail on Sunday,span a period from 2017 to the present and include candid assessments of American domestic politics and Washington’s treatment of Iran over its nuclear weapons program.

Trump Tweet Storm Reply
Trump calls the ambassador

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Billionaire Epstein, Charged With Sex-Trafficking Teen Girls, May Name Names

10 days ago

Federal prosecutors allege former asset manager ran an operation that allowed him to sexually exploit dozens of girls.
The Wall Street Journal reports Financier Jeffrey Epstein Indicted on Federal Sex-Trafficking Charges.

Financier Jeffrey Epstein was indicted in New York on federal sex-trafficking charges stemming from an alleged scheme to exploit underage girls, another chapter in a lurid legal drama that has surrounded the politically connected money manager for years.

Federal prosecutors charged Mr. Epstein, 66 years old, with two counts related to sex trafficking of minors, which together carry a maximum sentence of 45 years in prison. He was arrested Saturday night at Teterboro Airport in New Jersey as he was returning from Paris on his private jet.

The 14-page charging document

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Recession Probability Charts: Current Odds About 33%

10 days ago

The New York Fed has the odds of a recession within the next year at 33%. Some of the other models are humorous.
New York Fed Treasury Spread Model
The New York Fed Recession Model is based on yield curve inversions between the 10-year Treasury Note and the 3-Month Treasury Bill.
I added the highlights in yellow and the dashed red line.

The model uses monthly averages.
Smoothed Recession Odds

I do not know the makeup of the smoothed recession chart but it is clearly useless. The implied odds hover around zero, and are frequently under 20% even in the middle of recession.
GDP Recession Model

The GDP-based recession model is hugely lagging. The current estimate is 2.4%. This model will not spike until there is at least one quarter of negative or near-zero GDP.
Estimated Recession

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