CIA Director: “We Are Not On The Cusp Of A Nuclear War”

How close is the US to war with North Korea? That was the question several top military and national security advisors struggled to answer over the weekend, mitigating fears of an imminent nuclear war even as Trump raises geopolitical tensions and boosts bellicose rhetoric with every public appearance.

Speaking on “Fox News Sunday”, and walking a fine line of backing Trump’s tough talk but not wanting to raise the alarm at home, CIA Director Mike Pompeo said there’s no indication war will break out.

“I’ve heard folks talking about that we’re on the cusp of a nuclear war. I’ve seen no intelligence that would indicate that we’re in that place today.” As Bloomberg adds, Pompeo also said that the nation’s intelligence watchers – who have monitored recent ICBM tests and North Korea’s improved ability to manufacture nuclear weapons – “have a pretty good idea” about their near-term intentions. “This administration has made our policy very clear. We’ve engaged the world to support that policy,” Pompeo told host Chris Wallace.

In his first Sunday show interview since becoming the head of the CIA, the former Republican congressman from Kansas emphasized that the era of “strategic patience” with Kim Jong-Un is over. “Each time they test another missile, or if they should conduct a nuclear weapons test, they develop expertise. They expand the envelope,” he said. In a later interview with CBS’s “Face the Nation,” Pompeo said containment does not make sense for a North Korea policy.

“President Trump finds that unacceptable,” Pompeo said according to The Hill, referencing an op-ed by former national security adviser Susan Rice that said the United States could “tolerate” a nuclear North Korea.

Pompeo’s sentiment was echoed by national security adviser H.R. McMaster who appeared on ABC’s “This Week,” said “we’re not closer to war than a week ago, but we are closer to war than we were a decade ago.”

Asked if the US is “locked and loaded” as Trump tweeted last week, McMaster responded that “the United States military is locked and loaded everyday.”  McMaster also added that the threat from North Korea to the world is “very, very clear.” “It demands a concerted effort by the United States, but with our allies and with all responsible nations”. “And this is what you’ve seen the president do is bring together all nations.” 

.@GStephanopoulos: So we are locked and loaded?

McMaster: “The United States military is locked and loaded everyday.” #ThisWeek

— This Week (@ThisWeekABC) August 13, 2017

The president “made clear that the United States will not tolerate our citizens or our allies being threatened by this rogue regime,” McMaster added and said that “there’s a much greater danger if there were to be any kind of degree of ambiguity in connection with the kind of response that Kim Jong Un could expect if he were to threaten the United States or our allies.”

Separately, just days after Trump’s abovementioned comment that military options against North Korea were “locked and loaded,” General Joseph Dunford, chairman of the U.S. Joint Chiefs of Staff, plans to meet with South Korean President Moon Jae-in on Monday. Dunford will also meet with senior military officials along with Moon, according to an official with South Korea’s Blue House Bloomberg reports. He will head to China next on the previously scheduled visit, Yonhap News Agency reported, citing an unidentified military official.

The visit comes as fears grow that a war of words between Trump and North Korean leader Kim Jong-Un will create a miscalculation that sparks an actual military conflict. In a call with Trump on Saturday in Asia, Chinese President Xi Jinping called for all sides to maintain restraint and avoid inflammatory comments. A tweet from the joint chiefs on Sunday showed him arriving at Yokota Air Base in Japan.

#GenDunfordinAsia: Just arrived in Osan, #Korea to meet w/ @usforceskorea_ leadership & reinforce ironclad commitment to defense of #ROK

— The Joint Staff (@thejointstaff) August 13, 2017

Dunford said the purpose of his Monday visit to Seoul, which sits just 35 miles south of the border with North Korea, is to reassure a critical ally. He is expected to examine the options the U.S. and South Korean militaries could execute if a conflict were to come to pass, officials said.

In his first public remarks since the crisis escalated with North Korea’s launch of a second intercontinental ballistic missile late last month, Dunford said that “as a military leader, I have to make sure that the president does have viable military options in the event that the diplomatic and economic pressurization campaign fails.”

“Even as we develop those options, we are mindful of the consequences of executing those options, and that makes us have more of a sense of urgency to make sure that we’re doing everything we absolutely can to support Secretary Tillerson’s current path,” he said quoted by the WSJ. He declined to provide an assessment of the current situation until he had met with officials on the ground. But while the U.S. military in the region is prepared for war, it isn’t necessarily preparing for war, other military officials said.

Dunford is also set to discuss with Mr. Moon the deployment of the Terminal High Altitude Area Defense, or Thaad missile defense system. After extensive discussion between the U.S. and South Korea, a Thaad battery was deployed near a golf course in South Korea this spring to help defend against any missile launches from the north. Only two of the six launchers were deployed and the U.S. and South Korea are now in talks to deploy the system with its full complement of launchers, U.S. Pacific Command officials said. Meantime, the U.S. and South Korea will soon begin their annual joint military exercises, known as Ulchi Freedom Guardian, a two-week command and control exercise that primarily tests the integration of U.S. and South Korean forces.

U.S. defense officials said the exercise isn’t expected to amount to a large show of force and that there are no plans for expansion under the current circumstances. Ulchi Freedom Guardian, or UFG as it is called, typically sees an additional 200 to 300 U.S. troops here for the next couple of weeks.

Meanwhile, suggesting that war is indeed not imminent, the WSJ adds that no additional forces have been sent to the Korean Peninsula as a result of the crisis, and there has been no new deployment of ships or submarines. The more than 28,000 U.S. troops stationed in South Korea haven’t been put on special alert, military officials said. And, the fact that Gen. Dunford and his wife, Ellyn, are traveling in the region this week reinforces the sense that there is no imminent threat of war.

Still, as Mr. Trump continues to tweet about U.S. posture, saying the military is “locked and loaded” and ready to fight, the military hasn’t shied away from sending its own signals. In recent days, the U.S. touted a flyover by a pair of its B-1B strategic bombers, an event it rarely announces publicly.


And, in the wake of each of North Korea’s two intercontinental ballistic missile launches last month, the U.S.’s Eighth Army blasted missiles using the Army Tactical Missile System, or ATACMS, to counter the threat. South Korea simultaneously launched its own Hyunmoo Missile II system.

Even as the U.S. military keeps its cards close to its chest, declining to talk publicly about what it might do militarily, a pre-emptive strike on North Korea remains unlikely, military officials have said.

Finally, as people on Guam prepare for the potential of an attack, U.S. military officials acknowledge quietly that Pyongyang’s capabilities make it unlikely Kim could fulfill his pledge to lob missiles toward the island and get them anywhere close. The North Korean leader hasn’t proven he can make the technology work with any precision, an official said. But North Korea has moved faster to develop its capabilities than the U.S. believed it would. Pacific Command officials said they have to take Mr. Kim at his word.

“They have proven through these recent launches that they have increasing range there,” the U.S. Pacific Command official said. “We have to take these threats seriously.”

So while the rhetoric of an imminent war appears to be far ahead of actual process, all that can change should Pyongyang launch yet another ballistic missile test. As reported earlier, satellite images taken in recent days suggest that this may indeed be the case.

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Pakistan at 70: ‘Midnight’s children’ recall the bloodshed and chaos of partition

SIB KAIFEE | Special to Arab News
Mon, 2017-08-14 00:38

ISLAMABAD: In the summer of 1947, hasty decisions executed with the stroke of a pen divided a nation. The British Raj, the 89-year rule of the British Crown over the South Asian subcontinent, was over.
Independence split people on sectarian lines. Harmony died and violence was rampant. Friend became foe. Hope turned to despair. An abrupt and massive exodus displaced about 12 million people. Born from the ashes and spilled blood of their people, two countries — the Islamic Republic of Pakistan and the Republic of India — this week commemorate 70 years of freedom.
The history of the partition has been written, read and debated. But those alive today who witnessed and experienced the chaos of that time, and the arduous journeys they undertook, tell a story that no dry historical account can match.
Muhammad Ansari, a Pakistani businessman of Indian lineage, has fragmented memories of a “past best left forgotten.” He was less than a year old when his family travelled from their home in Jodhpur in the northwest Indian province of Rajasthan to Sanghar in the Sindh district of what became Pakistan, to purchase cheap land.
“My father received news of the partition and immediately attempted to return with the family, but the situation was life-threatening and difficult. I was too young to comprehend what was happening around me,” Ansari says.
The family of six had been financially stable. They owned two houses and a manor, and ran a hotel in Jodhpur. After the first Indo-Pak war in 1948, the Ansaris returned to Rajasthan in 1952. Their properties were by then occupied by Indians who refused them access, and all their assets had been confiscated by the local authorities. They were unable to retrieve any of their belongings and the streets were red with religious and sectarian bloodshed. A relative provided refuge “or else we would have been slaughtered.” Returning to Pakistan proved equally difficult. “Sikhs were murdering Muslims. They used short swords and hacked people traveling on the train. A train conductor of North West Railways hid us in a compartment and saved our lives. Sikhs leaving Pakistan boarded trains carrying hundreds of Muslim migrants and killed them.” The family’s ordeal had just begun. Back in Pakistan, they went to see a “Settlement Officer.” This, Ansari says, is where the seeds of corruption in Pakistan were first sown. “Since the entire governance system was in disarray and there was no supervision, educated officers decided compensation or settlements as they wished, taking large chunks of land from people and distributing it to migrants in under-the-table deals.
“This practice of corruption continued — spreading and plaguing the country.” After much trouble, in compensation for the loss of their properties in India, the family were allocated a two-bedroom house that was illegally occupied by someone else. After a long legal dispute, they settled for only one bedroom. To survive financially, Ansari’s father set up a makeshift restaurant to serve the influx of migrants arriving from India.
Unlike the Ansaris, other families opted for Pakistan much later.
Hussain Aftab was born in the northern Indian city of Rampur in Uttar Pradesh, one of four children. He was about two years old at the time of partition. His father, a police superintendent and recipient of a gallantry award from the British Crown, “felt migration was too risky,” he said. Instead he focused on helping Muslims who felt insecure.
As time passed, his duty turned toward providing justice. Hindus and Sikhs alike were predators. For them, Muslims were the enemies who had divided “Mother India.” “The situation went from worse to far worse for us,” Aftab said. “My father was targeted. Instead of promotion, he was demoted, and forced to take early retirement. He saved many mosques from demolition at the hands of Hindus who claimed falsely that the places of worship had been built on sacred Hindu ground. He provided a sense of security to Muslims who were pondering when and if to leave for Pakistan.” It took Aftab’s father more than than a year to be reinstated as a police officer, and eventually various factors persuaded him to move to Pakistan.
“Close relations started to migrate and left us with a feeling of isolation,” Aftab said. “Then my sister got married in Pakistan. I had the opportunity to go to the United States but I opted for Pakistan. I was losing my language, Urdu, and was being forced to read and write Sanskrit.” He said he “needed a homeland” and an identity. “The issue was more of a cultural problem, feelings of insecurity, and being marginalized.
The hatred for Muslims was nauseating, scary, and the bullying of Muslims around me was growing.” Aftab renounced his Indian citizenship in 1967. A mechanical engineer who graduated from Agra Engineering College, he sought work in East Pakistan, now Bangladesh, a place he could relate to and call his own.
Pakistan was recovering from the wounds of its second war with India in 1965 and there was a shortage of engineers. “It was an opportunity for me to obtain a job.” Partition has left a bitter taste for both nations, shrouded in suspicion, hostility, and anxiety. They have fought four wars and are still embroiled in myriad disputes, not least over Kashmir. The talk and shoot approach has yielded no result other than an endless race to develop weapons of mass destruction.
“The only force keeping Pakistan alive is the military,” said Ammar Hyder, a second-generation Pakistani. “We are celebrating 70 years of existence, but no thanks to our civil leadership, which has looted, plundered and corrupted the country and divided us by ethnicity and sect. We celebrate with all due respect to our army, which has safeguarded our nation from enemies foreign and domestic.”

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Top Somali insurgent defects to govt

Sun, 2017-08-13 14:20

MOGADISHU: A former Somali insurgent leader Mukhtar Robow Abu Mansur has defected to the government, a military official said on Sunday, severing ties with Al-Shabab terrorist group.
Al-Shabab fell out with its former spokesman and deputy leader Robow in 2013 and he has been laying low in the jungles with his forces since then. The rebels have launched multiple attacks to try kill or capture him.
An army official said in June there were negotiations between the government and Robow but there were no guarantees that he would defect. He said it had sent soldiers to try to defend him.
“Robow and his seven bodyguards are now in Hudur with local officials. He will be flown to Mogadishu soon,” Col. Nur Mohamed, a Somali military officer, told Reuters by phone from the southwestern town of Hudur.
His defection comes two months after the US removed a $5 million reward for his capture and took him off its list of sponsors of terrorism after five years. It was not immediately clear if the timing of the defection was linked.
Nonetheless, it could give pro-government forces more freedom to operate in the regions of Bay and Bakool, slicing Al-Shabab’s operational territory in two.
It was not immediately clear what would now happen to Robow, but residents and an analyst were doubtful over the impact of the move.
“It is not a good news. The government should eliminate Robow and the militants who fight him. Otherwise, it is recycling the insurgency and militants,” resident Mohamed Edin, told Reuters.
Mohamed Aden, a history lecturer at a Mogadishu university, told Reuters: “If criminals are not taken to court, then there will be no peace.”
Al-Shabab has been fighting for years to try to topple Somalia’s central government.
The militants, who are allied with Al-Qaeda, were driven out of the capital Mogadishu in 2011. They have also lost nearly all other territory they previously controlled after an offensive by Somali government troops and African Union-mandated AMISOM peacekeepers.
Al-Shabab, however, remains a formidable threat and frequently carries out bombings both in Mogadishu and other towns against both military and civilian targets.

Main category: 
Somalia insurgency splits as loyalty of key commander wavers
Somalia: Al-Shabab leader says he has quit terror group

Trump faulted for not explicitly rebuking white supremacists

Mon, 2017-08-14 (All day)

BEDMINSTER, US: President Donald Trump is drawing criticism from Republicans and Democrats for not explicitly denouncing white supremacists in the aftermath of violent clashes in Virginia, with lawmakers saying he needs to take a public stand against groups that espouse racism and hate.
Trump, while on a working vacation at his New Jersey golf club, addressed the nation Saturday soon after a car plowed into a group of anti-racist counter-protesters in Charlottesville, a college town where neo-Nazis and white nationalists had assembled for march. The president did not single out any group, instead blaming “many sides” for the violence.
“Hate and the division must stop, and must stop right now,” he said. “We have to come together as Americans with love for our nation and … true affection for each other.”
Trump condemned “in the strongest possible terms this egregious display of hatred, bigotry and violence on many sides, on many sides.” He added: “It’s been going on for a long time in our country. Not Donald Trump. Not Barack Obama. It’s been going on for a long, long time.”
On Sunday, the White House issued a statement seeking to expand on Trump’s remarks:
“The president said very strongly in his statement yesterday that he condemns all forms of violence, bigotry and hatred and of course that includes white Supremacists, KKK, neo-Nazi and all extremist groups,” according to a White House spokesperson. “He called for national unity and bringing all Americans together.”
The White House would not attach a staffer’s name to the statement.
The president on Saturday did not answer questions from reporters about whether he rejected the support of white nationalists or whether he believed the car crash was an example of domestic terrorism. Aides who appeared on the Sunday news shows said the White House did believe those things, but many fellow Republicans demanded that Trump personally denounce the white supremacists.
Sen. Cory Gardner, R-Colorado, tweeted: “Mr. President — we must call evil by its name. These were white supremacists and this was domestic terrorism.”
Added Sen. Marco Rubio, R-Fla.: “Nothing patriotic about #Nazis,the #KKK or #WhiteSupremacists It’s the direct opposite of what #America seeks to be.”
GOP Chris Christie of New Jersey, a staunch Trump supporter, wrote: “We reject the racism and violence of white nationalists like the ones acting out in Charlottesville. Everyone in leadership must speak out.”
On the Democrat side, Senate Minority Leader Charles Schumer of New York said “of course we condemn ALL that hate stands for. Until @POTUS specifically condemns alt-right action in Charlottesville, he hasn’t done his job.”
And Democratic Gov. Terry McAuliffe of Virginia, who spoke to Trump in the hours after the clashes, said he twice “said to him we have to stop this hateful speech, this rhetoric.” He urged Trump “to come out stronger” against the actions of white supremacists.
Trump’s national security adviser, H.R. McMaster, said Sunday that he considered the attack in Charlottesville to be terrorism:
“I certainly think anytime that you commit an attack against people to incite fear, it is terrorism,” McMaster told ABC’s “This Week.”
“It meets the definition of terrorism. But what this is, what you see here, is you see someone who is a criminal, who is committing a criminal act against fellow Americans.”
The president’s homeland security adviser, Tom Bossert, defended the president’s statement by suggesting that some of the counter-protesters were violent too.
When pressed, he specifically condemned the racist groups. The president’s daughter and White House aide, Ivanka Trump, tweeted Sunday morning: “There should be no place in society for racism, white supremacy and neo-nazis.”
White nationalists had assembled in Charlottesville to vent their frustration against the city’s plans to take down a statue of Confederal Gen. Robert E. Lee. Counter-protesters massed in opposition. A few hours after violent encounters between the two groups, a car drove into a crowd of people peacefully protesting the rally. The driver was later taken into custody.
Alt-right leader Richard Spencer and former Ku Klux Klan member David Duke attended the demonstrations. Duke told reporters that the white nationalists were working to “fulfill the promises of Donald Trump.”
Trump’s speech also drew praise from the neo-Nazi website Daily Stormer, which wrote: “Trump comments were good. He didn’t attack us. He just said the nation should come together. Nothing specific against us. … No condemnation at all.”
The website had been promoting the Charlottesville demonstration as part of its “Summer of Hate” edition.
Mayor Michael Signer, a Democrat, said he was disgusted that the white nationalists had come to his town and blamed Trump for inflaming racial prejudices with his campaign last year.
“I’m not going to make any bones about it. I place the blame for a lot of what you’re seeing in American today right at the doorstep of the White House and the people around the president,” he said.
Trump, as a candidate, frequently came under scrutiny for being slow to offer his condemnation of white supremacists. His strongest denunciation of the movement has not come voluntarily, only when asked, and he occasionally trafficked in retweets of racist social media posts during his campaign. His chief strategist, Steve Bannon, once declared that his former news site, Breitbart, was “the platform for the alt-right.”

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Passport Global Slammed With Over 60% In Redemptions In Q2

Back in April, we reported that the Long-Short Strategy Fund of John Burbank, one of the handful of investors who made a killing from shorting subprime, and head of what was at the time the $2.4 billion Passport Capital, was shutting down after a series of negative returns: according to HSBC, the fund – which had an AUM of $636 million as of March – had lost 2.1% in the first two months of this year and was down 11.8% in 2016. As we further reported, a catalyst for the closure appears to have been the January 2017 decision by the San Bernardino employees fund to pull its funds from Passport.

Fast forward to today, when in his latest letter to investors, Burbank reports that at what was once a multi-billion fund, total firm assets at Passport Capital have as of June 30 shrunk to just $900 million as a result of net outflows (not including the Long Short hedge fund strategy liquidation, effective 4/30/2017) which totaled a whopping $565 million, or a nearly 40% loss of AUM due to redemptions.

Worse, Burbank also reports that his flagship Passport Global fund has been virtually wiped out, and following $480 million of outflows, or a stunning 63% in assets under management, net of redemptions Fund assets as of June 30 stood at only $275 million, to wit:

Capital Flows: For the second quarter, the Fund had net outflows of $480 million. Firm-wide, net outflows (not including the Long Short hedge fund strategy liquidation, effective 4/30/2017) totaled approximately $565 million. At quarter-end, net of June 30th redemptions, Fund assets stood at $275 million and Firm assets totaled approximately $900 million. 

That said, aside from these devastating capital outflows, Burbank marches on, and reports that the funds was up 1.6% in Q2 net of fees. Additionally, following the shuttering of the Long/Short fund, Burbank says that the firm’s new focus will be as follows: “Lower gross exposure: ranging between 160% and 170% for most of the quarter; Lower turnover; Lower number of holdings (halved since the first quarter, from 150 names to 70). Despite higher concentration, with risk diversification of the long book, lower gross exposure and maintenance of risk limits, we have maintained realized volatility at the low end of recent historic averages at approximately 11%, as well as low realized correlation with the broader equity market.”

Finally, here are some additional observations from Burbank in his latest letter. First, on Macro:

As mentioned, we intentionally reduced our directional macro bets and U.S. policy-dependent exposure which appears to be the right positioning, as this year has provided some surprises, most notably with regard to the USD, as well as its typical relationship with gold and oil. Contrary to expectations, the trade-weighted dollar index peaked on January 3rd and is now below its level immediately prior to the presidential election in November 2016. It is clear there has been very limited follow-through on pro-growth policies promised by the current administration, and as a consequence broad expectations, as measured by the Citi Economic Surprise Index, peaked in mid-March and have dropped precipitously since then; it is now at a five-year low. The University of Michigan Consumer Confidence is also at its lowest levels since November 2016 (election month) and is in a downward trend. The bond market is reinforcing this view (yields lower/curve flatter). Even after the recent bounce following discussion of rate normalization, the 2/10yr remains at pre-election levels after almost reaching the post-crises lows set in August 2016.


Dollar weakness could easily persist; economic growth in many places around the world is faster than the U.S., and the $23 trillion of foreign capital invested in the U.S. post the financial crisis could be reversed triggered by faster growth and increased optimism.


We believe a weak-dollar environment could be good for commodities, but surprisingly the fundamentals of oil, in particular, have overwhelmed the weak dollar (this is consistent with our view on oil and represented in our neutral oil construct).


Further, core CPI inflation remains weak, and we believe the bond market is not yet convinced that the U.S. will sustain sufficient nominal demand growth momentum to push inflation sustainably back to the Fed’s  2% target. We are carefully monitoring discussions regarding the debt ceiling, given the Trump administration’s push for a debt limit increase before the August recess. In our opinion, if an agreement is not reached, the Treasury may use interest receipts held at the Fed (approximately $150 billion) to pay bills. Perversely, this could act as incremental fiscal stimulus—as it represents an injection of more cash into the market.


The potential consequences of Fed balance sheet normalization are also important. We understand the Fed intends to gradually reduce securities holdings by decreasing its reinvestment of the principal payments it receives, which would potentially reduce principal reinvestment by an aggregate of $10 billion per month (Treasuries & MBS) and would increase in steps of $10 billion at three-month intervals over 12 months until it reaches $50 billion per month.


Some estimates suggest that global quantitative easing (“QE”) will turn negative in 2019 after being consistently positive by about 2% of Global GDP in every year since 2011 (e.g., since 2007, the Fed’s balance sheet has increased by approximately $3.5 trillion). While it is believed this could result in a much steeper yield curve and tighter financial conditions, the Fed continues to give itself substantial policy leeway.


However, the consequences of balance sheet normalization may be limited, given that the pace of reduction will be much slower than the ramping up of QE, and some of the effects of balance sheet reduction are already priced in (the pace has been communicated). Balance sheet normalization could be offset by the Fed adopting an easier path for short-term interest rates than it otherwise would have chosen, and the Fed is going to be cautious out of concern that any decision to shrink the balance sheet might be seen as tightening monetary policy. Ironically, reducing the balance sheet could have a stimulating effect, by reducing excess reserves on deposit (which sit idle) and freeing up Treasuries which provide liquidity to the market. It will also potentially allow the collateral reuse rate to increase as balance sheet space on banks becomes more available. Although the Dodd-Frank Act and Basel accords make it more expensive for collateral to be reused, the increase in balance sheet space of the banking system may outweigh the regulatory cost.


Finally, our view on China has been that after the massive credit stimulus of 2016 that led to rapidly rising housing prices and rising levels of leverage and system risk, the Chinese government would tap the brakes with restrictions on housing and credit. This would be detrimental for commodity demand in the second half of 2017. In fact, so far this year the Chinese government has put a number of restrictions in  place such as raising short-term lending rates and enacting housing regulations on a number of Tier 1 & 2 cities. However, the negative impact on industrial production, investment and commodity demand has not yet materialized, as the government has continued to inject credit into the economy via infrastructure and support for housing in Tier 3– 5 cities. Recent economic data has in fact been supportive of a continuation of strong growth near-term, with a slowdown possibly pushed to 2018. In its effort to crack down on shadow banking the authorities have encouraged a flow of capital into commodities given the limited number of investment options available to Chinese investors—which benefited commodity prices, particularly steel. We maintain a portfolio with a short tilt to Chinese IP, but we continue to monitor incremental data out of China that may impact our thesis and positioning.

… on Energy:

We remain bearish on oil. Currently the market is slightly undersupplied, with inventories peaking now but likely to decline sharply in Q4 and then flip into an oversupply during the first half of 2018.


OPEC, and its attempts to manage price higher, is frustrated by U.S. shale oil producers’ indifference to OPEC’s desire, and seems eager to hedge production in the high-$40s to lock in positive rates of return and mobilize rigs. We believe this dysfunctional dynamic is now appreciated by OPEC, putting future compliance at risk. The downside risk to price is a consequence of 1) robust U.S. production that we expect will inflect higher during the second half of this year, 2) sustained gains in Libyan and Nigerian production (not subject to OPEC compliance), and 3) increasingly poor compliance by OPEC members. The potential upside risk to prices stems from stronger than expected demand, disruption in supply (Venezuelan production, for instance, continues to drop), and U.S. underwhelming on production increase.

… and on AMD and Cryptos:

AMD has been executing in line with our expectations, with successful product launches across the PC, server, and graphics markets. Beyond its traditional markets, AMD is benefiting from an unexpected tailwind from the rising interest in cryptocurrencies, as its graphics cards are particularly well suited to the application of mining several cryptocurrencies. Recent market share studies also show AMD to be gaining meaningful share vs. Intel (over 5% in one quarter), and we expect those trends to continue, possibly even accelerate, in the server market. Based on these trends, our expectation is for AMD to generate earnings significantly ahead of sell-side estimates for 2018 and 2019.


We have been monitoring block chain technology and cryptocurrencies for some time. We believe this technology represents a secular change with the potential to profoundly disrupt many markets. AMD is the first position in the portfolio that has been a net beneficiary of this trend, but we expect our understanding of block chain technology’s potential to be an increasingly relevant factor in stock selection.

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