Update:

As the SPX achieved SpotGamma’s target price of SPX 5,735, the trader(s) holding short 5,735 calls elected to close a chunk of their position(s). This coincided with a 15-handle quick reversal in the SPX.

Stability was found just above key 0DTE put positions at 5,720, and we now have a resumption in upside drift.

Not all of this is 0DTE, we see some more evidence of positive gamma entering the market into tomorrow’s large OPEX, which suggests overnight price stability.

* * *

Next week, our friends at SpotGamma are launching an extremely useful trading dashboard called Trace, which will bring Wall Street-level analytics to ordinary traders: analyzing dealer gamma exposure on a minute by minute basis, the application will provide real-time insight on key market levels, including zones of support, resistance, and volatility, hinting at potential breakout or breakdown levels, and warning of potential major moves in the immediate future.

Here is an example of what to expect.

As SpotGamma‘s Brent Kochuba notes, post-FOMC we find the S&P in a very unique position: negative gamma to the upside.   This implies that the big positions are traders long SPX calls, which places dealers in a chasey, negative gamma stance (hence today’s meltup). 

As regular readers are aware, negative gamma implies dealers are buying futures as the SPX moves higher (and alternatively selling or shorting when the SPX drops). Clearly yesterday’s FOMC & its 50 bps cut has equity momentum focused on the upside, with a big target at 5,750.

Negative gamma (red) is depicted in the SpotGamma Trace map below, which uses a proprietary dealer positioning estimate to forecast SPX dealer hedging flows. Currently we model dealers having large short call positions at 5,675 & 5,800, which can be seen as red strikes on SpotGamma’s Trace map (left side).

For today, 5,750 is a short term area of “local” positive gamma, which is depicted in blue. Note that the blue is concentrated into 4PM, but disappears post-4PM. This is because the material positive gamma for today is driven by 0DTE positions, which expire at the close.

Looking ahead, this upside equity momentum plays into a massive 9/20 triple witching expiration. Into Friday & Monday, this expiration could force the closing and rolling of long call positions, which could temporarily stall upside equity momentum.

Fast-forwarding from this morning, a mid-day update shoes that a band of positive gamma emerges above 5,700, which implies market support at that level. As SpotGamma notes, much of this positive gamma was driven by 0DTE positions – including a 4k lot 0DTE call seller at 5,735.

These supportive dealer positions are showing the SPX tracing a path up into 5,735  for the close (which is the white zone on the chart at 4pm ET).

What is unique about Trace is that unlike SpotGamma’s previous offering, which showed intraday Delta flow, we can now add a layer of dealer gamma as it also changes in real-time, which to many advanced traders is the holy grail of flow analytics.

We will be watching Trace closely to see how positions shift into and out of OPEX, as we continuously update positions throughout the trading day(s).

Readers who want to get an advance look at the features of Trace, which will be officially launched next Tuesday, can do so at SpotGamma’s website here.

In a scathing revelation before Congress, former San Diego Sector Border Patrol Chief Aaron Heitke accused the Biden-Harris administration of covering up a sharp rise in encounters with suspected terrorists at the U.S.-Mexico border.

During a House Committee on Homeland Security hearing titled “A Country Without Borders: How Biden-Harris’ Open-Borders Policies Have Undermined Our Safety and Security,” Heitke said he was muzzled from releasing critical information on the number of Special Interest Aliens (SIAs) — individuals with known or suspected ties to terrorism — apprehended in California.

“I was told I could not release any information on this increase in SIAs or mention any of the arrests,” Heitke testified. “The administration was trying to convince the public there was no threat at the border.”

According to Heitke, arrests of individuals with terror ties skyrocketed under President Joe Biden’s watch. The former Border Patrol chief revealed that before 2021, his sector had apprehended between 10 to 15 SIAs annually. By 2022, that number had shot up to over 100, with even more recorded in 2023.

“Once word was out that the border was far easier to cross, San Diego went to over 100 SIAs in 2022, well over that in 2023, and even more than that registered this year. These are only the ones we caught,” Heitke warned, ABC3340 reports.

Watch:

👀 Retired Border Patrol sector Chief Heitke testified in front of @HomelandGOP @HomelandDems that he was directed not to release any information on the increase in “significant interest” migrants, “These are aliens with significant ties to terrorism…”

He says the San Diego… pic.twitter.com/Iaw2JltkcI

— Ali Bradley (@AliBradleyTV) September 19, 2024

The bombshell testimony raises serious questions about national security, as Heitke further claimed the Biden administration allowed some illegal border crossers to settle in local communities ill-equipped to handle the influx. San Diego County Supervisor Jim Desmond, who also testified, slammed the administration for offloading the costs of transporting these individuals onto local taxpayers.

Rep. Clay Higgins, R-La., chairman of the subcommittee on Border Security and Enforcement, didn’t mince words during the hearing, calling the current situation a “self-inflicted border crisis” and a “threat to the homeland from within the homeland,” Just the News reports.

“By ending effective Trump-era policies and programs that protected us, the Biden-Harris administration has intentionally left us vulnerable to potential attacks from terrorists and criminals who are freely moving around our communities,” Higgins said.

The testimony paints a damning picture of the administration’s border policies, which critics argue have left the U.S. exposed to dangerous threats. U.S. Customs and Border Protection (CBP), which operates under the Department of Homeland Security, has been in the spotlight for its handling of the escalating crisis. CBP Secretary Alejandro Mayorkas, however, defended the administration’s actions in a recent interview, saying the changes were designed to address a years-long backlog in asylum hearings.

“As the backlog has grown and grown, their, essentially, trial date, if you will — the date on which they will make their ultimate merits claim — is set years and years away. That was the status quo,” he said.

🚨Wow. This bombshell revelation should end Kamala Harris’s presidential campaign…

Kamala previously mocked the idea that America needs a wall to secure our border and stop terrorists from entering. But the former Chief Patrol Agent for the Border Patrol’s San Diego Sector… pic.twitter.com/jV1c47NSsR

— Steve Cortes (@CortesSteve) September 19, 2024

But as the number of terror-linked arrests continues to climb, many are questioning whether the administration’s open-border policies have put the country at risk.

“These are not just undocumented migrants seeking a better life,” Heitke testified. “These are individuals with ties to terrorist organizations. And we’re not catching all of them.”

With border apprehensions on the rise and the stakes higher than ever, the Biden administration faces mounting pressure to restore security and transparency at the southern border before it’s too late.

Authored by Zachary Stieber via The Epoch Times,

The U.S. House of Representatives on Sept. 18 passed a bill that would authorize deportation of illegal immigrants who have been convicted of a sex offense such as soliciting a minor to engage in sexual conduct.

Members voted 266–158 to send the bill introduced by Rep. Nancy Mace (R-S.C.) to the Senate. All Republicans who lodged a vote were in favor of the bill, while 51 Democrats voted in favor and 158 voted against.

Known as the Violence Against Women by Illegal Aliens Act, the bill would add to federal immigration law that any illegal immigrant who has been convicted of or has admitted to carrying out sex offenses such as possession of child pornography and soliciting a minor to engage in sexual conduct would be inadmissible to the United States and shall be deported if already inside the country.

Having committed a crime of domestic violence, stalking, child abuse, child neglect, child abandonment, or violation of a protection order would also render an illegal immigrant inadmissible or deportable.

The legislation “removes any loopholes in current law and requires that illegal aliens who commit sex offenses or domestic violence are not to be allowed into this country anymore and must be immediately removed from our country when they’re found,” Rep. Tom McClintock (R-Calif.) said on the House floor before the vote.

The law currently designates illegal immigrants who have been convicted of a crime “involving moral turpitude” as inadmissible, but there are exceptions if the crime was committed when the illegal alien was a minor or if the maximum penalty was a year or less behind bars and the illegal immigrant was not sentenced to more than six months in prison.

Rep. Jerrold Nadler (D-N.Y.), who voted against the bill, said that he would have supported a bill that fixed a gap in the current law.

“But that is not the case here. In reality, the redundancies in this bill all but assure that no additional dangerous individuals would face immigration consequences if it were to become law,” he said on the floor.

“Instead, the overly broad definition and lack of any waiver authority in this bill would result in extremely harsh and unintended consequences including the removal of survivors of domestic violence,” he said.

Mace noted that Homeland Security Secretary Alejandro Mayorkas said in a memorandum to Immigration and Customs Enforcement agents that not all domestic violence offenders should be removed because he believed such a “categorical determination … could make victims of domestic violence more reluctant to report the offense conduct.”

She also listed a number of instances in which illegal immigrants have committed sex offenses, including the rape of a 9-year-old girl in Ohio.

“How many American women and girls have been battered and bloodied due to this insanity?” she asked. “Under my bill, any illegal alien who commits a sex crime is inadmissible to our country and immediately deportable. We shouldn’t let them into our country under any circumstances, and if we catch them, we send them back.”

Update(1519ET): The evening hours (local time) have seen a “major intensification of bombing” by Israel’s military in southern Lebanon targeting Hezbollah positions, Reuters is reporting based on Lebanese security officials.

The officials called it “the most intense bombing since the start of the war in Gaza” and the IDF has since confirmed striking at least 30 Hezbollah launch locations and “terrorist infrastructure sites” on Thursday. Israel’s miliary said it hit “approximately 150 launcher barrels that were ready to fire projectiles toward Israeli territory.”

Within hours prior to the intensified Israeli bombing campaign, the IDF confirmed that two Israeli soldiers were killed near the border with Lebanon. Israeli media indicated one was killed by a drone launched from Lebanon and the other by a Hezbollah anti-tank missile.

Residents in Southern Lebanon are reporting some of the Heaviest Strikes of the War so far, on Areas near the Litani River and the Border with Israel. pic.twitter.com/jHQCd1lmrw

— OSINTdefender (@sentdefender) September 19, 2024

* * *

Israel’s military has just announced that IDF chief Lt. Gen. Herzi Halevi has “approved operational plans as part of the continuation of the war” in Israel’s north against Lebanon’s Hezbollah. Exchanges of fire grew overnight and as of Thursday afternoon heavier airstrikes on southern Lebanon have been reported, as well as more than 40 rockets fired from Lebanon into Israel.

Local Hebrew media says several Israelis have been wounded after a missile fired by Hezbollah hit a vehicle in northern Israel. Israel says the goal of the new escalated anti-Hezbollah operation is to allow the return of the 80,000 residents of the north who have been forced out of their homes for almost a year. “At least eight people in Israel were wounded Thursday in an anti-tank guided missile attack on the Lebanon border that was claimed by the Hezbollah terror group, while others were injured in a subsequent drone strike,” Times of Israel reports.

The Chief of the General Staff, LTG Herzi Halevi, recently completed approval of plans for the northern arena. pic.twitter.com/B8VEZMZC9T

— Israel Defense Forces (@IDF) September 19, 2024

“We are very determined to create the security conditions that will return the residents to their homes, to the communities, with a high level of security, and we are ready to do all that is required to bring about these things,” the IDF stated.

The IDF has indicated that a new major operation has begun. Indeed it appears the feared bigger Lebanese war has come:

“The IDF is currently striking Hezbollah targets in Lebanon to degrade Hezbollah’s terrorist capabilities and infrastructure.”

“For decades, Hezbollah has weaponized civilian homes, dug tunnels beneath them and used weapons as human shields—having turned southern Lebanon into a war zone,” it said.

It is likely that the rate of airstrikes and mortar fire will rise throughout the day into the night. The major Israeli strikes on southern Lebanon have been confirmed through several circulating social media videos.

⚡️Zionist strike on south Lebanon pic.twitter.com/xyKugbr37m

— War Monitor (@WarMonitors) September 19, 2024

Hezbollah chief Hassan Nasrallah is currently addressing the pager attack crisis of the last two days which has left at least 37 dead and hundreds wounded. The televised speech is being closely followed by Lebanese and Israelis and the West alike.

He described that Israel “targeted thousands of pagers in one go” on Tuesday and Wednesday. “This is an act of war and a declaration of war by Israel on the Lebanese people,” Nasrallah said, further describing the attack as “an effort to kill 5,000 Lebanese people within minutes.” He acknowledged that Hezbollah suffered a ‘major and unprecedented’ blow but also emphasized that over much of the past year Israel has “lost the north” of its own country and the settlers are “screaming” in pain and danger.

Nasrallah says many of the pagers were out of service, turned off or stored away. He repeats that Israel’s wilfull intent was to kill thousands of Lebanese people within minutes.

Israeli jets flying low over Beirut during Hezbollah leader Hassan Nasrallah’s speech. pic.twitter.com/yl5077S5G1

— Moshe Schwartz (backup) (@MosheReports) September 19, 2024

Here’s regional analyst Aron Lund:

In his first speech after the explosions, Nasrallah repeats, with maximum emphasis, that Hezbollah will not, under any circumstances, stop striking Israel until a ceasefire is in place in Gaza. If Israel had hoped to force a deal on its own terms, that doesn’t seem to be working.

Nasrallah emphasized that Hezbollah will not stop its operations against Israel “no matter what” so long as the Gaza operation continues.

Authored by James Rickards via DailyReckoning.com,

Yesterday, the Fed did what I predicted it would do and cut interest rates. The “pivot” has finally arrived, ending the rate hike cycle that began in March 2022.

I’ll have much more to say about it going forward, but today, I want to talk about the dangerous globalist threats to our freedoms that we presently face. Let’s start with a question:

Do you know these initials: GBI, MMT, WTO? If you do, you understand the neoliberal globalist effort to make sovereign governments obsolete and effectively harness the population of the developed world in a kind of slavery to mega-corporations and soulless wealth managers.

If not, here’s your opportunity to learn how the world works.

GBI stands for guaranteed basic income. It’s a kind of government welfare with no questions asked. It’s a 21st-century version of the ancient Roman dole that handed out free grain to poor citizens to keep them contented.

Along with grain (later bread), Rome provided free games such as gladiator contests and chariot racing. This combination caused the Roman poet Juvenal to refer to Roman public policy as “bread and circuses.” Today, we have the NFL.

The idea behind GBI is that there’s not enough value-added work to employ the population. But if everyone were unemployed, there would be no consumption and no economy.

We might always need workers in bars, restaurants, elder care, plumbing and landscaping, but computers and robots powered by AI will soon be able to do almost everything else including legal, accounting and writing. (Don’t worry; I’m writing this myself. I’m not a robot).

Instead of scrounging for work, individuals would receive a monthly check from the government. There would be no conditions on receipt of the check. If you happened to have a job, you’d get one anyway.

Children would get them also, to be held in special accounts until reaching legal maturity. No income requirements, no floors or ceilings, just a check. The idea, of course, is to create dependence on the government. In many cases, the check would be enough money, and people could simply quit their jobs.

With government money come government strings attached including acceptance of vaccine mandates, censorship of social media accounts and voting support for the ruling party. Most people accept these conditions willingly, as we saw during the pandemic.

It will not surprise anyone to learn that the leading advocate for GBI is Mark Zuckerberg, the founder of Facebook who’s worth about $100 billion. He won’t need the check. He just wants everyone to be as dependent on the government dole as they now are on Facebook and other social media.

Zuckerberg is one of the corporate giants who stand to benefit from a population addicted to government checks.

Below, I show you the globalist scheme that wants to make you a modern-day slave. Read on.

The Globalist Scam

Where’s all this money coming from? That’s where MMT comes in. MMT stands for Modern Monetary Theory although it’s not particularly modern (it was first proposed in Germany in the 1920s), the practitioners don’t seem to know much about money (they view it as an asset rather than debt) and it’s not really a theory (it’s more of an ideology that cannot be tested empirically until the crash comes — then it fails). Whatever. MMT is the flavor of the month in Washington, D.C.

The idea behind MMT is that there’s no limit on government debt provided the debt is in the same currency you print. This condition applies to the U.S. but does not apply to countries such as Argentina that print pesos and borrow in dollars. That’s why Argentina defaults about every 10 years like clockwork.

The U.S. has no need to default — we can always just print whatever money we need to redeem the debt. This approach effectively merges the U.S. Treasury and the Federal Reserve into a single money machine (although there is no statutory authority for this).

The Treasury borrows in dollars, the Fed monetizes the Treasury debt with printed money and holds the bonds on its balance sheet until maturity. Problem solved.

With unlimited borrowing power comes unlimited spending power. (That’s one way to finance GBI.) How long can this go on? Forever, says the MMT crowd, unless inflation arises, in which case their solution is to fight inflation by raising taxes. Are you following this? Good, because it gets crazier.

MMT claims that we don’t even need a Treasury bond market. The Treasury can just give the Fed wire instructions to send money to Raytheon, Lockheed Martin or General Motors and out goes the money. The bond market is just a favor to investors so they have some place to put their money. We don’t actually need it — the Fed can just send the money.

Stephanie Kelton, a professor at Stony Brook University and former top adviser to Bernie Sanders, is the bright light of MMT. I recommend her book The Deficit Myth (2020). Almost everything in the book is dead wrong, but I recommend it so readers can see just how untethered MMT really is.

Kelton got her ideas during a house visit with Warren Mosler in St. Croix. I was a nearby neighbor when I lived in St. Croix in the early 2000s and recall his local radio ads when he was running for Congress. Mosler was a successful hedge fund manager at Adams, Viner and Mosler and one of my customers when I was a bond dealer at Greenwich Capital Markets.

Mosler used to pay his children with his own business cards instead of cash when they did chores. Of course, he never ran out of business cards because he could always print more. But his children were stuck. If they wanted to go out or buy presents, they had to go to Daddy and redeem the cards (bonds) for real cash (printed money).

Kelton thought this arrangement was charming. The kids were trapped in the business card system and could not escape unless they went to Daddy (the Fed) for money. Mosler could impose whatever further conditions he wanted. Kelton thought, Why can’t governments do the same thing? Her answer: They can.

What’s not to like? Under MMT, you get unlimited debt (if you even want any), unlimited spending, unlimited debt-to-GDP ratios (hey, look at Japan. They’re at 300%!), and you can offer GBI, welfare, Medicare for all and anything else. So Kelton says.

Here’s what’s missing: When your debt-to-GDP ratio goes over 90% (the U.S. is currently at 130%), the growth from additional spending is less than the amount spent. This means the debt-to-GDP ratio goes higher and growth slows down even more. You can’t borrow your way out of a debt trap. The collapse of the dollar is not the most immediate danger. The immediate danger is the collapse of growth.

MMT’s idea of fighting inflation with tax increases is also fatuous. Inflation is already a hidden tax; it robs your money of purchasing power just as surely as the IRS taking it away. Tax increases to fight inflation are doubling down on taxes. If inflation does drop, it won’t be a “soft landing.”

It’ll be a hard landing with higher unemployment, slower growth (or recession) and possible deflation (which increases the real value of the debt, making the original problem worse). I guess Shelton wasn’t around in the late 1970s when we had high inflation, high unemployment and a crumbling dollar all at the same time.

Shelton’s biggest blind spot (she has many) is the idea that the monetary system is a closed loop and investors have nowhere else to go. That may be true of Mosler’s children (unless they ran away from home) but it’s definitely not true of the U.S. dollar.

It may be the case that the Fed can control short-term interest rates. It may be the case that JPMorgan and Citi can prop up the Treasury debt market. But no one is big enough to control the $7.5 trillion per day foreign exchange market (far larger if derivatives are included).

The U.S. dollar system isn’t a closed circuit. There are several off-ramps, including reducing balance sheets and buying gold. The collapse of the dollar due to MMT will not emerge through the bond market or stock market at least initially. It’ll emerge in the foreign exchange market.

Finally, we come to the World Trade Organization (WTO). The WTO mandates “most favored nation” treatment, which means that if you offer low tariffs to one trading partner, you must offer those same low tariffs to every trading partner that belongs to the WTO.

The WTO also oversees negotiation of successive rounds of across-the-board tariff reductions (which have not been successful in recent years) and offers an arbitration forum for settling trade disputes to avoid escalation into full-scale trade wars. The WTO can impose penalties and other remedies on countries found to have violated the rules.

China was admitted to the WTO in 2001. Since joining, China has broken WTO rules consistently with government subsidies, theft of intellectual property, slave labor, accounting fraud and more. The U.S. was relaxed about this on the view that, in time, China would modernize and become “just like us.”

China has modernized but it has become more stridently communist than ever. The U.S. was played for a sucker, U.S. industry was stripped bare and U.S. jobs were lost by the millions. The globalists (Clinton, Bush, Larry Fink, Obama, Yellen) still support this scam.

China supplied the slave labor, Fink supplied the money and together they were off to the races. Indeed, they are enriched by it. The nationalists (Trump, J.D. Vance, Robert Lighthizer, Peter Navarro) are pushing back with some success, but the outcome is undecided as of now.

The WTO is an example of what globalists call encasement. The idea is that national governments don’t matter. Democracy is fine but it’s really not that important to the globalists. What’s important is that all global powers — democratic, communist, socialist, kleptocratic — play by the same supranational rules that encase the system of sovereigns.

These rules require free trade, open borders and free capital flows or as close as you can come. In theory, this allows for price discovery, lower costs and higher returns to capital. In reality, it causes lost jobs, lost competitiveness and lower wages, especially for Americans.

If Trump wins, he and his advisers will break free of the encasement with high tariffs, expanded U.S. manufacturing, U.S. jobs with higher wages and reducing the debt-to-GDP ratio with higher growth. China may suffer, but that’s their problem. America first.

So that’s the globalist plan. GBI will make everyone a welfare slave. MMT will make everyone a debt slave. WTO will make everyone a wage slave. The super-capitalists will get even richer and the politicians will take their share.

This system will prevail unless Trump and the MAGA team he’s assembled win the election on Nov. 5. Until then, investors should hedge their bets with cash, gold and reduced equity exposure.

That’s the best posture until the all-clear signal sounds.

Some hilarious, and absolutely spot on, excerpts from the reaction note by Rabobank’s Fed-watcher Philip Marey who clearly isn’t getting invited to the Marriner Eccles Christmas, pardon, Holiday party this year.

Here are the highlights from the report which equates what Powell said with the worst parts of 1984.

If there was a strong case for a 50 bps cut, Powell did not make it at his press conference. He repeatedly stressed that the US economy was strong, but we should see the strong move as a commitment to keep the economy strong.

• Doctor: “We’ll give you extra strong medication.”

• Patient: “Is my condition that bad?”

• Doctor: “No, you’re healthy, but we’re committed to keep you healthy.”

In the end, it looks like Powell felt the level of the policy rate was out of sync with the progress on inflation and the rise in the unemployment rate. After all, he used the word ‘recalibration’ several times. This was also evident in the FOMC projections now showing a 100 bps reduction compared to the pre-meeting level of the target range, rather than the 25 bps in the June projections. Although Powell denied that the Fed had fallen behind the curve, this is exactly what recalibration means. However, the latter obscures the former and Powell did not want to admit that they should have cut 25 bps in July. It got really funny when he said that the FOMC had been patient in waiting and this allowed them to make a strong move. Yes, if you get behind the curve, you have to make a big leap forward to catch up!

* * *

The recalibration argument is clashing with the message this large cut sends. When asked during the Q&A what his message to the US consumer is, Powell said that the US economy is in a good place and our decision is to keep it there. Really? A 50 bps cut as a message that the economy is strong? So if they cut by 75 bps the economy is booming? This sounds like something out of George Orwell’s 1984:

• WAR IS PEACE

• FREEDOM IS SLAVERY

• IGNORANCE IS STRENGTH.

Understandably, a reporter asked whether the 50 bps cut meant that he was more concerned about the labor market than about inflation. However, Powell denied this and said that the risks are roughly balanced. This exchange underlined the problem.

* * *

During the press conference, Powell had trouble clearly explaining the reason for the large cut, because he did not want to admit that this ‘recalibration’ was needed because the FOMC had fallen behind the curve. Meanwhile, the large cut seemed counterintuitive to the repeated claim that the economy was strong.

* * *

In the past, the Fed only cut 50 bps at the start of a cutting cycle in case of a severe deterioration in the economy or markets, such as the dot com bubble and the Global Financial Crisis.

* * *

• Powell had a clear incentive to deliver a 50 bps cut before Election Day, because Trump has already made clear that he would not reappoint him as Fed Chair. In fact, he may decide to remove him prematurely. So Powell’s only chance of another term is by pleasing Kamala Harris and her fellow Democrats in the Senate. In fact, on Monday three Democratic senators – Elizabeth Warren, Sheldon Whitehouse and John Hickenlooper – sent a letter to the Fed urging a 75 bps cut. However, the other voters in the FOMC should have seen the greater political risk to the institution from providing a jumbo cut without compelling support from the data or the forecasts just before the election. There was only one dissenter.

* * *

Although Powell’s message was a mess, our argument for 50 bps would be the deterioration in the labor market that is likely to end up in a mild recession. However, by cutting 50 bps when you think the economy is strong, you may be wasting valuable ammunition if your assessment of the economy is right. What if there is a sudden deterioration in the economy or the markets, do we then get a 75 bps cut? Starting with 50 bps without compelling data or forecasts means that you are blunting your interest rate tool. Meanwhile, with a 50 bps cut the Fed is taunting former and possibly next President Trump. This could have serious repercussions next year. The sole dissenter, Michelle Bowman, may just have improved her chance of becoming the next Fed Chair.

* * *

Looking ahead, if this was truly a recalibration and 50 has not become the new 25, we still expect 25 bps at each of the three upcoming scheduled meetings in November, December and January. As we have said before, what happens after January will to a large extent depend on the economic policies of the next administration. A Trump victory would likely lead to a universal tariff and a rebound in inflation that should stop the Fed’s cutting cycle in its tracks. A Harris victory would likely be less inflationary and give scope for additional rate cuts in 2025.

The full Rabobank report can be found here. We give the last word to Kyle Bass who, along with Donald Trump, said it best:

The @federalreserve ‘s large rate cut can be explained by only two scenarios:

1. Jerome Powell and his cadre of elite economists see the U.S. economy falling off a cliff…or

2. It’s a couple of weeks before early voting

— 🇺🇸 Kyle Bass 🇹🇼 (@Jkylebass) September 19, 2024

Authored by Connor O’Keeffe via The Mises Institute,

On Sunday, for the second time this election cycle, a man was able to get close to Donald Trump with a rifle. The former president was golfing when Secret Service agents spotted a rifle barrel poking out of some bushes just off the course, near a hole Trump would soon play. Agents fired on the suspect, causing him to flee as Trump was rushed off the course. Shortly after, the man was apprehended by police.

A scoped rifle, two backpacks, and a video camera were recovered from the woods where the suspect was hiding. The FBI said it was investigating the incident as an attempted assassination. The suspect, Ryan Routh, has so far been charged with two gun-related crimes. 

While there are clearly some major differences between this incident and the first assassination attempt in July—when Trump was shot in the ear during a rally in Butler, Pennsylvania—the fact that an armed man was able to get so close to the former president and remain undetected until the last moment for the second time in two months is a big deal.

Yet the reaction from the political establishment and the establishment media has been notably different. Back in July, there was broad agreement within the establishment that they needed to “lower the temperature.” This week, the rhetoric has changed. While most go through the motion of denouncing political violence, establishment figures and outlets have downplayed the assassination attempt, obscured the attempted shooter’s political ideology, and even blamed Trump himself for provoking people into trying to kill him.

It’s not surprising that the political establishment and their friends in the media want to dismiss or play down what happened on Sunday. Because Ryan Routh, the suspect, appears to have been motivated by the exact narrative of the war in Ukraine and the prospect of a second Trump term that the establishment is trying so hard to get the American public to accept. 

In early 2022, after Russia invaded Ukraine, the American establishment went into overdrive to whitewash all the developments that had led to the invasion. They instead defined Vladamir Putin as an expansionist tyrant bent on conquering all of Europe simply because he hates freedom and democracy.

Because of unearthed social media posts, numerous interviews with major outlets like The New York Times, and a self-published book, we can clearly see that Routh was completely convinced by the establishment’s characterization of the war. So much so that in the months after the war broke out, Routh traveled to Ukraine to try and join the fight. He was turned away, apparently due to his age, but stuck around to try and recruit other foreigners to join Ukraine’s ranks.

In one interview with Newsweek, Routh laid out how he views the war:

To me, a lot of the other conflicts are gray, but this conflict is definitely black-and-white. This is about good versus evil. This is a storybook— you know, any movie we’ve ever watched, this is definitely evil against good. … It seems asinine that we have a leader and a country that does not understand the concept of being unselfish, and being generous, and being kind, and just the basic moral values that are required by human beings these days. It blows my mind.

That is exactly how the pundits and politicians who make up the American political establishment want us thinking about this war. Not as an unnecessary geopolitical conflict that escalated for decades before erupting into the conventional war we see today, but simply as a black-and-white showdown with an evil country.

Importantly, as can be seen in the opening to Biden’s State of the Union address from earlier this year, the establishment has explicitly conflated this threat abroad with what they call the threat at home—meaning Trump and the MAGA movement. So if a disturbed person like Ryan Routh was convinced that he would be a hero if he went and fought the evil Russians in Ukraine only to be turned away because of his age, it’s not much of a jump to expect that he concluded he could still be a hero if he set his sights on, what he was told, is the same threat at home.

That’s not to say that the establishment voices pushing the simplistic narratives that captured Routh directly incited his assassination attempt – although it would under the standard they apply to Trump and January 6. Only that the establishment is using misleading and sometimes wholly fictional narratives about the war in Ukraine and the populist anger directed toward them to try to scare us into voting in ways that support their interests. It shouldn’t surprise anyone when these contrived, simplistic, overly dramatic narratives lead some people to decide voting isn’t enough.

By Michael Every of Rabobank

As a central banker, you’ve failed to communicate when you prompt our Fed watcher, Philip Marey, to quote Orwell back at you. After the FOMC cut 50bps to 5.00%, as only in past crises, yet Fed Chair Powell said he wasn’t behind the curve, just “recalibrating”, and the US economy is “good”, Philip’s retort was:

“Really? A 50bps cut as a message that the economy is strong? So, if they cut by 75bps the economy is booming? This sounds like something out of George Orwell’s 1984: WAR IS PEACE; FREEDOM IS SLAVERY; IGNORANCE IS STRENGTH.”

The most benign interpretation is Philip’s view of “stag” not “flation” as the guide. Even so, going 50bps when the economy is strong — housing starts and building permits both leaped pre-Fed– may be wasting valuable ammunition: would a sudden deterioration mean a 75bps cut?

Alongside that “grifty, shifty, not nifty” 50 were revised forecasts. Unemployment at 4.2% is expected to rise to 4.4% in Q4 and 2025 before going back to 4.2% again: optimistic? Inflation for 2024 and 2025 was revised down, and in 2026 will be at 2.0%, as also seen in June: optimistic? GDP growth for 2024 was revised downward very slightly to 2%, but out to 2027 was unchanged: optimistic?

Yet we got big changes in the dot plot. End-2024 Fed Funds dropped from 5.1% to 4.4%, meaning 25bps cuts in November and December, so sing ‘The First Cut is the Steepest’; 100bps of cuts are seen in 2025; and 50bps in 2026. That means the long-run floor for Fed Funds is 3%. Indeed, Powell’s Q&A stressed the neutral Fed Funds rate was probably higher now than in the past, and he wasn’t expecting to return to New Normal lows.

If cutting 50bps and saying all is well was problematic for Fed credibility, so are its happy projections for markets that have already priced a lot of ‘BAD IS GOOD’ news in. 10-year yields dropped on the Fed decision then rebounded as Powell spoke, and at time of writing were 11bps off their initial post-cut low at 3.73%. The dollar slumped, then retraced losses.

A less benign interpretation for 50bps is politics. “In central banking? What next: politics in economics?!” However, Philip adds Powell had incentive to deliver a big pre-election cut because Trump won’t reappoint him as Fed Chair and may remove him prematurely; his only chance of another term is to please Harris. Yet a 50bps cut “is taunting former and possibly next President Trump. This could have serious repercussions next year. The sole dissenter, Michelle Bowman, may just have improved her chance of becoming the next Fed Chair.” Underlining that dynamic, there was post-cut praise from one Democrat for “following the data” (like we “followed the science”); and criticism from Republicans and Trump, who stated, “The economy would be very bad, or they’re playing politics, one or the other, but it was a big cut.” Things could change bigly for the economy, inflation, and the Fed come November, then 2025.

As warm-up, and following the acerbic tweet that “The Fed is expected to cut credit card interest rates today from 20.78% to 20.28%”, Trump, after what initially looked like a bomb threat, and declaring his policies at campaign events, is now promising to temporarily cap credit card interest rates at 10%. How would this work? No details. Could it happen? No idea. Would it raise US demand far more than the Fed rate cut? No denying it – and bigly. But, hey, let’s talk more about the Fed and that 50bps and what it means for asset prices.

“WALL STREET IS MAIN STREET”

Getting far fewer headlines, Brazil raised its Selic rate 25bps after the Fed cut, moving from 10.50% to 10.75% as expected, and signalling more hikes to come due to upside inflation risks. Does that make Brazil a global outlier or a thought leader? Only time will tell, but for the Fed getting to a first cut was always the easy part, even if they have messed it up. The harder part was always going to be ensuring they don’t get a 1970’s style rebound in inflation once “RATE CUTS!” start to flow into asset prices, commodities, and still-hot services. Our US election base case already assumes this happens via tariffs; other things threaten similarly.

As I concluded yesterday: “back to waiting for the Fed. Or the next geopolitical bang.” Within hours, walkie-talkies, radios, phones, and solar heating systems started exploding across Lebanon and Syria in what is almost certainly a follow-up attack by Israel after yesterday’s “Paging Mr. Terrorist” episode. Reportedly, it was use-it-or-lose-it for Israel as the plot was close to being discovered. The tactical imperative would be a major military follow-up vs. Hezbollah, which the Israeli war cabinet has approved even at the risk of triggering full-blown war. Hezbollah leader Nasrallah is expected to speak today; his recent speeches have tried to deescalate, but will this one?

Of course, the Fed isn’t considering the Middle East at all; nor what I wrote yesterday about the economic implications of the exploding pager incident: national-security bifurcation of supply chains, implying potential moves with dot plot impact within the dot plot’s forecast timeframe.

However, the White House is considering the region too much given the State Department just refused to redesignate the Houthis attacking Red Sea shipping as terrorists, as this would be unfair on ordinary Yemenis (whom the Houthis shoot, starve, and enslave). Perhaps “terrorist” is not the correct definition – it should technically be “pirate”; but even there the US has past form for swashbuckling, not buckling. Today, critics point out a US inverse Vegetius –“If you want war, prepare for peace”– won’t re-open Suez or present a united front against Iran. Others point out that Tehran attempted to pass hacked Trump campaign info to the then Biden campaign: so that’s where they got “no tax on tips” from?

Ukraine attacked a huge Russian ammo depot in Toropets, which didn’t get the same media headlines, but underlines how rapidly output from military-industrial supply chains disappears.

As mentioned here, the CEO of Flexport notes: “The biggest wild card in the presidential election that nobody’s talking about? The looming port strike that could shut down all East and Gulf Coast ports just 36 days before the election.” That wild card also applies to the Fed.

If the International Longshoremen’s Association representing 45,000 dockworkers strikes for the first time since 1977, US businesses could miss the key Black Friday/Cyber Monday peak sales period. Port trade is around $2.12trn, and 72% would grind to a halt, a one-day strike reportedly taking six days to recover from, a one-week strike in October creating bottlenecks until mid-November, not factoring in Red Sea disruptions caused by the not-terrorist Houthis. If goods then shift to the US West Coast ports ‘In Deep Ship’ during Covid, the claim is Asia-US freight rates could leap to $20,000, far above the peak seen in the last supply-chain crisis. That would mean firms with low margins might opt not to import at all, creating empty shelves.

While the Taft-Hartley Act gives the president the power to impose an 80-day cooling off period to delay a strike, Biden has said he doesn’t intend to use it here given the impact doing so could have on union votes; that as the Teamsters refused to endorse a presidential candidate despite its traditional Democrat support, as the majority of its members polled back Trump. On the other hand, the kind of strike described above would hardly help Harris come 5 November. So, what’s it to be?

“VOLATILITY IS STABILITY”

“Orwell, at least we got a 50bps cut.”

The last two days saw so many pagers, two-way radios, and electronic devices explode – literally thousands – that there are fears an electronic with a bomb in it could inadvertently make its way onto a passenger flight. The country’s state news broadcaster NNA is reporting that Lebanon’s director general of civil aviation has banned all passengers from carrying pagers and walkie-talkies on board any aircraft.

Airport security at Beirut Rafic Hariri International Airport will search for and prevent any pagers or two-way radios from being in cargo, checked, and carry-on luggage. The rule has taken effect immediately.

Following the Tuesday and Wednesday blasts, believed the work of Israeli intelligence, at least 37 have been killed and over 3,250 others injured. Reports say that even laptops and cell phones exploded in some instances. Lebanon’s Health Ministry on Thursday said there were 608 injured in the Wednesday blasts alone.

Some analysts are currently expressing that a ban on pagers and walkie-talkies could be something that spreads beyond airports in the Middle East. There were so many blasts all across Beirut and Lebanon, with some reported in Syria too, that the concern is a rigged pager could easily make it on a flight, possibly with someone sitting next to a window. 

The EU’s Josep Borrell yesterday highlighted the “indiscriminate” tactic of the Israeli operation, while the Kremlin condemned it as “international terrorism”.

While the majority of dead and injured appear to be Hezbollah operatives, several were civilians including children and medical workers. Many devices blew up inside homes and apartment buildings. A regional report summarizes:

On Tuesday, some 4,000 pagers exploded over the course of an hour. A day later, more explosions of handheld devices, including walkie-talkie radios, mobile phones, laptops and even solar power cells, took place.

Abiad said that more than 300 patients are in intensive care, and 400 require surgeries and other treatments.

The explosions on Wednesday involved “larger and bigger devices that caused more damage”, he added, resulting in wounds that involve “internal bleeding, injuries to the abdomen and other parts of the body, including brain haemorrhages”.

A local medical professional, Dr Ghassan Abu-Sittah, described to Sky News there has been a huge number of amputations as a result of the attack. “Almost exclusively the pager explodes in the hand while people are trying to read the message, so we’re getting mangled hands and penetrating injuries and blast injuries to the face and the eyes,” he said. He said many of the victims “will end up with some permanent disability.”

“We are all afraid,” Beirut resident Rana Bahlawani told Al Jazeera. “Everyone is living day by day as no one knows what to expect.” The capital’s popular seaside promenade, the Corniche, has reported to be empty throughout Thursday.

Russia has accused the West of a double standard after the US has refused to condemn the pager attacks, calling it “international terrorism”..

Russian Foreign Ministry spokeswoman Maria Zakharova commented on the pager blasts in Lebanon for RT, labeling the attack as international terrorism. She added that the world should closely monitor the West’s reaction. pic.twitter.com/bQXkt7hI0s

— RT (@RT_com) September 19, 2024

One prominent X account of a Lebanese user living in the West wrote: “My cousin in Beirut messaged me saying she disconnected her baby monitor and other household appliances and devices. Our people are unaware of which devices are safe and which are not.” A feeling of paranoia, chaos, and fear has gripped much of Lebanon.

Another commenter, Marc Lynch, said of the pager operation, “Israel’s attack on Hezbollah phones was technically brilliant, sure. It was also absolutely guaranteed that phones would explode in densely packed civilian areas. Markets, malls, taxis, buses. Just look at footage from hospitals. In any other context we’d call that terrorism and it is here too.”

Meanwhile, the NY Times strikes again:

“Noncombatants were also drawn into the fray.”

NYT is trying really hard to avoid saying Israel killed civilians in Lebanon attack. pic.twitter.com/wY2719aZfT

— Assal Rad (@AssalRad) September 19, 2024

Israel’s military has just announced that IDF chief Lt. Gen. Herzi Halevi has “approved operational plans as part of the continuation of the war” in Israel’s north against Lebanon’s Hezbollah. Exchanges of fire grew overnight and as of Thursday afternoon heavier airstrikes on southern Lebanon have been reported, as well as more than 40 rockets fired from Lebanon into Israel.

Local Hebrew media says several Israelis have been wounded after a missile fired by Hezbollah hit a vehicle in northern Israel. Israel says the goal of the new escalated anti-Hezbollah operation is to allow the return of the 80,000 residents of the north who have been forced out of their homes for almost a year.

The Chief of the General Staff, LTG Herzi Halevi, recently completed approval of plans for the northern arena. pic.twitter.com/B8VEZMZC9T

— Israel Defense Forces (@IDF) September 19, 2024

“We are very determined to create the security conditions that will return the residents to their homes, to the communities, with a high level of security, and we are ready to do all that is required to bring about these things,” the IDF stated.

The IDF has indicated that a new major operation has begun. Indeed it appears the feared bigger Lebanese war has come:

“The IDF is currently striking Hezbollah targets in Lebanon to degrade Hezbollah’s terrorist capabilities and infrastructure.”

“For decades, Hezbollah has weaponized civilian homes, dug tunnels beneath them and used weapons as human shields—having turned southern Lebanon into a war zone,” it said.

It is likely that the rate of airstrikes and mortar fire will rise throughout the day into the night. The major Israeli strikes on southern Lebanon have been confirmed through several circulating social media videos.

⚡️Zionist strike on south Lebanon pic.twitter.com/xyKugbr37m

— War Monitor (@WarMonitors) September 19, 2024

Hezbollah chief Hassan Nasrallah is currently addressing the pager attack crisis of the last two days which has left at least 37 dead and hundreds wounded. The televised speech is being closely followed by Lebanese and Israelis and the West alike.

He described that Israel “targeted thousands of pagers in one go” on Tuesday and Wednesday. “This is an act of war and a declaration of war by Israel on the Lebanese people,” Nasrallah said, further describing the attack as “an effort to kill 5,000 Lebanese people within minutes.” He acknowledged that Hezbollah suffered a ‘major and unprecedented’ blow but also emphasized that over much of the past year Israel has “lost the north” of its own country and the settlers are “screaming” in pain and danger.

Nasrallah says many of the pagers were out of service, turned off or stored away. He repeats that Israel’s wilfull intent was to kill thousands of Lebanese people within minutes.

He emphasized that Hezbollah will not stop its operations against Israel “no matter what” so long as the Gaza operation continues.

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