<b>Crude Oil</b> Price Strengthens on Geopolitical Risk, Positioning

The price of WTI Crude Oil has mounted a strong recovery after testing the polarity point on the chart between $49/51 per barrel. A polarity point is ...

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Healthcare Stocks Slide After Trump Says “Drug Prices Out Of Control”

Another day, another Trump soundbite to bring the algos out of hibernation. Moments ago the commented on tax and welfare reform, stating that "some people are taking advantage of the system while others are not receiving enough to live."


But what really spooked the market was Trump reprising Hillary circa the summer of 2015, when the president said that "prescription drug prices are out of control."


This was enough for the headline scanning algos to immediately send the IBB, XBI and the S&P healthcare index tumbling, wiping out the day's gains.

However, as by now it has become all too clear to the algos that any Trump-inspired selloff is merely an opportunity to reload the BTFDs, we begin the countdown to how long it will take the algos to fill the gap, as if Trump never said anything at all...

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Stockman Slams “The Deep State’s ‘Bogus Iranian Threat’”

Authored by David Stockman via The Ron Paul Institute for Peace & Prosperity,

Last week, we identified a permanent fiscal crisis as one of the quadruple witching forces arising in October 2017 which will shatter the global financial bubble. Then, the Donald made the crisis dramatically worse by decertifying the Iranian nuke deal, thereby reinforcing another false narrative that enables the $1 trillion Warfare State to continue bleeding the nation's fiscal solvency.

In a word, the whole notion that Iran is a national security threat and state sponsor of terrorism is just as bogus as the Russian meddling story or the claim that the chain of events resulting from the coup d' etat fostered by Washington on the streets of Kiev in February 2014 is evidence of Russian expansionism and aggression.

Likewise, it's part of the same tissue of lies which led to Washington's massive, destructive and counterproductive interventions in Syria and Libya -- when neither regime posed an iota of threat to the safety and security of the American homeland.

To the contrary, all of these false narratives are the cover stories which justify the Warfare State's massive draw on the nation's broken finances. We will get to the Big Lie about Iran momentarily, but first it is useful to demonstrate just how enormously excessive the nation's defense budget actually is, and why the denizens of the Imperial City---especially the neocon ideologues----find it necessary to peddle such threadbare untruths.

Spoiler alert: Iran has actually never attacked a single foreign nation in modern history whereas Washington has chosen to unilaterally intervene in or arm virtually every surrounding country in the region.

Here's some historical context that dramatizes our point about Washington's hideously excessive spending on defense. Back in 1962 on the eve of the Cuban Missile Crisis, the US defense budget was $52 billion, which would amount to $340 billion in today's (2017$) purchasing power.

Needless to say, the world came to the brink of nuclear Armageddon at a time when the Soviet Union was at the peak of its power and was armed to the teeth. In addition to thousands of nuclear warheads deliverable by missiles and bombers, it had 50,000 tanks facing NATO and nearly 4 million men under arms.

The now open Soviet archives, of course, show that the Soviets had far more bark than bite and never conceived of attacking the US or even western Europe; they didn't remotely have the wherewithal or the strategic nerve.

Nevertheless, by 1962 false moves and provocations by both sides had created a state of "cold war" that was real. Yet even then, the $340 billion military budget was more than adequate to deter the Soviet threat. Nor is that our view as an armchair historian.

The 1962 defense budget was essentially President Dwight D. Eisenhower's budget, and it is one that he had drastically slashed from the $500 billion (in today's dollars) he had inherited from Truman at the end of the Korean War.

That is to say, the greatest general who ever led American forces had concluded that $340 billion was enough. And that came as he left office warning about just the opposite----the danger that the military/industrial complex would gain inordinate political power and pursue foreign policies which required ever larger military spending.

Unlike standard cold warriors, Ike believed that the ultimate national security resource of America was a healthy capitalist economy and that excessive government debt was deeply inimical to that outcome.

That's why he balanced the Federal budget three times during his tenure and presided over a fiscal consolidation---thanks to sharply reduced defense spending---that generated an average deficit of hardly 1 percent of GDP. That's an outcome scarcely imaginable at all in the present world.

Even then, the Soviet empire with all the captive republics that have become independent nations since 1991 (e.g. Ukraine, Belarus, Kazakhstan etc.) had a GDP in 1960 that was estimated to be 50 percent the size of the US. So Ike's bet was that capitalist growth over time was the ultimate source of national strength; that a healthy domestic economy would eventually leave the centralized command-and-control Soviet economy in the dust; and that ultimately the Kremlin's brand of statist socialism and militarism would fail.

He was right. Russia today is a shadow of what Ronald Reagan called the Evil Empire. Its GDP of $1.3 trillion is smaller than that of the New York metro area ($1.6 trillion) and only 7 percent of total US GDP.

Moreover, unlike the militarized Soviet economy which devoted upwards of 40 percent of output to defense, the current Russian defense budget of $60 billion is just 4.5 percent of its vastly shrunken GDP.

So how in the world did the national security apparatus convince the Donald that we need the $700 billion defense program for FY 2018----12X bigger than Russia's---- that he just signed into law?

What we mean, of course, is how do you explain that---- beyond the fact that the Donald knows virtually nothing about national security policy and history; and, to boot, is surrounded by generals who have spent a lifetime scouring the earth for enemies and threats to repel and reasons for more weapons and bigger forces.

The real answer, however, is both simple and consequential. To wit, the entire prosperity and modus operandi of the Imperial City is based on a panoply of "threats" that are vastly exaggerated or even purely invented; they retain their currency by virtue of endless repetition in the groupthink that passes for analysis. We'd actually put it in the category of cocktail party chatter.

For crying out loud. Why is Russia considered a threat to the American homeland when it doesn't even have a blue water navy or any other basis to project offensive power to the North American continent?

Indeed, its "attack" fleet consists of a  single, 40-year old smoke-belching aircraft carrier that could never get out of the Mediterranean bathtub ringed by overwhelming US forces.

Beyond conventional offensive power there is the non-power of its 1500 or so deployable nuclear warheads. Whatever you may think of Vlad Putin's kleptomania and hard-edged suppression of internal dissent, he is surely the "Cool Hand Luke" of the modern world. Do you think he would be rash or suicidal enough to threaten the US with nuclear weapons?

Or for that matter that Russia with its pipsqueak $1.3 trillion GDP and limited military capacity actually intends to invade and occupy Europe, which has a GDP of $17 trillion and sufficient military force---even without the US----to make such a project unthinkable.

Likewise, so what if the Chinese want to waste money building sand castles (i.e. man-made islands with military uses)in the South China Sea. It's their backyard---just as the Gulf of Mexico is ours.

Besides, the great Red Ponzi is utterly dependent upon exporting $2 trillion per years of goods to the US, Western Europe, Japan, South Korea etc. Without those markets its massively leveraged, speculation-ridden, malinvested bubble economy would collapse in 6 months or less. So does anyone really think that the PLA (People Liberation Army) will be bombing 4,000 Wal-Marts in America any time soon?

The truth is, the US defense budget is hideously oversized for a reason so obvious that it constitutes the ultimate elephant in the room. No matter how you slice it,  there just are no real big industrialized, high tech countries in the world which can threaten the American homeland or even have the slightest intention of doing so.

Indeed, to continue with our historical benchmarks, the American homeland has not been so immune to foreign military threat since WW II. Yet during all those years of true peril, it never spent close too the Donald's $700 billion boondoggle.

For instance, during the height of LBJs Vietnam folly (1968) defense spending in today's dollars was about $400 billion. And even at the top of Reagan's utterly unnecessary military building up (by the 1980s the Soviet Union was collapsing under the weight of its own socialist dystopia), total US defense spending was just $550 billion.

That gets us to the bogus Iranian threat. It originated in the early 1990s when the neocon's in the George HW Bush Administration realized that with the cold war's end, the Warfare State was in grave danger of massive demobilization like the US had done after every war until 1945.

So among many other invented two-bit threats, the Iranian regime was demonized in order to keep the Imperial City in thrall to its purported national security threat and in support of the vast global armada of military forces, bases and occupations needed to contain it (including the Fifth Fleet in the Persian Gulf and US bases throughout the region).

The truth, however, is that according to the 2008 NIE ( National Intelligence Estimates) of the nation's 17 intelligence agency, the Iranian's never had a serious nuclear weapons program, and the small research effort that they did have was disbanded by orders of the Ayatollah Khamenei in 2003.

Likewise, what the Imperial City claims to be state sponsored terror is actually nothing more than Iran's foreign policy---something that every sovereign state on the planet is permitted to have.

Thus, as the leader of the minority Shiite schism of the Islamic world, Iran has made political and confessional allliances with various Shiite regimes in the region. These include the one that Washington actually installed in Bagdad; the Alawite/Shitte regime in Syria; the largest political party and representative of 40 percent of the population in Lebanon(Hezbollah); and the Houthi/Shitte of Yemen, who historically occupied the northern parts of the country and are now under savage attack by American weapons supplied to Saud Arabia.

In the case of both Syria and Iraq, their respective governments invited Iranian help, which is also their prerogative as sovereign nations. Ironically, it was the Shiite Crescent alliance of Iran/Assad/Hezbollah that bears much of the credit for defeating ISIS on the ground in Mosul, Aleppo, Raqqa, Deir ez-Zor and elsewhere in the now largely defunct Islamic State.

There should be no doubt about the consequence: Trump's decertification of the Iran nuclear deal will reinforce the neocon dominance of the Republican party and insure that the nation's $1 trillion Warfare State remains fully entrenched.

Needless to say, that will also insure that the America's gathering fiscal crisis will turn into an outright Fiscal Calamity in the years just ahead.

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<b>Oil</b> prices rise toward six-month high as new Iraq conflict threatens output

U.S. crude rose toward a six-month high on Monday as tensions escalated between Baghdad and Iraqi Kurdistan, a semiautonomous region.

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Oil Rally Threatetned As China Reportedly Offers To Buy Aramco Stake Directly

Amid confusion over whether the massive Saudi Aramco IPO is on hold until 2019, or permanently shelved in favor of a private placement, Reuters suggests the latter is now more likely as 'sources familiar with the matter' say China is offering to buy up to 5 percent of Aramco directly (offering the Saudis the lack of transparency they may have been nervous of with a public placing).


As we noted previously, China has been very actively diversifying its sources of energy...

China has understandably played the leading role in Russia’s attempts to broaden its role as an energy supplier in Asia. Rosneft recently sold 14.16 percent of its shares to CEFC China Energy for about $9 billion by way of the Qatar Investment Authority and Glencore. The move reflected the challenges financial sanctions have created for the firm as well as China’s growing clout as an importer. Chinese demand hit 11.67 million barrels per day (bpd) and had risen 6 percent year-on-year in July. Rosneft was smart to finalize supply agreements with PetroChina set to boost its daily exports to China from 400,000 bpd to 600,000 bpd next year. Rosneft also signed an agreement with CEFC to jointly explore for Eastern Siberian reserves and increase direct deliveries to China.


These deals play into Russian-Saudi competition for the Chinese market. China’s oil imports are up 12.3 percent year-on-year, but cuts haven’t hit Russian exports. Saudi oil exports to China hovered at 1.03 million bpd so far this year, a 1.7 percent drop. Russia’s stood at 1.16 million bpd, a 13.2 percent increase. After closing the CEFC deal, Rosneft announced it expected to deliver 40 million tons of oil to China by year’s end, a 9 million ton increase on their expected deliveries. That would average out to around 800,000 bpd from Rosneft alone, assuring Rosneft’s dominant control over Russian supplies to the Chinese market. The increase in supplies has paralleled a long-standing project to develop a refinery in Tianjin. But the project, first announced in 2009, has no clear end date despite a press release concerning its implementation with CNPC in January.


Saudi Arabia has disproportionately lost share in China for several reasons. For one, it bears the burden of cut compliance. Angola overtook it because of China’s dominant position there and didn’t feel the need to comply. For another, Russian firms have built up new assets and export capacity in Eastern Siberia and the Far East. Russian blends have more physical access to Asia-Pacific markets, making them more competitive than they’ve historically been. Finally, spreads on the market between light and heavy crude have narrowed, making Russia’s lighter crudes more competitive against Saudi heavy crudes. But Saudi Arabia is not without a means of responding.


Saudi Aramco reached a refinery deal with state-owned China North Industries Group Corp. in May around the Belt and Road summit. Though the refinery is smaller than that proposed in Tianjin, Saudi Aramco has one considerable advantage over Rosneft: it lacks the same messy history Rosneft has with China’s state firms and it’s not sanctioned. CEFC was a logical partner for Rosneft in China because, unlike CNPC and state-owned players, it could more easily afford to take the sanctions risk. It can also dangle shares to China. Further, the refinery deal signals a willingness to work with China’s independent refiners. These so-called “teapot” refineries have driven demand growth and provide Aramco greater diversity in business opportunities longer-term than Rosneft’s relationships with CNPC and CEFC afford it.


Ever since the company started talking about an IPO of 5 percent of its shares, China has been a logical partner. A sale to Chinese firms in exchange for investments into China’s downstream would be huge win. The Kingdom also signed a similar agreement for an investment platform with China worth $20 billion in late August, just as it became clear CEFC would acquire stakes in Rosneft. That throws a fair bit of shade on Russia’s $1 billion fund agreed to this last visit. Topping it all off, King Salman and Aramco also signed deals reportedly worth $65 billion with China in March.

And than last week, headlines hit regarding delays/shelving of the IPO...

The FT notes that talks about a private sale to foreign governments - including China - and other investors have gathered pace in recent weeks, according to five people familiar with the IPO preparations, amid growing concerns about the feasibility of an international listing.

The Saudi state oil company has struggled to select a suitable international venue for its shares, as New York and London have vied for what has been billed as the largest ever flotation.


The company would still aim to list shares on the kingdom’s Tadawul exchange next year if they pursue the private sale, the people said.


The latest proposal by the company’s financial advisers was described by one of the people as a “face-saving” option for Saudi Aramco, which has worked on plans to list its shares internationally for more than a year.

Desk chatter included comments that the Saudis were anxious about the level of due diligence and transparency involved in a public offering.

A Saudi Aramco spokesperson said:

“A range of options, for the public listing of Saudi Aramco, continue to be held under active review. No decision has been made and the IPO process remains on track.”

The planned listing of a 5 per cent stake in Saudi Aramco is the centrepiece of an economic reform programme led by Saudi Arabia’s powerful crown prince Mohammed bin Salman, who is keen for a 2018 IPO. He has said the company could be worth $2tn although a Financial Times analysis put the valuation figure at around $1tn.

An economic recession in the kingdom is piling pressure on the prince, the king’s son and next in line for the throne, amid calls for the government to increase investment and ease austerity.

And now, as Reuters reports, perhaps the king has options...

Chinese state-owned oil companies PetroChina and Sinopec have written to Saudi Aramco in recent weeks to express an interest in a direct deal, industry sources told Reuters. The companies are part of a state-run consortium including China’s sovereign wealth fund, the sources say.


Saudi Arabia’s Crown Prince Mohammed bin Salman said last year the kingdom was considering listing about 5 percent of Aramco in 2018 in a deal that could raise $100 billion, if the company is valued at about $2 trillion as hoped.


“The Chinese want to secure oil supplies,” one of the industry sources said. “They are willing to take the whole 5 percent, or even more, alone.”


PetroChina and Sinopec declined to comment.

Two senior industry sources said Riyadh was keen on China, its biggest buyer of oil, becoming a cornerstone investor in Aramco.

But no decision has yet been taken on whether to accept China’s offer, or how much stock could be offered to cornerstone investors, the sources said.

Two sources told Reuters that sovereign wealth funds from South Korea and Japan, which are also major buyers of Saudi oil, were also interested in acquiring a stake in Aramco.

Critically though, as The Wall Street Journal reports, the oil rally could have the legs kicked out from under it if Saudi Aramco opts to forgo a public listing of its shares.

“I think the market is clinging to the IPO as the rationale,” said Robert McNally, president of the Rapidan Group.


Conventional wisdom has it that “the Saudis, as long as they were planning this IPO next year, they had almost no choice but to unilaterally, if necessary, cut production to keep oil prices from falling.”

Mr. McNally and other analysts said a delayed or canceled IPO wouldn’t necessarily weaken Saudi Arabia’s resolve. The kingdom needs higher oil prices to shore up its budget–not just to ensure the success of its offering.

But convincing investors of that may be a tougher sell.

“It does seem like a large number of people put significance on that Saudi IPO,” said Kyle Cooper, a consultant at ION Energy Group.

Bill O’Grady, chief market strategist at Confluence Investment Management, has said that prospect of a 2018 IPO was part of the reason he believed U.S. crude futures could climb as high as $60 a barrel. But the market may have been pricing in some skepticism.

“It is bearish news, but the market hasn’t seemed to put 2+2 together on this issue,” he said in an email Friday.


“If the market had discounted that the Saudis would do whatever necessary to get oil to $60 for the IPO, it would already be there.”

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Kurd referendum crisis: <b>Crude oil</b> jumps as fighting in Iraq’s oil-rich Kirkuk shuts output

Oil markets jumped on Monday as Iraqi forces entered the oil city of Kirkuk, taking territory from Kurdish fighters and briefly cutting some output from ...

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iPhone 7 Outselling iPhone 8, Channel Checks Reveal

According to a surprising, and not altogether pleasant for Tim Cook and AAPL shareholders new report by KeyBanc Capital Analyst John Vinh, channel checks have revealed that Apple's older iPhone 7 models are outselling the recently launched iPhone 8 ahead of the early November debut of the premium iPhone X.

As traditionally new editions of the iPhone have sold quickly as fans queue for the latest upgrade, this time it's clearly different as pent up demand for the iPhone X is clearly cannibalizing sales, and the surveys add to signs that the iPhone 8 is not proving as popular as its predecessors. A chronological breakdown of iPhone features by generation courtesy of Nomura is shown below.

"Many respondents indicated that a meaningful portion of customers are buying iPhone 7 in lieu of the new iPhone 8, given the lack of significant enhancements in the new phone," Vinh wrote in his research report, which relied on channel checks in the United States and United Kingdom.

Apple last month introduced the iPhone 8 and iPhone 8 Plus, which resemble the iPhone 7 line but have a glass back for wireless charging. The iPhone 8 starts at $699 in the United States, higher than where its predecessor launched while the latest price of the cheapest iPhone 7 retails from $549 after a price cut.

A comparison of the PCBs of the iPhone 7 and 8, respectively, is shown below.

"Feedback from stores indicate customers are waiting to purchase the iPhone X or to compare the iPhone X before buying the iPhone 8," wrote Vinh, who is rated four out of five stars by Thomson Reuters StarMine for his recommendation accuracy on the Apple stock.

Another reason for the slow uptick of the iPhone 8 could be the modest promotion by U.S. carriers, Vinh said. "While carriers continue to offer promotions for the new iPhone 8, they have been much more modest compared to the iPhone 7 launch last year," he wrote.

Meanwhile, as Apple bull hopes fall on the iPhone X, a key unknown factor is what the price will be. The much-anticipated iPhone X, a glass and stainless steel device with an edge-to-edge display, will start shipping from Nov. 3 with the 10th-anniversary iPhone priced from $999, Apple's most expensive mobile till date.

Meanwhile for those seeking more details on what one can find inside the iPhone 7 vs iPhone 8, the following comparison from Bloomberg should come in handy.

iPhone 7:

iPhone 8:

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