black swans


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While it is clearly not a black swan, black swans being a random surprise, N. Korea could certainly be under-estimated by investors.

 

While the Dow Jones Industrial Average, S&P 500 Index and Nasdaq Composite index hit all-time highs (again) last week and with volatility hovering near a 24-year low, Secretary of Defense James Mattis gave an underreported speech that should cause investors to rethink their complacency.

In an address to a security conference in Singapore, the retired Marine Corps general who headed Central Command from 2010 to 2013 called North Korea’s burgeoning nuclear program a “clear and present danger” and an “urgent military threat.”

By my reading, that ratchets up the already sharp war of words between the Trump administration and North Korea’s ruler, Kim Jong-un. Secretary of State Rex Tillerson had said failure to control North Korea’s accelerated testing of missiles and nuclear weapons could have “catastrophic consequences.” In April, Lt. Gen. H.R. McMaster, the president’s national security adviser, said the problem of North Korea’s nuclear arsenal is “coming to a head” and that it poses a “grave threat” to the U.S. and its allies.

All three officials stressed that diplomacy, particularly with North Korea’s chief ally, China, was the best way to deal with the problem. But earlier this year, Tillerson declared that the policy of “strategic patience” was over and that “all options are on the table.”

North Korea’s ‘gift package’

Kim Jong-un’s rhetoric has become more overheated than our own president’s Twitter account. Last month, North Korea warned that U.S. “provocation” (presumably our joint military exercises with ally South Korea) would mean “a total war which will lead to the final doom of the U.S.” He has threatened the U.S. with a “super-mighty preemptive strike” and vowed to “send a bigger ‘gift package’ ” to the U.S. (The 33-year-old baby-faced tyrant sure has a way with words, doesn’t he?)

Meanwhile, in nearly six years as ruler, Kim Jong-un has tested 78 missiles; his father Kim Jong-il tested only 17 in a 16-year reign. And they’ve improved markedly: Recent tests of solid-fuel missiles, which “would give the United States little warning of an attack … were clearly successful,” The New York Times reported, while the U.S.’s own $330 billion system to intercept incoming missiles has had a failure rate above 50%.

North Korea is believed to have enough radioactive material for up to 25 nuclear weapons now, but “by 2020, [it] could have a nuclear stockpile of 100 warheads that can be mounted on long-range ballistic missiles capable of reaching the United States,” Robert S. Litwak of the Woodrow Wilson International Center for Scholars wrote in USA Today. “North Korea is essentially a failed state on the verge of a nuclear breakout.”

Kim Jong-un, several analysts write, is determined to avoid the fate of Libya’s Moammar Gadhafi, who gave up his effort to acquire nukes only to be deposed and killed in “regime change” after the Arab Spring.

Possibility of preemptive strike

So, without massive diplomatic and economic pressure on North Korea by China, a U.S. preemptive strike becomes ever more likely. George Friedman, founder and chairman of Geopolitical Futures, recently warned that the U.S.’s big military buildup off the Korean peninsula — including two aircraft carriers and daily exercises by more than 100 F-16 aircraft (which also preceded Operation Desert Storm in 1991) — means a U.S. attack on North Korea is imminent.

If it happened, almost everyone agrees the consequences would be disastrous. In the first Korean War (which technically never ended), 2.7 million Koreans, 800,000 Chinese and 33,000 Americans died. Now, North Korea has a million-man army and is hiding weapons, troops and material in a massive network of bunkers, shelters and tunnels that would likely allow it to survive U.S. airstrikes with enough firepower to retaliate heavily against Seoul, the world’s fifth-largest metro area with a population of 24 million. It also has nuclear and chemical weapons and medium-range missiles that could reach Seoul, Tokyo, or even U.S. bases in Guam.

In 1994, General Gary Luck told President Bill Clinton a second Korean war could result in a million dead and $1 trillion in economic damage. Today, Northeast Asia is a critical hub of global commerce: Together, Japan and South Korea’s GDP is over $6 trillion, and of course China borders North Korea.

From crisis to chaos

It’s hard to tell how many of Kim’s (and our) threats are saber rattling and how much are real. Historically, geopolitical crises have had no lasting effects on markets, but crises can spin out of control, especially with the paranoid Kim facing a flailing President Donald Trump desperate to change the subject from James Comey and the Russia investigations.

The recent rhetorical battle may not lead to armed conflict, but war on the Korean peninsula would be massively unpredictable, and investors are woefully unprepared for the potentially cataclysmic consequences. If that isn’t a black swan, I don’t know what is.

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Our current state of affairs – this is an overgeneralization – two versions of the American existence are emerging as separate entities.

There’s the Knowledge Economy and there’s Trumpism, with a lot less overlap between the two with each passing day. We’re not exactly forced to pick the one around which we’ll coalesce, it’s more that we increasingly feel compelled to. Your choice depends on where you live, what your community looks like, which media outlet you get your news from, how religious you are, what level of education you’ve attained, the industry you work in and the amount of exposure you’ve had – in real life – to people from different walks of life and ethnic backgrounds.

Social media has aggravated these differences and recent political contests have hardened them.

Former Vice President Joe Biden spoke at the Cornell commencement last week, akin to making a direct address to the Knowledge Economy. The crux of his remarks:

I thought we had passed the days when it was acceptable for political leaders at local and national levels to bestow legitimacy on hate speech and fringe ideologies. But the world is changing so rapidly…

There are a lot of folks out there who are both afraid and susceptible to this kind of negative appeal. We saw the forces of populism not only here but around the world call to close our nation’s gates against the challenges of a rapidly changing world…

The immigrant, the minority, the transgender, anyone not like me became a scapegoat. Just build a wall, keep Muslims from coming into the United States.

‘They’re the reason I can’t compete, that’s why I don’t have a job. That’s why I worry about my safety.’ And I imagine, like me, many of you have seen this unfold. It was incredibly disorienting and disheartening.

Biden’s audience – remember, we’re talking about Cornell graduates and their families – is extraordinarily divorced from Trump’s audience. They won’t compete for jobs or real estate or potential mates with the Trumpists. They’ll consume information from different sources and have an almost entirely different life experience as they build their careers and raise their families in the coming years.

It’s sad that this is where we are. I don’t think most people want to be compelled to choose a team within one country, but the environment we’re in now practically demands it. This is deeper than political affiliation or just the usual city versus rural heuristic. It’s cultural. We’re supposed to be one culture, generally speaking. Maybe once we were. Or maybe we never were and it’s only becoming more obvious now. Differences in income and opportunities, magnified by Instagram glamor shots and Facebook status updates, are driving people crazy and forcing them onto teams. And teams discourage independent thought.

There is an implicit conceit within the Knowledge Economy that if everyone would just get with the program, the future would be brighter. From the outside, this can be taken as a chide or a scolding. We know what’s best for you. You shouldn’t be surprised that the kneejerk reaction to this sort of thing is a big f*** you and even votes cast out of spite. No one wants to be lectured by people who presume to be better than them. No one wants to be constantly presented with evidence that their life choices have been self-destructive – especially on social media, which is like one giant, raw nerve ending, continually being rubbed the wrong way.

But what if it flipped?

What if, all of a sudden, the Knowledge Economy didn’t look so hot. By publicly denigrating climate science and prioritizing the re-opening of coal mines, it sometimes seems as though this is an explicit aim of the Trumpists – a reactionary counter-revolution rolling back decades of social progress and industry-specific obsolescence. Re-shuffling the deck of cards. Flipping over the roulette table. Letting the chips fall to the ground and the players starting from scratch.

One current White House advisor said last year that “2016 is the Flight 93 election: charge the cockpit or you die. You may die anyway. You—or the leader of your party—may make it into the cockpit and not know how to fly or land the plane. There are no guarantees.” The implication being that complete destruction is preferable to allowing things to keep going in the current direction. This is a desperation that is utterly inexplicable to those who are currently toward the top of the income and education scale.

In the event of a “complete destruction” of society, how would the denizens of the Knowledge Economy fare?

I came across an extreme example in the novel World War Z. Author Max Brooks explored this idea back in 2006, a full decade before the election that would crystallize these two renditions of American life. His narrator interviews the fictional Director of the Department of Strategic Resources in the aftermath of a global zombie epidemic, which humanity has just barely managed to survive. Having non-Knowledge Economy people as instructors may have saved the world…

America was a segregated workforce, and in many cases, that segregation contained a cultural element. A great many of our instructors…these were the people who knew how to take care of themselves, how to survive on very little and work with what they had. These were the people who tended small gardens in their backyards, who repaired their own homes, who kept their appliances running for as long as mechanically possible. It was crucial that these people teach the rest of us how to break from our comfortable, disposable consumer lifestyle even though their labor had allowed us to maintain that lifestyle in the first place…

Imagine the typical Cornell grad in this sort of scenario. What is she bringing to the table? I imagine my own paltry set of skills and realize how unhelpful they would be as the Department of Strategic Resources classifies us all and puts us to work in staving off the undead hordes at the gate…

You’re a high-powered corporate attorney. You’ve spent most of your life reviewing contracts, brokering deals, talking on the phone. That’s what you’re good at, that’s what made you rich and what allowed you to hire a plumber to fix, which allowed you to keep talking on the phone. The more work you do, the more money you make, the more peons you hire to free you up to make more money. That’s the way the world works. But one day it doesn’t. No one needs a contract or a deal brokered. What it does need it toilets fixed. And suddenly a peon is your teacher, maybe even your boss. For some, this was scarier than the living dead.

Substitute “corporate attorney” for graphic designer or evening news anchor or financial advisor or web developer in your mind. Imagine a world in which those skills suddenly had no meaning, no utility. Now think of the millions of your fellow Americans who have been made obsolete by technology or foreign trade over the last few decades – or live in constant fear that they are about to be.

Once, on a fact-finding tour of LA, I sat in the back of a reeducation lecture. The trainees had all held lofty positions in the entertainment industry, a melange of agents, managers, “creative executives,” whatever the hell that means. I can understand their resistance, their arrogance. Before the war, entertainment had been the most valued export of the United States. Now they were being trained as custodians for a munitions plant in Bakersfield, California.

100,000 retail jobs have been lost over the last year. Hiring in e-commerce positions – from web design to fulfillment and shipping – does not offset these job losses on a one for one basis. And if these workers remain out of work for long, or end up doing something they’re unhappy with, whose message will they be more susceptible to, the Knowledge Economy’s or the Trumpists’? Which team will they join?

How about the 3 million Americans who list their occupation as “driver”? As automated vehicles take their place on the road, will Biden’s appeal resonate? I don’t think so. It’s much more likely that the rhetoric of “the experts were wrong, burn it all down” will get through and take hold.

Can anyone or anything turn this tide of our growing separation from each other? I can’t imagine what could do it in the short-term. And I still can’t change an oil filter.

 

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Suppose that over time traders have experimented with trading rules, drawn from a very wide universe of trading rules, perhaps tens of thousands of different iterations. As time progresses the rules that happen to perform well historically, attract more attention and are considered serious rules by the trading community, while unsuccessful rules gradually fall by the wayside.

If enough trading rules are considered over time, some rules, by pure luck, even in a large sample, will produce superior performance, even if they do not genuinely possess predictive power.

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Moral hazard, easy money, and cheap credit have never produced good results. History is littered with examples of financial disaster brought about by monetary manipulation originating in central banks and then spreading to other parts of the system. One would think that the 2007/8 credit crisis, whose effects have not quite withered away, would teach politicians, central bankers, corporations, and consumers something about the causes of credit crunches and meltdowns.

Consumer credit markets are the ones already signaling distress.

Think again. The world’s four largest central banks have pumped more than $9 trillion into the system since the last financial crisis and brought about a world of absurdly low and even negative interest rates. The incentives generated by these policies and their effects – moral hazard, easy money, cheap credit – will lead, at some point, to the bursting of new bubbles.

Which ones? It’s never easy to say, but the United States has seen an unhealthy growth of subprime credit, and credit in general, in three markets – credit cards, auto loans, and student loans. It would not be a surprise if one of these brought about the next credit crunch.

Big Debt

Total credit card debt has surpassed the $1 trillion mark for the first time since 2009, student loans now amount to a total of $1.4 trillion, and auto loans are not far off at $1.2 trillion – an amount that dwarfs the pre-financial crisis peak.

Over the past five years, U.S. corporations have issued more than $7 trillion of new debt, showing that the incentives created by these perversely low interest rates go beyond the markets mentioned before.

However, those consumer credit markets are the ones already signaling distress, so we better pay some attention. Capital One, a big lender to subprime borrowers (particularly through credit cards and auto loans), has had to write off a lot of debt lately – for a total of more than 5 percent of its outstanding loans, the level usually considered the threshold of very dangerous territory.

Predictably the auto industry is now experiencing defaults.

The auto loan sector is especially alarming. Auto sales doubled in the last seven years and are now at an unprecedented level. As happened with mortgage loans before the 2007/8 debacle, money was thrown around in the form of auto loans with no down payment and extended periods.

Predictably the industry is now experiencing defaults (delinquencies are at the highest point since 2009). The result is a heavily increased supply of used cars that have driven down their price. A large part of the auto industry, including manufacturers who lend money to purchasers and rental companies, rely on the sale of securities backed by used cars to fund their operations. Rental companies also rely on the sale of used cars in order to purchase new ones.

Déjà Vu

These symptoms point to risks not dissimilar in nature to what was happening before the housing-related financial meltdown. Banks are beginning to reduce outstanding corporate lending for the first time since that crisis – total loans at the fifteen largest U.S. regional banks in the first quarter of 2017 were $10 billion below the previous quarter, a very significant reversing of the trend.

Standard and Poor’s downgraded 1,088 companies in the United States last year, and analysts are predicting a wave of junk-debt defaults, perhaps encompassing one in every four high-yield debt issuing companies.

One can never tell exactly when a bubble will burst or which corner of the financial system will be the epicenter of the earthquake. But if and when these looming bubbles explode, the main culprit will be the irresponsible policies that were supposed to prevent future bubbles and that created the perfect storm of moral hazard, easy money, and cheap credit once again.

 

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For centuries, cross-border trade has come with a currency problem. The expansion of globalisation has not made it any less pressing. The dilemma identified by the economist Robert Triffin is a powerful – and alarmingly current – reminder that a worldwide foreign exchange crisis is only one big mood change away.

The Scottish philosopher and economist David Hume identified the fundamental issue in 1752. While the sum of global exports always equals global imports, countries can run persistent trade deficits. In Hume’s time, the deficit country shipped gold to pay for overseas goods. Today, creditors have to accept large quantities of deficit countries’ currency.

Hume thought the free market would correct these imbalances, through what we now call currency devaluations. Exports would rise, imports would fall, and the gold would return. But it turns out that the economic patterns which lead to trade deficits are remarkably stubborn. They persist as long as importers can find a way to pay for their lifestyles.

When the gold runs out or the lenders finally give up, default is almost unavoidable. Usually, such national financial failures cause only small ripples in the world economy. But that is not always the case. As Triffin pointed out in 1960 the effects would be much more serious if creditors lose faith in the global reserve currency – the unit which is readily accepted for trade and commonly used for savings pretty much everywhere.

A flight from a reserve currency would throw the global trading system into disarray. As in Triffin’s day, the currency in question is the U.S. dollar. As the Belgian-American economist understood, the dollar will remain solid until the day of reckoning. Foreigners will be willing to accumulate more greenbacks because holdings of the global reserve currency help trade run smoothly. So they are more than happy to finance America’s trade deficit.

But the more the United States spreads dollars around the world, the more likely holders are to question America’s creditworthiness. Economists named the simultaneous desire for dollars and the danger involved in holding them the Triffin dilemma. Valéry Giscard d’Estaing, then the French finance minister, called it America’s “exorbitant privilege”.

The United States has exercised its privilege abundantly ever since. As the chart shows (tmsnrt.rs/2rPeJRw), the net U.S. international investment position – basically the market value of dollars invested from America minus the value of dollars lent to it – first turned negative in 1988. After some gyrations, a firm trend has set in. By 2016, the deficit had reached around 11 percent of global GDP.

That is an awful lot of dollar value at risk. But the development is not surprising. Cross-border trade has increased from 17 percent of world GDP in 1960 to 45 percent today, according to the World Bank. The first horn of the Triffin dilemma explains that this growth leads to more expatriate dollars. The other horn points out that a currency crisis now would be very disruptive.

Suppose some American irresponsibility or arrogance exhausts the patience of the Chinese government, prompting it to sell some of its vast stock of dollar-denominated assets. Others would follow, rushing to currencies still perceived as relatively safe. That creates political discontent in countries such as Japan and Switzerland. Capital controls would come and cross-border trade would go.

Meanwhile, the U.S. Federal Reserve would probably raise interest rates to defend the dollar. Leveraged investors would be forced to sell, creating market mayhem. Big banks could topple over. Though they are better capitalised than a decade ago, they still rely extensively on the ready global availability of supposedly risk-free U.S. government debt.

The unity of that global quasi-government is fraying, though. Central bankers have tested politicians’ patience with years of ultra-low rates. And global politics are troubled. President Donald Trump does not generally behave like a believer in cross-border solidarity. The euro zone has become more inward looking. China has become larger but also more nationalistic. Japan has become smaller.

Ultimately, all profound financial problems must have political solutions, because only governments have enough authority to allocate damage and restore confidence. This explains why cross-border financial problems are especially hard to solve – there is no international government to intervene.

The U.S. dollar’s reserve status has withstood numerous shocks and a succession of profligate presidents. If the Triffin dilemma turns into a crisis, though, everyone will wonder why the dollar was allowed to underpin the global economy in a political near-vacuum.

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The lesson to be learned was not that QE or zero interest rates are omnipotent in supporting stock prices. The lesson was not that valuations are irrelevant, or that “this time is different” in ways that investors cannot comprehend. The lesson was not that low interest rates make stocks “cheap” at any price. Rather, the lesson was that in the presence of zero interest rates, yield-seeking speculation can persist even in the face of obscene valuations and recklessly overextended conditions. So while one can become neutral, one has to defer a hard-negative market outlook until the uniformity of market internals explicitly deteriorates (signalling a shift toward increasing risk-aversion among investors).

Based on a century of market evidence, I concluded that the distinction is the psychological preference of investors toward speculation or toward risk aversion. Moreover, I found that the most reliable measure of those preferences was the uniformity or divergence of market action across a broad range of internals, including individual stocks, industry groups, sectors, and asset classes, including debt securities of varying creditworthiness. That distinction proved to be extraordinarily valuable. The combination of extreme valuations and deteriorating market internals is precisely what allowed us to anticipate the 2000-2002 and 2007-2009 market collapses.

A few more assertions about the financial markets may be useful to discuss. One with appeal to many investors is the idea that valuations may be high on an absolute basis, but that stocks are still “cheap relative to interest rates.” This too is wrong, but wrong in an interesting way.

As I’ve detailed previously (see The Most Broadly Overvalued Moment in Market History), investors often misinterpret the form, reliability, and magnitude of the relationship between valuations and interest rates, and become confused about when interest rate information is needed and when it is not. Specifically, given a set of expected future cash flows and the current price of the security, one does not need any information about interest rates at all to estimate the long-term return on that security. The price of the security and the cash flows are sufficient statistics to calculate that expected return. For example, if a security that promises to deliver a $100 cash flow in 10 years is priced at $82 today, we immediately know that the expected 10-year return is (100/82)^(1/10)-1 = 2%. Having estimated that 2% return, we can now compare it with competing returns on bonds, to judge whether we think it’s adequate, but no knowledge of interest rates is required to “adjust” the arithmetic.

One intuitive way to evaluate the impact of interest rates is to consider the effect of a given departure of interest rates from normal levels. For example, consider again a $100 cash flow that will be received 10 years from today. If the typical return on such an investment is 6%, the current price will be $55.84. But suppose we expect returns to be held down to just 4% for the first 5 years, then 6% after that. In that case, the current price will be $100/[(1.04)^5 x (1.06^5)] = $61.42. That’s 10% higher than our previous calculation. Why? Because in order to reduce the return from 6% to 4% for the initial 5 year period, the price has to increase by 2% x 5 years = 10%.

Accordingly, if you believe that market valuations should be tightly related to the level of interest rates (the correlation actually goes the wrong way outside of the 1970-1998 period, but let’s assume otherwise), it follows that if interest rates are expected to be 3% below average for the entire decade ahead, market valuations ought to be 30% higher than historical norms. The problem is that the most reliable valuation measures (those most tightly correlated with actual subsequent market returns in cycles across history) are currently between 130-160% above their respective historical norms.

An additional theory crossed my desk in recent weeks, which is that corporate profits are enjoying a “winner take all” phenomenon, which will allow large, dominant companies to retain monopoly-like profit margins indefinitely. Now, there’s no question that many internet-related companies have benefited from network effects that have substantially contributed to their size, as well as their market capitalizations. The question is whether this effect now dominates the profit margin behavior of U.S. corporations more generally. One anonymous analyst, who we like quite a bit for his (or her) analytical approach even when we wholly disagree, recently proposed that profit margins might be more broadly affected by this sort of systematic “winner take all” dynamic.

To that end, Patrick O’Shaughnessy compiled some data by separating companies into five bins based on their profit margins, and then charted the aggregate profit margins of each bin (chart below). The analyst proposed, “If our explanation is correct, then the aggregate profit margins of the higher bins should have increased more over the last few decades than the aggregated profit margins of the lower bins. Lo and behold, that’s exactly what the data shows.”

My response to this is straightforward. The conclusion is wrong, but it’s wrong in an interesting way. That’s not a criticism of either analyst, just an issue with the conclusion being drawn, and it provides an opportunity to learn something valuable. The problem here is that the analysis is an artifact of selection bias.

To illustrate, I generated 100 geometric random walks, and then sorted them into quintiles based on their ending values. It should be clear that the members of the top bin are, by definition, the ones that have benefited the most from randomness, and the members of the bottom bin are, by definition, the ones that have suffered the most from randomness. Even though the underlying paths are random going forward, grouping them by their ending values and then looking backward gives the impression that there is some systematic “winner-take-all” process at play.

That’s not to say that we can reject the possibility of a “winner-take-all” dynamic, but what’s actually required to demonstrate it is to sort the series at some point T, and then show that subsequent outcomes are systematically biased in favor of the early winners. Again, there’s no question that many internet companies benefit from this kind of dynamic (though their market capitalizations already vastly extrapolate the continued expansion of those network effects). For the market as a whole, however, I remain convinced that the main story behind profit margin expansion in recent years has been weak growth in real unit labor costs, and that this is likely to change in the years ahead, as the combined result of weak demographic growth in the labor force, substantially less slack in the U.S. labor market, and limited benefits from labor outsourcing on unit labor costs, given that lower wages often go hand-in-hand with lower productivity.

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President Donald Trump’s bombshell decision to fire FBI Director James Comey late Tuesday evening sent shockwaves through Washington and the American public.

Almost as soon as the news broke, comparisons between Comey’s firing and the events leading up Watergate started pouring in.

“President Trump’s firing of Director Comey sets a deeply alarming precedent as multiple investigations into possible Trump campaign or administration collusion with Russia remain ongoing, including an FBI investigation,” Sen. Edward Markey of Massachusetts said in a statement.

“This episode is disturbingly reminiscent of the Saturday Night Massacre during the Watergate scandal and the national turmoil that it caused.”

Connecticut Sen. Richard Blumenthal said in a statement that “not since Watergate have our legal systems been so threatened, and our faith in the independence and integrity of those systems so shaken.”

But experts think that there are some ways in which Comey’s firing could be bigger than Watergate, and it hinges on Trump’s reasoning behind his decision to remove Comey.

Glenn Carle, a former CIA clandestine services officer and national security expert, said that if Trump fired Comey over his anger toward the FBI’s probe into the Trump campaign’s ties to Russia, that would be “catastrophic.”

“Watergate was huge, but it was based on a criminal charge. Trump firing Comey during the Russia investigation is borderline betrayal” and a critical threat to national security if it’s based on the Russia probe, Carle told Business Insider.

Richard Painter, who was the chief ethics lawyer for former President George W. Bush, also expressed suspicion toward Comey’s firing and said that the move on Trump’s part was an abuse of presidential power.

“We cannot tolerate this — for the president to be firing people who are investigating him and his campaign and its collusion with the Russians,” Painter told Rolling Stone.

“It’s a lot worse than Watergate,” he said. “Watergate was a third-rate burglary. It was purely domestic in nature. This situation involves Russian espionage, and we’ve got to find out who is collaborating.”

“We didn’t have to worry about treason in the Watergate situation,” Painter later told CNN.

The president, Attorney General Jeff Sessions, Deputy Attorney General Rod Rosenstein, and a number of Trump administration officials have emphasised that the Russia probe had nothing to do with Trump’s decision.

Comey, they say, was fired because he mishandled the FBI investigation into Hillary Clinton’s use of a private email server when she was secretary of state, and that lost him the president’s confidence.

But pundits and critics, as well as sp,e members of Trump’s circle, have cast doubt on that line of reasoning and said they were troubled by the timing of Comey’s firing.

Two advisers told Politico that Trump was furious over the Russia investigation, frustrated that he wasn’t able to control the media narrative around it, and asked why it wouldn’t disappear. One adviser said that the president would occasionally scream at the television when news clips related to the probe were airing.

Fox News host Charles Krauthammer called it “implausible,” adding that “if that was so offensive to the Trump administration, what you would have done during the transition is you would have spoken to Comey and said, ‘We’re going to let you go.’”

Based on the timing of Comey’s firing, “the obvious inference seems to be that Trump is upset about the investigation,” Robert Deitz, a former top lawyer at the CIA and NSA, told Business Insider.

“If it turns out that the Russia thing is bigger than, or as big as people have speculated, then this is a threat to democracy,” Deitz said, adding that if more evidence emerges of Trump associates’ ties to Russia, then Comey’s firing would “certainly be bigger than Watergate.”

But if Trump’s fury at the Russia probe was a motivation behind his decision to terminate Comey, he’ll likely be disappointed.

Regardless of whether or not Comey is spearheading the FBI, the department will continue to investigate ties between Trump associates and Russia, one FBI official told the New York Times on Wednesday.

And if anything, it’s likely Comey’s firing will further energize the investigation, in the same way that Archibald Cox’s firing did during the Watergate scandal.

“There are so many people now working on this issue, and this firing is going to do nothing but encourage that,” Deitz said, and added that Comey’s firing would “barely be a blip on the radar” of career professionals investigating the president’s associates.

Comey’s dismissal will also accelerate the steady drip of sensitive information being leaked to the press, Deitz said, and there already seems to be evidence of that.

Shortly after news broke that Comey had been fired, CNN learned that a grand jury had issued subpoenas to former national security adviser Michael Flynn’s associates. On Wednesday, The New York Times reported that Comey had asked the Department of Justice — which is led by Sessions and Rosenstein — for more resources for the Trump-Russia probe days before he was fired.

“People are going to be absolutely all over this Russia thing, just because they think nobody would do this unless there’s something really bad underneath it all,” Deitz said.
Read more at https://www.businessinsider.com/comey-trump-russia-firing-watergate-2017-5#SoS7DPrtoaiwIEAE.99

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