- China Responds To US Sabre-Rattling With Anti-Aircraft "Drill" Over South China Sea
The People’s Liberation Army Navy (PLAN) has carried out an alarming anti-aircraft drill with missiles fired at dummy drones over the South China Sea to simulate an aerial attack, after Washington challenged Beijing by flying Boeing B-52 Stratofortress bombers near its highly disputed militarized islands, said the South China Morning Post.
The military exercise, which involved “three target drones making flyovers of a ship formation at varying heights and directions,” is part of a much larger effort by Beijing to increase its military readiness for future combat with the U.S.
The report said the drones served to “precisely verify the feasibility and effectiveness to ensure a close stimulation of an aerial attack target,” according to the report.
In other words, Beijing is preparing for an attack on its islands — most likely led by the U.S. and backed by its regional allies.
Details were limited about the overall military exercise — including the exact date and which militarized island the drill was conducted on.
The report came out shortly after U.S. Secretary of State Mike Pompeo expressed great concern over China’s rapid militarization of the South China Sea during a briefing in Beijing with Chinese leadership on last week’s summit between President Trump and North Korean leader Kim Jong-un.
Pompeo’s remarks came after the recent U.S. Navy warships and U.S. Air Force Boeing B-52 Stratofortress bombers traveled dangerously close (separate but related incidents) to the militarized islands, which drew sharp criticism from Beijing.
During Pompeo’s visit to China in April, he “reaffirmed our deep concerns about the building and militarizing of outposts in the South China Sea, as those actions increase tensions, complicate and escalate disputes, endanger the free flow of trade, and undermine regional stability”, the U.S. State Department released in a statement.
China lays unilateral claim to most of the South China Sea, a region that has vast natural resource and one of the world’s busiest shipping lanes. Other claims to the heavily disputed area are by the Philippines, Vietnam, Malaysia, Brunei, and Taiwan. It is still unclear whether Beijing used its sovereign territory or a foreign nation’s territory to conduct the latest round of war drills.
The South China Morning Post said regional military strategists expect relations between Beijing and Washington to further deteriorate over the South China Sea, as Beijing continues to expand its military reach, which was once dominated by Washington for decades.
“The vast waters of the South China Sea connect the Pacific and Indian oceans and have high military, security and strategic importance, so anyone who dominates the region has the advantage,” said Li Mingjiang, an associate professor at the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore.
“But China is unlikely to follow what the US wants as [Beijing] is also looking to expand its military presence in the South China Sea with the hope of turning the region into an area under its military dominance.”
Xu Liping, a senior research fellow at the Chinese Academy of Social Sciences, agreed with Mingjiang.
“The drills, as well as other recent military exercises, are a message to the world that China is determined about, and capable of, safeguarding its territory in the South China Sea,” Liping said.
“These tensions will remain, but the question is – how are the two sides going to manage this dispute?”
While there is no comprise in sight, the Washington-Beijing struggle for regional dominance in the South China Sea could lead to a further decline in relations between both countries.
To give a perspective of what the future could behold, the escalating trade war between Washington-Beijing could, in fact, lead to a hot conflict, and it seems the epicenter could be the South China Sea.
- Russian Army Gets The Weapons Of The Future Today
Authored by Andrei Akulov via The Strategic Culture Foundation,
The combat experience that Russia’s Terminator-2 tank support combat vehicle (BMPT-72) has gained in Syria has proven to be invaluable. It is being used to develop a new Terminator-3 version that will soon equip the tank support system to do things like attacking unmanned aerial vehicles (drones). Other armored vehicles and dismounted infantry in difficult terrain remain high-priority targets.
Few details are available so far. Like its predecessors, the new vehicle’s armor protection will be equivalent to that of a main battle tank, with armaments allowing it to engage virtually any enemy weapon system or unit and to fire at multiple targets at the same time. Automation makes it possible to reduce the number of crew members from 5 to 3.
The new weapon system is likely to share its chassis, sensors, armor, and active protection system with the new Armata T-14 main battle tank. According to Russian media reports, the main armament will be a 57-mm. gun already used by the Russian Navy. Its rate of fire is 300 rounds per minute, its range — 16 km., and its altitude — over 4 km. The projectile can penetrate armor over 100 mm. thick. Because the firing range of its machine gun and automatic grenade launcher are 60-140% greater than that of the American Bradley IFVs and Stryker wheeled armored vehicles and anti-tank systems, this system can reliably protect tanks and infantry while remaining safely out of reach.
The Zvezda TV channel quoted officials from the weapons manufacturer Techmash who claimed that the Tosochka thermobaric, wheeled-chassis, heavy multiple-rocket launcher is to be delivered to the Russian Army in 2020. Using wheels instead of caterpillar tracks allows it to move faster but also increases the system’s vulnerability when operating on the front lines. One must assume that the MLRS will not be used to fire directly at targets, but will instead shoot at them from protected positions. Wheels make it more effective against terrorist units. It does not need trailers to move rapidly across great distances, which is exactly what is required to forcefully attack militants on different fronts.
Russian officials confirmed in May that the Uran-6 demining robot and the Uran-9 unmanned light battle tank have been tested in Syria. The latter is the first remote-controlled military robot in the world (a miniature tank) with a 30-mm. gun, enabling it to carry out the missions of an armored combat system supporting infantry on the ground.
The Uran-6 is a unique unmanned ground vehicle (UGV), or mine-clearing robotic system, that saves human lives by clearing routes across mine fields. Weighing six tons, it can be transported by truck. With its bulldozer blade and trawls, it can do the work of 20 sappers, neutralizing ordnance with a potential explosive energy of 59 kg. (130 lbs.) of TNT equivalent. Aided by four cameras for 360-degree view, it can be equipped with a large number of tools, such as a robotic arm, a rear forklift, a gripper with a cargo-lifting capacity of one ton, etc. The system can conduct demining operations on any terrain, while remaining at a safe distance of up to one km. away.
Made of steel plates 8 mm-10 mm thick, the vehicle is highly resistant to mine blasts and shrapnel damage. The system can defend itself using 7.62-mm small arms.
Built on the basis of a tracked chassis, the Uran-6 is powered by a 6-cylinder water-cooled, turbo-charged diesel engine, allowing it to move at a speed of up to 15 km., negotiate obstacles 0.8 m. high, cross 1.2-m wide ditches and water obstacles, and operate in swamps 0.45 m. deep. The system is able to work continuously for up to five hours. It did a great job in Palmyra, Syria, defusing bombs and bobby traps. The Russian Army plans to increasingly rely on UGVs as time goes on.
Mainly designed for reconnaissance and patrol purposes, as well as for protecting convoys and supporting infantry, Tigr-M all-terrain infantry mobility vehicles have also seen combat in Syria. With the Arbalet-DM remote module installed, the system becomes robotic. The module consists of a 12.7-mm. caliber Kord machine gun with 150 cartridges or a 7.62-mm caliber PKTM machine gun with 250 cartridges. Laser guidance is used. The Arbalet-DM can lock on and automatically track stationary and moving targets identified by a TV camera from a distance of 2.5 km. or 1.5 km. if thermal-imaging equipment is used. A laser range finder has a range of 100 m.-3,000 m. This new version of Tigr is funded by the 2018-2025 state procurement program.
The Tigr-M has outstanding off-road capabilities. With an operational range of 1.000 km, the vehicle can reach speeds of up to 155 km. per hour. It can climb 31-degree slopes and cross water obstacles that are 1.2 m wide.
The famous, combat-proven BMP-3 heavily armed infantry combat vehicles are to become unmanned too, as soon as the AU-220 combat module armed with a 57-mm. automatic cannon is installed. It will enable the system to strike aerial targets. The gun’s rate of fire is 80 rounds per minute and its range is 14.5 km. Any type of rounds can be used. An armor-piercing round can penetrate 130 mm. of steel from one km. away A coaxial 7.62-mm machine gun can hold 1,000 rounds of ammunition. The module can fully rotate 360 degrees.
The trend is clearly evident — the Russian Army is making great strides in its introduction of new, more highly automated technologies. New weapons that are unlike anything owned by any other country, such as tank support vehicles, are currently either being added to the Russian arsenal or are being developed. The army is also gradually moving away from soldier-to-soldier warfare, turning instead toward combat that is fought by remote-controlled machines driven by artificial intelligence. In March, Defense Minister Army General Sergei Shoigu said that a number of military robotic systems were nearing the completion of their trials before going into serial production this year. He was telling the truth. Many nations are working hard to put unmanned systems onto the battlefields, but Russia appears to be leading this race, fielding its military robotics more quickly than anyone else. The very pace of the updates to these armored vehicles captures the imagination.
- Meet "The Guardian" – Maybe The Scariest-Looking Robot Yet
Sarcos Robotics’ Guardian GT has earned comparisons from Wired to Sigourney Weaver’s Power Loader – the machine she used to defeat the eponymous Alien from the 1979 film: It’s a robot that allows people to lift and manipulate objects weighing up to 500 pounds with its 7-foot robotic arms.
While mimicking human dexterity has become one of the defining problems of robotics, the Guardian GT has a couple of advantages that make it more dexterous than its contemporaries: For example, the Guardian GT’s control systems are kinematically equivalent to the human body. This allows the operator to control what’s effectively a larger version of his or her own torso and arms.
The Guardian also employs force feedback so the operator can feel through the machine’s hands. This creates a strange sensation when the operator is lifting a large object, like say a 1,000-pound pipe.
“That’s a little disorienting, so we give a little bit of load into the arm,” Wolff says. Meaning, the robot pushes back a tiny bit. “So instead of lifting a thousand pounds you feel like you’re lifting five.” (How it’s able to do this without the herky-jerkiness of other robots comes down to special actuators, the bits that move and bend the arms. What exactly is special about them, Wolff declines to say, because he’s a good businessman.)
Its designers are marketing the robot for use on construction sites. They argue that the machine would free up workers to handle jobs that require human coordination, while the Guardian does the heavy lifting.
Just imagine this thing on a construction site. Doing something like lifting and joining two pipes would require a crane and maybe five or six workers, who would be freed up to do other jobs that require a more human touch (fine manipulation, for instance). With the Guardian GT, all it takes is one supercharged human. It still requires a lot of coordination, sure, but the robot takes the strain out of the equation.
What’s interesting about this workplace robot is that it’s collaborative—a human is always in control. And that’s what the future of work looks like, especially heavy industry. Fields like construction and agriculture are already facing severe labor shortages, and the machines are poised to pick up the slack. Think automated construction tractors and robots that help humans harvest crops without all the stooping. In the very near future we’ll be working alongside robots, as opposed to robots outright replacing us.
Still, the company insists that robots won’t replace human workers so much as humans will eventually learn to work alongside their robot partners. Robots, which won’t be able to match human dexterity for years to come, just won’t be able to do some tasks that require a high degree of finesse.
“While I think that we will see increasing amounts of autonomy and AI,” says Wolff, “I think the real role in work generally is for us to find as humans how to maximize the utility of robots. Allow them to do what they’re really good at while still relying on what humans are best at, which is wisdom and judgment.”
Then there are the jobs that humans simply can’t do. Because the Guardian GT rolls on either tracks or wheels, the operator can drive it into danger. Think exploring toxic environments and decommissioning nuclear power plants. With the inherent dexterity of the machine, it could easily manipulate things made for humans hands, like valves and buttons.
Indeed, the death of human labor has been greatly exaggerated. For now, at least.
- On Donald Trump's "Madness" & A New Gold Standard
Authored by Hugo Salinas Price via Plata.com,
Way back in 1995, when Mexico was in the throes of another financial crisis, I figured out the problem of the existing world’s monetary system, based on the paper dollar as the fundamental currency of the world.
In my ignorance, I did not know that a man named Triffin had already pointed out that problem, which became known as “Triffin’s Dilemma”.
The problem is really very simple:
If the dollar – such as it is – is going to be the basis of the world’s monetary system, and therefore required by all Central Banks as Reserves, there is only one way that these CBs can obtain those Reserves: their countries are forced to undersell all US producers, in order to be able to sell more to the US, than they buy from the US.
The difference between the dollars they get from sales, is more, than the dollars they spend to buy from the US. That difference – known as the US Trade Deficit – flows to the CBs of the world and swells their Reserves.
So if Mr. Trump wants to cut down, or even ideally abolish the Trade Deficit, that would mean that foreign CBs would have to find it much harder to obtain dollars for their Reserves. Mr. Trump apparently does not want to have foreign CBs use dollars as Reserves, by making it very difficult to obtain those dollars – which they can only get if the US runs a Trade Deficit.
What that great world monetary system based on the paper dollar has done to the US, was quite unexpected: it consists in obtaining foreign goods by tendering paper money in payment, something that is fundamentally fraudulent. And that fraud has come back to haunt the US, quite unexpectedly.
The unexpected result of Triffin’s (or “Hugo’s”) Dilemma, has been the de-industrialization of the US, as the world geared up to undersell all US producers wherever they could do so, in order to obtain the indispensable US Dollars.
Mr. Trump is wildly alienating all the rest of the world, with the threat of Tariffs in order to reduce the Trade Deficit. What he does not understand, is that the Trade Deficit is built-in to the US economy, because the world´s CBs need Dollars for their Reserves: that is the System.
There is one way, and only one way, to do away with the Trade Deficit and renew the productivity of the US: abandon the present International Monetary System (derived from the original Bretton Woods Agreements of 1944) and return to the gold standard.
There are no “Trade Deficits” under the Gold Standard, because all countries have to pay Cash Gold for their imports, and collect Cash Gold for their exports. Result: Balanced Trade. No Trade Deficits.
A question in the back of my mind: Is Mr. Trump’s “madness” really leading to the Gold Standard? Is that what he really wants? Because if he continues to undermine the present US Dollar as the World’s Reserve Currency, by making it impossible for CBs to obtain Dollars through the US Trade Deficit, that would appear to be the likely final outcome.
- Are China's "Drone Swarms" The Military Weapon Of The Future?
China, the country where fireworks were invented back in in ninth century, recently decided to ban fireworks displays in more than 400 cities, a decision that has forced companies and municipalities to brainstorm alternative forms of entertainment that won’t have such a deleterious impact on the environment. One perhaps unintended result of this decision has been an explosion in demonstrations involving “drone swarms” of LED-equipped flying robots, according to Bloomberg. In fact, shows involving more than 1,000 flying drones have cropped up around China – with the robots being used for celebrations commemorating everything from the Winter Olympics in PyeongChang to the Spring Festival Gala sponsored by China’s state-run news channel CCTV.
And while China insists that these “drone swarms” are for entertainment purposes only, we can’t help but wonder: Will “drone swarms” become the weapon of the future?
While the Intel performance at PyeongChang was pre-recorded, EHang has performed for live audiences. Some drones failed to stay in formation during parts of Ehang’s record show and Xiong said the issue may have been due to man-made interference, but declined to provide details.
Founded by Duke graduate Xiong and his partner Huazhi Hu in 2014, Guangzhou, China-based EHang raised $42 million in a Series B round the following year with investors including GP Capital, GGV Capital and ZhenFund.
EHang’s drones aren’t the only ones getting attention. When state broadcaster CCTV held its annual Spring Festival Gala, the world’s most-watched TV show, it featured Zhuhai-based Oceanalpha’s performance of 80 boat bots.
Of course, organizers of drone displays like the ones we mentioned above must contend with obstacles like the fact that China has strict controls on the usage of its airspace. EHang, one Chinese dronemaker, raised $42 million in a Series B round the following year with investors including GP Capital, GGV Capital and ZhenFund. So far, its swarms have been on display in 20 countries during events like Cirque du Soleil and concerts put on by the metal band Metallica. Most interestingly, drones that are part of the storm communicate with one another via artificial intelligence (a technology that China has also outmaneuvered the US in developing…)
Verity Studios, a company founded by robotics expert Raffaello D’Andrea that focuses on live drone shows, has performed swarm displays in 20 countries, including at Cirque du Soleil and on tour with Metallica.
One of the challenges in China is restrictions on the nation’s airspace. Xiong has sought to address that by offering some control to authorities by designing command and control centers that can track traffic. Profits from shows are supporting the company as it works toward a goal of bringing to market the first passenger drone , a concept that is being tested at an abandoned amusement park in its hometown.
Phil Finnegan, director of corporate analysis at Teal Group, said regulators concerned with making sure each drone is operated by one operator could limit the use of swarms.
“There are military applications for swarms, but in terms of commercial, it’s nascent,” he said. “The concern is that regulatory authorities may allow this in limited circumstances and widespread use is still far off.”
Many kinks in the technology still need to be worked out, per Bloomberg.
While the Intel performance at PyeongChang was pre-recorded, EHang has performed for live audiences. Some drones failed to stay in formation during parts of Ehang’s record show and Xiong said the issue may have been due to man-made interference, but declined to provide details.
Founded by Duke graduate Xiong and his partner Huazhi Hu in 2014, Guangzhou, China-based EHang raised $42 million in a Series B round the following year with investors including GP Capital, GGV Capital and ZhenFund.
Surprisingly, EHang and other drone manufacturers insist that civilian applications have been the most lucrative so far, and that military applications remain far off.
Swarms burst onto the global stage at the Winter Olympics in February, when Intel Corp. used more than 1,200 drones to fly as one in the shape of athletes. Since PyeongChang, there has been debate on their use, including the controversial potential for military applications. Ehang’s focus for now is on making money from civilians, with a May 1 live performance launched from the ancient city wall of Xi’an watched by more than 100,000 people and part of a deal that netted the company a 10.5 million yuan ($1.6 million) payday.
“We have other business sectors but the first one we have monetized is the drone swarm performances,” said Ehang co-founder Derrick Xiong, adding that EHang is also developing passenger and delivery drones. “It’s a more environmentally friendly way of doing fireworks.”
As “China Uncensored” pointed out in an episode published late last year, the Chinese Communist Party is developing military applications for these “drone swarms” that will allow the drones to communicate with each other at speeds that are impossible for human pilots.
So what do you think? Are drone swarms the “weapon of the future” that will give China’s military the edge it needs to outmaneuver the US? Or are these just a high-tech way to make sure Metallica never burns down the venue with poorly supervised pyrotechnics?
- The Saudi-UAE Alliance Is The Most Dangerous Force In The Middle East Today
Authored by Doug Bandow via The American Conservative,
The latest: they are bombing a port that accounts for 80 percent of the food and aid trickling into starving Yemen.
For three years, Saudi Arabia and the United Arab Emirates have conducted a murderous campaign to reinstall a pliable regime in the desperately poor country of Yemen. This campaign is based on a lie intended to gain American support: that the two authoritarian monarchies are responding to Iranian aggression. Now the UAE is preparing a military offensive that could split Yemen apart and create mass starvation.
The Saudi-Emirati alliance is the most dangerous force in the Middle East today. Sometimes acting alone, but usually in tandem, the two dictatorships have promoted intolerant Wahhabism around the world, backed brutal tyranny in Egypt and Bahrain, supported radical jihadists while helping tear apart Libya and Syria, threatened to attack Qatar while attempting to turn it into a puppet state, and kidnapped the Lebanese premier in an effort to unsettle that nation’s fragile political equilibrium. Worst of all, however, is their ongoing invasion of Yemen.
To demonstrate support for its royal allies, America joined their war on the Yemeni people, acting as chief armorer for both authoritarian monarchies and enriching U.S. arms makers in the process. America’s military has also provided the belligerents with targeting assistance and refueling services. And our Special Forces are on the ground assisting the Saudis.
The result has been both a security and humanitarian crisis. Observed Perry Cammack of the Carnegie Endowment: “By catering to Saudi Arabia in Yemen, the United States has empowered AQAP, strengthened Iranian influence in Yemen, undermined Saudi security, brought Yemen closer to the brink of collapse, and visited more death, destruction, and displacement on the Yemeni population.
The Yemeni people have done nothing to harm the United States. So why is Washington treating them as the enemy?
Yemen, both as one and two states, has been almost constantly at war over the last half century, as its more powerful neighbors have sought to meddle in its affairs. Once, Egyptian and Saudi troops battled each other on behalf of separate Yemeni states. The two Yemens united in 1990, but that resulted in neither peace nor stability.
The latest round of violence grew out of the Arab Spring. Long-ruling President Ali Abdullah Saleh, who cooperated with both the U.S. and the Saudis, was ousted. But he soon united with his old enemies, the Houthis, a political and tribal militia whose members are Zaydis, a moderate, Shia-related sect that also shares some Sunni characteristics. Together they defenestrated Saleh’s successor, Abdrabbuh Mansur Hadi. Area specialists agree that Iran had little to do with these maneuvers, while U.S. intelligence reports that Tehran even advised against the anti-Hadi coalition’s march on the capital of Sanaa.
The resulting conflict little affected America except in disrupting some operations against al-Qaeda in the Arabian Peninsula (AQAP). But the Saudis and UAE created a “coalition” supplemented with de facto mercenaries—from Sudan, for instance—in March 2015 to restore Hadi. That military operation, which was supposed to take a few weeks, continues more than three years later.
Today the Yemeni nation and state no longer exist. The UN has termed the conflict “the largest humanitarian crisis in the world” where “Yemenis are facing multiple crises, including armed conflict, displacement, risk of famine and the outbreaks of diseases, including cholera.” Some 30,000 civilians are estimated to have died since January 2017 alone. In March, the UN High Commissioner for Refugees reported: “Conflict in Yemen has left 22.2 million people, 75 per cent of the population, in need of humanitarian assistance and has created a severe protection crisis in which millions face risks to their safety and are struggling to survive.”
The Houthis share the blame for Yemen’s hardship. But the coalition, by employing airstrikes termed “indiscriminate or disproportionate” by Human Rights Watch, has caused at least two thirds of the infrastructure damage and three quarters of the casualties. Yemeni American Rabyaah Lthaibani was blunt: “For three years now, the Saudi Coalition has bombed hospitals, schools and wedding parties. They have systematically targeted roads and farms and blocked ports so lifesaving aid and other goods could not reach people facing famine and the world’s fastest-growing cholera outbreak.” Amnesty International concluded that the coalition deliberately hit civilian targets to create a crisis.
On Wednesday, the Saudis and Emiratis launched their planned assault on the port of Hodeida, which will only exacerbate this humanitarian horror. Pleas by the UN and U.S. that upwards of 250,000 people’s lives will be at risk have gone unheeded. But then why would Abu Dhabi listen, since Washington’s support for the coalition has thus far been total? The U.S. is enabling an aggressive war with all of its horrendous human consequences.
Washington’s complicity in Yemen’s destruction hasn’t promoted regional stability. Over the last two decades, misbegotten American intervention has spread conflict, loosed Islamist furies, imperiled religious minorities, and expanded Iran’s influence throughout the Mideast and beyond. Inflaming the Yemeni war has proved similarly destructive.
Hadi may be Yemen’s “legitimate” ruler, but he sacrificed what little popular support he had when he called in airstrikes on his own people. Nor is he a friend of America: journalist Laura Kasinof observed that Hadi had “cozied up to the Islamists” before his ouster, even sometimes cooperating with AQAP. Saudi Arabia and the UAE also have armed radical forces. AQAP may be the greatest inadvertent beneficiary of the overall conflict.
U.S. officials sound like Saudi propagandists when they falsely claim that the Houthis are Iranian proxies. Gabriele vom Bruck at London’s School of Oriental and African Studies explains: “The Houthis want Yemen to be independent, that’s the key idea, they don’t want to be controlled by Saudi or the Americans, and they certainly don’t want to replace the Saudis with the Iranians.”
As noted earlier, Yemen has rarely not been at war. According to Thomas Juneau of the University of Ottawa, the present fight “is at its root a civil war, driven by local competition for power, and not a regional, sectarian or proxy war.” The Houthis turned to Tehran out of necessity, after being attacked by their wealthy neighbors backed by America. Bruce Riedel of the Brookings Institution observed: “A major consequence of the war is to push the Houthis and Iran and Hezbollah closer together.” Tehran has opportunistically helped bleed the aggressors, rather like U.S. policy against the Soviet Union in Afghanistan.
While Riyadh still pays lip service to the idea of maintaining a united Yemen, the Emirates is actively promoting secessionists in the south. Indeed, the UAE may hope to grab Hodeidah for its own geopolitical and commercial advantage. Reports The Economist: “the UAE’s actions in Yemen appear part of a larger strategy to gobble up ports along some of the world’s busiest shipping routes.” For this, thousands more Yemenis could die.
The worst argument for the U.S. to back Saudi and Emirati atrocities is that doing so reduces civilian casualties. The claim is risible. Americans are helping the coalition kill civilians to stop it from killing more civilians? Seriously?
In fact, American officials admit they do not monitor Saudi attacks, so they have no means of judging the impacts of the strikes. Anyway, the best way to end coalition attacks on the Yemeni people would be to stop subsidizing coalition attacks on the Yemeni people. Make the royals pay for their own war.
Especially now. Hodeidah accounts for perhaps 70 to 80 percent of the aid, food, and fuel reaching Yemen. Observers fear that an Emirati assault would kill thousands and displace much of the city’s 600,000-strong population. Worse, such an attack would almost certainly interrupt vital shipments to Yemen’s civilian population. Abdi Mohamud, country director for Mercy Corps, warned that “Any disruption to this critical lifeline could be a death sentence for millions of Yemenis.” Mark Lowcock, UN undersecretary general for humanitarian affairs, said that “if for any period Hodeidah were not to operate effectively the consequences in humanitarian terms would be catastrophic.”
Foreign Ministers from Bahrain, Egypt, Saudi Arabia, and the UAE meet with then-Secretary of State Rex Tillerson in Jeddah, Saudi Arabia, in July 2017. (State Department photo/ Public Domain)
Humanitarian concerns did not stop Abu Dhabi from assaulting Hodeidah. Nor will the sort of cautious statements issued by the Trump administration. Unnamed officials recently told the Wall Street Journal that the administration light was yellow on the matter: “What we are scrambling to do is, if there’s an inevitability to this, we want to ensure that it causes the least amount of damage and make sure things are set up on the humanitarian side in the best way we can.”
Last weekend the Red Cross began removing its staff from the city to avoid the coming assault. And on Monday, the UN began evacuating its personnel from the port. That should make it clear: only a cut-off in U.S. assistance will get the UAE’s attention. But that Washington refuses to do.
Yemen continues a tragic pattern in American policy. Washington has intervened promiscuously throughout the Mideast, fomenting radicalism, creating chaos, promoting aggression, and subsidizing tyranny. The humanitarian costs of the Yemen war continue to climb. It’s time for the Trump administration to stop supporting tyrannical regimes like the Saudis and Emiratis as they assault both our interests and our values.
- These Are The World’s Biggest Disruptors (And How The Disrupteds Are Fighting Back)
Ask any “brick and mortar” retailer in the past decade what new development has had the greatest (and most adverse) impact on their business, and 11 out of 10 times the answer will be “Amazon” and eCommerce in general. Or ask legacy enterprise solutions companies, which used to rake in tens of billions of dollars every year with customer, client-facing IT and tech solutions, why their stock price has been tumbling in recent years (coughibmcough), and you will hear one word: the “cloud.”
Indeed, we live in a time of tremendous overhaul in legacy business relationships, and while much of this has been driven by the low cost of capital made possible by ten years of ultra low interest rates, much if not all of this deflationary technological innovation is here to stay, with a few (FAANG) winners and many losers, those unable to adapt fast enough to the changing times.
While investors in US equities have had to contend with several major cross-currents over the past year, including the gradual phase out of central bank intervention in capital markets i.e., “Quantitative Tightening”, the favorable impact of the “three arrows of Trumponomics” such as tax cuts, fiscal expansion and deregulation offset by growing fears about protectionism and GDP and EPS-crushing trade wars, even as bank deregulation provides solace to bank investors, a key focus for investors, policy makers and businesses themselves across the globe has been the growing dominance of Internet-based companies as a result of a series of disruptive innovations sweeping across the U.S. economy, presenting investors with another major source of confusion: how to value, and trade, legacy businesses when confronted with disruptors. Alternatively, what is the upside for the disruptors.
As Barclays writes in a recent report, the disruptors (Internet and cloud-based companies, mainly the FAANGs: Facebook, Apple, Amazon, Netflix, And Google) are breaking down moats of the disrupted (legacy consumer businesses and IT hardware & software companies), by dominating the user experience and creating strong moats for themselves in the process. This, according to Barclays, is “leading to a shift in value from consumer discretionary and consumer staples to info tech.”
The various trends and conflicts between legacy industries and new businesses are broken down by Barclays into the following three key types of disruptions:
- Internet is disrupting consumer focused businesses (retailers, cable TV⁄media, consumer staples, consumer PC industry): FAANG stocks are disrupting legacy consumer industries by either modularizing supply or distribution moats of the incumbents and creating strong moats for themselves by owning the user experience.
- Cloud computing disrupting IT hardware and software companies: Amazon⁄Microsoft are the disruptors due to the flexibility and low cost of cloud’s pay-for-use model
- Shale⁄fracking disrupting oil & gas industry and power companies: shale oil & gas revolution and well productivity disrupting oil & gas supply-demand balance
And while Barclays provides a detailed analysis of all three “disruption” modalities, we will focus on the first two – the role of the internet and “the cloud” in disrupting consumer-facing businesses and IT Hardware/Software– as that is the one transition that is of greatest impact to most US consumers.
The Internet as a Disruptor
According to Barclays, historically the competitive advantage of legacy consumer focused businesses depended on either: 1) creating a monopoly⁄oligopoly in supply (creating a “scarce resource” in the process), or 2) controlling distribution by integrating with suppliers. Here, the fundamental disruption of the internet has been to turn this dynamic on its head by dominating the user experience. Barclays explains further:
First, while the mega-tech internet companies have high upfront capital costs, their user base is so large that the capital costs per user are insignificant, specially relative to revenue generated per user. This means that the marginal costs of serving another customer is effectively zero, thus neutralizing the advantage of exclusive supplier relationships that were leveraged by legacy distributors. Secondly, the internet has led to the creation of infinitely scalable networks that commoditize⁄modularize supply of “scarce resources” (thus disrupting the legacy suppliers of those resources), making it viable for the disrupting internet company to position itself as the key beneficiary of the industry‘s disruption by integrating forward with end users⁄consumers at scale.
As a result of the disruption, the user experience has become the most important factor determining success in the current environment: the disruptors win by providing the best experience, which earns them the most consumers⁄users, which attracts the most suppliers, which enhances the user experience in a virtuous cycle. This is also why so many legacy businesses find themselves unable to compete with runaway disruptors, whose modest advantage quickly becomes an insurmountable lead due to the economics of scale made possible by the internet.
This has resulted in a shift of value from the disrupted to the disruptors who modularize⁄commoditize suppliers, integrate the modularized suppliers on their platform, and distribute to consumers⁄users with which they have an exclusive relationship at scale.
This further means that the internet enforces strong winner-take-all effects: since the value of a disruptor to end users is continually increasing it is exceedingly difficult for competitors to take away users or win new ones. This, according to Barclays, makes it difficult to make antitrust arguments based on consumer welfare (the standard for U.S. jurisprudence), but ripe for EU antitrust regulation (which considers monopolistic behavior illegal if it restricts competition).
The Cloud as a Disruptor
Back in the “old days”, on-premise IT Hardware and Software companies built high barriers to entry by creating integrated suites of hardware⁄middleware and application software involving multi-year relationships with enterprises, complete with licensing & support contracts and cash-rich streams of maintenance and service costs. High switching costs and entrenchment through customization of on-premise hardware and software based on enterprise-specific needs resulted in outsized profits for the incumbents. Fast forward to today, when Amazon⁄Microsoft commoditized data center infrastructure, effectively transforming computing resources into storage, computing, database, and application software components running on centralized servers which could be used on an ad-hoc basis not only by their internal teams but also enterprise customers. Here’s Barclays:
The cloud is becoming a disruptive force for IT hardware, software, and the services industry as the cloud’s greater efficiency, flexibility, and lower cost is reshaping IT spending patterns and vendor incumbency. Cloud displacement risk is high for companies participating in storage and servers, followed by managed services and application⁄middleware software as competitive pressures mount from elongating replacement cycle and greater price discounting.
Even for large enterprises and governments, where decades of IT infrastructure and applications make the move from on-premise to the cloud difficult, the cloud’s pay-for-use model is changing how these enterprises evaluate and deploy on-premise IT workloads, and increasing the use of modular and customized IT solutions, which stands to hurt the cash-rich services and software maintenance streams of the disrupted legacy IT hardware and software businesses.
Summarizing these various trends while also highlighting how the “disrupteds” are fighting back, Barclays lays out the following chart below which illustrates:
- The key disrupted industries that have been disrupted by the internet-based companies,
- What were the moats of these legacy businesses,
- How the disruptors commoditized those moats,
- How the disrupted legacy businesses are adapting, and
- Whether the value will continue to shift from the disrupted to the disruptors.
To be sure, assessing the net impact of these innovations on each sector is difficult as in some cases the disruptors and the disrupted belong to the same sector – for example, Amazon and retailers are both in consumer discretionary while Microsoft and IT hardware and software companies are both in info tech. With that caveat in mind, the Barclays summary of the net impact of the affected disrupted sectors is laid out below.
- Mattis: Putin Is Trying To "Undermine America's Moral Authority"
Authored by Caitlin Johnstone via CaitlinJohnstone.com,
At a graduation ceremony for the US Naval War College (barf), US Secretary of Defense James Mattis asserted that Russian President Vladimir Putin “aims to diminish the appeal of the western democratic model and attempts to undermine America’s moral authority,” and that “his actions are designed not to challenge our arms at this point but to undercut and compromise our belief in our ideals.”
This would be the same James Mattis who’s been overseeing the war crimes committed by America’s armed forces during their illegal occupation of Syria. This would be the same United States of America that was born of the genocide of indigenous tribes and the labor of African slaves, which slaughtered millions in Korea, Vietnam, Cambodia, Iraq, Libya and Syria for no legitimate reason, which is partnered with Ukrainian Nazis, jihadist factions in Syria and Iranian terror cultists, which supports 73 percent of the world’s dictators, which interferes constantly in the electoral processesof other countries as a matter of policy, which stages coups around the world, which has encircled the globe with military bases, whose FBI still targets black civil rights activists for persecution to this very day, which routinely enters into undeclared wars of aggression against noncompliant governments to advance plutocratic interests, which remains the only country ever to use nuclear weapons on human beings after doing so completely needlessly in Japan, and which is functionally a corporatist oligarchy with no meaningful “democratic model” in place at all.
A casual glance at facts and history makes it instantly clear that the United States has no “moral authority” of any kind whatsoever, and is arguably the hub of the most pernicious and dangerous force ever assembled in human history. But the establishment Russia narrative really is that cartoonishly ridiculous: you really do have to believe that the US government is 100 percent pure good and the Russian government is 100 percent pure evil to prevent the whole narrative from falling to pieces. If you accept the idea that the exchange is anything close to 50/50, with Russia giving back more or less what it’s getting and simply protecting its own interests from the interests of geopolitical rivals, it no longer makes any sense to view Putin as a leader who poses a unique threat to the world. If you accept the idea that the west is actually being far more aggressive and antagonistic toward Russia than Russia is being toward the west, it gets even more laughable.
In order to believe that the US has anything resembling “moral authority” you have to shove your head so far into the sand you get lava burns, but that really is what is needed to keep western anti-Russia hysteria going. None of the things the Russian government has been accused of doing (let alone the very legitimate questions about whether or not they even did all of them) merit anything but an indifferent shrug when compared with the unforgivable evils that America’s unelected power establishment has been inflicting upon the world, so they need to weave a narrative about “moral authority” in order to give those accusations meaning and relevance. And, since the notion of America having moral authority is contradicted by all facts in evidence, that narrative is necessarily woven of threads of fantasy and denial.
Establishment anti-Russia hysteria is all narrative, no substance. It’s sustained by the talking heads of plutocrat-owned western media making the same unanimous assertions over and over again in authoritative, confident-sounding tones of voice without presenting any evidence or engaging with the reality of what Russia or its rivals are actually doing. The only reason American liberals believe that Putin is a dangerous boogieman who has taken over their government, but don’t believe for example that America is ruled by a baby-eating pedophile cabal, is because the Jake Tappers and Rachel Maddows have told them to believe one conspiracy theory and not the other. They could have employed the exact same strategy with any other wholly unsubstantiated conspiracy narrative and had just as much success.
In reality, Russia is nothing other than a rival power structure that the US-centralized empire wants to either collapse or absorb, but they can’t just come right out and tell the public that they’re dangerously escalating tensions with a nuclear superpower because westerners live in an invisible empire ruled by insatiably greedy plutocrats, so they make up nonsense about Putin being some kind of omnipotent supervillain who has infiltrated the highest levels of US government and is trying to take over the world.
I think it’s time we give Vladimir Putin his due. He is clearly the greatest intelligence agent —ever . He has engineered the unraveling of the western alliance, fidelity to democracy in the United States and the severing of the UK from the EU. It’s a remarkable achievement
— Steve Schmidt (@SteveSchmidtSES) June 10, 2018
https://platform.twitter.com/widgets.js
Of equal interest to the Defense Secretary’s “moral authority” gibberish is his claim that Putin’s actions “are designed not to challenge our arms at this point but to undercut and compromise our belief in our ideals.”
I mean, like… what? So Russia isn’t challenging America militarily and isn’t taking any actions to attempt to, but it’s trying to, what, hurt America’s feelings? All this new cold war hysteria and nuclear brinkmanship has basically been America acting like a bitchy high school drama queen because Russia is saying mean things about it behind its back? How does a guy named “Mad Dog” get to be such a thin-skinned little snowflake?
I’m just playing. Actually, when Mattis says that the Russian government is trying to “undercut and compromise our belief in our ideals,” he is saying that Moscow is interrupting the lies that Americans are being told about their government by the plutocrat-owned media. As we’ve been discussing a lotrecently, control of the narrative is absolutely essential for rulers to maintain their rule. When you hear establishment policy makers babbling about “Russian propaganda” and Putin’s attempts to “undercut and compromise our belief in our ideals,” all that they are saying is that the plutocrats who rule America need to be able to control the way Americans think and vote, and that the Russian government is making it a bit harder for them to do that.
More and more, the threads of the establishment narrative are ceasing to be unconsciously absorbed and are being increasingly consciously examined instead. This development has ultimately nothing to do with Russia and everything to do with our species moving out of its old relationship with mental narrative as it approaches evolve-or-die time in our challenging new world. I am greatly encouraged by what I am seeing.
* * *
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- Deutsche: "This Is The Most Dangerous Development The Fed Wants To Avoid"
In the first week of February, in the trading session just before the February 5 VIXtermination, the market tumbled as a result of a January average hourly earnings number that surged (even though as we explained at the time, the market had wildly misinterpreted the print), prompting speculation that the Fed was dangerously behind the curve and would need to accelerate its tightening, potentially hiking rates more than just 4 times in 2018, leading to an accelerating liquidation of risk assets which eventually culminated in the record VIX spike.
Since then, inflation fears moderated following several downward revisions (as expected) and more tame hourly earnings prints, with market concerns instead shifting to trader wars, the return of populism to Europe, the tech bubble, and the sustainability of record margins and net income.
But according to a recent analysis by Deutsche Bank’s Aleksandar Kocic, traders are ignoring the risk of an imminent, “phase shift” spike in wages at their own risk. Specifically, Kocic looks at the current locus of the Philips curve – which many economists have left for dead due to its seeming failure to explain how the plunge in unemployment to record low levels has failed to boost wages – and notes that as the economy approaches the full employment, “wages tend to become more responsive.” This, to the Deutsche Bank analyst, “is the inflection point that the Fed is monitoring.“
Looking at the Phillips curve over the past 4 economic cycles, Kocic compares it to the Cheshire cat’s smile from Alice in Wonderland, which is present even when the actual cat body is no longer there: “In each cycle, it falls apart, but after every annihilation, it re-composes itself and continues to play an important role.”
Specifically, what Kocic highlights, is the sudden phase transitions between the end of one cycle and the start of another, in which one observes a “near vertical” spike in inflation to the smallest favorable change in underlying conditions. In the DB chart below, each cycle has a different color which implicitly marks their beginning and end.
In the current context, the most important message of this graph is the finale of each recovery. In the past, this stage always exhibited a dramatic (practically straight line) rise in wages in response to infinitesimal improvements in economic activity. These periods are highlighted with (almost) vertical lines in the chart.
Of course, as economists have long lamented, what has prompted many to speculate that the Phillips curve is broken or even dead, is the failure of the economy to respond with a sharp increase in wages to the already near record low unemployment rate, which is over 0.5% below what the Fed currently believes is the NAIRU (non-accelerating inflation rate of unemployment), or the unemployment rate which does not cause inflation to rise or decrease.
The NAIRU level corresponding to the 1990 is 6%, and 5% in 2000 and 2006. Currently, NAIRU is around 4.5%. This is the territory where the Fed is likely to become concerned. Allowing the economy to overheat would jeopardize Fed’s ability to control inflation if it rises too fast.
Another way of visualizing the potential risk facing both the Fed and traders is whosn in the next chart, which looks at the Phillips curve within the latest economic cycle, starting with the early stagflationary months of 2007, then progressing into several years of recession, before ultimately emerging into the recovery and, finally, “growth and inflation” phase. According to Kocic, “we are currently in the final stages of the recovery. If we enter the goldilocks region (upper left corner) too fast, the Fed could be caught behind the curve and might be forced to hike aggressively which could have a negative impact on growth while leaving only inflation behind”… a recipe for progressing straight into another recession.
As the Deutsche strategist warns, and as the events of early February so vividly demonstrated, “this is the most dangerous development which the Fed would want to avoid.”
Underscoring why it is only a matter of time before the Phillips curve, which he believes is not dead, but merely waiting to erupt in “a near vertical spike” reveals some fireworks, Kocic notes that “in addition to the distance from the NAIRU and the inflation target, the actual non-linearity of the curve is the key development to watch, in particular the change in response of inflation to the decline in unemployment” and adds:
The economy is currently operating below NAIRU and just slightly below the target and has shown a sustained support for higher slope which has been persistent since the end of 2016. This has caught the market’s attention.
But it’s not just the Phillips curve that has caught the attention of Kocic. As regular readers will recall, back in the summer of 2013 we first speculated that Okun’s law is either broken, or there is a giant, and inexplicable output gap forming in the US economy, in which GDP was trending far below where the unemployment rate suggested it should be.
Now, five years later, that output gap is finally closing, and according to Kocic if past is prologue, it may do so in an “explosive” manner. This is how he frames it:
The figure below shows the Okun’s law which captures the interplay between the social and economic response to the crisis in terms of distance of unemployment rate from NAIRU (social) and output gap (economic). Historically, output gap closes roughly when unemployment reaches NAIRU (the long term intercept / beta is close to zero). Post-2007, there has been a structural break in this relationship: The economy was slower to recover – it required a more aggressive improvement of labor market in order for the growth to reach its potential. This is shown in the figure through lower intercept: unemployment has to decline about 0.8% below NAIRU for the gap to close.
So, according to Kocic, if the unemployment rate is already low enough to potentially trigger a “near vertical” spike in wages (Phillips), it is also low enough to launch a sharp reversal in the output gap (Okun) leading to a Fed that is behind the curve on the parameters, or as the DB analyst says, with “current unemployment rate already 0.5% below NAIRU it is only a quarter of a percent away from closing the output gap. This justifies possible Fed’s concerns.”
Then again, if Kocic’s historical analog for the current situation is correct, “nightmares” may be a better word than “concerns.” The reason for that is that the appropriate historical period to compare the current regime to is the 1960s, when the output gap “exploded”:
While we think that history might not be the best guide for the future at the moment, the lessons of the 1960s are difficult to be completely ignored. The figure below shows the unfolded Okun’s law. 1960s are a screaming example of the effect of “exploding” output gap as a consequence of injection of fiscal stimulus when the economy was already operating at full employment, a situation that bears keen similarity to the present.
If the DB analysis is accurate, the implications would be profound for the market, which would find itself not only observing a sudden spike higher in wages, but also an economy where the actual GDP is suddenly soaring far above the potential, resulting in a 1960s output gap rerun and a Fed that has never been so far behind the curve.
The outcome of both would be even more aggressive rate hikes by the Fed, which – if the scenario plays out as Kocic envisioned – would be forced to raise rates well more than the 7 or so hikes the latest dots currently envision for 2018 and 2019, resulting in another bout of exploding volatility as the market finds itself not only chasing the dots, but in a rerun of “February” where to catch up to inflation, first the Fed, and then the market would be forced to aggressively tighten financial conditions.
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