Mar 15

Today’s News 15th March 2022

  • Germany To Buy Dozens Of US F-35s To Replace Bombers, Citing Putin's War In Ukraine
    Germany To Buy Dozens Of US F-35s To Replace Bombers, Citing Putin’s War In Ukraine

    The Russian war in Ukraine has very belatedly sent one lead NATO country into a defense spending spree. Before the Feb.24 invasion, Germany wouldn’t so much as let its weapons be transferred to Kiev via allies – wanting to present a sense of neutrality with Moscow – but now with all prior reluctance apparently abandoned, Berlin is poised to rapidly beef up its advanced fighter jet capability: “Germany plans to buy up to 35 US-made F-35 fighter jets and 15 Eurofighter jets, a parliamentary source said Monday, as part of a major push to modernize the armed forces in response to Russia’s invasion of Ukraine,” Bloomberg reports Monday.

    The Lockheed-produced jets look to be acquired in the “dozens” – taking up a big chunk of Germany’s proposed defense budget which will be north of 50 billion euros this year, acknowledged as a “record high”. This as Germany has agreed to boost defense spending above 2% of gross domestic product – something which NATO had previously been frequently lectured on by Trump. 

    Image source: Lockheed Martin

    In making the announcement, Berlin officials specifically cited the need for the necessary level of deterrence against Russia and Vladimir Putin. AFP recalls, “In a landmark speech late last month, German Chancellor Olaf Scholz pledged to invest an extra 100 billion euros ($112 billion) in the nation’s chronically underfunded Bundeswehr armed forces.”

    The report underscores that “The spending boost marks a major reversal for Europe’s top economy, upending its policy of keeping a low military profile in part out of guilt over World War II.”

    Germany’s air force commander Ingo Gerhartz said: “There can be only one answer to (Russian President Vladimir) Putin’s aggression,” He added: “Unity in NATO and a credible deterrent. This in particular means there is no alternative but to choose the F-35.”

    The stealth jet is indented to replace Luftwaffe’s fleet Tornado jets, which are capable of carrying and delivering US nuclear bombs currently placed in Germany as part of NATO’s atomic arsenal. 

    Late last month during the opening days of Russia’s invasion of Ukraine, Chancellor Olaf Scholz claimed that “Putin wants to establish a Russian empire…the question is…whether we can summon the strength to set boundaries to warmongers like Putin.”

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    Previously Bloomberg described that “Scholz had been widely criticized by opponents and allies alike in recent weeks for what they perceived as dithering and weakness in the face of Russia’s mounting aggression toward Ukraine.”

    Tyler Durden
    Tue, 03/15/2022 – 02:45

  • Why Did Vladimir Putin Invade Ukraine?
    Why Did Vladimir Putin Invade Ukraine?

    Authored by Soeren Kern via The Gatestone Institute,

    Nearly three weeks have passed since Russian President Vladimir Putin began his invasion of Ukraine, but it still is not clear why he did so and what he hopes to achieve. Western analysts, commentators and government officials have put forward more than a dozen theories to explain Putin’s actions, motives, and objectives.

    Some analysts posit that Putin is motivated by a desire to rebuild the Russian Empire. Others say he is obsessed with bringing Ukraine back into Russia’s sphere of influence. Some believe that Putin wants to control Ukraine’s vast offshore energy resources. Still others speculate that Putin, an aging autocrat, is seeking to maintain his grip on power.

    While some argue that Putin has a long-term proactive strategy aimed at establishing Russian primacy in Europe, others believe he is a short-term reactionary seeking to preserve what remains of Russia’s diminishing position on the world stage.

    Following is a compilation of eight differing but complementary theories that try to explain why Putin invaded Ukraine.

    1. Empire Building

    The most common explanation for Russia’s invasion of Ukraine is that Putin, burning with resentment over the demise of the Soviet Empire, is determined to reestablish Russia (generally considered a regional power) as a great power that can exert influence on a global scale.

    According to this theory, Putin aims to regain control over the 14 post-Soviet states — often referred to as Russia’s “near abroad” — that became independent after the collapse of the Soviet Union in 1991. This is part of greater plan to rebuild the Russian Empire, which territorially was even more expansive than the Soviet Empire.

    The Russian Empire theory holds that Putin’s invasion of Georgia in 2008 and Crimea in 2014, as well as his 2015 decision to intervene militarily in Syria, were all parts of a strategy to restore Russia’s geopolitical position — and erode the U.S.-led rules-based international order.

    Those who believe Putin is trying to reestablish Russia as a great power say that once he gains control over Ukraine, he will turn his focus to other former Soviet republics, including the Baltic countries of Estonia, Latvia, and Lithuania, and eventually Bulgaria, Romania and even Poland.

    Putin’s ultimate objective, they say, is to drive the United States out of Europe, establish an exclusive great-power sphere of influence for Russia on the continent and dominate the European security order.

    Russian literature supports this view. In 1997, for instance, Russian strategist Aleksandr Dugin, a friend of Putin, published a highly influential book — “Foundation of Geopolitics: The Geopolitical Future of Russia” — which argued that Russia’s long-term goal should be the creation, not of a Russian Empire, but of a Eurasian Empire.

    Dugin’s book, which is required reading in Russian military academies, states that to make Russia great again, Georgia should be dismembered, Finland should be annexed and Ukraine should cease to exist: “Ukraine, as an independent state with certain territorial ambitions, represents an enormous danger for all of Eurasia.” Dugin, who has been described as “Putin’s Rasputin,” added:

    “The Eurasian Empire will be constructed on the fundamental principle of the common enemy: the rejection of Atlanticism, the strategic control of the USA, and the refusal to allow liberal values to dominate us.”

    In April 2005, Putin echoed this sentiment when, in his annual state of the nation address, he described the collapse of the Soviet empire as “the greatest geopolitical catastrophe of the 20th century.” Since then, Putin has repeatedly criticized the U.S.-led world order, in which Russia has a subordinate position.

    In February 2007, during a speech to the Munich Conference on Security Policy, Putin attacked the idea of a “unipolar” world order in which the United States, as the sole superpower, was able to spread its liberal democratic values to other parts of the world, including Russia.

    In October 2014, in a speech to the Valdai Discussion Club, a high-profile Russian think tank close to the Kremlin, Putin criticized the post-World War II liberal international order, whose principles and norms — including adherence to the rule of law, respect for human rights and the promotion of liberal democracy, as well as preserving the sanctity of territorial sovereignty and existing boundaries — have regulated the conduct of international relations for nearly 80 years. Putin called for the creation of a new multipolar world order that is more friendly to the interests of an autocratic Russia.

    The late Zbigniew Brzezinski (former National Security Advisor to U.S. President Jimmy Carter), in his 1997 book “The Grand Chessboard,” wrote that Ukraine is essential to Russian imperial ambitions:

    “Without Ukraine, Russia ceases to be a Eurasian empire…. However, if Moscow regains control over Ukraine, with its 52 million people and major resources as well as its access to the Black Sea, Russia automatically again regains the wherewithal to become a powerful imperial state, spanning Europe and Asia.”

    The German historian Jan Behrends tweeted:

    “Make no mistake: For #Putin it’s not about EU or NATO, it is about his mission to restore Russian empire. No more, no less. #Ukraine is just a stage, NATO is just one irritant. But the ultimate goal is Russian hegemony in Europe.”

    Ukraine expert Peter Dickinson, writing for the Atlantic Council, noted:

    “Putin’s extreme animosity towards Ukraine is shaped by his imperialistic instincts. It is often suggested that Putin wishes to recreate the Soviet Union, but this is actually far from the case. In fact, he is a Russian imperialist who dreams of a revived Czarist Empire and blames the early Soviet authorities for handing over ancestral Russian lands to Ukraine and other Soviet republics.”

    Bulgarian scholar Ivan Krastev agreed:

    “America and Europe aren’t divided on what Mr. Putin wants. For all the speculation about motives, that much is clear: The Kremlin wants a symbolic break from the 1990s, burying the post-Cold War order. That would take the form of a new European security architecture that recognizes Russia’s sphere of influence in the post-Soviet space and rejects the universality of Western values. Rather than the restoration of the Soviet Union, the goal is the recovery of what Mr. Putin regards as historic Russia.”

    Transatlantic security analyst Andrew Michta added that Putin’s invasion of Ukraine was:

    “The culmination of almost two decades of policy aimed at reconstructing the Russian empire and bringing Russia back into European politics as one of the principal players empowered to shape the Continent’s future.”

    Writing for the national security blog 1945, Michta elaborated:

    “From Moscow’s perspective the Ukrainian war is in effect the final battle of the Cold War — for Russia a time to reclaim its place on the European chessboard as a great empire, empowered to shape the Continent’s destiny going forward. The West needs to understand and accept that only once Russia is unequivocally defeated in Ukraine will a genuine post-Cold War settlement finally be possible.”

    2. Buffer Zone

    Many analysts attribute the Russian invasion of Ukraine to geopolitics, which attempts to explain the behavior of states through the lens of geography.

    Most of the western part of Russia sits on the Russian Plain, a vast mountain-free area that extends over 4,000,000 square kilometers (1.5 million square miles). Also called the East European Plain, the vast flatland presents Russia with an acute security problem: an enemy army invading from central or eastern Europe would encounter few geographical obstacles to reach the Russian heartland. In other words, Russia, due to its geography, is especially difficult to defend.

    The veteran geopolitical analyst Robert Kaplan wrote that geography is the starting point for understanding everything else about Russia:

    “Russia remains illiberal and autocratic because, unlike Britain and America, it is not an island nation, but a vast continent with few geographical features to protect it from invasion. Putin’s aggression stems ultimately from this fundamental geographical insecurity.”

    Russia’s leaders historically have sought to obtain strategic depth by pushing outward to create buffer zones — territorial barriers that increase the distance and time invaders would encounter to reach Moscow.

    The Russian Empire included the Baltics, Finland and Poland, all of which served as buffers. The Soviet Union created the Warsaw Pact — which included Albania, Bulgaria, Czechoslovakia, East Germany, Hungary, Poland and Romania — as a vast buffer to protect against potential invaders.

    Most of the former Warsaw Pact countries are now members of NATO. That leaves Belarus, Moldova and Ukraine, strategically located between Russia and the West, as the only eastern European countries left to serve as Russian buffer states. Some analysts argue that Russia’s perceived need for a buffer is the primary factor in Putin’s decision to invade Ukraine.

    Mark Galeotti, a leading British scholar of Russian power politics, noted that the possession of a buffer zone is intrinsic to Russia’s understanding of great-power status:

    “From Putin’s point of view, he has built so much of his political identity around the notion of making Russia a great power and making it recognized as a great power. When he thinks of great power, he is essentially a 19th century geopolitician. It’s not the power of economic connectivity, or technological innovation, let alone soft power. No. Great power, in good old-fashioned terms, has a sphere of influence, countries whose sovereignty is subordinate to your own.”

    Others believe that the concept of buffer states is obsolete. International security expert Benjamin Denison, for instance, argued that Russia cannot legitimately justify the need for a buffer zone:

    “Once nuclear weapons were invented … buffer states were no longer seen as necessary regardless of geography, as nuclear deterrence worked to ensure the territorial integrity of great powers with nuclear capabilities…. The utility of buffer states and the concerns of geography invariably changed following the nuclear revolution. Without the concern of quick invasions into the homeland of a rival great power, buffer states lose their utility regardless of the geography of the territory….

    “Narrowly defining national interests to geography, and mandating that geography pushes states to replicate past actions throughout history, only fosters inaccurate thinking and forgives Russian land-grabs as natural.”

    3. Ukrainian Independence

    Closely intertwined with theories about empire-building and geopolitics is Putin’s obsession with extinguishing Ukrainian sovereignty. Putin contends that Ukraine has been part of Russia for centuries, and that its independence in August 1991 was a historical mistake. Ukraine, he claims, does not have a right to exist.

    Putin has repeatedly downplayed or negated Ukraine’s right to statehood and sovereignty:

    • In 2008, Putin told William Burns, then the U.S. ambassador to Russia (now director of the CIA): “Don’t you know that Ukraine is not even a real country? Part of it is really East European and part is really Russian.”

    • In July 2021, Putin penned a 7,000-word essay — “On the Historical Unity of Russians and Ukrainians” — in which he expressed contempt for Ukrainian statehood, questioned the legitimacy of Ukraine’s borders and argued that modern-day Ukraine occupies “the lands of historical Russia.” He concluded: “I am confident that true sovereignty of Ukraine is possible only in partnership with Russia.”

    • In February 2022, just three days before he launched his invasion, Putin asserted that Ukraine was a fake state created by Vladimir Lenin, the founder of the Soviet Union:

      “Modern Ukraine was entirely created by Russia or, to be more precise, by Bolshevik, Communist Russia. This process started practically right after the 1917 revolution, and Lenin and his associates did it in a way that was extremely harsh on Russia — by separating, severing what is historically Russian land…. Soviet Ukraine is the result of the Bolsheviks’ policy and can be rightfully called ‘Vladimir Lenin’s Ukraine.’ He was its creator and architect.”

    Russia scholar Mark Katz, in an essay — “Blame It on Lenin: What Putin Gets Wrong About Ukraine” — argued that Putin should draw lessons from Lenin’s realization that a more accommodating approach toward Ukrainian nationalism would better serve Russia’s long-term interests:

    “Putin cannot escape the problem that Lenin himself had to deal with of how to reconcile non-Russians to being ruled by Russia. The forceful imposition of Russian rule in part — much less all — of Ukraine will not bring about such a reconciliation. For even if Ukrainians cannot resist the forceful imposition of Russian rule over part or all of Ukraine now, Putin’s success in imposing it is only likely to intensify feelings of Ukrainian nationalism and lead it to burst forth again whenever the opportunity arises.”

    Ukraine’s political independence has been accompanied by a long-running feud with Russia over religious allegiance. In January 2019, in what was described as “the biggest rift in Christianity in centuries,” the Orthodox church in Ukraine gained independence (autocephaly) from the Russian church. The Ukrainian church had been under the jurisdiction of the Moscow patriarchate since 1686. Its autonomy dealt a blow to the Russian church, which lost around one-fifth of the 150 million Orthodox Christians under its authority.

    The Ukrainian government claimed that Moscow-backed churches in Ukraine were being used by the Kremlin to spread propaganda and to support Russian separatists in the eastern Donbas region. Putin wants the Ukrainian church to return to Moscow’s orbit, and has warned of “a heavy dispute, if not bloodshed” over any attempts to transfer ownership of church property.

    The head of the Russian Orthodox Church, Patriarch Kirill of Moscow, has declared that Kyiv, where the Orthodox religion began, is comparable in terms of its historic importance to Jerusalem:

    “Ukraine is not on the periphery of our church. We call Kiev ‘the mother of all Russian cities’. For us Kiev is what Jerusalem is for many. Russian Orthodoxy began there, so under no circumstances can we abandon this historical and spiritual relationship. The whole unity of our Local Church is based on these spiritual ties.”

    On March 6, Kirill — a former KGB agent who is known as “Putin’s altar boy” due to his subservience to the Russian leader — publicly endorsed the invasion of Ukraine. In a sermon he repeated Putin’s claims that the Ukrainian government was carrying out a “genocide” of Russians in Ukraine: “For eight years, the suppression, extermination of people has been underway in Donbass. Eight years of suffering and the entire world is silent.”

    German geopolitical analyst Ulrich Speck wrote:

    “For Putin, destroying Ukraine’s independence has become an obsession…. Putin has often said, and even written, that Ukraine is not a separate nation, and should not exist as a sovereign state. It is this fundamental denial that has led Putin to wage this totally senseless war that he cannot win. And that leads us to the problem of making peace: either Ukraine has the right to exist as a nation and a sovereign state, or it hasn’t. Sovereignty is indivisible. Putin denies it, Ukraine defends it. How can you make a compromise about the existence of Ukraine as a sovereign state? Impossible. That’s why both sides can only fight on until they win.

    “Normally wars that take place between states are about conflicts they have between them. Yet this is a war about the existence of one state, which is denied by the aggressor. That’s why the usual concepts of peacemaking — finding a compromise — do not apply. If Ukraine continues to exist as a sovereign state, Putin will have lost. He is not interested in territorial gain as such — it’s rather a burden for him. He is only interested in controlling the entire country. Everything else for him is defeat.”

    Ukraine expert Taras Kuzio added:

    “The real cause of today’s crisis is Putin’s quest to return Ukraine to the Russian orbit. For the past eight years, he has used a combination of direct military intervention, cyber-attacks, disinformation campaigns, economic pressure, and coercive diplomacy to try and force Ukraine into abandoning its Euro-Atlantic ambitions….

    “Putin’s ultimate objective is Ukraine’s capitulation and the country’s absorption into the Russian sphere of influence. His obsessive pursuit of this goal has already plunged the world into a new Cold War….

    “Nothing less than Ukraine’s return to the Kremlin orbit will satisfy Putin or assuage his fears over the further breakup of Russia’s imperial inheritance. He will not stop until he is stopped. In order to achieve this, the West must become far more robust in responding to Russian imperial aggression, while also expediting Ukraine’s own Euro-Atlantic integration.”

    4. NATO

    This theory holds that Putin invaded Ukraine to prevent it from joining NATO. The Russian president has repeatedly demanded that the West “immediately” guarantee that Ukraine will not be allowed to join NATO or the European Union.

    A vocal proponent of this viewpoint is the American international relations theorist John Mearsheimer, who, in a controversial essay, “Why the Ukraine Crisis Is the West’s Fault,” argued that the eastward expansion of NATO provoked Putin to act militarily against Ukraine:

    “The United States and its European allies share most of the responsibility for the crisis. The taproot of the trouble is NATO enlargement, the central element of a larger strategy to move Ukraine out of Russia’s orbit and integrate it into the West….

    “Since the mid-1990s, Russian leaders have adamantly opposed NATO enlargement, and in recent years, they have made it clear that they would not stand by while their strategically important neighbor turned into a Western bastion.”

    In a recent interview with The New Yorker, Mearsheimer blamed the United States and its European allies for the current conflict:

    “I think all the trouble in this case really started in April 2008, at the NATO Summit in Bucharest, where afterward NATO issued a statement that said Ukraine and Georgia would become part of NATO.”

    In fact, Putin has not always opposed NATO expansion. Several times he went so far as to say that the eastward expansion of NATO was none of Russia’s concern.

    In March 2000, for instance, Putin, in an interview with the late BBC television presenter David Frost, was asked whether he viewed NATO as a potential partner, rival or enemy. Putin responded:

    “Russia is part of the European culture. And I cannot imagine my own country in isolation from Europe and what we often call the civilized world. So, it is hard for me to visualize NATO as an enemy.”

    In November 2001, in an interview with National Public Radio, Putin was asked if he opposed the admission of the three Baltic states — Lithuania, Latvia and Estonia — into NATO. He replied:

    “We of course are not in a position to tell people what to do. We cannot forbid people to make certain choices if they want to increase the security of their nations in a particular way.”

    In May 2002, Putin, when asked about the future of relations between NATO and Ukraine, said matter-of-factly that he did not care one way or the other:

    “I am absolutely convinced that Ukraine will not shy away from the processes of expanding interaction with NATO and the Western allies as a whole. Ukraine has its own relations with NATO; there is the Ukraine-NATO Council. At the end of the day the decision is to be taken by NATO and Ukraine. It is a matter for those two partners.”

    Putin’s position on NATO expansion radically changed after the 2004 Orange Revolution, which was triggered by Moscow’s attempt to steal Ukraine’s presidential election. A massive pro-democracy uprising ultimately led to the defeat of Putin’s preferred candidate, Viktor Yanukovych, who eventually did become president of Ukraine in 2010 but was ousted in the 2014 Euromaidan Revolution.

    Former NATO Secretary-General Anders Fogh Rasmussen, in a recent interview with Radio Free Europe, discussed how Putin’s views about NATO have changed:

    “Mr. Putin has changed over the years. My first meeting took place in 2002…and he was very positive regarding cooperation between Russia and the West. Then, gradually, he changed his mind. And from around 2005 to 2006, he got increasingly negative toward the West. And in 2008, he attacked Georgia…. In 2014, he took Crimea, and now we have seen a full-scale invasion of Ukraine. So, he has really changed over the years.

    “I think the revolutions in Georgia and Ukraine in 2004 and 2005 contributed to his change of mind. We shouldn’t forget that Vladimir Putin grew up in the KGB. So, his thinking is very much impacted by that past. I think he suffers from paranoia. And he thought that after color revolutions in Georgia and Ukraine, that the aim [of the West] was to initiate a regime change in the Kremlin — in Moscow — as well. And that’s why he turned against the West.

    “I put the blame entirely on Putin and Russia. Russia is not a victim. We have reached out to Russia several times during history…. First, we approved the NATO Russia Founding Act in 1997…. Next time, it was in 2002, we reached out once again, established something very special, namely the NATO-Russia Council. And in 2010, we decided at a NATO-Russia summit that we would develop a strategic partnership between Russia and NATO. So, time and again, we reached out to Russia.

    “I think we should have done more to deter Putin. Back in 2008, he attacked Georgia, took de facto Abkhazia and South Ossetia. We could have reacted much more determinedly already in that time.”

    In recent years, Putin repeatedly has claimed that the post-Cold War enlargement of NATO poses a threat to Russia, which has been left with no other choice than to defend itself. He also has accused the West of trying to encircle Russia. In fact, of the 14 countries that have borders with Russia, only five are NATO members. The borders of those five countries — Estonia, Latvia, Lithuania, Norway and Poland — are contiguous with only 5% of Russia’s total borders.

    Putin has claimed that NATO broke solemn promises it made in the 1990s that the alliance would not expand to the east. “You promised us in the 1990s that NATO would not move an inch to the east. You brazenly cheated us,” he said in during a press conference in December 2021. Mikhail Gorbachev, then president of the Soviet Union, countered that such promises were never made.

    Putin recently issued three wildly unrealistic demands: NATO must withdraw its forces to its 1997 borders; NATO must not offer membership to other countries, including Finland, Sweden, Moldova or Georgia; NATO must provide written guarantees that Ukraine will never join the alliance.

    Writing for Foreign Affairs, Russian historian Dmitri Trenin, in an essay — “What Putin Really Wants in Ukraine” — argued that Putin wants stop NATO expansion, not to annex more territory:

    “Putin’s actions suggest that his true goal is not to conquer Ukraine and absorb it into Russia but to change the post-Cold War setup in Europe’s east. That setup left Russia as a rule-taker without much say in European security, which was centered on NATO. If he manages to keep NATO out of Ukraine, Georgia, and Moldova, and U.S. intermediate-range missiles out of Europe, he thinks he could repair part of the damage Russia’s security sustained after the Cold War ended. Not coincidentally, that could serve as a useful record to run on in 2024, when Putin would be up for re-election.”

    5. Democracy

    This theory holds that Ukraine, a flourishing democracy, poses an existential threat to Putin’s autocratic model of governance. The continued existence of a Western-aligned, sovereign, free and democratic Ukraine could inspire the Russian people to demand the same.

    Former U.S. Ambassador to Russia Michael McFaul and Robert Person, a professor at the United States Military Academy, wrote that Putin is terrified of democracy in Ukraine:

    “Over the last thirty years, the salience of the issue [NATO expansion] has risen and fallen not primarily because of the waves of NATO expansion, but due instead to waves of democratic expansion in Eurasia. In a very clear pattern, Moscow’s complaints about NATO spike after democratic breakthroughs….

    “Because the primary threat to Putin and his autocratic regime is democracy, not NATO, that perceived threat would not magically disappear with a moratorium on NATO expansion. Putin would not stop seeking to undermine democracy and sovereignty in Ukraine, Georgia, or the region as a whole if NATO stopped expanding. As long as citizens in free countries exercise their democratic rights to elect their own leaders and set their own course in domestic and foreign politics, Putin will keep them in his crosshairs….

    “The more serious cause of tensions has been a series of democratic breakthroughs and popular protests for freedom throughout the 2000s, what many refer to as the “Color Revolutions.” Putin believes that Russian national interests have been threatened by what he portrays as U.S.-supported coups. After each of them — Serbia in 2000, Georgia in 2003, Ukraine in 2004, the Arab Spring in 2011, Russia in 2011-12, and Ukraine in 2013-14 — Putin has pivoted to more hostile policies toward the United States, and then invoked the NATO threat as justification for doing so….

    “Ukrainians who rose up in defense of their freedom were, in Putin’s own assessment, Slavic brethren with close historical, religious, and cultural ties to Russia. If it could happen in Kyiv, why not in Moscow?”

    Ukraine expert Taras Kuzio agrees:

    “Putin remains haunted by the wave of pro-democracy uprisings that swept Eastern Europe in the late 1980s, setting the stage for the subsequent Soviet collapse. He sees Ukraine’s fledgling democracy as a direct challenge to his own authoritarian regime and recognizes that Ukraine’s historical closeness to Russia makes this threat particularly acute.”

    6. Energy

    Ukraine holds the second-biggest known reserves — more than one trillion cubic meters — of natural gas in Europe after Russia. These reserves, under the Black Sea, are concentrated around the Crimean Peninsula. In addition, large deposits of shale gas have been discovered in eastern Ukraine, around Kharkiv and Donetsk.

    In January 2013, Ukraine signed a 50-year, $10 billion deal with Royal Dutch Shell to explore and drill for natural gas in eastern Ukraine. Later that year, Kyiv signed a 50-year, $10 billion shale gas production-sharing agreement with the American energy company Chevron. Shell and Chevron pulled out of those deals after Russia annexed the Crimean Peninsula.

    Some analysts believe Putin annexed Crimea to prevent Ukraine from becoming a major oil and gas provider to Europe and thereby challenge Russia’s energy supremacy. Russia, they argue, was also worried that as Europe’s second-largest petrostate, Ukraine would have been granted fast-track membership to the EU and NATO.

    According to this theory, Russia’s invasion of Ukraine is aimed at forcing Kyiv to officially acknowledge Crimea as Russian, and recognize the separatist republics of Donetsk and Lugansk as independent states, so that Moscow can legally secure control over the natural resources in these areas.

    7. Water

    On February 24, the first day of the Russian invasion of Ukraine, Russian troops restored water flow to a strategically important canal linking the Dnieper River to Russian-controlled Crimea. Ukraine blocked the Soviet-era North Crimean Canal, which supplies 85% of Crimea’s water needs, after Russia annexed the peninsula in 2014. The water shortages resulted in a massive reduction in agricultural production on the peninsula and forced Russia to spend billions of rubles each year to supply water from the mainland to sustain the Crimean population.

    The water crisis was a major source of tension between Ukraine and Russia. Ukrainian President Volodymyr Zelensky insisted that the water supply would not be restored until Russia returns the Crimean Peninsula. Security analyst Polina Vynogradova noted that any resumption of water supply would have amounted to a de facto recognition of Russian authority in Crimea and would have undermined Ukraine’s claim to the peninsula. It would also have weakened Ukrainian leverage over negotiations on Donbas.

    Even if Russian troops eventually withdraw from Ukraine, Russia likely will maintain permanent control over the entire 400-kilometer North Crimean Canal to ensure there are no more disruptions to Crimea’s water supply.

    8. Regime Survival

    This theory holds that the 69-year-old Putin, who has been in power since 2000, seeks perpetual military conflict as a way of remaining popular with the Russian public. Some analysts believe that after public uprisings in Belarus and Kazakhstan, Putin decided to invade Ukraine due to a fear of losing his grip on power.

    In an interview with Politico, Bill Browder, the American businessman who heads up the Global Magnitsky Justice Campaign, said that Putin feels the need to look strong at all times:

    “I don’t think that this war is about NATO; I don’t think this war is about Ukrainian people or the EU or even about Ukraine; this war is about starting a war in order to stay in power. Putin is a dictator, and he’s a dictator whose intention is to stay in power until the end of his natural life. He said to himself that the writing’s on the wall for him unless he does something dramatic. Putin is just thinking short-term … ‘how do I stay in power from this week to the next? And then next week to the next?'”

    Anders Åslund, a leading specialist on economic policy in Russia and Ukraine, agreed:

    “How to understand Putin’s war in Ukraine. It is not about NATO, EU, USSR or even Ukraine. Putin needs a war to justify his rule & his swiftly increasing domestic repression…. It is really all about Putin, not about neo-imperialism, Russian nationalism or even the KGB.”

    Russia expert Anna Borshchevskaya wrote that the invasion of Ukraine could be the beginning of the end for Putin:

    “Though he is not democratically elected, he worries about public opinion and protests at home, seeing them as threats to retaining his grip on power…. While Putin may have hoped that invading Ukraine would quickly expand Russian territory and help restore the grandeur of the former Russian empire, it could do the opposite.”

    Tyler Durden
    Tue, 03/15/2022 – 02:00

  • 10 Signs The War In Ukraine Is Part Of The Great Reset
    10 Signs The War In Ukraine Is Part Of The Great Reset

    Via WinterOak.org.uk,

    Welcome to the second phase of the Great Reset: war.

    While the pandemic acclimatised the world to lockdowns, normalised the acceptance of experimental medications, precipitated the greatest transfer of wealth to corporations by decimating SMEs and adjusted the muscle memory of workforce operations in preparation for a cybernetic future, an additional vector was required to accelerate the economic collapse before nations can ‘Build Back Better.’

    I present below several ways in which the current conflict between Russia and Ukraine is the next catalyst for the World Economic Forum’s Great Reset agenda, facilitated by an interconnected web of global stakeholders and a diffuse network of public-private partnerships.

    1. The war between Russia and Ukraine is already causing unprecedented disruption to global supply chains, exacerbating fuel shortages and inducing chronic levels of inflation.

    As geopolitical tensions morph into a protracted conflict between NATO and the Sino-Russia axis, a second contraction may plunge the economy into stagflation.

    In the years ahead, the combination of subpar growth and runaway inflation will force a global economic underclass into micro-work contracts and low-wage jobs in an emerging gig economy.

    Another recession will compound global resource thirst, narrow the scope for self-sufficiency and significantly increase dependence on government subsidies.

    With the immiseration of a significant portion of the world’s labour force looming on the horizon, this may well be a prelude to the introduction of a Universal Basic Income, leading to a highly stratified neo-feudal order.

    Therefore, the World Economic Forum’s ominous prediction that we will ‘own nothing and be happy’ by 2030 seems to be unfolding with horrifying rapidity.

    2. The war’s economic fallout will lead to a dramatic downsizing of the global workforce. 

    The architects of the Great Reset have anticipated this trend for a number of years and will exploit this economic turbulence by propelling the role of disruptive technologies to meet global challenges and fundamentally alter traditional business patterns to keep pace with rapid changes in technology.

    Like the pandemic, disaster preparedness in the age of conflict will rest significantly on the willingness to embrace specific technological innovations in the public and private spheres so that future generations can supply the labour demands of the Great Reset.

    A recurring theme in Klaus Schwab’s Shaping the Future of the Fourth Industrial Revolution is that groundbreaking technological and scientific innovations will no longer be relegated to the physical world around us but become extensions of ourselves.

    He emphasises the primacy of emerging technologies in a next generation workforce and highlights the urgency to push ahead with plans to digitise several aspects of the global labour force through scalable technology based solutions.

    Those spearheading the Great Reset seek to manage geopolitical risk by creating new markets which revolve around digital innovations, e-strategies, telepresence labour, Artificial Intelligence, robotics, nanotechnology, the Internet of Things and the Internet of Bodies.

    The breakneck speed in which AI technologies are being deployed suggest that the optimization of such technologies will initially bear on traditional industries and professions which offer a safety net for hundreds of millions of workers, such as farming, retail, catering, manufacturing and the courier industries.

    However, automation in the form of robots, smart software and machine learning will not be limited to jobs which are routine, repetitive and predictable.

    AI systems are on the verge of wholesale automation of various white collar jobs, particularly in areas which involve information processing and pattern recognition such as accounting, HR and middle management positions.

    Although anticipating future employment trends is no easy task, it’s safe to say that the combined threat of pandemics and wars means the labour force is on the brink of an unprecedented reshuffle with technology reshaping logistics, potentially threatening hundreds of millions of blue and white collar jobs, resulting in the greatest and fastest displacement of jobs in history and foreshadowing a labour market shift which was previously inconceivable.

    While it has long been anticipated that the increased use of technology in the private sector would result in massive job losses, pandemic lockdowns and the coming disruption caused by a war will speed up this process, and many companies will be left with no other option but to lay off staff and replace them with creative technological solutions merely for the survival of their businesses.

    In other words, many of the jobs which will be lost in the years ahead were already moving towards redundancy and are unlikely to be recovered once the dust is settled.

    3. The war has significantly reduced Europe’s reliance on the Russian energy sector and reinforced the centrality of the UN Sustainable Development Goals and ‘net zero‘ emissions which lies at the heart of the Great Reset.

    Policymakers marching lockstep with the Great Reset have capitalised on the tough sanctions against Russia by accelerating the shift towards ‘green’ energy and reiterating the importance of decarbonisation as part of the ‘fight against climate change’.

    However, it would be very short-sighted to assume that the Great Reset is ultimately geared towards the equitable distribution of ‘green’ hydrogen and carbon-neutral synthetic fuels replacing petrol & diesel.

    While UN SDGs are crucial to post-pandemic recovery, more importantly, they are fundamental to the makeover of shareholder capitalism which is now being vaunted by the Davos elites as ‘stakeholder capitalism’.

    In economic terms, this refers to a system where governments are no longer the final arbiters of state policies as unelected private corporations become the de facto trustees of society, taking on the direct responsibility to address the world’s social, economic and environmental challenges through macroeconomic cooperation and a multi-stakeholder model of global governance.

    Under such an economic construct, asset holding conglomerates can redirect the flow of global capital by aligning investments with the UN’s SDGs and configuring them as Environmental, Social, and Corporate Governance (ESG) compliant so that new international markets can be built on the disaster and misery of potentially hundreds of millions of people reeling from the economic collapse caused by war.

    Therefore, the war offers a huge impetus for the governments pushing the reset to actively pursue energy independence, shape markets towards ‘green and inclusive growth’ and eventually move populations towards a cap-and-trade system, otherwise known as a carbon credit economy.

    This will centralise power in the hands of stakeholder capitalists under the benevolent guise of reinventing capitalism through fairer and greener means, using deceptive slogans like ‘Build Back Better’ without sacrificing the perpetual growth imperative of capitalism.

    4. Food shortages created by the war will offer a major boon to the synthetic biology industry as the convergence of digital technologies with materials science and biology will radically transform the agricultural sector and encourage the adoption of plant-based and lab-grown alternatives on a global scale. 

    Russia and Ukraine are both breadbaskets of the world and critical shortages in grains, fertilisers, vegetable oils and essential foodstuffs will catapult the importance of biotechnology to food security and sustainability and give birth to several imitation meat start-ups similar to ‘Impossible Foods’ which was co-funded by Bill Gates.

    One can therefore expect more government regulation to usher a dramatic overhaul to industrial food production and cultivation, ultimately benefiting agribusiness and biotech investors, since food systems will be redesigned through emerging technologies to grow ‘sustainable’ proteins and CRISPR gene-edited patented crops.

    5. Russia’s exclusion from SWIFT (The Society for Worldwide Interbank Financial Telecommunication) foreshadows an economic reset which will generate precisely the kind of blowback necessary for corralling large swathes of the global population into a technocratic control grid.

    As several economists have opined, weaponizing SWIFT, CHIPS (The Clearing House Interbank Payments System) and the US Dollar against Russia will only spur geopolitical rivals like China to accelerate the process of de-dollarisation.

    The main benefactor of economic sanctions against Russia appears to be China which can reshape the Eurasian market by encouraging member states of the Shanghai Cooperation Organisation (SCO) and BRICS to bypass the SWIFT ecosystem and settle cross-border international payments in the Digital Yuan.

    While the demand for cryptocurrencies will see a massive spike, this is likely to encourage many governments to increasingly regulate the sector through public blockchains and enforce a multilateral ban on decentralised cryptocurrencies.

    The shift to crypto could be the dress rehearsal to eventually expedite plans for programmable money overseen by a federal regulator, leading to the greater accretion of power in the hands of a powerful global technocracy and thus sealing our enslavement to financial institutions.

    I believe this war will bring currencies to parity, therefore heralding a new Bretton Woods moment which promises to transform the operation of international banking and macroeconomic cooperation through the future adoption of central bank digital currencies.

    6.  This war marks a major inflection point in the globalist aspiration for a new international rules-based order anchored in Eurasia.

    As the ‘father of geopolitics’ Halford Mackinder opined over a century ago, the rise of every global hegemon in the past 500 years has been possible because of dominance over Eurasia. Similarly, their decline has been associated with losing control over that pivotal landmass.

    This causal connection between geography and power has not gone unnoticed by the global network of stakeholders representing the WEF, many of whom have anticipated the transition to a multipolar era and return to great power competition amid America’s receding political and economic influence and a pressing need for what technocrats call smart globalisation.

    While America tries desperately to cling to its superpower status, China’s economic ascent and Russia’s regional ambitions threaten to upend the strategic axial points of Eurasia (Western Europe and Asia Pacific).

    The region in which America previously enjoyed uncontested hegemony is no longer impervious to cracks and we may be witnessing a changing of the guard which dramatically alters the calculus of global force projection.

    Although China’s ambitious Belt and Road Initiative (BRI) has the potential to unify the world-island (Asia, Africa and Europe) and cause a tectonic shift in the locus of global power, the recent invasion of Ukraine will have far-reaching consequences for China-Europe rail freight.

    The Ukrainian President Zelensky claimed that Ukraine could function as the BRI’s gateway to Europe. Therefore, we cannot ignore China’s huge stake in the recent tensions over Ukraine, nor can we ignore NATO’s underlying ambition to check China’s rise in the region by limiting the sale of Ukrainian assets to China and doing everything in its capacity to thwart The Modern Silk Road.

    As sanctions push Russia towards consolidating bilateral ties with China and fully integrating with the BRI, a Pan-Eurasian trading bloc may be the realignment which forces a shared governance of the global commons and a reset to the age of US exceptionalism.

    7. With speculation mounting over the war’s long term impact on bilateral trade flows between China and Europe, the Russia-Ukraine conflict will catapult Israel – a leading advocate of the Great Reset – to even greater international prominence. 

    Israel is a highly attractive BRI market for China and the CCP is acutely aware of Israel’s importance as a strategic outpost connecting the Indian Ocean and the Mediterranean Sea through the Gulf of Suez.

    Furthermore, the Chinese government has for many years acknowledged the primacy of Israel as a global technology hub and capitalised on Israel’s innovation capabilities to help meet its own strategic challenges.

    Therefore, Naftali Bennet’s mediation between Moscow and Kiev is likely to factor the instrumental role of the Belt and Road Initiative (BRI) in expanding both China and Israel’s regional and global strategic footprint.

    Israel’s status as among the leading tech hubs of the future and gateway connecting Europe and the Middle East is inextricably tied to the web of physical infrastructures, such as roads, railways, ports and energy pipelines which China has been building over the past decade.

    Already a powerhouse in auto-technologies, robotics and cybersecurity, Israel aspires to be the central nation in the millennial Kingdom and the country’s tech startups are predicted to play a key role in the fourth industrial revolution.

    Strengthening its evolving relationship with China amid the Russia-Ukraine crisis could help propel Israel into a regional hegemon par excellence with a large share of centralised economic and technological power converging in Jerusalem.

    As Israel embarks on efforts to diversify its export markets and investments away from the United States, it begs an important question.

    Is Israel in the formative stages of outsourcing its security interests away from the US and hedging its bets on the Sino-Russia axis?

    8. It is now common knowledge that Digital IDs are a central plank in the World Economic Forum’s Great Reset agenda and are to be streamlined across industries, supply chains and markets as a way of advancing the UN 2030 SDGs and delivering individualised and integrated services in future smart cities.

    Many have cottoned on to how such a platform can be used to usher in a global system of technocratic population control and compliance by incorporating humanity into a new corporate value chain where citizens are mined as data commodities for ESG investors and human capital bond markets and assigned a social and climate score based on how well they measure up against the UN SDGs.

    This seamless verification of people and connected devices in smart environments can only take place once our biometrics, health records, finances, education transcripts, consumer habits, carbon footprint and the entire sum of human experiences is stored on an interoperable database to determine our conformity with the UN SDGs, thus forcing a monumental change to our social contract.

    Vaccine passports were initially touted by public-private partnerships as an entry point for Digital IDs. Now that such a logic has run its course, how might the present geopolitical tensions contribute to scaling what is the key node in a new digital ecosystem?

    Ukraine has traditionally been called Europe’s breadbasket and alongside Russia, both nations are major global suppliers of staple grains. Therefore, the war has all the makings of a black swan for commodities and inflation.

    With an economy teetering on the brink of collapse due to a global supply crunch, I believe the resulting economic tremors will trigger wartime emergencies across the world and the public will be told to brace themselves for rationing.

    Once this takes place, the multilateral adoption of Digital IDs which interface with Central Bank Digital Currencies can be touted as the solution to efficiently manage and distribute household rations under an unprecedented state of emergency and exception.

    The Bank of England has already floated the prospect of programmable cash which can only be spent on essentials or goods which an employer or government deem sensible.

    Once the issuer is granted control over how it is spent by the recipient, it will become nigh impossible to function adequately without a Digital ID, which will be required to receive food parcels and obtain a basic means of subsistence. Think UBI (Universal Basic Income).

    If food inflation continues on an upward trajectory with no signs of abating, governments may institute price controls in the form of rationing and ration entries could be logged on blockchain ledgers on the Digital ID to track our carbon footprint and consumptive habits during a national emergency.

    9. Europe is directly in the line of fire once a hybrid war between NATO and the Sino-Russia axis is underway.

    It would be remiss to ignore the clear and present danger posed by a cyber attack on banks and critical infrastructure or even a tentative and tactical nuclear exchange with intercontinental ballistic missiles (ICBMs).

    I can’t see how any warring party will not be limited by the doctrine of mutually assured destruction so a thermonuclear fallout is unlikely.

    However, the use of remote access technologies to erase system memory from the SWIFT banking apparatus or Cross-Border Interbank Payment System can potentially render much of the international economy non-operational and send the dollar into a tailspin.

    If an event of such cataclysmic proportions was to occur, it will undoubtedly lead to increasing demands to overhaul cyber security.

    The fallout from such an event could very well establish a new global security protocol according to which citizens must possess a Digital ID as a necessary national security measure.

    One can imagine how accessing the internet or public services in the aftermath of a nationwide cyberattack may require citizens to use a Digital ID to authenticate that their online activities and transactions are from a legitimate and non-malicious source.

    There are few coincidences in politics.

    10. The economic implications of this war will be so disastrous that governments and the public sector will require a significant injection of private capital to address the financing shortfall. 

    This will effectively render the traditional separation of powers between central banking institutions and governments obsolete, as the former will be positioned to disproportionately influence the fiscal trajectory of nation states, whose sovereignty will be hollowed out by the wholesale capture of governments by the central banks and hedge funds.

    Therefore, the nation-state model is gradually being upended by a global technocracy, consisting of an unelected consortium of leaders of industry, central banking oligarchs and private financial institutions, most of which are predominantly non-state corporate actors attempting to restructure global governance and enlist themselves in the global decision-making process.

    Therefore, the future of international relations and the social, economic and political transformation which the world is presently undergoing in light of the pandemic and Russia-Ukraine conflict will not be decided through multilateralism and elected representatives of sovereign states.

    Rather, it will be decided through a network of multi-stakeholder partnerships which are motivated by the politics of expediency and not accountable to any electorate or beholden to any state and for whom concepts like sovereignty and international law are meaningless.

    Tyler Durden
    Mon, 03/14/2022 – 23:40

  • Costco Runs Out Of Emergency Food Kits 
    Costco Runs Out Of Emergency Food Kits 

    Headlines like, “WWIII has likely started already, but we have been slow to recognize it,” from Bill Ackman, and corporate media pushing nuclear war hype and hysteria had sparked unease among American households who hadn’t felt this way since the early days of the virus pandemic when they were caught empty-handed with limited supplies to weather COVID lockdowns. 

    Americans, many of whom have been transformed into preppers in a post-COVID era, are at it again, panic hoarding supplies as they fear Russia’s invasion of Ukraine could be the catalyst for the next world war (well, at least they think this way because corporate media is telling them). What’s evident so far is that Russia’s ongoing conflict within Ukraine is disrupting global supply chains and food supplies. People see the writing on the wall as prices soar at gas stations and supermarkets. The conflict overseas is already sending commodity prices sky-high, which may eventually spark shortages. 

    So as Americans unleash their inner prepper. They’re panic hoarding ReadyWise emergency food kits sold at Costco Wholesale Corporation’s brick and mortar stores and or online that at least one variety of the products has already been sold out.

    ReadyWise’s 5,400 serving count of emergency food pallet is “out of stock,” according to Costco’s website. The emergency food kit comes in 36 stackable 5.3-gallon buckets of food that last up to 25-years. 

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    A customer on the Costco website reviewed the product in early March, days after the invasion of Ukraine, and said, “It never hurts to be prepared. Nice variety of foods, it’s easy to store and the shelf life is unbeatable. And it doesn’t taste bad at all.’

    “Be prepared. Spend the money,” another customer wrote. 

    Since the invasion, search interest for ReadyWise has rocketed above COVID highs. 

    Besides food, Americans are frantically searching where to buy potassium iodide in case of nuclear war. 

    While food and medicine are essential, panic hoarding ammunition is already underway. 

    It never hurts to prepare, considering the fog of war in eastern Europe remains intact, and an end to the conflict is still unknown. 

    Tyler Durden
    Mon, 03/14/2022 – 23:20

  • Credit Has Cracked, And Now The CLO Defaults Begin
    Credit Has Cracked, And Now The CLO Defaults Begin

    Last Friday we reported that credit is “cracking”, quoting from the ominous words of BofA strategist Michael Hartnett who chose to describe the bond markets currently, and as we noted, “it is a very ugly picture indeed – for both price… and flows.”

    Since then, credit has only gone from bad to worse, and amid Monday’s rout, junk bonds (HYG) finally took out the psychological level of 80, a level last hit during the depths of the covid crash (just before the Fed stepped in and started buying bonds).

    But while the collapse in junk is ominous, the first real casualties in credit took place in Europe, where we just observed the first CLO defaults this year, which as Bloomberg’s Tatiana Darie says, echoing out earlier observations, are “adding to signs of stress in junk-rated credit markets, which remain frozen, and could further spook investors already concerned about the worsening economic outlook.”

    What happened? Three issuers across CLO portfolios were classified as defaulted in 2022 so far, according to Deutsche Bank. That compares to a total of six for the entire year in 2021, and 39 in 2020, the bank’s data show.

    To be sure, while the overall exposure to the CLO asset class is small, at less than 0.03%, and one of the three issuers is based in the U.S., but half way through last year’s count in less than three months, and before any real impact from Ukraine’s war is seen, it undermines the bullish case for CLOs – which are critical to support demand for the leveraged loan market – underpinned by ultra-low defaults and benign forecasts going forward. And yes, it may come as a shock to some but rates in the US are still at zero.

    The defaults also come at a time when leveraged credit is reeling from a plunge in prices, wider spreads and massive outflows from high-yield funds. Primary markets in Europe continue to be shut, with no junk-rated deal in public syndication for about a month now (some loans, like IVC’s EU480m offering, are getting done privately).

    While the broader CLO market has also seen some signs of life – Napier Park Global Capital pricing a deal last week – but coupons for the top-rated and largest part came in at the highest since November and the transaction offered some sweeteners such as shorter non-call and reinvestment periods, according to Darie, a structure used at the start of the pandemic to lure investors and allow managers to refinance quickly when markets recovered.

    Meanwhile, if the market volatility persists and credit continues to take it on the chin, expect many more CLO defaults, which incidentally may be just what bulls need. After all, while the Fed may ignore the crash in stocks, it will have no choice but to intervene once credit, which underpins Biden’s entire fake, stimulus-driven economy, dives next.

    Tyler Durden
    Mon, 03/14/2022 – 23:15

  • Taiwan Will Defend Differently Than Ukraine In Event Of Chinese Invasion: Expert
    Taiwan Will Defend Differently Than Ukraine In Event Of Chinese Invasion: Expert

    Authored by Frank Fang via The Epoch Times,

    Military strategists worldwide have been analyzing the war in Ukraine, particularly how Ukrainians have been able to stall the military advancement of much powerful Russia using mobile weapons, including Javelin anti-tank missiles and the Stinger portable air-defense system.

    These strategists are making comparisons to Taiwan, an island that would also be fighting a much more powerful foe, should the Chinese regime take a cue from Russia and invade its democratic neighbor.

    However, a China expert in Taiwan pointed out that Ukraine and Taiwan are fundamentally different, given that the former shares a land border with Russia, while the latter is an island that is separated from mainland China by a narrow body of water called Taiwan Strait.

    Ding Shuh-fan, emeritus professor of the Graduate Institute of East Asia Studies at Taiwan’s National Chengchi University, told The Epoch Times that if the Taiwanese were using Javelin or Stinger to defend themselves, that would mean the Chinese military was about to land in Taiwan or has already landed, which would not be ideal in terms of defending the island’s sovereignty.

    “What’s best for Taiwan is that their landing forces do not land in Taiwan at all,” Ding said.

    “For example, if Chinese military forces begin to assemble, let’s say, in Fujian, we could potentially fire short-range missiles at their ports, particularly military ports, or strike their landing vessels.” Fujian is a southern Chinese Province that sits direct opposite Taiwan.

    Of course, once the Chinese military starts to advance to the island’s shore, Taiwan would need to rely on Javelin and Stinger, just like the Ukrainians have done, as well as firing short-range missiles at their fighter jets, according to Ding.

    Taiwan’s domestically produced corvette class vessels demonstrate their combat readiness during a drill on the seas off the northern city of Keelung on Jan. 7, 2022. (Sam Yeh/AFP via Getty Images)

    The Chinese Communist Party sees Taiwan as a part of its territory even though the island is a de facto independent entity with its own liberal democratic government. In October, Chinese leader Xi Jinping vowed that the “reunification” of Taiwan with China would “definitely be realized.”

    Russia’s invasion of Ukraine has fueled speculation that Xi would follow in Putin’s footsteps and decide to invade Taiwan.

    The likely scenario is that China would start an attack against Taiwan by launching a barge of missiles at the island before it takes a brief pause to assess the success of its missile strikes, according to Ding.

    During this short pause, Ding said Taiwan would need to assemble its forces, put together a counter strike to hit back at China’s military installments, including ports, radar stations, and missile launching sites. Ultimately, the goal would be to prevent China from sending out its invasion forces across the Taiwan Strait, he added.

    As such, Ding said Taiwan’s current defense strategy—known either as multidomain deterrence or layered defense—is the right approach to defend Taiwan. He pointed out that Taiwan’s missile density is one of the highest in the world.

    The United States, when approving a potential $100 million sale of equipment and services to Taiwan to boost the island’s Patriot missile defense system in February, said the proposed sale “will help to sustain the recipient’s missile density and ensure readiness for air operations.”

    In May 2019, Taiwan President Tsai Ing-wen, held a press conference explaining the need for the island to further advance its asymmetric warfare capabilities in order to counter China’s military threats. As a result, she said local production of submarines and anti-aircraft and anti-ship missiles would speed up.

    Submarines would be a great counter to Chinese naval fleets, Ding said, since they could be positioned at projected paths of invading ships, further reducing the chance of Beijing landing its forces in Taiwan.

    Reservist training is one thing that Taiwan could do to boost its self-defense, Ding said. Another is having companies develop their own defense plan in case their own facilities are hit with Chinese missiles.

    Taiwan’s Ministry of National Defense has announced that it planned to have 15,000 reservists train under a tougher training program for 14 days at 24 battalions across the island this year, according to Taiwans’ government-run Central News Agency.

    Finally, Taiwan’s self-defense could further improve if more Taiwanese soldiers undergo U.S. military training, according to Ding.

    Tsai acknowledged in 2021 that a small number of U.S. troops were training Taiwanese soldiers in Taiwan.

    Tyler Durden
    Mon, 03/14/2022 – 23:00

  • Just As All Hope Seemed Lost, China Reports Miraculously Good Economic Data
    Just As All Hope Seemed Lost, China Reports Miraculously Good Economic Data

    Going into Tuesday, all hope seemed lost in China.

    First, China reported a whopping 5,154 new covid cases (3,507 new local confirmed Covid cases and 1,647 asymptomatic cases) for Monday, well more than double from the day before, and confirming that the country’s covid troubles – which over the past 48 hours led to the lockdown of Shenzhen and other cities – are only getting worse. So worse, in fact, that questions have emerged: how did China not report more than 100 cases on any one day for two years, and then now – with the Ukraine war raging – Beijing is suddenly locking down key US supply chain arteries.

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    Second, for the second day in a row, the PBOC fixed the yuan more than 100 pips weaker than expected, as the central bank telegraphs it will no longer tolerate a weak currency, relentless capital inflows be damned, as the country remembers that it is after all, an export-driven mercantilist which above all, needs a favorable exchange rate.

    Third, one day after Chinese stocks traded in HK suffered their biggest drop since 2008, we are bracing for another major crash:

    • ALIBABA SHARES INDICATED 9.8% LOWER IN HONG KONG
    • MEITUAN SHARES INDICATED 11% LOWER IN HONG KONG

    Elsewhere, China’s CSI 300 Index tuimbled 2.5%, while the Shanghai Composite declined 2.4% and the Hang Seng fell 3.7%, while the Hang Seng Tech Index lost as much as 7.2% soon after open Tuesday, and is now down almost 40% in under a month.

    Why? Because contrary to expectations set by the PBOC itself (via its own media mouthpiece), the PBOC decided to keep the MLF rate unchanged despite an intensifying rout in nation’s equities, adding to investor concerns from lockdowns to geopolitical and regulatory risks.

    And then, as even the firmest China believers were getting ready to throw in the towel, moments ago the National Bureau of Statistics reported a trio February economic numbers that were so ridiculously good they were, well… simply ridiculous. To wit:

    • Jan.-Feb. Industrial Output +7.5%, y/y, smashing estimates of +4%, printing above the highest economist forecast (range +3.2% to +5.5%, 24 economists) and far higher than the Ded +4.3%.
    • Jan.-Feb. Retail Sales +6.7% y/y; smashing est. +3%, printing above the highest economist forecast (range +1.5% to +5.5%, 23 economists), and far, far higher than the Dec. +1.7%
    • Jan.-Feb. Fixed-Asset Investment excluding rural households +12.2% y/y; smashing est. +5% and also printing above the highest economist forecast (range +3% to +9%, 29 economists) as well as more than 2x higher than Jan.-Dec. +4.9%

    While the above data was the most closely watched, not all the data was flawless:

    • Jan.-Feb. property investment +3.7% y/y vs +4.4% in Jan.-Dec.
    • Jan.-Feb. residential property sales -22.1% y/y vs +5.3% in Jan.-Dec.
    • End- Feb. surveyed jobless rate 5.5% vs 5.1% end-Dec.

    Then there were the tertiary data:

    • China Jan.-Feb. Power Output Rose 4% Y/y to 1314.1b kwh
    • China Feb. Power consumption rises 16.9% Y/Y, to 623.5 billion kilowatt-hours (kWh), the state TV  reports, citing the National Energy Administration.
    • Power output in Jan.-Feb. rose 4% y/y to 1314.1b kwh
    • Crude processing in Jan.-Feb. fell 1.1% y/y to 113.01m tons
    • Crude oil output in Jan.-Feb. rose 4.6% y/y to 33.47m tons
    • Natural gas output in Jan.-Feb. rose 6.7% y/y to 37.2bcm
    • Ethylene output in Jan.-Feb. rose 3.9% y/y to 4.87m tons
    • Coal output in Jan.-Feb. rose 10.3% y/y to 686.6m tons

    China’s apparent oil demand, which includes oil processing volume and net imports of refined oil products, remained stable in the first two months of the year, despite higher prices: China’s apparent oil demand rose 2.89% in January-February from a year earlier, to 13.710m b/d.

    A closer read of the data hints that not all was as strong as indicated: the growth in retail sales was driven by a surge in petroleum and jewelry which saw the highest increase across all categories. That, as Bloomberg notes, could be the impact of price increase, instead of volume.

    Still, the fact that the big 3 were so stellar should placate those who are seeing a collapse (even if nobody actually believes these numbers).

    So why did Beijing report such ridiculous prints? Well, one possible reason is to justify the PBOC’s decision earlier in the session to hold the key, MLF interest rate unchanged instead of cutting it as analysts expected.

    Either that, or to justify what would be a powerful Plunge Protection intervention immediately after the data, and sure enough:

    • *HANG SENG TECH INDEX ERASES LOSS OF AS MUCH AS 7.2%
    • *TENCENT PARES LOSS TO 0.5% FROM AS MUCH AS 8%

    And as goes China, so go US equity futures…

    Tyler Durden
    Mon, 03/14/2022 – 22:40

  • USAF Issues Solicitation For Development Of "Mayhem" Hypersonic Missile 
    USAF Issues Solicitation For Development Of “Mayhem” Hypersonic Missile 

    The U.S. Air Force Research Laboratory (AFRL) published a solicitation for a $334 million hypersonic demonstrator missile contract with proposals by defense companies to be submitted by May and contract award in December. 

    AFRL has remained secretive about its new Mayhem project to develop and demonstrate a large-class air-breathing hypersonic missile. Vendors will receive the proposal requirements package by March 15 and submit offers by May 24. The branch expects to award a contract on December 5. 

    The Mayhem program aims to deliver a hypersonic weapon to the military with “strike, intelligence, surveillance, and reconnaissance features.” It says the new missile will have a “standardized payload” and “multiple opportunities to integrate various payloads.” 

    Not much is known about the project. In December, AFRL indicated Mayhem was short for “Hypersonic Multi-mission ISR and Strike.”

    “The Mayhem Program is focused on delivering a larger class air-breathing hypersonic system capable of executing multiple missions with a standardized payload interface, providing a significant technological advancement and future capability,” AFRL’s document said in December. 

    “The system goal is to carry payloads five times the mass and double the range of current technology capability systems. The standardized payload interface would create multiple opportunities for various payload integration within the same hypersonic system,” AFRL continued. 

    The missile’s “current technology capability systems” were not published. Details about the missile’s speed remain scant, though hypersonic typically refers to objects traveling faster than Mach 5, or 3,836 mph.

    The U.S. remains in the development phase of its hypersonic weapons and has yet to field one. Meanwhile, Russia and China are quickly fielding hypersonic missiles while the U.S. suffers testing setbacks.  

    Tyler Durden
    Mon, 03/14/2022 – 22:40

  • China, Oil, & The Ukraine War
    China, Oil, & The Ukraine War

    Authored by Peter Zeihan via Zeihan.com,

    Russia is finding it increasingly difficult to sell its oil in Europe and other traditional markets, as a mixture of sanctions, market pressures and consumer choice are shifting against Moscow. It’s not that Russia is barred against selling oil. It’s that shippers, insurers, and dock workers don’t want anything to do with the stuff. So where does it go?

    There is a persistent question – and at times, assumption – that Beijing will step in to buy up whatever crude Russia can’t sell elsewhere.

    Not so fast. 

    The problem is infrastructure. The pipelines that carry oil to Russia’s Pacific loading terminal, and directly into China itself, source their crude from eastern fields. Russia’s western exports are sourced from western fields. There’s precious little in the way of connecting infrastructure between the two–meaning if Russia can’t load tankers in the Baltic and Black seas, there’s little reason to pump it at all. What does this mean for Chinese imports of Russian crude? Probably not what you’d expect…

    At the beginning of the COVID pandemic, we asked our readers who were so inclined and able to consider donating toward a cause we thought was important: Feeding America.

    While we still believe strongly in their mission, with recent events in Ukraine we are asking our subscribers to consider supporting a charity focused on relief efforts there. There are many good ones to choose from, but one in particular we are supporting is the Afya Foundation.

    They collect money and health supplies for underserved communities in the world, and have begun delivering non-combat support to refugees and population centers in Ukraine. We hope that those who can, join us.

    Tyler Durden
    Mon, 03/14/2022 – 22:20

  • Foxconn In Talks To Build $9 Billion Factory In Saudi Arabia
    Foxconn In Talks To Build $9 Billion Factory In Saudi Arabia

    Dear liberals: Pretty soon, your iPhone could be assembled in a country where homosexuality is punishable by death, and religious dissidents are sometimes beheaded.

    In what could be a victory for Crown Prince Mohammad bin Salman’s effort to attract tech companies to help diversify Saudi Arabia’s economy away from oil and gas, Foxconn, the Taiwanese consumer tech giant that’s one of Apple’s biggest contractors, has reportedly submitted a proposal to build a $9 billion factory in the Kingdom.

    WSJ reports that the kingdom “is reviewing an offer from the company, formally known as Hon Hai Precision Industry, to build a dual-line foundry for surface-mount technology and wafer fabrication in Neom, a tech-focused city-state the kingdom is developing in the desert.”

    For those who aren’t familiar with Neom, here’s what the BBC has to say about the planned futuristic tech-centric city in the desert. The Kingdom plans to use its massive sovereign wealth fund to finance the effort.

    Glow-in-the dark beaches. Billions of trees planted in a country dominated by the desert. Levitating trains. A fake moon. A car-free, carbon-free city built in a straight line over 100 miles long in the desert. These are some of the plans for Neom – a futuristic eco-city that is part of Saudi Arabia’s pivot to go green. But is it all too good to be true?

    Neom claims to be a “blueprint for tomorrow in which humanity progresses without compromise to the health of the planet”. It’s a $500bn (£366bn) project, part of Saudi Arabia’s Vision 2030 plan to wean the country off oil – the industry that made it rich.

    The factory isn’t a done deal – at least not yet. The Saudis are reportedly still conducting due diligence and “benchmarking the offer against others Foxconn has made for similar projects globally”.

    The Saudis are also reportedly in talks with the UAE about potentially building the factory there.

    Foxconn has long been looking to diversify its factory capacity away from China. But Riyadh wants the company to guarantee that it would direct “at least two-thirds of the foundry’s production into Foxconn’s existing supply chain…to ensure there are buyers for its products and the project is ultimately profitable.”

    But if the company meets all the Saudis requirements, the kingdom is prepared to co-invest, while also offering low-interest loans, and other incentives.

    Of course, just because Foxconn is planning to invest, doesn’t mean it will. Let’s not forget how the company supposedly promised to build a large factory in Wisconsin, but ended up with a project that was much smaller than it initially promised.

    The Kingdom has struggled to recruit western businesses for Neom

    Although, as we noted above, we would be curious to see how Apple reacts to Foxconn’s decision to possibly assemble the company’s phones in the kingdom.

    Tyler Durden
    Mon, 03/14/2022 – 22:00

  • The Bond Market Is Screaming Stagflation
    The Bond Market Is Screaming Stagflation

    By DataTrek Research

    Topic #1: Market-based expectations for future US inflation have broken out to new highs in the last 10 days. Using data from the TIPS (Treasury Inflation Protected Securities) market back to its start in 2003:

    • At present, TIPS are pricing 3.52 percent annual inflation for the next 5 years and 2.94 percent for the next 10 years.
    • Before 2021, the highs for expected inflation were back in March 2005, at 2.94 percent (5 year) and 2.76 pct (10-year).
    • In November 2021, expectations spiked to 3.17 percent (new record for 5 years) and 2.76 (tying the 2005 record for 10 years).

    The chart below shows this history/recent breakout and also compares the 2003 – present timeseries to the Federal Reserve’s 2 percent inflation target. In the middle of the chart, we have highlighted the 2011 – mid 2014 period. Recall the crude oil prices were high back then, as they are now, ranging around $100/barrel for over 3 years. Even still, inflation expectations remained around 2 percent because the US economy was recovering only slowly from the Great Recession.

    Takeaway: the TIPS market’s inflation expectations are no longer as well anchored around the Fed’s 2 percent level as they have been since 2003. This trend is recent and not only tied to energy prices. Moreover, this month’s breakout is happening as the US economy is near stall speed (Atlanta Fed GDPNow Q1 estimate at 0.5 percent) and geopolitical tensions threaten domestic/global growth. All that makes for an awkward setup going into the FOMC meeting this week. Chair Powell has often cited TIPS inflation expectations being close to 2 percent as a proof point that structural inflation is not a threat to the US economy. For the moment, at least, that is no longer true.

    Topic #2: The latest revisions to Wall Street analysts’ Q1 and Q2 2022 earnings expectations. The data here is courtesy of FactSet’s weekly Earnings Insight report (link below).

    Good news (1): Street estimates for Q1 2022 rose last week for the first time in 5 weeks:

    • The aggregate S&P 500 earnings per share estimate, based on consensus analyst forecasts for the companies in the index, rose to $51.79/share from $51.64/share last week.
    • Estimates had been declining for Q1 since February 4th, when they peaked at $52.06.
    • That may only be a 0.3 percent increase over the last week, but it comes with US stocks under pressure and growing macroeconomic uncertainty. Against that backdrop, seeing estimates rise is reassuring.

    Good news (2): Q2 estimates rose last week and are now at their highs for 2022:

    • Analysts’ estimates for Q2 rose to $55.59/share from $55.44 last week.
    • Q2 estimates are up 0.7 percent since the start of Q4 2021’s earnings reporting season, when they were $55.18/share.

    Bad news (1): both Q1 and Q2 2022 Wall Street earnings estimates imply the companies of the S&P 500 are close to peak earnings power or (perhaps) already past their peak.

    • The S&P earned an actual $55.44/share in Q4 2021.
    • The Street’s current Q1 estimate of $51.79/share is 6.6 percent below that most recent quarter actual.
    • The Q2 2022 estimate of $55.59 within a rounding error (0.3 percent) of Q4 2021.

    Takeaway: without a clear path to sequential earnings growth, which we’ve had since Q3 2020, markets are left to wonder if Q4 2021 really was the peak for US corporate cash flows. That is the fundamental reason the combination of Fed rate policy and geopolitical uncertainty have hit US stocks so hard in 2022. Wall Street analysts are tweaking their models at the margin and printing slightly higher estimates, which is reassuring. But … We’re still a month away from Q1 2022 earnings season, which is a long time to wait given everything else going on at the moment.

    Topic #3: A history of 10-year US Treasury yields and Consumer Price Index inflation. 10-years yield 2.0 percent today. Thursday’s CPI report showed 7.9 percent inflation. That 5.9-point difference between long-term risk-free rates and inflation got us to wondering if such a gap has every occurred before and, if so, when.

    This chart of 10-year yields minus CPI inflation from 1962 to the present gives the answer. The highlights:

    • The only precedents for very wide differences in contemporaneous 10-year yields and inflation readings were after the 1973 and 1979 oil shocks. December 1974 showed a 4.7-point gap (Treasuries at 7.4 percent, CPI +12.1 pct), and June 1980 a 4.5-point gap (Treasuries at 10.0 percent, CPI at 14.5).
    • There were smaller but still noticeable negative readings in July 2008 (-1.5 points) and September 2011 (-1.8 points).
    • The current 5.9-point difference is wider than even those of the 1970s/early 1980s.

    Takeaway: very wide gaps between Treasury yields and inflation occur when geopolitical events such as the 1973 Saudi oil embargo or the 1979 Iranian Revolution cause both a spike in energy prices/inflation and a sharp decline in investor confidence. That pushes capital into Treasuries, regardless of their inability to keep pace with potentially high inflation for years into the future. The same situation is occurring now, of course, and in a manner broadly consistent with the 1974/1980 periods.

    * * *

    Meanwhile, here is Goldman looking at the risk that stagflation brings to “balances” or 60/40 portfolios. The outlook is not good.

    In the last cycle US 60/40 portfolios benefited from a structural ‘Goldilocks’ scenario, with falling inflation/real rates boosting valuations and strong profit growth despite relatively weak economic growth. With a less favourable structural growth/inflation mix and less of a tailwind from valuations and profit margins, real returns are likely to be lower in the Post-Pandemic Cycle.

    The risk of a ‘lost decade’ for 60/40 portfolios, i.e., a prolonged period of poor real returns, increases with stagflation. Markets have further repriced risk of stagflation, boosted by the commodities rally due to the Russia/Ukraine crisis – US 10-year breakeven inflation has reached the highest level since the 1990s, while real yields remain near all-time lows, resulting in a similar gap to that in the 1970s (Exhibit 1). This points to little optimism on LT real growth and material concerns on inflation risk.

    Tyler Durden
    Mon, 03/14/2022 – 21:46

  • US Rushes MANPADS To Ukraine, Downplays Risks
    US Rushes MANPADS To Ukraine, Downplays Risks

    Authored by Jason Ditz via AntiWar.com,

    Anti-tank missiles were the centerpiece of western arms shipments to Ukraine earlier in the war. New indications are that the focus is shifting to shoulder-fired anti-aircraft missiles (MANPADS), with the US and NATO getting as many as they can into the Ukraine.

    The expectation is that the MANPADS will offer Ukraine substantial anti-aircraft capacity. Shipping a lot of MANPADS into a country is always a danger, because if they end up in the wrong hands they could threaten civilian airliners, and after the wars they tend to go missing into the global black market.

    Image: Reuters

    That’s been a problem more than a few times, with the US shipping MANPADS into Afghanistan during the Soviet War, only to lose control of many of them. The most recent concerns were in the NATO regime change in Libya, where Libya’s huge cache of MANPADS were looted and sold across the region.

    Both NATO and the airline industry are largely mum on the threats posed by such missiles. Russian officials are noting that the west is “grossly ignoring” a number of international agreements designed to prevent MANPADS proliferation.

    Senior US officials say its a “risk worth taking,” which is easy to say since the risk of proliferation is chiefly in Europe, and the US has ample experience in ditching responsibility for unintended, albeit easily-predictable, blowback.

    “Frankly, we believe that risk is worth taking right now because the Ukrainians are fighting so skillfully with the tools at their disposal and they’re using them so creatively,” a senior U.S. defense official said on Friday when asked about that danger.

    It seems that the missiles are being used as a replacement for the warplanes Ukraine sought, and which the US feared would be seen as too big of an escalation. The assumption seems to be MANPADS are less of a risk in that regard.

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    Either way, it’s no secret what NATO is doing, and it sets a precedent where Russia or others might distribute MANPADS in other proxy wars they might want to get involved in.

    Additionally, Russia’s military has said it will strike as “legitimate targets” any inbound arms shipments to Ukraine from foreign countries, which brings up the dangerous scenario of a broader Russia-NATO war being sparked.

    Tyler Durden
    Mon, 03/14/2022 – 21:40

  • "This Could Lead To The Start Of WWIII" – Trump Slams Biden Over Ukraine Conflict
    “This Could Lead To The Start Of WWIII” – Trump Slams Biden Over Ukraine Conflict

    President Trump took the stage Saturday night during a rally in Florence, South Carolina where he warned that the Russian invasion into Ukraine could lead to the start of “World War III”, and proclaimed that the US needs to get its energy workers back to work.

    Trump slammed President Biden for his “weakness, cowardice and incompetence”, adding that there is still “a path” for him to “end this tragedy in Ukraine without getting Americans ensnared in a gruesome and very bloody war.”

    “By the way this could lead to World War III. If you think Putin is going to stop, he’s not going to stop. Nobody has ever been tougher on Putin than me. The US must make clear to Putin that he has two choices: that he must accept peace right now or face a push to end reliance on Russian energy.”

    However, to make this possible, the US must first end President Biden’s “war” on American energy.

    “We have to get our energy workers drilling, mining and refining like never before,” Trump said, before congratulating a band of workers standing behind him. 

    Russian President Vladimir Putin “without the money coming in for energy, Russia doesn’t work.”

    As for the weapons the US and its allies have sent to Ukraine, President Trump took credit for sending javelin missiles.

    “They sent blankets…and I sent javelins. That was all sent by me. We didn’t send our soldiers but we sent them a lot of military equipment,” Trump said.

    Trump then turned on AOC and the rest of “the squad”, which he called “AOC plus three”. He mocked them for their climate change alarmism, joking that their “12 years” timeline to stop global warming had shrunk down to seven.

    Trump slammed Biden for last year waiving sanctions on the Russian firm constructing the Nord Stream 2 pipeline, a move that at the time drew pushback from both Democrats and Republicans. Trump said the administration should take a harder stance on Russia. Biden last month announced sanctions against the company in response to the conflict in Ukraine.

    He also slammed the Biden Administration for turning to dictatorial regimes like Iran and Venezuela for the oil needed to make inflation drop.

    “Biden is crawling around the globe on his knees begging and pleading for mercy from Saudi Arabia, Iran and Venezuela.”

    Trump also took a few moments to slam Reps. Liz Cheney and “Cryin” Rep. Adam Kinzinger, the two GOP representatives on the Democrat-run Jan. 6 committee.

    Watch Trump’s hour-long speech below:

    Tyler Durden
    Mon, 03/14/2022 – 21:20

  • Hedge Funds Liquidate Oil Positions At A Near-Record Pace Amid Extreme Volatility
    Hedge Funds Liquidate Oil Positions At A Near-Record Pace Amid Extreme Volatility

    By John Kemp, Senior Energy Market Analyst at Reuters

    Investors slashed bullish bets on oil last week as prices surged to multi-year highs, the economic outlook deteriorated, and extreme volatility made derivatives positions more expensive to maintain. Hedge funds and other money managers sold the equivalent of 142 million barrels in the six most important petroleum-related futures and options contracts in the week to March 8.

    Last week’s sales were the 11th largest out of 469 weeks since March 2013 – a 98 %-ile move –  according to records published by ICE Futures Europe and the Commodity Futures Trading Commission.

    Portfolio managers sold Brent (-97 million barrels), European gas oil (-23 million), U.S. gasoline (-13 million) and U.S. diesel (-11 million) and were buyers only of NYMEX and ICE WTI (+2 million).

    The selling was dominated by closure of existing bullish long positions (-114 million barrels) rather than initiation of new bearish short ones (+28 million), consistent with a risk-reducing strategy.

    Funds ended up with a net position in the six contracts of just 588 million barrels (45th percentile for all weeks since 2013) down from a recent peak of 761 million barrels (70th percentile) on Jan. 18. Bullish long positions outnumbered bearish short ones by a ratio of 4.76:1 (61st percentile) down from 6.24 (80th percentile) in mid-January.

    In recent weeks, the record backwardation in futures prices, accelerating rise in spot prices, and increasing day-to-day volatility have been signs of a market under extreme stress and likely to reverse course. Soaring oil prices have been part of a broader increase in the price of raw materials, manufactured items and freight charges which has raised the probability of a recession within the next 12 months.

    Reflecting the deteriorating economic outlook and volatility costs, distillate positions were cut to 85 million barrels (67th percentile) last week down from a recent peak of 144 million barrels (85th percentile) five weeks earlier.

    Rising volatility is also a symptom of a market becoming less liquid, with both bullish and bearish investors less willing to take on new risk exposures and instead reducing positions until trading becomes calmer.

    Heightened volatility has fed through into more demands for margin from brokers and clearing houses and makes futures and options positions increasingly expensive to maintain, encouraging fund managers to trim positions.

    Extreme volatility and rapidly diminishing liquidity is reminiscent of trading conditions in the second quarter of 2008 as oil prices climbed towards a record high in the first half of July before plunging.

    Oil prices are caught between rising supply risks as a result of Russia’s invasion of Ukraine and the consequent sanctions on the country’s output, and growing demand risks stemming from inflation and a possible recession.

    In this increasingly unstable and chaotic situation, many hedge fund managers have decided it is prudent to realise profits from previous bullish positions and reduce risk exposure until the balance of risks becomes clearer.

    Tyler Durden
    Mon, 03/14/2022 – 21:00

  • China Orders 51 Million Into Lockdown As COVID Numbers Spike
    China Orders 51 Million Into Lockdown As COVID Numbers Spike

    Beijing is learning the hard way that its “COVID Zero” approach toward combating the virus is having serious drawbacks. For example, while the US and Europe continue to roll back their tightening measures, a growing number of Chinese citizens are facing draconian lockdowns similar to the one imposed on Wuhan during the early days of the outbreak two years ago.

    According to ABC News, the total number of Chinese citizens under lockdown rose to 51 million on Monday. Beijing has ordered a lockdown covering the entire northeastern province of Jilin, where 24 million people live. What’s more, the southern cities of Shenzhen and Dongguan, with 17.5 million and 10 million, respectively, have both been locked down in recent days.

    China reported 1,437 cases across dozens of cities on Monday. That’s a four-fold increase within the span of a week.

    Although the record number of new cases being reported is testing the feasibility of China’s zero-tolerance approach, there is still no sign that the country’s leadership is thinking about abandoning the policy altogether.

    Authorities announced on Monday that 24 million people in Jilin Province would be forced into lockdown. That number includes the population of the previously locked down city of Changchun. Jilin’s lockdown marks the first province-wide lockdown since that of Wuhan and Hubei in January 2020.

    The lockdown in Shenzhen threatens manufacturing and tech production in a city that’s home to Huawei and Tencent, along with one of the country’s main ports. As we noted earlier, the lockdown in Shenzhen has forced Apple supplier Foxconn to halt production of iPhones, which weighed on Apple shares earlier Monday.

    While the lockdowns were initially given a short-term timeline of a week, authorities can always choose to extend them.

    In keeping with the CCP’s propaganda, Professor Heiwai Tang at Hong Kong University told ABC News that he doesn’t expect these week-long lockdowns to have a significant impact on GDP growth.

    “It seems the lockdowns will be shorter this time with more tracking, which means a short disruption of work and production,” Tang said. “If it ends up lasting for weeks it’s another issue, including inflation risks.”

    Looking back, Professor Michael Song from Hong Kong’s Chinese University estimated that the two-month lockdown in Wuhan lopped 2 percentage points off China’s GDP growth.

    Shanghai-based virologist Zhang Wenhong described the latest outbreak as “the most difficult moment in the past two years” of China’s efforts to stamp out the virus. Shanghai, China’s financial capital, has so far avoided a full-scale lockdown, but has faced some restrictions.

    Many believe the most recent outbreak in mainland China likely traveled across the border from Hong Kong, which has seen case numbers soar over the past few weeks, prompting authorities to impose lockdowns and construct  thousands of makeshift quarantine beds.

    Mandatory quarantines and other strict anti-COVID measures have already taken their toll on the mental health of Chinese citizens: police reported 3 suicide attempts at one quarantine “camp” during the past day as of mid-morning on Monday in the Eastern US.

    Tyler Durden
    Mon, 03/14/2022 – 20:40

  • Shellenberger: Why We Will Save California (And Why Newsom Doesn't Care)
    Shellenberger: Why We Will Save California (And Why Newsom Doesn’t Care)

    Authored by Michael Shellenberger via Substack,

    Like a lot of Californians, I have a full and happy life. My wife and I own a home in the Berkeley Hills from which we enjoy watching the fog roll underneath the Golden Gate bridge, and blanket the bay. Our children are healthy and happy. We enjoy a safe and comfortable living as researchers and writers, seemingly far from the chaos and suffering in California’s downtowns.

    But over the last few years, the rising chaos and suffering have increasingly troubled me. In 2018 I ran for governor to make the case for abundant housing to address homelessness. In 2019, I called for a State of Emergency on homelessness and mandatory psychiatric care or rehab for addicts and the mentally ill who break the law. 

    And in 2021, I co-founded a statewide coalition with parents of homeless drug addicts, parents of children killed by fentanyl, and recovering addicts, to advocate for a statewide psychiatric and addiction care system (“Cal-Psych”), a crackdown on open air and online drug markets, and a change from the state’s de facto “camp anywhere” policy to a ban on illegal camping.

    I thought we were making progress. In September, I button-holed Governor Gavin Newsom in San Francisco, and told him about Cal-Psych, explaining that it was a way to centralize psychiatric and addiction care. He told me, “I look forward to talking more about it!” When Joe Rogan asked me in October if I thought Newsom cared, I defended the governor, saying that I thought he did.

    But Newsom has failed to increase housing, refused to fight for universal health care, and has rejected the idea of a statewide psychiatric and addiction care system, choosing instead to double down on the same policies that created the homelessness crisis in the first place

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    As a result, chaos and suffering are increasing nearly everywhere in California, even in small towns. Half of all fires in California’s cities are in homeless encampments, even though the unsheltered homeless are less than 0.005 percent of the state’s population. Firefighters and EMTs revive, at great cost, fentanyl addicts who overdose and nearly die — and then put the poor souls right back on the street again. And violent crime is rising because the police are understaffed and demoralized.

    California spends much more than other states on homelessness and mental illness and yet has worse outcomes. Homelessness increased 31 percent in California, over the last decade, while it declined 18 percent in the rest of the country. Recently, a drug-addicted 16-year-old girl, the age of my daughter, was allegedly raped, repeatedly, before overdosing on fentanyl, in an open drug scene in downtown San Francisco.

    Why won’t Governor Gavin Newsom take action to shut down the open drug scenes, and restore order? And what must be done? 

    Why Newsom Doesn’t Care

    In October, HarperCollins published San Fransicko, which assembles a significant body of evidence to show that what we call “homelessness” results primarily from untreated mental illness and addiction, not poverty and high rents.

    That book, my reporting on Substack, and my video interviews, helped change the national conversation. In mid-December of last year, San Francisco Mayor London Breed called for a crackdown on open air drug dealing and even “tough love.” Shortly after, I was invited to address the city’s Commonwealth Club. 

    But a few days before my Commonwealth Club talk I discovered, and was the first to report, that Mayor London Breed had secretly and illegally created a supervised fentanyl and meth use site in United Nations Plaza in downtown San Francisco.

    The site was part of a new, so-called “Linkage Center,” the centerpiece of the mayor’s plan to supposedly direct homeless addicts to rehab, but the site has only worsened open air drug use, drug dealing, and violent crime, and sent just a handful of people to rehab.

    The bottom line is that San Francisco city government has put the business interests of violent drug dealers above the needs of vulnerable 16 year-old homeless female drug addicts.

    When cities can no longer properly govern themselves, it is the role of the governor to intervene, but instead of using his State of the State address last week to lay out a vision for California to realize its incredible potential, Newsom was dehumanizing, disrespectful, and dishonest, and not just on the issue of homelessness.

    At a time when just nine percent of African American students, and 12 percent of Latino students in Los Angeles public schools are proficient in eighth-grade math, Newsom began by patronizingly praising his appointees for their racial identies, sexual preferences, and immigration status, not their achievements. 

    In his speech, the governor talked tough on forest fires — even though he cut the budget for fighting them, and the area treated for fire prevention declined by half, during his time in office.

    Newsom took credit for job growth even though California has a 6.5 percent unemployment rate, which is three percentage points higher than the national average, and three times higher than other states.

    We Californians have the highest income tax, highest gasoline tax, and highest sales tax in the United States, and yet suffer blackouts and abysmal public services. California’s residential electricity prices grew three times faster than they did in the rest of the U.S., in 2021.

    Last summer Newsom issued emergency rules allowing for the burning of dirty diesel fuel to prevent blackouts for 2.5 million people, and yet is moving full-speed ahead with plans to shut down Diablo Canyon nuclear plant, which provides reliable, pollution-free power for three million Californians, and whose closure could result in catastrophic blackouts.

    In other words, Newsom gave the speech a presidential candidate would make to Democratic primary voters in Iowa — not the speech a governor who cared about California would make.

    Naturally, Newsom made no mention of the two issues he had campaigned on in 2018, universal health care and adding 500,000 new housing units a year. It’s easy to see why. Health care legislation recently failed due to his lack of care, courage, and clarity. And new annual housing construction has been just one-fifth of what he promised, for the same reasons.

    Nor did Newsom discuss the shocking failure of California’s public schools. We spend more per capita than most other states and yet under half of our public school students are proficient in reading while just one-third are proficient in math. Those are the statistics of a failed state, and a failing civilization.

    Newsom refuses to do what must be done because that requires standing up to the interest groups he believes he needs to become president. “He wants to be on the biggest stage,” confessed a former Newsom aide to The Los Angeles Times. “The obvious what-next for a governor of California is president of the United States.”

    The governor’s political ambitions stand in stark contrast to the gritty realities on the street. While Newsom and his aides were pitching to reporters last week that his State of the State speech would be “upbeat,” the parents of the 16 year-old girl killed by fentanyl dealers were quietly grieving her death.

    Courage To Care

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    The suffering and chaos resulting from California’s vacuum of leadership led me to once again decide to run for governor. I am heartbroken at the humanitarian disaster in the streets, angry that the politicians keep making things worse, and inspired by our vision for saving California.

    It is fair to say that I am an underdog. Newsom defeated last year’s recall election by an astonishing margin: 62 – 38 percent. He has $25 million in the bank. And he is gifted at dividing Californians, and demonizing his opponents, in ways that distract from his failures.

    But I am not a longshot. I would not have decided to run again if I didn’t feel we could come in second place in the open primary election on June 7, proceed to the November 8 general election, and defeat Newsom. By then, I will have won a mandate to implement Cal-Psych and finally solve the homeless crisis which Newsom has, over the last 20 years, made worse. 

    Newsom and the interest groups that control him will no doubt attempt to demonize me with liberal voters, but I have long supported LGBTQ rights, the right of women to make their own decision on abortion, strong gun safety laws, universal health care, decriminalized marijuana and psychedelics for medical and spiritual purposes, and strong action on climate change, alongside more funding for the police, the continued operation of our last nuclear plant, and mandatory treatment of addicts and the untreated mentally ill homeless as an alternative to jail or prison when they break the law.

    Under my leadership, California will deal with the homeless drug addiction and mental illness crisis in a humane and efficient way and give us the momentum to build the societal consensus we need to achieve changes on other, long-delayed reforms around energy, water, and the environment, and schools, housing, and infrastructure. 

    My parents were teachers and my mother a representative of the teachers union. As governor I will work with all parties, including interest groups like the teachers union. But I will not be hostage to them. I will fight for the higher-quality, better scheduled, and more personalized education system our children need. That will require that parents have more choices. But it will also require consequences for the schools that are failing to educate our children

    I believe that most Californians are sick and tired of being divided, whether by Left and Right, or by race and sex, and will support an agenda that brings us together. We need law and order, but we also need psychiatric care. We need more housing, but we also need to protect our quality of life. We need cheap and reliable energy, but we also need to make progress on climate change.

    I am a lifelong Democrat but changed my party affiliation to “No Party Preference” last year out of disgust with both parties. Initial polling show our agenda draws equal numbers of independents, Democrats, and Republicans. As such, not only can not only win, we can create the governing majority California needs.

    None of this will be easy and in fact will be hard. I expect my name to be dragged through the mud, and I don’t expect it to be pleasant. But it’s hard things, not soft ones, that bring out our best, as individuals as as movements. And I am heartened by the overwhelming response from my friends and supporters to my announcement.

    My family and I will be fine, no matter what happens. Indeed, our lives will be more comfortable if we lose than if we win. But the lives of the people suffering around us won’t be fine no matter what. Many more people on the street will die, often in gruesome fashion, unnecessarily.

    In the end, our lives are not our own. All of us, not just Helen, our movement, and me, are being called to serve. With this announcement, we are answering the call. We hope you will, too. 

    Tyler Durden
    Mon, 03/14/2022 – 20:20

  • Carnage: China Breaks, Apple Cracks Key Support, Yields Soar As Rate Hike Odds Surge
    Carnage: China Breaks, Apple Cracks Key Support, Yields Soar As Rate Hike Odds Surge

    The week started off badly enough with nothing short of epic devastation in China, as stocks listed in Hong Kong had their worst day since the global financial crisis amid concerns over Beijing’s close relationship with Russia, a surge in covid cases leading to a lockdown in Shenzhen, and renewed regulatory risks all of which sparked panic selling.

    The Hang Seng index dropped more than 4%, sliding below 20,000 to the lowest level since 2015…

    … as the Hang Seng China Enterprises Index closed down 7.2% on Monday, the biggest drop since November 2008.

    Meanwhile, the Hang Sang Tech Index tumbled 11% in its worst decline since the gauge was launched in July 2020, wiping out $2.1 trillion in value since a year-earlier peak, after the southern city of Shenzhen, a key tech hub near Hong Kong, was placed into lockdown to contain rising Covid-19 infections. The broader Hang Seng Index lost 5%.

    The US-traded Golden Dragon China index tumbled another 12%, taking its drawdown to -75% from its recent all time high, surpassing the drawdown recorded during the global financial crisis!

    Meanwhile, as discussed last night in “All Hell is Breaking Loose in China“, it wasn’t just Chinese stocks that got taken to the woodshed: Chinese property developer junk bonds were true to their name, and issues by such formerly “solid” companies as CIFI and Country Garden cratered to lowest levels in history, both trading about 50 cents on the dollar as China’s housing sector – which warehouses the vast majority of China’s middle class wealth –  is imploding.

    Against this cataclysmic background, US futures were initially surprisingly stable, in a rerun of Friday’s hopium trade where traders were expecting some good news out of today’s Ukraine ceasefire negotiations, which however never came. Algos were perhaps also looking at the slide in oil – which had traded recently as a “peace” proxy – and expecting some resolution that would finally short-circuit the surge in commodity costs. And indeed, oil has tumbled almost $30 from its recent highs over $130 to just over $100 today…

    … but as the day drew on, it became clear that just like last Friday, there would be no deal, and since the drop in oil was almost entirely due to rising recession fears, stocks resumed their relentless slide.

    Meanwhile, a bizarre announcement from Barclays early in the day that the bank would suspend sales and issuance of the VXX ETN led to a furious short squeeze as the key volatility ETN decoupled from its underlying Emini future, and soared higher in the process sparking even more selling from correlation algos, which led to even more upside in the VXX and so on. This particular dislocation will likely persist until Barclays gets a tap on the shoulder as there are countless hedge funds who are short the VXX and will suffer massive losses unless the relationship is normalized.

    As a result of the broad riskoff shift, drawdowns across all US equity indexes became even more pronounced, dragging the Russell and Nasdaq deeper into bear market territory, and the S&P now down 13% from its all time highs…

    … and while there was carnage everywhere, especially in energy as the YTD best performing sector suffered major losses today, sliding 3% and the day’s worst performer…

    … the biggest micro driver was AAPL’s 2.7% plunge, which tumbled to the lowest level since Nov 15 and more importantly, dropped below its key 200DMA critical support for the first time since June 2021 as traders freaked out that the shutdown of the Shenzhen Foxconn factory would lead to a supply chain shock for the world’s biggest company.

    Yet despite the widespread carnage, there was none of the traditional flight to safety, because as gold and silver tumbled…

    … so did Treasuries with the 10Y yield closing at session highs just shy of 2.15% but more ominously the 5% is right behind and breathing down the benchmark bond’s neck at 2.10%! A few more basis points and the 5s10s will invert confirming what everyone knows: a recession is coming if not already here.

    Finally, with the Fed meeting looming in just two days and, instead of pricing in some mercy from Powell, the fed funds market saw even more pain, and now prices in more than 7 rate hikes in 2022 and more than 17% odds of a 50bps rate hike in March in response to what is an inflation tsunami that is only just starting…

    … and with it bringing much more pain for stocks in the coming weeks and months.

    Tyler Durden
    Mon, 03/14/2022 – 20:07

  • 1MDB Mastermind Jho Low Looted $1.4 Billion From Goldman-Backed Bond Deals
    1MDB Mastermind Jho Low Looted $1.4 Billion From Goldman-Backed Bond Deals

    The latest news from the trial of Goldman banker Roger Ng revealed how money from 1MDB, the Malaysian sovereign wealth fund at the center of one of Southeast Asia’s biggest financial scandals in recent memory, was siphoned off and paid out in the form of bribes. 

    FBI agent Eric Van Dorn said Monday that fugitive financier Jho Low, the mastermind of the 1MDB scheme, allegedly stole more than $1.4 billion.

    Some of the money went to pay off former Malaysian Prime Minister Najib Razak, who reaped $756 million of the $6.5 billion total raised by Goldman Sachs for the fund, Van Dorn testified, according to Bloomberg.

    Razak was later found guilty during a criminal trial in Malaysia.

    Jho Low

    Meanwhile, Khadem al-Qubaisi, a former managing director of Abu Dhabi’s state-owned International Petroleum Investment Company, better known as Ipic, received $472.8 million for his role in guaranteeing some of 1MDB’s transactions, Van Dorn told the jurors in federal court in Brooklyn.

    Ng is the only Goldman banker to stand trial for the bank’s role in the scandal, which involved Goldman seeding a sovereign wealth fund that was, in reality, a political slush fund, with billions of dollars in money raised by bond offerings backed by Malaysia’s sovereign credit.

    The fund later defaulted on its obligations, exposing the truth: that billions had been looted by Low. It was later revealed by a sprawling DoJ investigation that the money had been spent in irresponsible ways, like on lavish celebrity-filled parties and gifts, and on yachts, and the movie “the Wolf of Wall Street.” Some of the money was also illegally moved into the US and donated to politicians, including former President Barack Obama, seen below playing golf with Razak.

    Previously, ex-Goldman banker Tim Leissner, who was also Ng’s boss overseeing the bank’s dealmaking in Southeast Asia, testified for days, revealing a torrent of embarrassing information for Goldman and others.

    Finally, Van Dorn said he tracked how 1MDB money was siphoned off to at least 16 recipients. Ng got $35.1 million siphoned from two of the three bond transactions, while Leissner, who pleaded guilty to fraud in exchange for his cooperation against his former employer, and Ng, received $73.4 million.

    Tyler Durden
    Mon, 03/14/2022 – 20:00

  • Malthusianism, Prometheanism, & The Hyper-Bitcoinized World To Come
    Malthusianism, Prometheanism, & The Hyper-Bitcoinized World To Come

    Via Cathedra.com,

    2021 Letter to Shareholders

    Dear Fellow Shareholders of Cathedra Bitcoin Inc:

    In 1798, a British economist was concerned that the incessant increase in population would cause humanity to run out of food. As a solution, he supported a variety of measures aimed at curbing the rate of population growth (e.g., taxes on food) to improve the living standards for those humans who did survive. The economist in question, Thomas Malthus, was raised in a country house in Surrey, was educated at Jesus College Cambridge, became a Fellow of the Royal Society in 1818, and–in simple terms–championed policies designed to limit (or end) human life to prevent this population bomb.

    “Instead of recommending cleanliness to the poor, we should encourage contrary habits. In our towns we should make the streets narrower, crowd more people into the houses, and court the return of the plague.”

    – Thomas Malthus, “An Essay on the Principle of Population” (1798)

    Looking back, we can see that such predictions have (fortunately) not come to fruition. The human population has grown ninefold since Malthus penned his infamous piece, “An Essay on the Principle of Population.” Meanwhile, technology has given humanity the ability to channel energy in ways unimaginable to Malthus, allowing us to enjoy levels of prosperity that make the elitist Malthus look like a serf in comparison. Yet we are not without our troubles.

    In response to COVID-19, the last two years have seen an unprecedented degree of government intervention around the world, through mandates as well as record-breaking fiscal and monetary stimulus. Meanwhile, food shortages have visited the developed and developing worlds alike. Housing, asset, and commodity prices are soaring, with even the dubious Consumer Price Index reaching its highest level in four decades in the U.S. And around the world, civil unrest is on the rise.

    We believe the root causes of these issues are quite simple: unsound money and unsound energy infrastructure. In this first annual letter to Cathedra Bitcoin shareholders, we examine the current state of both and discuss how they inform our vision for the future of the company.

    Macro Update: Energy

    The European Energy Crisis

    For the last six months, headlines have been filled with a “European Energy Crisis.” As the global economy surged back to life after 18 months of lockdowns, a perfect storm of events unfolded:

    • over the summer, China increased natural gas imports following a coal shortage, causing power prices to rise in Europe;

    • in September, a wind shortage beset northern Europe, resulting in enormous sums being paid to dispatch other (“dirtier”) forms of generation;

    • reduced natural gas imports from Russia left Europe with historically low natural gas reserves;

    • in December, unusually cold temperatures hit the continent, sending shockwaves through energy markets (even serving as a catalyst for the civil unrest in Kazakhstan); and

    • Russia’s invasion of Ukraine in recent weeks has sent oil and gas prices surging, bringing calls for increased domestic energy production.

    These events have conspired to cause a sharp increase in energy prices around the continent. One is tempted to point to any one of the above as a “black swan event” driven by unforeseeable forces beyond our control (in hindsight, it will be even more tempting to blame this crisis on Putin’s invasion of Ukraine). But in reality, Europe has been systematically dismantling its stable energy infrastructure for over a decade. And unfortunately, they are not alone. Take California, for example: over the last decade, the state has seen energy prices rise 7x more than those in the rest of the U.S., and blackouts have become “almost daily events.”

    If one looks deeper, a far subtler cause reveals itself: misguided policies that subsidize intermittent renewables and shutter stable forms of generation, the net effects of which are energy insecurity and higher energy costs.

    The Real “Energy Transition”

    Beginning in the early 2000s, governments around the world began reorienting energy policy around climate change. These “net-zero” policies push for an “energy transition” away from CO2-emitting energy sources toward 100% “renewable” energy, primarily via subsidies to intermittent wind and solar generation.

    On the surface, these policies seem to have worked. EU power generation from renewables has increased 157% in the last ten years. As a result, in 2020, renewable generation in Europe surpassed that of fossil fuels for the first time, providing 38% of the region’s electricity (vs. fossil fuels’ 37%). And these policies are only accelerating: in July 2021, the EU announced its even more ambitious goal to reduce greenhouse gas emissions by 55% by 2030, requiring an estimated tripling of wind and solar generation from 547 TWh in 2020 to ~1,500 TWh in 2030.

    These pro-renewables policies have been paired with the abandonment of more stable forms of generation. Coal continues to be pushed out of the generation stack due to its heavy carbon footprint and the rising cost of carbon credits. Additionally, despite the seemingly obvious importance of nuclear energy in a “net-zero” carbon future, regulators have been shutting down nuclear reactors around the world in response to environmentalist movements[1] (a trend that accelerated in the wake of the Fukushima disaster). Germany alone shut down 16 GW of nuclear power since 2011, and plans to retire its last three nuclear power plants this year. With hydro being geography-dependent and long-term energy storage unsolved, natural gas is left as the main  viable form of dispatchable generation. Given self-imposed fracking bans, Europe has no choice but to import natural gas via LNG or pipelines (largely from Russia).

    Returning to California, we see the same dangerous combination of policies. Despite the aforementioned rising electricity costs and grid fragility, the state is decommissioning its last nuclear power plant at Diablo Canyon–responsible for ~10% of the state’s electricity–while reasserting goals to achieve “net-zero” by 2045.

    Unfortunately, even if stable forms of generation are not discarded by mandates, renewables subsidies distort market signals. This auxiliary revenue stream of carbon or renewable energy credits allows wind and solar farms to sell power to the grid at negative prices, often driving unsubsidized, baseload generation out of business. The net result? The hollowing out of sound energy infrastructure, which increases both the costs and fragility of the energy system.

    In her book Shorting the Grid, Meredith Angwin warns of a “fatal trifecta” affecting grids around the world: (1) overreliance on renewables, (2) overreliance on natural gas, often used to load-follow renewables, and (3) overreliance on energy imports. When demand outpaces supply, either due to diminished output from renewables or heightened demand (e.g., during a cold snap), grid operators seek to dispatch additional generation. But natural gas and energy imports are both vulnerable to disruptions, as natural gas is typically delivered just-in-time via pipelines and neighboring regions are likely to experience correlated supply or demand shocks (read: weather). This results in more expensive energy (increased demand chasing limited supply) or enforced blackouts (e.g., Texas in February 2021).

    “Grid fragility” may sound like a highly abstract concept, but its real-world consequences are severe. It means industry halting, hospitals losing power, and even access to clean water being threatened. Such effects are so severe that energy-insecure countries tend to rely on more rudimentary forms of energy, including expensive backup diesel generators, to keep the lights on. Robert Bryce has termed this phenomenon the “Iron Law of Electricity”: people, businesses, and governments will do whatever they must to get the electricity they need[2].

    We fear these confused policies are causing an energy transition of the wrong kind–one toward energy insecurity. Its effects are clear in the U.S., where “major electric disturbances and unusual occurrences” on the grid have increased 13x over the last 20 years. Meanwhile, Generac, a leading gas-powered backup generator company, saw 50% growth in sales in 2021 (it’s worth highlighting the contradiction between the stated aims of these “net-zero” policies and their downstream effects).

    A Malthusian Approach to Energy

    Energy insecurity is also expensive. Dependence on intermittent renewables often results in paying top-dollar for energy when it’s needed most. During its September wind shortage, the UK paid GBP 4,000 per MWh to turn on a coal power plant–a clear demonstration that not all megawatt hours are created equal. The quality of energy matters. With renewables, humanity is once again at the mercy of the weather.

    This is the underlying logic of these “net-zero” policies: make energy more expensive so that we use less of it. In fact, economists advising the European Central Bank view rising energy costs (“greenflation”) as a feature, not a bug–a necessary consequence of the energy transition.

    Rising energy prices are a regressive tax on the least well-off in society. We all require energy to survive (heating/cooling, food, water, etc.), regardless of our wealth. These requirements are effectively a fixed cost; the lower one’s income, the greater the percentage of it one spends on energy. There is a point beyond which rising energy costs become unsustainable, sending people to the streets to fight for their survival–as we saw in Kazakhstan after the spike in LPG prices. Researchers estimate that each 1% increase in heating prices causes a 0.06% increase in winter-related deaths, with disproportionate effects in low-income areas.

    “If energy is life, then the lack of energy is death.”

    – Doomberg, “Shooting Oil in a Barrel” (2021)

    Energy is the key input for every other good and service in the economy, and over time accounts for all wealth in an economy. To the extent energy gets more expensive, so does everything else (including and especially food), making society poorer. This is the Malthusian approach to energy. Expensive “green” energy that the elites can afford, while the unwashed masses bear the brunt of those rising costs. Energy for me, but not for thee. We question the political and social sustainability of such an approach.

    Enter Entropy

    Energy’s role is even more fundamental to the economy and human well-being than most understand. As we’ve discussed elsewhere, what is commonly understood as “energy generation” is really just the conversion of energy into a more highly ordered form; it is the reduction of entropy locally by shedding even greater amounts of entropy elsewhere. Despite the universality of this entropy reduction, some energy resources are inherently lower-entropy than others (highly dense nuclear fission vs. low-density wind power). We depend on this entropy reduction to sustain us through the food and energy we need to maintain the order of civilization.

    This entropy reduction is cumulative; without sufficient entropy-reducing energy infrastructure, we cannot maintain our existing order. We cannot create entropy-reducing energy infrastructure without adequate pre-existing infrastructure. And we cannot advance further as a civilization (i.e., create more order) unless we develop even more entropy-reducing infrastructure.

    “We never escape from the need for energy. Whatever the short-term variations might look like, the trend over time is for greater energy use, to deliver and crucially to maintain and replace a human sphere that is progressively further away from thermodynamic equilibrium. There is no point at which you sit down and have a rest.”

    – John Constable, “Energy, Entropy and the Theory of Wealth” (2016)

    There is no free lunch when it comes to energy. If a country’s economy grows while reducing energy consumption, it is only through de-industrialization, exporting its energy footprint to other countries (the same often holds true for carbon emissions). The second law of thermodynamics is indeed a law, the best attested regularity in natural science, not a tentative suggestion: the entropy must go somewhere.

    Unfortunately, distortions caused by our current monetary system have convinced many otherwise, a deception that has had dire consequences.

    Macro Update: Money

    For the last 50 years the world has participated in an unprecedented experiment: a global fiat monetary standard. In 1974, a few years after “Tricky Dick” Nixon rug-pulled the other governments of the world by severing convertibility of the U.S. dollar into gold, the U.S. struck a deal with Saudi Arabia to cement the dollar’s status as the global reserve currency: the OPEC nations would agree to sell oil exclusively for U.S. dollars, and the Saudis would receive the protection of the U.S. military in return. This arrangement, which survives to this day, became known as the “Petrodollar system,” and it has had enduring economic, social, and political consequences:

    • securing the dollar’s status as the reserve currency of the world;

    • bidding up U.S. asset prices via petrodollar “recycling;”

    • displacing U.S. manufacturing capabilities and increasing economic inequality between American wage-earners and asset-owners; and

    • contributing to the secular decline in interest rates, causing an accumulation of public- and private-sector debts and distortions in the pricing mechanism for all other assets (typically viewed in relation to the “risk-free rate” of interest on Treasuries).

    In recent years, cracks in the foundation of this system have begun to show. A half-century of irresponsible fiscal and monetary policy has pushed sovereign and private sector debt to the brink of unsustainability and fragilized financial markets. The once steady foreign demand for Treasuries is evaporating, forcing the Fed to begin monetizing U.S. deficits at an increasing rate. The U.S.’s share of global GDP is waning, and the role of the dollar in key trading relationships is diminishing. Even the once-mighty U.S. military—on whose supremacy the entire Petrodollar system was predicated—shows signs of degeneration.

    The U.S. response to the COVID-19 pandemic has accelerated many of these trends. Through a series of legislative and executive actions in 2020 and 2021, Congress and the Trump and Biden administrations approved nearly $7 trillion of spending on COVID relief, a large majority of which increased the federal deficit. Not to be outdone, the Fed authorized its own emergency measures to the tune of $7 trillion.

    In the nearly two years since these extraordinary actions, the U.S. and the global economy has been defined by record-low interest rates (which is part of the explanation for the interest in subsidized renewables); acute supply chain disruptions (read: shortages) across critical markets; a continuation of the asset price inflation of prior decades; and the highest levels of consumer price inflation in 40 years. This last development—“not-so-transitory” CPI inflation—is perhaps most significant given it represents a departure from economic conditions since the Great Financial Crisis.

    The Fed now faces a predicament. With mounting cries from the public and political officials over the runaway CPI, the pressure is on Jay Powell & Co. to arrest inflation by raising interest rates. But the current state of public and private sector balance sheets complicates matters. As the Fed increases rates, so too does it increase the federal government’s borrowing cost, not to mention that of a private sector which is also saddled with dollar-denominated debt. If corporates are unable to service or refinance their debt, they will be forced to reduce costs, resulting in higher unemployment. Rest assured; rates aren’t going higher for long. Global balance sheets will not allow it.

    This suggests to us that we may be entering a period of financial repression, whereby inflation is allowed to run hot while interest rates remain pinned near zero, producing negative real returns and deleveraging balance sheets over several years. We also find it likely that the Fed will be forced to implement some version of a yield curve control program. Under such a policy, the central bank commits to purchasing as many bonds as necessary to cap the yields of various maturities of Treasuries at certain predetermined levels. There is precedent for a maneuver of this sort: the Fed implemented a version of the policy throughout the 1940s to inflate away the national debt during and after WWII.

    At the end of the long-term debt cycle, the only option is to inflate away the debt and debase the currency. But unlike in the 1940s, citizens, businesses, and governments now have several monetary alternatives available to them. We therefore believe the coming period of structural inflation will hasten a transition to a new monetary standard.

    The Currency Wars Cometh

    The writing is on the wall; the post-Bretton Woods monetary system is in its death throes. The question is not if we will see a paradigm shift away from the present dollar-based monetary order, but when. And the far more interesting question, in our view, is: what will replace it?

    We believe the next global monetary system will be built atop Bitcoin—with bitcoin the asset and Bitcoin the network working together to offer final settlement in a digitally native, fixed-supply reserve currency on politically neutral rails. Bitcoin uniquely enables this value proposition, and game theory and economic incentives will compel nation-states to take notice amid the collapsing monetary order. But it is not without competition.

    Central Bank Digital Currencies

    Bitcoin is the ideological and economic foil to another candidate for heir to the petrodollar: the central bank digital currency (“CBDC”). The retail CBDC—which is the variety most often discussed in policy circles—is a natively digital form of fiat money that is issued, managed, and controlled by the central bank. Their proponents claim CBDCs would enable many of the same benefits as cryptocurrencies—near-instant final settlement, programmability, high availability, etc.—without many of the attendant “disadvantages”—decentralization, untraceability, etc.

    CBDCs open up a whole new design space for monetary authorities, empowering them to implement creative and fine-grained policies which heretofore have been confined to masturbatory thought-experiments in BIS papers (e.g., negative interest rates). They would also allow for all manner of fiscal policies which today are operationally or technically infeasible; one can imagine government-imposed parameters around how and when a given sum of CBDC money is spent, digitally programmed into one’s Fed wallet. A universal basic income program could be effected with a single keystroke.

    In many ways, the CBDC is the perfect Malthusian implement. Their inherent programmability allows for granular, top-down rationing of resources for whatever “greater good” suits the politically powerful. “I’m sorry, sir. Your card has been declined, as you have already exceeded your weekly beef quota. Might we suggest a more environmentally friendly alternative, such as a Bill Gates pea protein patty?” Such a system amounts to highly efficient regulatory capture; citizens are only permitted to spend money on those goods and services favored by The Powers That Be (or the corporate interests that fund them). Expect CBDCs to further distort the pricing mechanism, leading to a variety of market failures (such as the current energy crises). Skeptics of such claims need only be reminded of the U.S. government’s recent history of abusing its power to restrict politically undesirable financial activities.

    It should come as no surprise that the CBDC model is being pioneered by the Chinese Communist Party in the form of a “digital renminbi.” Make no mistake—wherever a CBDC is implemented, it will be weaponized by the State for political ends. In the West, such a system would be readily abused to create a Chinese-style social credit system—but one cloaked in the neo-liberal parlance of “financial inclusion,” “climate justice,” and “anti-money laundering.”

    CBDCs: Coming to A Country Near You?

    We remain cautiously optimistic that the U.S. will forgo implementing this dystopian technology. The U.S. remains among the freest nations in the world, both politically and culturally. A CBDC is wholly incompatible with American values, and we expect millions of Americans would resist the complete usurpation of their financial lives by the State. Additionally, a retail CBDC implemented by the Fed would transfer power from the commercial banks whose interests the Fed was conceived to protect to the federal bureaucracy[3]. And is there any doubt that the U.S. now lacks the state capacity to implement a CBDC, a feat which would require a high degree of technical and operational competence?

    Figure 1: Which Way, Western Man? BTC vs. CBDC

    Bitcoin for America

    So, how can the U.S. extend its financial leadership of the 20th century amid the decaying Petrodollar system? The U.S. is already the frontrunner in nearly all things Bitcoin—trading volumes, mining activity, number of hodlers, entrepreneurial and business activity, capital markets activity, etc. We submit that the path of least resistance would be for America to lean into its leadership in the Bitcoin industry and embrace the technology as a privacy-respecting, open-source, free-market, and fundamentally American alternative to the totalitarian CBDC.

    What does “adopting Bitcoin” look like for a country like the U.S.? It is likely some combination of: (i) authorizing bitcoin as legal tender, (ii) removing onerous capital gains tax treatment, (iii) subsidizing or sponsoring mining operations (which could support domestic energy infrastructure, in turn), (iv) purchasing bitcoin as a reserve asset by the Fed and/or Treasury, or (v) making the dollar convertible into bitcoin at a fixed exchange rate.

    We see early signs that such a move by the U.S. may not be so far-fetched. Notably, major American policymakers have already signaled support for bitcoin as an important monetary asset and nascent industry. The “crypto” sector has grown into an important lobby in D.C. and represents a highly engaged, motivated constituency—politicians are taking notice.

    In our estimation, Bitcoin’s economic incentives and congruence with American values make it the leading candidate for U.S. adoption as a successor to the present monetary order. As the current dollar-based system continues to deteriorate, we are excited by the potential for a U.S.-led coalition of freedom loving nations moving to a Bitcoin Standard.

    Money, Energy, and Entropy

    Energy is the fundamental means to reduce entropy in the human sphere, and money is our tool for the direction of energy towards this end. We use money to communicate information about economic production, resolving uncertainty about how scarce resources ought to be employed. And we seek out highly ordered sources of energy to resist the influence of entropy on our bodies and societies.

    In his lecture, “Energy, Entropy and the Theory of Wealth,” John Constable of the Renewable Energy Foundation observes that all goods and services—and indeed, civilizations—are alike in that they are thermodynamically improbable. All require energy as an input and necessarily create order (i.e., reduce entropy) in the human domain, shifting the local state further away from thermodynamic equilibrium.

    So then, wealth can be understood as a thermodynamically improbable state made possible through human entropy reduction. If material wealth is measured by the goods and services one has at one’s disposal, then wealth creation on a sound monetary standard is the reduction of entropy for others, and one’s wealth is a record of one’s ability to reduce entropy for fellow man.

    Unsound money (of the sort the Malthusians celebrate) increases uncertainty—and therefore, entropy—in economic systems. Active management of the money supply confuses the price signal, reducing the information contained therein and erecting an economic Tower of Babel. Fiat money therefore contributes to malinvestment—entrepreneurial miscalculations which produce the wrong goods and services and increase societal entropy.

    Nowhere is this more apparent than in our energy infrastructure: unsound money has caused malinvestment in unsound sources of generation. As noted above, a half-century of government subsidies and declining interest rates made possible by the Petrodollar system has steered capital towards unreliable renewables that invite greater entropy into the fragile human sphere, dragging us ever closer toward thermodynamic equilibrium (read: civilizational collapse).

    Cathedra Bitcoin Update

    Our macro views on energy and money inform everything we’re doing at Cathedra. Chief among them is the belief that sound money and cheap, abundant, highly ordered energy are the fundamental ingredients to human flourishing. Our company mission is to bring both to humanity, and so lead mankind into a new Renaissance—one led by Bitcoin and the energy revolution we believe it will galvanize. Accordingly, with Cathedra we’ve set out to build a category-defining company at the intersection of bitcoin mining and energy. One which is designed to thrive in the turbulent years of the present energy and monetary transition and in the hyperbitcoinized world we believe is to come.

    In December we announced a change of the company’s name from Fortress Technologies to Cathedra Bitcoin. Our new name reflects our aspirations for the company and for Bitcoin more broadly. The gothic cathedral is a symbol of bold, ambitious, long-term projects; indeed, any single contributor to the monument would likely die before its completion, but contributed nonetheless—because it was a project worth undertaking. So it is with Cathedra, and so it is with Bitcoin.

    The religious connotations of the name “Cathedra” are not lost on us. Rather, they’re an indication of the seriousness with which we regard this mission. Ours is a quest of civilizational importance.

    Our new name also hints at another distinguishing feature of our business: we focus our efforts on Bitcoin, and Bitcoin only. The difference between Bitcoin and other “crypto” networks is one of kind, not degree. Bitcoin is the only meaningfully decentralized network in the “crypto” space, which is why bitcoin the asset will continue to win adoption as the preferred form of digitally native money by the world’s eight billion inhabitants. Bitcoin seeks to destroy the institution of seigniorage once and for all. Your favorite shitcoin creator just wants to capture the seigniorage himself.

    We feel strongly that our long-term mission of delivering sound money and cheap, abundant energy to humanity can be best achieved through a vertically integrated model. In the long-term, Cathedra will develop and/or acquire a portfolio of energy generation assets that leverages the synergies between energy production and bitcoin mining to the advantage of both businesses. In a decade, Cathedra may be as much an energy company as a bitcoin miner.

    Vertical integration will allow us to control our supply chain and rate of expansion to a greater degree, in addition to giving us a cost advantage over our competitors. As a low-cost producer of bitcoin, we will also be positioned to deliver a suite of ancillary products and services to customers in the Bitcoin and energy sectors.

    And we’ve begun making strides toward this goal. Earlier this year, the Cathedra team expanded by three with the hires of Isaac Fithian (Chief Field Operations and Manufacturing Officer), Rete Browning (Chief Technology Officer), and Tom Masiero (Head of Business Development). Each of these gentlemen brings years of experience in developing and deploying mobile bitcoin mining infrastructure in off-grid environments. With this expanded team, we recently began production of proprietary modular datacenters to house the 5,100 bitcoin mining machines we have scheduled for delivery throughout 2022. We’re calling these datacenters “rovers,” a nod to their mobility, embedded automation, and capacity to operate under harsh environmental conditions in remote geographies. The modularity and modest footprint of our rovers will allow us to produce them at a rapid pace and deploy them wherever the cheapest power is found, in both on- and off-grid environments. We are proud to be manufacturing our fleet of rovers entirely in New Hampshire, working with the local business community to bring heavy industry back to the U.S.

    As bitcoin miners, we view ourselves as managers of a portfolio of hash rate. As in the traditional asset management business, diversification can be a powerful asset. Whereas most of the large, publicly traded bitcoin miners are pursuing a similar strategy to one another—developing and/or renting space at hyperscale, on-grid datacenters in which to operate their mining machines—we have optimized our approach to minimize regulatory, market, environmental, or other idiosyncratic risk within our portfolio of hash rate. If one has 90% of one’s hash rate portfolio concentrated in a single on-grid site, 90% of one’s revenue can be shut off by a grid failure or other catastrophic event—an occurrence which is sadly becoming more common, as highlighted in our Energy Update. To our knowledge, Cathedra is the only publicly traded bitcoin miner with both on- and off-grid operations today.

    We increasingly believe that the future of bitcoin mining is off-grid. On-grid deployments are already vulnerable to myriad unique risks today, and we believe their economic proposition will become less attractive over time. As power producers continue to integrate bitcoin mining at the site of generation themselves, large on-grid miners positioned “downstream” in the energy value chain will see their electricity rates rise. Today, “off-grid” describes any arrangement in which a bitcoin miner procures power directly from an energy producer. Popular implementations include stranded and flared natural gas and behind-the-meter hydro and nuclear. In the long-term, we believe the only way to remain competitive will be to vertically integrate down to the energy generation asset.

    Mining bitcoin is a capital-intensive business. To ensure we have access to the capital we’ll require to execute on our vision, we’ve embarked on several capital markets initiatives. In February, Cathedra commenced trading on the OTCQX Best Market under the symbol “CBTTF.” This milestone represents a significant upgrade from our prior listing on the OTC Pink Market and should enhance our stock’s accessibility and liquidity for U.S. investors. We intend to list on a U.S. stock exchange in 2022 to further increase the visibility, liquidity, and trading volume in our stock.

    We recently announced that Cathedra secured US$17m in debt financing from NYDIG, a loan secured by bitcoin mining equipment. When it comes to borrowing in fiat to finance assets that produce bitcoin—an asset which appreciates 150%+ per year on average—almost any cost of debt makes sense. We intend to continue using non-dilutive financing in a responsible manner where possible, with a sober appreciation for the risks debt service presents as an additional fixed cost.

    Accumulating a formidable war chest of bitcoin on our corporate balance sheet is a priority for us. If one believes, as we do, that the next global monetary order will be built with Bitcoin at its center, then those companies with the largest bitcoin treasuries will thrive. We will continue to hold as much of our mined bitcoin as possible and may even supplement our mining activities with opportunistic bitcoin purchases on occasion.

    At time of writing, Cathedra has 187 PH/s of hash rate active, and another 534 PH/s of hash rate contracted via purchases of mining machines we expect to be delivered from April through December of this year. Since we replaced the prior management team in September, we have grown Cathedra’s contracted hash rate by more than 300%. And we’re just getting started.

    Conclusion

    We stand today at a crossroads between two divergent movements defined by conflicting visions for the future: Malthusianism and Prometheanism.

    The Malthusians believe progress is zero (or even negative) sum; resources are finite and “degrowth” is the only viable path forward; we ought to judge human action first and foremost by whether it disturbs the natural world. This movement is characterized by totalitarian CBDCs and a desire to make energy more scarce and expensive, so that earth’s resources can be appropriately rationed.

    On the other hand, the Prometheans carry with them a more optimistic vision: progress is positive-sum; human creativity allows us to liberate and employ resources in novel ways, in turn preserving the natural world for our own benefit; and that human flourishing is the moral standard by which we should evaluate human action.

    These are social, cultural, and spiritual choices we are all called to confront.

    “The century will be fought between Malthusians (“resources are finite”; obsessed with overpopulation; scarcity mindset; zero-sum, finite games) and Prometheans (“human imagination is the most valuable natural resource”; abundance mindset; positive sum, infinite games).”

    – Alpha Barry (2020)

    The Malthusian camp wants top-down, centralized management of resources via CBDCs and energy rationing policies. They believe our energy resources are fixed; the only path forward is backward, farming for energy using huge swaths of land controlled by the privileged few. “Industrialization for me but not for thee.” “You’ll own nothing and be happy.” These are the slogans of the Malthusian movement.

    This is not the path that took us to space and lifted billions out of poverty. We, Cathedra, choose the other path. That of Prometheus, who stole fire from the gods to benefit humankind.

    We believe in a future of sound money that brings property rights to eight billion humans around the world. A world of beautiful, free cities powered by dense and highly ordered forms of energy generation. Small modular nuclear reactors with load-balancing bitcoin miners (and no seed oils). A future in which technology is employed to improve the human condition–not only for those who walk the earth today, but for generations to come.

    Bitcoin mining is a powerful ally to the Promethean cause. As the energy buyer of last resort, Bitcoin promotes sound money and sound energy infrastructure. No two forces are more fundamental to keeping disorder at bay and advancing human civilization.

    We at Cathedra are not alone; there are other Prometheans working tirelessly to further this vision of a freer, more prosperous tomorrow. Human flourishing is earned, not given. Together, we win.

    Drew Armstrong
    President & Chief Operating Officer

    AJ Scalia
    Chief Executive Officer

    Tyler Durden
    Mon, 03/14/2022 – 19:40

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