- Forget Catalonia, Flanders Is The Real Test Case Of EU Separatism!
Authored by Andrew Korybko via Oriental Review,
Catalonia’s separatist campaign has dominated European headlines for the past couple of weeks, but it’s really the northern Belgian region of Flanders which will serve as a barometer over whether large chunks of the EU will fall apart into a collection of identity-centric statelets prior to the bloc’s reconstitution into a “federation of regions”.
What’s going on in Catalonia is of paramount importance to the geopolitical future of Europe, since it could very well serve as the catalyst for fracturing the EU if copycat movements elsewhere are emboldened by the Spanish region’s possible separatist success. This was explained in detail in the author’s recent analysis about “The Catalan Chain Reaction”, which readers should familiarize themselves with if they’re not already acquainted with the thesis put forth in that work. To concisely summarize, there’s a very distinct possibility that the EU’s liberal-globalist elite have been planning to divide and rule the continent along identity-based lines in order to further their ultimate goal of creating a “federation of regions”.
Catalonia is the spark that could set off this entire process, but it could also just be a flash in the pan that might end up being contained no matter what its final result may be. Flanders, however, is much different because of the heightened symbolism that Belgium holds in terms of EU identity, and the dissolution of this somewhat artificially created state would be the clearest sign yet that the EU’s ruling elite intend to take the bloc down the direction of manufactured fragmentation. Bearing this in mind, the spread of the “Catalan Chain Reaction” to Belgium and the inspiration that this could give to Flanders to break off from the rest of the country should be seen as the true barometer over whether or not the EU’s “nation-states” will disintegrate into a constellation of “Balkanized” ones.
“The First Bosnia”
In order to properly understand the state of affairs at play, it’s necessary to briefly review the history of what could in some sense be described as “The First Bosnia”, or in other words, Europe’s “first artificially created state”. Most of the territory of what is nowadays referred to as Belgium was unified with the modern-day Netherlands from 1482-1581 when the political entity was referred to as the Habsburg Netherlands. The southern part (Belgium) came under Spanish control from 1581-1714 when it was called the Spanish Netherlands. Afterwards, it passed under Austrian administration from 1714-1797 when it became the Austrian Netherlands prior to its brief incorporation into the First French Republic and later Empire from 1797-1815. It was during the Spanish and Austrian eras that Belgium began to consider Catholicism as an inseparable part of its national identity in opposition to the Netherland’s Protestantism. Finally, Belgium was part of the United Kingdom of the Netherlands from 1815-1839 until the Belgian Revolution made it an independent state for the first time in its history.
In essence, what ended up happening is that a majority-Catholic but ethno-linguistically divided population got caught up in the 19th century’s wave of nationalism and created a hybrid Franco-Dutch state that would eventually federalize in the late-20th century, in a structural sense serving as a precursor to the dysfunctional Balkan creation of Bosnia almost a century and a half later.
It’s important to mention that the territory of what would eventually become Belgium had regularly been a battleground between the competing European powers of the Netherlands, the pre-unification German states, France, the UK, and even Spain and Austria during their control of this region, and this new country’s creation was widely considered by some to be nothing more than a buffer state. The 1830 London Conference between the UK, France, Prussia, Austria, and Russia saw the Great Power of the time recognize the fledgling entity as an independent actor, with Paris even militarily intervening to protecting it during Amsterdam’s failed “Ten Day’s Campaign” to reclaim its lost southern province in summer 1831. For as artificial of a political construction as Belgium was, it fared comparatively well during the 19th century as it leveraged its copious coal supplies and geostrategic position to rapidly industrialize and eventually become a genocidal African colonizer in the Congo. Although it was devastated in both World Wars, Belgium was able to bounce back in a relatively short period of time, partly because it could rely on its Congolese prison state.
In The Belly Of The Beast
Flash forward to the present, and the only thing that modern-day Belgium has in common with its past self is its internal divisions. The post-colonial aftermath of “losing the Congo” and shortly beforehand agreeing to host the capital of the European Union opened up previously nationalistic Belgium to liberal-globalist influence, which contributed to what would eventually become its utter domestic dysfunction in recent years. It wasn’t by chance that Brussels was chosen as the EU’s headquarters either, since its inherent weakness was thought to make it an ideal “compromise country” for establishing the bloc’s headquarters, as it would never become as powerful as France, for example, in potentially monopolizing the international organization’s agenda. Again, Belgium’s history as a buffer state/region came into relevant play in positioning it “in the belly of the beast” that’s nowadays reviled by all sorts of individuals across the continent.
The administrative disconnect between its northern region of Flanders and the southern one of Wallonia, as well as what would eventually become its multi-tiered federal, regional, and community structure, was exploited by the EU’s ideologically extreme elite to make the country the centerpiece of their “multicultural experiment”. After decades of facilitating mass migration from civilizationally dissimilar societies of the “Global South”, 5.9% of the country is Muslim while at least an astonishing 20% of Brussels follows Islam. Almost all of the capital’s Muslims are immigrants, mostly from Morocco and Turkey, which isn’t surprising considering that 70% of Brussels’ inhabitants are foreign-born. Unfortunately for the native locals, the “multicultural experiment” has failed miserably, and Belgium is now Europe’s jihadist leader in terms of the per capita number of fighters who have travelled abroad to join Daesh. All things considered, the “utopia” that the Belgians were promised by joining the EU and hosting its headquarters has turned into a dystopia, and the country now finds itself in the belly of the liberal-globalist beast.
It’s little wonder than that some of Belgium’s population wants to escape from the organization which is responsible for their socio-cultural and security challenges, ergo the Flemish independence movement which aims to see the country’s northern region become an independent state because of the lopsided demographic-economic advantage that it has over Wallonia. Flanders contributes four times as much to Belgium’s national economy as Catalonia does to Spain’s, being responsible for a whopping 80% of the country’s GDP as estimated by the European Commission, and it also accounts for roughly two-thirds of Belgium’s total population unlike Catalonia’s one-sixth or so. This means that Flemish independence would be absolutely disastrous for the people living in the remaining 55% of the “Belgian” rump state, which would for all intents and purposes constitute a de-facto, though unwillingly, independent Wallonia. Therefore, it’s important to forecast what could happen if Belgium ultimately implodes with Flanders’ possible secession.
Breaking The Buffer State
This section should appropriately be prefaced by emphasizing that there’s no guarantee that Flanders will actually secede from Belgium, or that it would be successful in holding an unconstitutional referendum such as the one that Catalonia did in attempting to “legitimize” its anti-state ambitions. Furthermore, the Belgian state or its EU superstate overseer might resort to force just as Madrid did in trying to prevent this region’s secession, so the reader shouldn’t take it for granted that Flanders will inevitably become an independent state. Having gotten the “disclaimer” out of the way, however, there’s a very real chance that the “Catalan Chain Reaction” will spread to the “belly of the beast” in catalyzing a similar separatist process in Flanders, hence why the author argued in the introduction that the outcome of such a reenergized post-Catalan movement in this region will be the best barometer in gauging whether the EU’s liberal-globalist elite do indeed plan to “Balkanize” the bloc into an array of regionally “federalized” identity-centric statelets.
Given the domestic and historical particularities of the Belgian case study, it appears likely that Flanders’ successful secession (however it ends up coming about) would lead to a narrow range of geopolitical outcomes for the Western European country.
The first one is that Wallonia would be unable to function as a stand-alone “rump”/”independent” state given its measly 20% of unified Belgium’s GDP, its one-third of the previous population, and presumed dependency on Flanders’ port of Antwerp for most economic contact with the “outside world’ aside from France and Germany. For these reasons, it’s conceivable that the French-speaking region could be taken over by France just like how the famous French diplomat Charles Maurice de Talleyrand-Périgord originally envisioned in his unfulfilled eponymous “Talleyrand partition plan” that was first unveiled during the 1830 London Conference. As for Flanders itself, it could either attempt to remain an “independent” state or possibly confederate with the Netherlands, if there was any desire from both parties for this latter option.
Where things get tricky, however, is when it comes to the German-speaking community in eastern Wallonia, which might not want to become part of France. Also, for reasons of sensitive political-historical optics, they probably wouldn’t be able to join Germany because it would carry uncomfortably strong shadows of Hitler’s annexation of the Sudetenland during the pre-World World II dissolution of Czechoslovakia. Therefore, it’s likely that this sub-region would remain within Wallonia, which itself would probably become part of France, albeit with possible autonomy guaranteed to the German speakers that Paris would be “inheriting”. That said, this isn’t the trickiest part of any Belgian breakup, as the status of Brussels would definitely occupy center stage in this scenario. The EU would be inclined to see to it that its capital becomes an “independent” city-state on par with similarly sized Liechtenstein, though with a much higher and more dangerous Salafist demographic to contend with, one which could make it the “rightful” capital of “Eurabia” if civilizational-geopolitical trends continue in that direction.
Concluding Thoughts
The future of Flanders will be more of a harbinger of the EU’s administrative-political future than Catalonia’s will be, though the latter is indeed the trigger for sparking what might become the former’s emboldened separatist push. If the host country of the EU’s headquarters falls victim to the secessionist trend that might be poised to sweep across the bloc due to the “Catalan Chain Reaction”, then it would confidently indicate that the EU’s ruling liberal-globalist elite are determined to initiate the “controlled Balkanization” of the continent into a constellation of identity-centric statelets so as to ultimately satisfy their long-held goal of implementing a “federation of regions.
There is no place in Europe more symbolically significant than Belgium, and especially its jihadist dystopian capital of Brussels, so if the European power structures “allow” Flanders to separate from “the First Bosnia”, then it’s all but certain that the rest of the bloc will feel the geopolitical reverberations within their own borders sooner than later.
- Hillary Goes To College: Clinton In Talks To Accept Columbia Professorship
Like the old joke goes: Those who can’t, teach.
And after losing an election to the most controversial and unpopular candidate in American history, Hillary Clinton is going back to school.
The New York Post is reporting, citing sources close to the Clinton camp, that the former Secretary of State is in talks to accept a professorship at Columbia University in Morningside Heights.
“She’s been in discussions about a professorship, but nothing has been locked down,” a friend of the ex-secretary of state said Thursday.
As the Post reports, the Ivy League university in upper Manhattan has been a friendly landing pad for other Democrats who have lost elections. Al Gore became a professor at Columbia’s Graduate School of Journalism a year after losing the 2000 presidential election to George W. Bush. And the school hired former mayor David Dinkins after he lost his re-election bid to Rudy Giuliani in 1993.
The former mayor told the Post that he’d be happy to see Clinton in Morningside Heights.
Columbia is familiar territory for the Clintons. The Clinton Foundation once had an office in Harlem. Her professorship would reportedly involve leading seminars about issues she is passionate about. No word yet on whether these will include a thorough deconstruction of the forces that cost her the 2016 election.
- Amid Management Exodus, Tesla Fires Hundreds Of Workers
One month after Tesla lost its head of business development who wished to “spend more time with his family”, and just weeks after the EV company’s veteran battery technology director also unexpectedly quit amid a growing senior management exodus (full list at the bottom of this article), Tesla decided to even out the ranks on the bottom as well, and fired “hundreds of workers” this week, including engineers, managers and factory workers even as the company struggles to expand its manufacturing and product line, according to the Mercury News which first reported of the mass layoffs.
Workers estimated between 400 and 700 employees have been fired, although Tesla refused to say how many employees were let go, and added that it expects employee turnover to be similar to last year’s attrition. Tesla employs about 10,000 workers at its Fremont factory; it lost $336 million in the second quarter, and burned through a record $1.16 billion in cash in Q2, or $13 million per day.
In September, Tesla announced it was cutting 63 positions at SolarCity Corp.’s Roseville, California office; the staff was dismissed after Tesla bought the company, which manufacturers and installs rooftop solar panels, for about $2 billion in 2016. SolarCity had over 12,200 employees as of the end of 2016.
The dismissals come at a critical point for the company, which is scrambling to increase vehicle production five-fold and reach a broader market with its new Model 3 sedan. The electric vehicle maker missed targets for producing the lower-cost sedan, manufacturing only 260 last quarter despite a wait list of more than 450,000 customers. It was later revealed by the WSJ that Tesla’s “dirty secret” for the unexpected production problem is that it was banging out parts of the Model 3 by hand.
According to the Mercury News, this week’s dismissals have not been reported to the state Employment Development Department, a spokeswoman said. The state generally requires companies to report layoffs of more than 50 employees in a 30-day period. Tesla countered that the performance-based departures were not considered layoffs and not subject to state notifications.
In an absurd demonstration of Musk’s bizarre management style, the company said the mass terminations have “generally boosted worker morale”, as high-performing employees have been rewarded. it was unclear what the 700 layoffs, pardon, exit events did to worker morale.
While the company said this week’s dismissals were the result of a company-wide annual review, claiming some workers received promotions and bonuses, and expects to hire for the “vast majority” of new vacancies, insisting the mass terminations were not layoffs, some critics have noted that these are layoffs “plain and simple” as a company does not fire 700 people at the same time in the middle of the year due to “performance” issues.
“As with any company, especially one of over 33,000 employees, performance reviews also occasionally result in employee departures,” a spokesman said. “Tesla is continuing to grow and hire new employees around the world.”
Still, validating the argument that these were indeed layoffs, in interviews former and current employees told the Mercury News little or no warning preceded the dismissals. The workers interviewed include trained engineers working on vehicle design and production, a supervisor and factory employees.
“Workers spoke on the condition of anonymity because they feared reprisals from the company. Employees said the firings have lowered morale through many departments. Several said Model X, Model S and former SolarCity operations seemed to be targeted.”
Among those fired was Juan Maldonado, a production worker, who felt the tap on his shoulder on Thursday. He worked at Tesla for nearly four years, and said he heard about 60 other workers in his section of the factory were dismissed. Maldonado, 48, said he ran late for work twice in recent months, but thought he had straightened things out with his supervisor. Now, he said, “I’m going to try to find a job.”
The dismissals come after Tesla said it built just 260 Model 3 sedans during the third quarter, less than a fifth of its 1,500-unit forecast. The company has offered scant detail about the problems it’s having producing the car, although the previously noted WSJ report suggests that Tesla is having severe manufacturing bottlenecks forcing workers to build parts of the Model 3 by hand. The vehicle’s entry price starts at $35,000, roughly half the cost of Tesla’s least-expensive Model S sedan. When unveiling the Model 3, Musk joked to employees they would be going through “production hell” to meet demand for the new car. Little did many the employees know that hell would come in the form of a pink slip.
As Bloomberg notes, a delayed ramp-up risks the ire of some of the almost half million reservation holders who started paying $1,000 deposits early last year. On Oct. 12, Tesla Chief Executive Officer Elon Musk posted a video on Instagram of what he said was a stamping press producing body panels for the Model 3.
Musk has told investors the company is focused on Model 3 production and expects to eventually build 10,000 cars a week. The manufacturing will become highly automated, but Musk told investors during the early ramp up he expected high overtime costs.
* * *
Meanwhile, Tesla has faced ongoing discontent from some factory workers, who have complained about work conditions and wages below the auto industry average. Tesla has a hearing before the National Labor Relations Board in November for charges that company supervisors and security guards harassed workers distributing union literature. Tesla denied the accusations.
Openly pro-union workers were among those fired this week. Some believe they were targeted, even as the company denied union activities played a role in the dismissals.
Quoted by the Mercury News, Michael Harley, managing editor at Kelley Blue Book and Autotrader, thought the dismissals could be an effort to improve vehicle production. “It’s no secret that Tesla’s Model 3 development and ramp-up for production has been derailed,” Harley said. “A major change in staff – whether dismissal or layoff – is an indication that there is an upper level movement to put the train back on the tracks.”
Whatever the reason behind the “non-layoffs”, one thing is clear: Tesla has a management exodus problem as demonstrated by this extensive list of recent senior level departures from the company, including two of the most important, non CEO positions in just the past three months.
- US Reaper Drone Shot Down Over Afghanistan
In a rare, successful attack on one of the most advanced US offensive weapons, a US drone has reportedly been shot down over Afghanistan. The Islamic Emirate of Afghanistan (Voice of Jihad) reports that Mujahideen of the Islamic Emirate shot down an unmanned aerial vehicle (UAV) said to be operated by the United States. The rea
The UAV above is believed to be a MQ-9 Reaper with a price tag of $10.5 million. The aircraft can stay airborne up to 36 hours with 1.7 tons of missiles and bombs. The wreckage of the plane is said to have been seized by the Mujahideen. So far, there has been no comment from from the US military.
The location of the downed drone is in Kunduz, a city in northern Afghanistan.
The attack may have been in retaliation for a US drone strike which yesterday killed 14 ISIS militants in the Kunar province, a northern boarder region in Afghanistan. According to The Guardian, “Abdul Ghani Musamim, a spokesman for the provincial governor, told the Associated Press that the drone had targeted a meeting of Isis commanders who were planning a terrorist attack.”
Apropos, on Thursday, we reported U.S. bombs dropped in Afghanistan surged to a 7-year high in the month of September, as it became clear that Trump’s Afghanistan war policy was simply to add to the local death toll by dropping more bombs.
As discussed before, we suspect that President Trump, gradually settling in into his role as the next “Warmonger-in-Chief” has reignited a trend that the military industrial complex is simply delighted about.
- The Death Of Petrodollars & The Coming Renaissance Of Macro Investing
Authored by John Curran via Barrons,
The petrodollar system is being undermined by exponential growth in technology and shifting geopolitics. What comes next is a paradigm shift…
In the summer of 1974, Treasury Secretary William Simon traveled to Saudi Arabia and secretly struck a momentous deal with the kingdom. The U.S. agreed to purchase oil from Saudi Arabia, provide weapons, and in essence guarantee the preservation of Saudi oil wells, the monarchy, and the sovereignty of the kingdom. In return, the kingdom agreed to invest the dollar proceeds of its oil sales in U.S. Treasuries, basically financing America’s future federal expenditures.
Soon, other members of the Organization of Petroleum Exporting Countries followed suit, and the U.S. dollar became the standard by which oil was to be traded internationally. For Saudi Arabia, the deal made perfect sense, not only by protecting the regime but also by providing a safe, liquid market in which to invest its enormous oil-sale proceeds, known as petrodollars. The U.S. benefited, as well, by neutralizing oil as an economic weapon. The agreement enabled the U.S. to print dollars with little adverse effect on interest rates, thereby facilitating consistent U.S. economic growth over the subsequent decades.
An important consequence was that oil-importing nations would be required to hold large amounts of U.S. dollars in reserve in order to purchase oil, underpinning dollar demand. This essentially guaranteed a strong dollar and low U.S. interest rates for a generation.
[ZH: Still, the underlying concept of how Petrodollar recycling, or as some call it, petrocurrency mercantilism works, leaves some confusion. So in order to alleviate that, here courtesy of Cult State, is a quick and simple primer that should hopefully answer all questions. From CultState:
So what is petrocurrency mercantilism?
It’s when a national bank and an energy producer collude to generate artificial demand for a currency at the expense of the purchasing power of other currencies.
The flowchart below shows how it all works.
Given this backdrop, one can better understand many subsequent U.S. foreign-policy moves involving the Middle East and other oil-producing regions.
Recent developments in technology and geopolitics, however, have already ignited a process to bring an end to the financial system predicated on petrodollars, which will have a profound impact on global financial markets. The 40-year equilibrium of this system is being dismantled by the exponential growth of technology, which will have a bearish impact on both supply and demand of petroleum. Moreover, the system no longer is in the best interest of key participants in the global oil trade. These developments have begun to exert influence on financial markets and will only grow over time. The upheaval of the petrodollar recycling system will trigger a resurgence of volatility and new price trends, which will lead to a renaissance in macro investing.
Let’s examine these developments in more detail.
First, TECHNOLOGY is affecting the energy markets dramatically, and this impact is growing exponentially. The pattern-seeking human mind is built for an observable linear universe, but has cognitive difficulty recognizing and understanding the impact of exponential growth.
Paralleling Moore’s Law, the current growth rate of new technologies roughly doubles every two years. In the transportation sector, the global penetration rate of electric vehicles, or EVs, was 1% at the end of 2016 and is now probably about 1.5%. However, a doubling every two years of this level of usage should lead to an automobile market that primarily consists of EVs in approximately 12 years, reducing gasoline demand and international oil revenue to a degree that today would seem unfathomable to the linear-thinking mind. Yes, the world is changing—rapidly.
Alternative energy sources (solar power, wind, and such) also are well into their exponential growth curves, and are even ahead of EVs in this regard. Based on growth curves of other recent technologies, and due to similar growth rates in battery technology and pricing, it is likely that solar power will supplant petroleum in a vast portion of nontransportation sectors in about a decade. Albert Einstein is rumored to have described compound interest (another form of exponential growth) as the most powerful force in the universe. This is real change.
The growth of U.S. oil production due to new technologies such as hydraulic fracturing and horizontal drilling has both reduced the U.S. need for foreign sources of oil and led to lower global oil prices. With the U.S. economy more self-reliant for its oil consumption, reduced purchases of foreign oil have led to a drop in the revenues of oil-producing nations and by extension, lower international demand for Treasuries and U.S. dollars.
ANOTHER MAJOR SECULAR CHANGE that is under way in the oil market comes from the geopolitical arena. China, now the world’s largest importer of oil, is no longer comfortable purchasing oil in a currency over which it has no control, and has taken the following steps that allow it to circumvent the use of the U.S. dollar:
- China has agreed with Russia to purchase Russian oil and natural gas in yuan.
- As an example of China’s newfound power to influence oil exporters, China has persuaded Angola (the world’s second-largest oil exporter to China) to accept the yuan as legal tender, evidence of efforts made by Beijing to speed up internationalization of the yuan. The incredible growth rates of the Chinese economy and its thirst for oil have endowed it with tremendous negotiating strength that has led, and will lead, other countries to cater to China’s needs at the expense of their historical client, the U.S.
- China is set to launch an oil exchange by the end of the year that is to be settled in yuan. Note that in conjunction with the existing Shanghai Gold Exchange, also denominated in yuan, any country will now be able to trade and hedge oil, circumventing U.S. dollar transactions, with the flexibility to take payment in yuan or gold, or exchange gold into any global currency.
- As China further forges relationships through its One Belt, One Road initiative, it will surely pull other exporters into its orbit to secure a reliable flow of supplies from multiple sources, while pressuring the terms of the trade to exclude the U.S. dollar.
The world’s second-largest oil exporter, Russia, is currently under sanctions imposed by the U.S. and European Union, and has made clear moves toward circumventing the dollar in oil and international trade. In addition to agreeing to sell oil and natural gas to China in exchange for yuan, Russia recently announced that all financial transactions conducted in Russian seaports will now be made in rubles, replacing dollars, according to Russian state news outlet RT. Clearly, there is a concerted effort from the East to reset the economic world order.
ALL OF THESE DEVELOPMENTS leave global financial markets vulnerable to a paradigm shift that has recently begun. In meetings with fund managers, asset allocators, and analysts, I have found a virtually universal view that macro investing—investing based on global macroeconomic and political, not security-specific trends—is dead, fueled by investor money exiting the space due to poor returns and historically high fees in relation to performance. This is what traders refer to as capitulation. It occurs when most market participants can’t take advantage of a promising opportunity due to losses, lack of dry powder, or a psychological inability to proceed because of recency bias.
A current generational low in volatility across a wide spectrum of asset classes is another indicator that the market doesn’t see a paradigm shift coming. This suggests that current volatility is expressing a full discounting of stale fundamental inputs and not adequately pricing in the potential of likely disruptive events.
THE FEDERAL RESERVE is now in the beginning stages of a shift toward “normalization,” which will lead to diminished support for the U.S. Treasury market. The Fed’s total assets stand at approximately $4.5 trillion, or five times what they were prior to the financial crisis of 2008-09. The goal of the Fed is to “unwind” this enormous balance sheet with minimal market disruption. This is a high-wire act a thousand feet in the air without a safety net or prior practice. Additionally, at some not-so-distant future date, the U.S. will need to finance enormous and growing entitlement programs, and our historical international sources for that financing will no longer be willing to support us in that endeavor.
The market participants with whom I met theoretically could have the ability to accept cognitively the points made in this article. But the accumulation of many small losses in a low-volatility and generally trendless market has robbed them of confidence and the psychological balance to embrace any new paradigm proactively. They are frozen with fear that the lower- return profile of recent years is permanent—ironic in an industry that is paid to capture price changes in a cyclical world.
One market legend with whom I spoke suggested he wouldn’t have had the success he enjoyed in his career had he begun in the past decade. Whether or not this might be true, it doesn’t mean that recent lower returns are to be extrapolated into the future, especially when these subpar returns occurred during the quantitative-easing era, a period that is an anomaly.
I have been fortunate to ride substantial bets on big trends, earning high risk-adjusted returns using time-tested techniques for exploiting these trends. Additionally, I have had the luxury of not participating actively full-time in macro investing during this difficult period. Both factors might give me perspective. I regard this as an extraordinarily opportune moment for those able to shed timeworn, archaic assumptions of market behavior and boldly return to the roots of macro investing.
The opportunity is reminiscent of the story told by Stanley Druckenmiller, who was promoted early in his investment career to head equity research at a time when his co-workers had vastly more experience than he did. His director of investments informed him that his promotion owed to the same reason they send 18-year-olds to war; they are too dumb to know not to charge. The “winners” under the paradigm now unfolding will be market participants able to disregard stale, anomalous concepts, and charge.
RELATEDLY, THERE IS a running debate as to whether trend-following is a dying strategy. There is plenty of anecdotal evidence that short-term and mean-reversion trading is more in vogue in today’s markets (think quant funds and “prop” shops). Additionally, the popularity of passive investing signals an unwillingness to invest in “idea generation,” or alpha. These developments represent a full capitulation of trend following and macro trading.
Ironically, many market players who wrongly anticipated a turn in recent years to a more positive environment for macro and trend-following are throwing in the towel. The key difference is that now there is a clear catalyst to trigger the start of the pendulum swinging back to a fertile macro/trend-following trading environment.
As my mentor, Bruce Kovner [the founder of Caxton Associates] used to say, “Nobody rings a bell at key turning points.” The ability to properly anticipate change is predicated upon detached analysis of fundamental information, applying that information to imagine a plausible world different from today’s, understanding how new data points fit (or don’t fit) into that world, and adjusting accordingly. Ideally, this process leads to an “aha!” moment, and the idea crystallizes into a clear vision. The thesis proposed here is one such vision.
- Fukushima Court Rules TEPCO, Government Liable Over 2011 Disaster
Six years after a tsunami crashed into the Fukushima-Daiichi nuclear power plant, causing three of the plant’s seven reactors to melt down in the worst nuclear accident since Chernobyl, a Japanese district court in Fukushima prefecture ruled this week that Tokyo Electric Power and the Japanese government were liable for damages totaling about 500 million yen ($4.44 million) in the largest class action lawsuit brought over the 2011 nuclear disaster, Reuters reported citing local media sources. It was the third civil court ruling to find Tepco financially liable, and the second to produce an admission of wrongdoing from the inept utility.
However, considering the billions of dollars in damage caused by the Fukushima Daiichi meltdown – not to mention the tens of thousands of lives that were disrupted – the judgment is hardly a victory. Especially considering Tepco has been roundly condemned for negligently failing to take the necessary precautions to prevent just such a disaster.
A group of about 3,800 people, mostly in Fukushima prefecture, filed the class action suit, marking the biggest number of plaintiffs out of about 30 similar class action lawsuits filed across Japan. This is the second ruling to hold the government responsible, following a Maebashi district court decision in March, Reuters reported.
The fact that Tepco has managed to largely avoid consequences for its botched handling of the disaster at Fukushima, from failing to anticipate the possibility that a natural disaster might severely damage the plants to allowing radioactive material to spill into the soil and the Pacific Ocean. And while the cleanup effort has become a top government priority ahead of the 2020 Tokyo Olympics, the company’s engineers have had trouble locating the lost reactor cores inside the ruined reactors.
Tepco notoriously waited months to disclose the true extent of the damage at Fukushima. Furthermore, the company admitted in 2013 that it had allowed more than 300 tons of contaminated wastewater to leak into the Pacific.
This year, as the Japanese government has cut off subsidies to Fukushima disaster victims, forcing the first of tens of thousands of displaced residents to return to their abandoned homes, Tepco has courted controversy by proposing to dump more radioactive wastewater into the Pacific, provoking outrage among local fishermen.
The plaintiffs in Fukushima case have called on defendants for reinstating the levels of radioactivity at their homes before the disaster, but the court rejected the request, Kyodo said.
In an amusing twist, Tepco on Friday disclosed that Kobe Steel’s Shinko Metal Products unit supplied Tepco with piping for the Fukushima Dai-Ni nuclear power plant that didn’t meet specifications. Luckily, the piping was never used, and is currently sitting in a warehouse, Tepco said.
- The Endgame Of Financialization: Stealth Nationalization
Authored by Charles Hugh Smith via OfTwoMinds blog,
This is the new model of nationalization: central banks control the valuation of private-sector assets without actually having to own them lock, stock and barrel.
As you no doubt know, central banks don't actually print money and toss it out of helicopters; they create a digital liability and use this new currency to buy assets such as bonds and stocks. Central banks have found that they can take control of the stock and bond markets by buying up as much as these markets as is necessary to force price and yield to do the central banks' bidding.
Central Banks Have Purchased $2 Trillion In Assets In 2017. This increases their combined asset purchases above $15 trillion. A trillion here, a trillion there, and pretty soon you're talking real money–especially if you add in assets purchased by sovereign wealth funds, dark pools acting on behalf of monetary authorities, etc.
Gordon Long and I discuss this stealth nationalization in our latest video program, The Results of Financialization: "Nationalization" (35 min):
In the old model of nationalization, governments expropriated/seized privately owned assets lock, stock and barrel. When a central state nationalized an enterprise, it took total ownership of the asset.
In today's globalized financial world, such crude expropriation is avoided for two reasons:
1. The entire point of the dominant neoliberal / neofeudal /neocolonial model is to maintain private ownership as a means of transferring the wealth to the New Aristocracy, i.e. the financier class. Government ownership certainly conveys benefits to the some are more equal than others functionaries atop the state's wealth-power pyramid, but it doesn't transfer the assets' income streams to private hands.
2. It sends the wrong message: central banks want private investors to do their bidding, i.e. to go along with the transfer of wealth and income from the many to the few (the New Aristocracy). Maintaining the system of private ownership enables the central banks to control the markets for these assets at the modest cost of a few handfuls of the loot being distributed to the small-fry owners of IRAs, 401K retirement accounts, etc.
In other words, what central banks want is not outright ownership, which is costly and troublesome; what central banks want is to control the markets on the cheap, with leveraged buying. In effect, central banks have been able to manage assets worth $150 trillion with a mere $15 trillion in well-timed (and loudly announced) asset purchases.
This is the new model of nationalization: central banks control the valuation of private-sector assets without actually having to own them lock, stock and barrel. Being the buyer of last resort–the Plunge Protection Team that buys every dip in whatever size is needed to stabilize valuations and then reverse the downturn into yet another rally to new highs–has worked for nine long years.
This success has bred a complacent faith in the central bank cargo-cult that there is no limit to central bank control of yields, valuations and market sentiment.
But as I've described here many times, financialization is a box canyon. Once you start down the path to the Dark Side of phantom wealth created by commoditized debt and leverage (i.e. financialization), there's no turning back to the real world.
The central bank aircraft is flying into a canyon with walls 2,000 feet high at an altitude of 300 feet. Everything seems to be going splendidly until the central bank aircraft rounds a bend in the canyon and discovers the canyon ends in a rock face 2,000 high.
In a desperate attempt to escape the box canyon, central banks will ramp up their assets purchases of bonds to keep yields near zero, and of stocks to keep the bubble valuations high enough to support all the debt and leverage that's been piled on the underlying collateral of the stock market: non-phantom net earnings.
Needless to say, attempting to control global markets via the issuance of trillions in new currency and using that currency to buy huge chunks of the stock and bond markets is an unprecedented experiment.
To continue the box canyon analogy: central bankers and their cargo-cult faithful are confident central banks are flying an F-18 with afterburners on max; climbing 1,700 feet in a near-vertical ascent should be no problem.
Those of us outside the cargo cult see the central bankers flying a Wright Flyer: innovative in its time, but inadequate to the task of controlling private-sector markets via stealth nationalization.
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- Syria Demands "Immediate, Unconditional Withdrawal" Of "Terror Supporting" Turkey From Its Territory
The Syrian government has issued a strong condemnation of Turkey's recent military incursion into northern Syria, demanding "immediate and unconditional withdrawal" according to Syrian state media citing the foreign ministry. Though Turkey claims to be acting in accordance with the Astana agreement reached by Russia, Turkey, and Iran, Damascus is now calling the move a departure from the deal and an intentional violation of Syrian sovereignty, while further accusing Turkey of collaborating with al-Qaeda terrorists on the ground in pursuance of an expansionist policy.
On Thursday a large Turkish army convoy consisting of more than 100 Turkish soldiers, including special forces and commandos, along with at least 30 armored trucks entered Syria’s Idlib region for a joint mission ostensibly to monitor a local de-escalation zone and "to pacify al-Qaeda linked militants" there, according to official Turkish statements.
Many analysts, however, predict that Turkey will not directly confront al-Qaeda, but instead will either allow the terror group to secure an exit or will recognize it under a new form or identify while pretending it to be a local organization.
The Syrian foreign ministry said on Saturday, “The Syrian Arab Republic condemns in the strongest terms the incursion of Turkish military units in the Idlib Province, which constitutes to blatant aggression against the sovereignty and territorial integrity of Syria and flagrant violation of international law.” According to SANA Syrian state news, the foreign ministry further noted that Turkey's military entered Idlib province "accompanied by Jabhat a-Nusra terrorists which shows clearly the close relationship between Turkish regime and terrorist groups, a matter that the international community should pay more attention to and take firm stance in order to oblige Turkey to end its support to terrorism which managed to shed the blood of Syrian people and destabilize the region and the entire world."
Meanwhile, Russia has not formally responded to Damascus' condemnation, and it is unclear how the Syrian government's declaration will be interpreted. Turkish government officials have consistently claimed complete cooperation and coordination between Turkey and Russia – though President Erdogan this week stressed that Turkey would implement its "own game plan, step by step" in Syria and that "we are not bounded by just resistance or defense."
Map source: Middle East Eye
Erdogan has also vowed to prevent the YPG (Syrian Kurdish "People's Protection Units") from establishing what he called a "terror corridor" to the Mediterranean. Turkey has long sought a green light from Russia to attack YPG-held Afrin – a city close to the Turkish border which is part of the Kurdish declared Rojava autonomous zone – as part of a broader Turkish attempt to prevent such a Kurdish zone from gaining any permanence. And it appears we are now witnessing the beginning this strategy which Turkey clearly holds as its top priority far and above pacifying Idlib (after all, Turkey assisted al-Qaeda's takeover of Idlib in the first place).
Both the Syrian Kurds and the Damascus government see Turkey's real motives in Idlib as merely a land grab using both local proxies (including al-Qaeda) and direct troop occupation. Turkey hopes the deal reached in Astana, Kazakhstan to implement "safe zones" in the area will give Russian backing to its war on the Kurds, and Turkey's first step which it began implementing this week is to ensure the YPG is contained. As a spokesman for the Turkish sponsored Free Syrian Army (FSA) told the Reuters this week, the Turkish deployment would "ensure the area is protected from Russian and regime bombing and to foil any attempt by the separatist YPG militias to illegally seize any territory."
In doing a deal with Turkey, it now appears Russia will walk a fine line between keeping a leash on Erdogan's machinations and conducting legitimate anti-terror operations with its Syrian ally.
- China Is Threatening America's Unicorn Dominance
The United States is the undisputed capital of the unicorn – private companies worth more than $1 billion. This title though, is becoming more and more under threat, primarily from China.
You will find more statistics at Statista
As Statista's Martin Armstrong notes, according to CB Insights, there are currently 215 unicorns in the world, of which 108 are from the U.S.
When it comes to the 'birth' of new unicorns however, America's strength is clearly being diluted.
In 2013, 75 percent of new unicorns were born in the United States, fast forward to 2017 though, and this share has fallen to just 41 percent.
The number of new unicorns from around the world has remained reasonably stable over this time, but it is the rapid increase in activity in China – from 0 percent in 2013 to 36 percent this year – that is putting the most pressure on U.S. dominance.
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