Today’s News 17th January 2018

• The Fifth-Largest Diamond In History Was Just Discovered

  Shares of Gem Diamonds surged +15% on Monday after the miner said it had unearthed one of the biggest diamonds in history. According to Bloomberg, Gem Diamonds Ltd. discovered a massive 910-carat diamond, about the “size of two golf balls” from the Letseng mine in Lesotho, the highest dollar per carat diamond mine in the world.

  

  The diamond is the largest ever recovered from Letseng and is classified as a D color Type IIa diamond, which means it has very few impurities or nitrogen atoms. More importantly, the diamond is the fifth-biggest ever found.

  “Assuming that there are no large inclusions running through the diamond, we initially estimate a sale of $40m,” said Richard Knights at Liberum, citing the 1,109-carat Lesedi la Rona discovered in 2015, and it sold for $53 million.

  “This would imply a $43m price tag for the Letseng diamond, but we place large caveats on this estimation, given that the pricing is rarely linear,” he added.

   

  

  Clifford Elphick, Gem Diamonds’ Chief Executive Officer, commented in Monday’s press release:

  Since Gem Diamonds acquired Letseng in 2006, the mine has produced some of the world’s most remarkable diamonds, including the 603 carat Lesotho Promise, however, this exceptional top quality diamond is the largest to be mined to date and highlights the unsurpassed quality of the Letseng mine. This is a landmark recovery for all of Gem Diamonds’ stakeholders, including our employees, shareholders and the Government of Lesotho, our partner in the Letseng mine.

  The Letseng mine resides in the kingdom of Lesotho, located inside South Africa, and at an elevation of 10,000 feet, it is the world’s highest mine. Perhaps, there is a correlation between the elevation and diamond size and quality since Letseng is famous for its high-quality diamonds.

  The company’s official press release on Monday gave very little information surrounding the value of the diamond, or if there was even a buyer.

  Its value will be determined by the size and quality of the polished stones that can be cut from it. Lucara Diamond Corp. sold a 1,109-carat diamond for $53 million last year, but got a record $63 million for a smaller 813-carat stone it found at the same time in 2015.

  Shares of Gem, which list in London, advanced 14.25%, valuing the company around £126.59M. Since 2012, a lack of significant discoveries coupled with deteriorating financials has declined London shares more than -78%. Monday’s press release of the discovery could bolster the company’s cash position upon the sale of the diamond.

  “The successful sale of this stone will be supportive for Gem’s balance sheet and push the company into a free cash flow positive position this year,” said Richard Hatch of RBC Capital Markets.

  Last week, the company recovered 117-carat and 110-carat rocks from its mine. The three significant discoveries back-to-back could be an upward turn for the company and allow investors to ‘b-t-f-d’.

  Here are some diamonds recovered by Gem include:

  • 2006 – Lesotho Promise (603 carat)
  • 2007 – Lesotho Legacy (493 carat)
  • 2008 – Leseli La Letseng (478 carat)
  • 2011 – Letseng Star (550 carat)
  • 2014 – Yellow (299 carat)
  • 2015 – Letseng Destiny (314 carat)
  • 2015 – Letseng Dynasty (357 carat)
  • 2018-  Letseng (910 carat)

  Bloomberg identifies the world’s largest diamond finds:

  The biggest diamond discovered is the 3,106-carat Cullinan, found near Pretoria, in South Africa, in 1905. It was cut to form the Great Star of Africa and the Lesser Star of Africa, which are set in the Crown Jewels of Britain. Lucara’s 1,109-carat Lesedi La Rona is the second-biggest, with the 995-carat Excelsior and 969-carat Star of Sierra Leone the third- and fourth-largest.  

  Weaker demand for diamonds, coupled with a growing supply glut, has pushed the IDEX diamond index lower and lower. With the industry in free-fall, has Gem with its monstrous 910-carat rock produced an artificial bottom or is this a head fake?

  

  

• "The Whole World Is Sick And Tired Of US Foreign Policy"

  Authored by Darius Shatahmasebi via TheAntiMedia.org,

  

  According to four-star General Wesley Clark, in a 1991 meeting with Paul Wolfowitz, then-under-secretary of defense for policy at the Department of Defense, Wolfowitz seemed a little dismayed because he believed the U.S. should have gotten rid of Saddam Hussein in Operation Desert Storm but failed to do so. Clark summarized what he says Wolfowitz said:

  “‘But one thing we did learn. We learned that we can use our military in the region, in the Middle East, and the Soviets won’t stop us. We’ve got about five or ten years to clean up those old Soviet client regimes, Syria, Iran, Iraq, before the next great superpower comes on to challenge us.’” [emphasis added]

  This was certainly the case in the years that followed, as the United States used the pretext of 9/11 to attack both Afghanistan and Iraq with little to no substantive resistance from the international community. This trend continued as the Obama administration heavily expanded its operations into Yemen, Somalia, Pakistan, and even the Philippines, to name a few, right up until the U.S. led a cohort of NATO countries to impose regime change in Libya in 2011.

  At the time, Russia withheld its veto power at the U.N. Security Council because it had received assurances that the coalition would not pursue regime change. After NATO forces began bombing Muammar Gaddafi’s palaces directly, a furious Vladimir Putin questioned: “Who gave NATO the right to kill Gaddafi?”

  Following Gaddafi’s public execution on the streets of Sirte, Putin’s criticism of NATO’s betrayal went even further. He stated:

  “The whole world saw him being killed; all bloodied. Is that democracy? And who did it? Drones, including American ones, delivered a strike on his motorcade. Then commandos – who were not supposed to be there – brought in so-called opposition and militants and killed him without trial. I’m not saying that Gaddafi didn’t have to quit, but that should have been left up to the people of Libya to decide through the democratic process.”

  No one appreciated it at the time, but America’s unchallenged ability to intervene anywhere and everywhere it chooses ended on that day. Fast forward to Barack Obama’s plans to implement an extensive strike plan against the Syrian government in 2013, which never transpired due  strong Russian opposition and widespread protests in the U.S. A few years later, Russia directly intervened in Syria at the request of the Syrian government and effectively implemented its own no-fly zone in significant portions of the country. Donald Trump’s April 2017 strike on the Syrian government was only conducted after his administration first notified the Russians through a deconfliction hotline set up to manage the Syrian conflict.

  However, Russia isn’t the only country that is tired of America’s foreign policy, and the recent “emergency U.N. Security Council meeting” to discuss the current situation in Iran is a testament to that. Even Washington’s traditional allies cannot withhold their criticism of America’s desire to police the world.

  “However worrying the events of the last few days in Iran may be they do not constitute per se a threat to international peace and security,” French Ambassador to the U.N. Francois Delattre said. “We must be wary of any attempts to exploit this crisis for personal ends, which would have the diametrically opposed outcome to that which is wished.”

  Russia went even further, bringing up America’s own behavior and treatment of protesters as a counter-argument to the notion that Washington is motivated by human rights concerns in Iran.

  “By your logic, we should have initiated a Security Council meeting after the well-known events in Ferguson,” said Russian U.N. Ambassador Vasily Nebenzya, addressing the U.S. delegation.

  Iran also insisted the matter was an internal affair and not something for the U.N. to weigh in on, and China agreed, with their ambassador calling it a purely “domestic issue.”

  French President Emmanuel Macron even went so far as to accuse the U.S., Israel, and Saudi Arabia of instigating a war with Iran.

  “The official line pursued by the United States, Israel and Saudi Arabia, who are our allies in many ways, is almost one that would lead us to war,” Macron told reporters, according to Reuters. Instead, Macron called for dialogue with Tehran as he warned against the approach adopted by the aforementioned three countries.

  Turkish President Recep Tayyip Erdogan also came to Iran’s aid during the protests with Turkey’s Foreign Minister Mevlut Cavusoglu, openly stating:

  “Iran’s stability is important for us…We are against foreign interventions in Iran.”

  At the end of last year, Erdogan stated that U.S. sanctions on Iran were not binding on Turkey as it sought to outmaneuver them. At the time, Hurriyet news quoted Erdogan as saying “[t]he world does not consist of the U.S. alone.”

  America’s influential decline was most evident in Donald Trump’s recent Jerusalem debacle, which saw the Trump administration issue stern threats to the entire world, warning they needed to vote in favor of Washington’s interests at the U.N. Most of the world chose to ignore those threats and gave the United States a giant “middle finger,” so to speak, voting overwhelmingly against the Trump administration.

  While Washington is more than capable of unilaterally attacking other countries both covertly and overtly with an ever depleting list of allies, what is becoming increasingly clear is that it may not be able to do so without active opposition from the rest of the world, including nuclear powers Russia and China, which refuse to stay silent as the U.S. tries to shape the world in accordance with its geopolitical desires.

  

• Ford Profit, Outlook Miss Estimates Amid Dramatic Transformation Plan

  Having admitted last March that “used car prices will drop for years”  amid near record inventories, having reached a so-called ‘plateau’ in car sales, amid rising auto-loan losses, and less than a year after it fired 10% of its global workforce, on Tuesday afternoon Ford disappointed once again, reporting preliminary financial results for 2017 and guidance that fell short of investor expectations, in a downbeat forecast that contrasted with a more positive outlook from rival automaker General Motors.

   

  
  The 2019 Ford Ranger

  In 2017 Ford said it would miss consensus estimates of $1.83, and will report adjusted earnings of $1.78 per share. For 2018, Ford expects adjusted earnings of $1.45 to $1.70 per share, below consensus of $1.62. Ford blamed exchange rates (which is odd since the dollar has been tumbling in recent months) and rising prices for the commodities used in its vehicles for the projected decline in 2018 adjusted earnings.

  Over the past year, Ford shares are up only about 4%, significantly trailing the 18% return of its arch-rival GM. Last May, Ford’s board ousted CEO Mark Fields and named Jim Hackett, who was known as a turnaround expert and had been leading Ford’s unit developing self-driving vehicles, to replace him. As Reuters reports, Hackett has promised to slash Ford’s product development costs by $14 billion and has launched reviews of the vehicle lineup.

  Ford’s disappointing forecast reinforces Hackett’s warning to investors from last fall that the cost-cutting and product strategy changes could take time.

  Ford CFO Bob Shanks told analysts at a Detroit investor conference organized by Deutsche Bank that higher costs for steel, aluminum and other metals, as well as currency volatility, would cost the company $1.6 billion in 2018, and while cost-cutting actions are under way, they will have the biggest impact “in 2020 and later,” Shanks said quoted by Reuters.

  “We are not satisfied by our performance,” Shanks said.

  * * *

  But the most surprising announcement of the day came from EVP and president of global markets Jim Farley who said that Ford is pivoting away from being a full-line automaker, and will shift to low volume, high margin cars, a substantial  metamorphosis for America’s premier auto brand.

  According to Farley, the company’s business structure was “out of sync with our revenue,” and vowed to cut costs by sharply reducing the variants of high-volume Ford models and slashing marketing costs by $200 million a year. Farley also hinted at possible significant changes in the structure of Ford’s money-losing South American business.

  Farley said that that Lincoln brand will orient toward SUVs, and that Ford will have 25 new model launches by end of 2019. He also cautioned that Ford profit would drop as electric car catch-up would be costly.

  ”We are exploring every option you can imagine,” Farley told analysts on the sidelines of the Detroit auto show.

  To boost revenue, Farley said Ford would decrease its passenger-car models and develop more trucks and sport utility vehicles aiming at profitable niches such as rugged off-road models. In all, Ford expects cars to drop below one-third of its total sales mix.

  And while the business transformation will take even longer than expected, the company decided to immediately reward its shareholders, and said it would pay shareholders an extra dividend of $500 million, or 13 cents a share, for the first quarter. Oh, and just to seal the deal, Ford said its employees would not be given pay increases or bonuses as a result of tax reform.

  

• The FBI's Attacks On MLK Jr. Are Helpful Reminders For Today

  Authored by Ryan McMaken via The Mises Institute,

  Writing for the Wall Street Journal in 2005, federal judge and former U.S. deputy attorney general Laurence Silberman recalled how he was “shocked” to discover the extent the FBI abused its power to spy on Americans. 

   

  

  Speaking of the first time he reviewed the files of J. Edgar Hoover, Silberman writes how Hoover tasked “his agents with reporting privately to him on any bits of dirt on figures such as Martin Luther King or their families — information Hoover sometimes used as blackmail to ensure his and the bureau’s power.”

  Silberman was writing of having first learned of these abuses of power back in the 1970s. Using a well-worn Hollywood cliché, one might say those days were a “more innocent time.” Nowadays it is widely known that the FBI was the personal playground of J. Edgar Hoover who employed the agency to punish his political enemies and gain compliance from others. 

  In spite of its claims, though, the FBI has never moved terribly far from its days as Hoover’s praetorian guard. Tellingly, the FBI still refuses to remove Hoover’s name from its headquarters in Washington, and the agency’s habit of routinely violating the privacy of American citizens is now institutionalized, rather than the product of any single man’s crusade. 

  Both James Bovard and Timothy Weiner have documented in many ways the FBI legacy of using its power to destroy political threats to its power, and to do so in extra-legal ways whenever deemed “necessary.” 

  Yesterday, Martin Luther King, Jr.’s birthday, offers an opportunity to focus on some of the methods employed by the FBI. As The Daily Caller reports today: 

  In addition to tapping King’s phones and bugging his hotel rooms, the FBI used darker methods to attack the civil rights leader.

  [The FBI] sent to King’s home a “suicide package” in 1964 that contained audio recordings of King’s extramarital trysts and an unsigned letter telling him “there is only one way out for you.” The letter, which was published in un-redacted form by The New York Times in 2014, threatened to make the recordings public unless King offed himself within 34 days.

  “King, there is only one thing left for you to do. You know what it is. You have just 34 days,” the letter stated. “There is but one way out for you. You better take it before your filthy, abnormal, fraudulent self is bared to the nation.”

  (The charges of “filthy” and “abnormal” are especially cute given the unorthodox sexual activities of Hoover and then-president Lyndon Johnson.)

  Paranoia at the FBI 

  King was just one of many targets of “COINTELPRO,” a series of often-illegal operations employed by the bureau to harass and persecute the federal government’s political enemies. 

  COINTELPRO, however, was just the manifestation of FBI paranoia in that specific era. The exact nature of the motivation changes over time. In the late ‘teens, the Palmer raids were employed to go after suspected Bolsheviks and “anarchists” in an extra-legal fashion. 

  In the 1920s, the FBI was spying on US Senators who were deemed insufficiently loyal to the US regime. Weiner explains: 

  By the time Congress reconvened in March 1923, [Attorney General Harry] Daugherty and [William J.] Burns were conducting political espionage against senators whom the attorney general saw as threats to America. The bureau was breaking into their offices and homes, intercepting their mail, and tapping their telephones, just as it had done to members of the Communist party. The only rationale was the political movement in the Senate toward American diplomatic recognition of Soviet Russia.

  After all, Weiner notes how in the early 20s, “Hoover and his General Intelligence Division warned constantly of a violent communist revolution.” Hoover happily used the paranoia he produced to increase his own political power.

  40 years later, the FBI was still at it, this time tapping King’s phone’s an an attempt to get him to kill himself.

  Today, though, the FBI and other American intelligence agencies are attempting to legalize what was once considered illegal, or at least of questionable legality. 

  What the FBI wants today are modern equivalents of Dan Brookman calls “modern-day writes of assistance” or blank-check warrants that enable federal agents to simply gather every bit of private information they can on private citizens. 

  As Judge Napolitano explains, the federal government is moving toward expanding the use of Foreign Intelligence Surveillance Act (FISA) warrants to enable agencies like the FBI to more easily use surveillance data against Americans: 

  If enacted, this radical, unconstitutional hole in the Fourth Amendment would bring the country full circle back to the government’s use of general warrants to harass and prosecute — general warrants so odious to our forebears that they took up arms against the king’s soldiers to be rid of them.

  Many Americans today like to comfort themselves with the idea that “I’m not involved in any threats to national security” or “I don’t associate with terrorists” and then think themselves immune from government abuses. 

  But Martin Luther King didn’t present any threat to national security either. He didn’t call for violent acts to be perpetrated against the American state. He was, however, a political thorn in the side of powerful Washington politicians, so the federal government turned to some of the things they do best. It turned to persecuting, threatening, and spying, in the hopes of doing away with an inconvenient person.

  King’s experience (and the COINTELPRO experience in general) today remain a healthy reminder of how the federal government operates and just how little regard it has for the law. One can only imagine how flimsy will be the limits imposed on FBI and other federal agencies should the current attacks on the Fourth Amendment succeed.

  

• Ex-CIA Officer Suspected Of Helping China Assassinate US Informants Arrested At JFK

  A former CIA officer suspected of helping China identify the US spy agency’s informants was arrested at JFK International Airport on Monday on charges of unlawful retention of national defense information, according to the Department of Justice.

   

  

  Many of the agency’s informants were killed in a “systematic dismantling of the C.I.A.’s spy network in China starting in 2010,” according to the New York Times, which notes it was one of the American government’s “worst intelligence failures in recent years.” 

  The arrest of the former agent, Jerry Chun Shing Lee, 53, capped an intense F.B.I. investigation that began around 2012 after the C.I.A. began losing its informants in China. Mr. Lee was at the center of a mole hunt in which some intelligence officials believed that he had betrayed the United States but others thought that the Chinese government had hacked the C.I.A.’s covert communications used to talk to foreign sources of information. –NYT

  According to court documents, in August 2012, Lee and his family left Hong Kong to return to the United States to live in northern Virginia. While traveling back to the United States, Lee and his family had hotel stays in Hawaii and Virginia. During each of the hotel stays, FBI agents conducted court-authorized searches of Lee’s room and luggage, and found that Lee was in unauthorized possession of materials relating to the national defense.

  Specifically, agents found two small books containing handwritten notes that contained classified information, including but not limited to, true names and phone numbers of assets and covert CIA employees, operational notes from asset meetings, operational meeting locations and locations of covert facilities.

  Lee appeared in an New York courtroom Tuesday afternoon where he was ordered held without bail. He faces a maximum penalty of 10 years in prison if convicted. The case is being prosecuted by the U.S. Attorney’s Office for the Eastern District of Virginia. 

  Lee, 53, served in the U.S. Army from 1982 through 1986 and worked for the CIA between 1994 and 2007 according to an affidavit filed by an FBI agent. 

  The FBI agent wrote that Lee and his family left Hong Kong in August 2012 to travel to northern Virginia. Along the way, they stayed in hotels where the FBI found the books.

  The small books were discovered inside Lee’s luggage, sealed in a small clear plastic travel pack.

  The handwritten information inside ranged in terms of classification, but the agent said at least one page contained top secret information, “the disclosure of which could cause exceptionally grave damage to the national security of the United States.” –Reuters

  The FBI agent’s affidavit also noted that classified cables written by Lee while he was a case officer describing his interactions with CIA informants corroborated what was found in the two books. 

  Lee was interviewed five times by the FBI according to Reuters, never disclosing that he had the books. He also met with former CIA colleagues around that time without returning the classified materials, said the Justice Department.

   

  

  Over a dozen CIA informants were imprisoned or killed by the Chinese government, a serious setback for the agency, as discussed here first last May: 

  The Chinese government systematically dismantled C.I.A. spying operations in the country starting in 2010, killing or imprisoning more than a dozen sources over two years and crippling intelligence gathering there for years afterward.

  Current and former American officials described the intelligence breach as one of the worst in decades. It set off a scramble in Washington’s intelligence and law enforcement agencies to contain the fallout, but investigators were bitterly divided over the cause. Some were convinced that a mole within the C.I.A. had betrayed the United States. Others believed that the Chinese had hacked the covert system the C.I.A. used to communicate with its foreign sources. Years later, that debate remains unresolved.

  But there was no disagreement about the damage. From the final weeks of 2010 through the end of 2012, according to former American officials, the Chinese killed at least a dozen of the C.I.A.’s sources. According to three of the officials, one was shot in front of his colleagues in the courtyard of a government building — a message to others who might have been working for the C.I.A. –NYT

  By the end of 2011, senior CIA officials realized they had a problem; their assets in China were disappearing. The FBI and CIA opened a joint investigation in response, run by top counterintelligence officials out of an office in Northern Virginia – code named “Honey Badger.” 

  As more and more sources vanished, the operation took on increased urgency. Nearly every employee at the American Embassy was scrutinized, no matter how high ranking. Some investigators believed the Chinese had cracked the encrypted method that the C.I.A. used to communicate with its assets. Others suspected a traitor in the C.I.A., a theory that agency officials were at first reluctant to embrace — and that some in both agencies still do not believe. –NYT

  Read more about the case here. 

   

  

• DHS Report: 3 Of Every 4 Terrorism Offenders Since 9/11 Were Foreign-Born

  Authored by Will Racke via The Daily Caller,

  The Department of Homeland Security released Tuesday a study that sheds new light on the connection between the U.S. immigration system and so-called homegrown terrorism.

  

  Of the 549 people convicted of international terrorism-related charges between Sept. 11, 2001 and and the end of last year, 402  — 73 percent — were foreign-born, according to the DHS report.  Of those, 148 had become naturalized U.S. citizens before committing terrorism offenses.

   

  

  DHS Secretary Kirstjen Nielsen says the findings suggest the U.S. needs to improve its immigration vetting process, to include screening certain immigrants after they arrive.

  “I think what we take directly away from the report is we need to continue to enhance our screening and vetting,” she told CBS’ John Dickerson on Tuesday.

  “But it also tells us we need to continually vet those who are here. We have examples unfortunately over the last decades of terrorist attacks from legal permanent residents and others who were naturalized.”

  The DHS study follows a spate of recent terror-related offenses allegedly committed by foreign-born people who had immigrated to the U.S. through legal channels. The suspects two incidents in New York City – a deadly truck rampage in October and an attempted suicide bombing in December – had arrived through the diversity visa lottery and on a family preference visa, respectively.

  Last month, a naturalized U.S. citizen from Pakistan named Zoobia Shahnaz was indicted for allegedly laundering more than $85,000 through Bitcoin and other cryptocurrencies to fund Islamic State fighters overseas. Shahnaz came to the U.S. came to the U.S. on an F43 family-preference visa, which is granted to the children of siblings of U.S. citizens, according to DHS.

  Trump administration officials have pointed to the incidents as evidence of public safety and national security vulnerabilities in the U.S. immigration system. Shortly after taking office, Nielsen backed Attorney General Jeff Sessions – the administration’s leading immigration hawk – in calling for tighter limits on extended-family migration and ending the green card lottery.

  *  *  *
  Full Report below…

   

  

• US And China Brace For Trade War That Could Rattle Global Economy

  As we reported last week, the US non-petroleum trade deficit with China and Mexico – two of its largest trading partners – climbed to its highest level for a 12-month period in December, an embarrassing development for the Trump administration, which has repeatedly promised to protect US industry by raising trade barriers.

  However, the rising deficit, bolstered by a weakening US dollar, could ratchet up the political urgency of the Trump administration’s trade agenda. And as the Wall Street Journal points out, the White House is preparing a mix of tariffs and quotas to confront the growing economic threat from China. Though this confrontation could be potentially disruptive for the global system of free trade, even potentially leading to the collapse of the World Trade Organization, a group the Trump administration believes China should never have been allowed to join.

  In his column, the WSJ’s Andrew Browne points out that the last time the US became embroiled in a trade war, Ronald Reagan was president. And its adversary was a close US ally: Japan.

   

  

  At the time, Japan’s economy was much smaller than the US economy. Today, the Chinese economy has by some measures eclipsed the US. Such an unprecedented trade showdown between the US and China could have far reaching ramifications.

  A trade war isn’t a certainty, but if it comes, it will look nothing like the battles that raged in the 1980s over Japanese semiconductors, cars and TV sets.

  The forces are more evenly matched this time: America has never faced off in a trade skirmish with an opponent like China in terms of economic size, industrial capabilities and global ambitions.

  Japan was a U.S. ally, China increasingly a rival. That raises the risk of tit-for-tat escalation, especially since support for Beijing is crumbling across the U.S. political spectrum as well as in the U.S. business community, traditionally a strong advocate for China trade.

  Anti-trade rhetoric has been embraced by both sides, with President Donald Trump’s “America First” proclamations and President Xi Jinping’s “Chinese Dream” scenario.

  In this brewing battle fueled by protectionists in both camps (Mr. Trump’s “America First“ finds its nationalist counterpoint in President Xi Jinping’s “China Dream”), each side has an exaggerated sense of its own advantages.

  “A trade war is coming because of ideological zealotry and absolutely contradictory estimates of who has more leverage,” says Scott Kennedy, an expert on Chinese industrial policy at the Center for Strategic and International Studies, a Washington-based think tank.

  Global markets are wildly unprepared for a full-blown China-US trade war, WSJ  reports. Earlier this month, the Eurasia Group highlighted “protectionism” as one of the biggest geopolitical risks of 2018. One of the reasons, Eurasia Group argues, is because industrialized economies are embracing a wider tool chest of pro-trade measures, including indirect subsidies and bailouts.

  Governments aren’t just trying to protect comparative advantages in traditional sectors such as agriculture, metals, chemicals, and machinery out of concern for lost jobs or domestic economic interests. They’re also intervening in the digital economy and innovation-intensive industries as protecting intellectual property becomes an increasingly important priority.

  But instead of traditional measures such as import tariffs and quotas, today’s tools of choice include “behind-the-border” measures such as bailouts, subsidies, and “buy local” requirements designed to bolster domestic companies and industries. These measures don’t necessarily circumvent WTO commitments; they rely on a collective inability to update and strengthen existing global trade rules.

  WSJ  agrees: Once under way, the repercussions of a trade war would be felt well beyond the combatants themselves. US friends and allies along Asian supply chains would be early collateral damage. China is still to a large extent the final assembly point for imported high-tech components from Japan, South Korea and Taiwan. Navigating increasingly complex global supply chains in a constant state of disruption would be hugely problematic for businesses across industries.

  Furthermore, if it escalated far enough, a trade war could take down the entire global trading architecture. That could be Trump’s goal. Many in his administration, including trade representative Robert Lightizer, believe the biggest mistake the US ever made was to usher China into the World Trade Organization in 2001. Aides say Trump regularly threatens to pull out of the rules-setting body.

  Trump has in the past suggested that Chinese help on North Korea could head off US trade action. In a phone call  with the US president on Tuesday, Xi suggested that trade issues should be resolved by “making the cake of cooperation bigger.”

  Meanwhile, Trump expressed disappointment that the US trade deficit with China has continued to grow” and made clear that “the situation is not sustainable.”

  In private, however, senior Chinese officials believe Beijing has many tactical advantages: Some are cultural – the Chinese people, one says, are more prepared to endure economic hardship.

   

  

  Perceptions of US bullying would rally the population around the Communist Party, whereas US opinion would fracture among constituencies for and against trade hostilities.

  US manufacturing giants like Boeing in General Motors would probably throw a fit and withdraw their support for Trump and his agenda. Both companies see China’s economy, which is fairly open relative to Japan’s in the 1980s, as a crucial growth market. If US initiates a trade war – something that Trump has already threatened with his investigation into Chinese IP practices – China has a detailed game plan to respond, and the total flexibility to carry it out. For example, the Chinese government would abandon Boeing in favor of European Airbus. Diversifying soybean supplies – possibly relying more on Brazil – would be another option.

  Browne says the US should count on Chinese retaliatory actions being highly targeted – state by state, congressional district by congressional district – to inflict the maximum US job losses, and single out those politicians most gung-ho about trade action.

  Many US trade experts don’t mince words: They believe China would prevail in a trade war with the US, and that the US economy would suffer lasting damage.

  Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, thinks China would win. Among his reasons: China’s ability to concentrate pain, and the outcry from affected businesses in America’s more open political system. He argues that “the political costs to the Trump administration of maintaining new protectionist measures will be much higher than the costs of retaliation to the Xi regime.”

  Derek Scissors, a trade expert at the American Enterprise Institute argues that the major US advantage is that China is far more dependent on trade for its financial health.

  “A shorter, smaller-scale trade conflict favors China due to its comparative agility,” he says. “The more serious it gets, the worse China would fare because it’s badly outmatched monetarily.”

  In the 1980s, Japan had to back down, agreeing to voluntary export restraints and moving large parts of its auto manufacturing base to the US to create jobs and defuse tensions. China won’t be pushed around in the same way.

  Still, China has other leverage: Rumblings about China ditching Treasurys – reports that have been denied by Chinese authorities but still managed to rattle markets – show the PBOC might be willing to use its balance sheet as leverage against the US.

  And as central banks across Europe flock to the yuan, the US could be increasingly vulnerable to rising interest rates as its share of global reserves dwindles.

   

  

• Silver: Once And Future Money

  Authored by James Rickards via The Daily Reckoning,

  The Roman Republic and the later Roman Empire had gold coins called the aureus and solidus, but they also minted a popular silver coin called the denarius. One denarius was the daily wage for unskilled labor and Roman soldiers.

  Of course, in the late Empire, the aureus, solidus and denarius were all debased by mixing the gold and silver with base metals. The decline of the Roman Empire went hand in hand with the decline of sound money.

  In the early ninth century AD, Charlemagne greatly expanded silver coinage to compensate for a shortage of gold. This was successful in stimulating the economy of the predecessor of the Holy Roman Empire. In a sense, Charlemagne was the inventor of quantitative easing over 1,000 years ago. Silver was his preferred form of money.

  Under the U.S. Coinage Act of 1792, both gold and silver coins were legal tender in the U.S. From 1794 to 1935, the U.S. Mint issued “silver dollars” in various designs. These were widely circulated and used as money by everyday Americans. The American dollar was legally defined as one ounce of silver.

  The American silver dollar of the late eighteenth century was a copy of the earlier Spanish Real de a ocho minted by the Spanish Empire beginning in the late sixteenth century. The English name for the Spanish coin was the “piece of eight,” (ocho is the Spanish world for “eight”) because the coin could easily be divided into one-eighth pieces.

  Until 2001 stock prices on the New York Stock Exchange were quoted in eighths and sixteenths based on the original Spanish silver coin and its one-eight sections.

  Until 1935 U.S. silver coins were 90% pure silver with 10% copper alloy added for durability. After the U.S. Coinage Act of 1965, the silver content of half-dollars, quarters and dimes was reduced from 90% to 40% due to rising price of silver and hoarding by citizens who prized the valuable silver content of the older coins.

  The new law signed by President Johnson in 1965 marked the end of true silver coinage by the U.S. Other legislation in 1968 ended the redeemability of old “silver certificates” (paper Treasury notes) for silver bullion.

  Thereafter, U.S. coinage consisted of base metals and paper money that was not convertible into silver; (gold convertibility had already ended in 1933).

  Let’s hope that the U.S. is not following in the footsteps of the Roman Empire in terms of a political decline coinciding with the substitution of base metals for true gold and silver coinage.

   

  

  In 1986, the U.S. reintroduced silver coinage with a .999 pure silver one-ounce coin called the American Silver Eagle. However, this is not legal tender although it does carry a “one dollar” face value. The silver eagle is a bullion coin prized by investors and collectors for its silver content. But it is not money.

  Who in their right mind would pay a full ounce of silver for goods or services worth only a buck?

  In short, silver is as much a monetary metal as gold, and has just as good a pedigree when it comes to use in coinage. Silver has supported the economies of empires, kingdoms and nation states throughout history.

  It should come as no surprise that percentage increases and decreases in silver and gold prices denominated in dollars are closely correlated.

  Silver is more volatile than gold and is more difficult to analyze because it has far more industrial applications than gold. Silver is useful in engines, electronics and coatings.

  Interestingly, gold is used very little other than as money in bullion form. Gold has some highly specialized uses for coating and ultra-thin wires, but these are a very small part of the gold market.

  Both gold and silver are used extensively in jewelry. I consider jewelry to be “wearable wealth” and akin to bullion rather than a separate market segment.

  Because silver has more industrial uses than gold, the price can rise or fall based on the business cycle independent of monetary considerations. However, over long periods of time, monetary and bullion aspects tend to dominate industrial uses and silver closely tracks its close cousin gold in dollar terms.

  While gold and silver prices have a high correlation, the correlation is not perfect. There are times where gold outperforms silver and vice versa. Right now we are in a sweet spot for silver.

  Gold is performing well, and silver is performing even better!

   

  

  The latest data is telling me that silver prices are set to rally. This conclusion is based in part on a bull market thesis for gold.

  Gold staged an historic rally from 1999 to 2011, from about $250 per ounce to $1,900 per ounce, a gain of about 900% in that twelve-year span. Since then, gold prices fell in a 50% retracement (using the 1999 base) and bottomed at around $1,050 per ounce in December 2015.

  Secular bull and bear market tops and bottoms are difficult to see in real time, but they become apparent with hindsight. Gold gained over 23% in 2016-2017. From the perspective of early 2018, it is clear than the gold bear market ended over two years ago and a new multi-year secular bull market has begun.

  Silver is not only along for the ride, it is showing even better performance than gold, albeit with greater volatility. Both the gold and silver rallies are based on a combination of supply/demand fundamentals, geopolitical pressures creating safe haven demand, and increasing inflation expectations as confidence in central banking and fiat money erodes.

  In addition, silver has an excellent technical set-up right now. Precious metals analyst Samson Li writing in Thomson Reuters on January 2, 2018 offers this insight in the current technical trading position for silver:

  Technically, silver is ripe for a major breakout to the upside in 2018. The CFTC figures Managed Money positions show that COMEX silver has been in a net short for three straight weeks since 12th December. This is not unheard of but is relatively rare for silver; the last time COMEX silver was net short was between the end of June and the first week of August 2015.

  As investment sentiment can swing from one extreme to another, and given silver’s innate volatility, this net short position should point to the possibility of a sharp short-covering rally. Looking back at the corresponding period in 2015, silver price was trading at $15.61/oz on the 7th July, and it was the third consecutive week recording a net short position. Approximately a year later, silver was trading over $20/oz in July 2016…

  [T]he current poor sentiment does suggest that silver could be one of the better performing precious metals in 2018, barring any crisis that could trump most of the commodities but gold.

  The good news is that this secular rally in silver is in its early days. Recent gains will be sustained and amplified in the months and years to come.

  Silver will outperform gold in the short-run, and shares in well-managed silver mining companies will do even better than silver.

  

• China's 'Nasdaq' Tumbles To 6-Month Lows As Crypto-Related Stocks Crash

  CHINEXT – China’s index of small cap and tech stocks – has tumbled in the last few days (while the major Chinese indices have risen), as blockchain-related stocks across Asia have crashed along with the cryptocurrency carnage.

  As Bloomberg notes, stocks with exposure to digital currencies decline in Asia after Bitcoin and rival cryptocurrencies slumped Tuesday amid fears of regulatory crackdowns. Bitcoin pares some of loss with 5.6% gain as of 10:03am in Hong Kong.

  • Japan: Ceres Inc. -9.8%, GMO Internet Inc. -7.2%, Infoteria Corp. -5.1%, SBI Holdings Inc. -5%, Fisco Ltd. -5.4%, Remixpoint Co. -4.4%, Metaps Inc. -4.6%
  • Korea: Vidente Co. -18%, Omnitel Inc. -13%, Kakao Corp. -3.2%
  • China: Ygsoft Inc., Brilliance Technology Co. and Shenzhen Forms Syntron Information Co. all tumble by 10% daily limit

  

  While The Shanghai Composite and Shenzhen CSI-300 Index are pushing to new highs, tech-heavy Shenzhen Composite and CHINEXT are tumbling…

   

  

  This the 4th down day in a row – the longest streak since November – to the lowest since July…

   

  

  Notably the SHCOMP and CHINEXT are drastically diverging – now at their widest divergence in 3 years…

   

  

  

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