Mar 01

Today’s News 1st March 2021

  • The Great Reset, Part V: Woke Ideology
    The Great Reset, Part V: Woke Ideology

    Authored by Michael Rectenwald via The Mises Institute,

    Read Part I: Reduced Expectations And Bio-Techno-Feudalism here…

    Read Part II: Corporate Socialism here…

    Read Part III: Capitalism With Chinese Characteristics here…

    Read Part IV: “Stakeholder Capitalism” Vs. “Noeliberalism” here…

    In previous articles, I’ve discussed the Great Reset and introduced several ways of understanding the economics of it. The Great Reset can be thought of as neofeudalism, as “corporate socialism,” as “capitalism with Chinese characteristics,” and in terms of “stakeholder capitalism” versus “neoliberalism.” In future installments, I intend to treat the technological (transhumanist) and monetary (centralized banking and digital currency) aspects that Klaus Schwab and others anticipate and prescribe.

    But in this essay, I wish to consider the ideological aspect of the Great Reset. Just how do the planners mean to establish the reset ideologically? That is, how would a reset of the mass mind come to pass that would allow for the many elements of the Great Reset to be put into place—without mass rebellion, that is? After all, if the Great Reset is to take hold, some degree of conformity on the part of the population will be necessary—despite the enhanced, extended, and more precise control over the population that transhumanist technology and a centralized digital currency would afford.

    This is the function of ideology. Ideology, as the Marxist historian of science Richard Lewontin has argued, works “by convincing people that the society in which they live is just and fair, or if not just and fair then inevitable, and that it is quite useless to resort to violence.” Ideology establishes the “social legitimation” that Lewontin sees as necessary for gaining the assent of the ruled. “The battleground is in people’s heads, and if the battle is won on that ground then the peace and tranquility of society are guaranteed.” Ideology on this account is not the same as world view. It is rather the mental programming necessary for domination and control short of the use of force. Ideological indoctrination is easier, less messy, and less expensive than state and state-supported violence.

    Some may argue that the ideology of the Great Reset is simply socialist-communist ideology. After all, in many respects, socialist-communist ideology supports what the Great Reset promises to deliver. And this may work for some. There are those who would welcome, on socialist grounds, the “fairness,” “equality,” or “equity” that the Great Reset promises. Socialists might overlook or excuse the oligarchical control of society on the basis of the supposed fairness, equality, or equity among the mass of the population, and on the presumption that the oligarchy will be overthrown in the not-so-distant future. Socialism embeds a levelling predisposition that puts a premium on “equality” among the visible majority, even when that equality comes as a great loss for many otherwise “middle-class” subjects. In fact, when I briefly entertained the rantings of members of the Revolutionary Communist Party, USA, including its leader, Bob Avakian, they admitted to me that worldwide socialism would mean reduced standards of living for much of the world, especially in the United States. They had no problem with this; in fact, they seemed to relish the prospect. No doubt, as Friedrich Nietzsche suggested, socialism is fueled, at least in part, by ressentiment—by resentment and envy for the property owner. Much could be said about socialists’ apparent approval, or at least conditional and temporary acceptance, of big monopolistic oligarchical corporatists and their preference for big business over small. Socialists see monopolization under capitalism as inevitable, as necessary for producing a more consolidated target to be overthrown, and as a sign of the imminent collapse of capitalism and the coming socialist-communist apocalypse.

    Likewise, many socialists will be amenable to the Great Reset on principle—especially those who accept its rhetoric at face value. But for all its newfound popularity, socialism-communism still doesn’t represent the majority. While popular among Millennials and other millennialists, socialism-communism remains unsavory for many.

    It is regarded as alien, obscure, and loosely connotes something negative.

    But more importantly, for reasons that I’ll give below, socialist-communist ideology is not the ideology that best fits the goals of the Great Reset. This is where wokeness comes in.

    What exactly is wokeness? As I write in Beyond Woke,

    According to the social justice creed, being “woke” is the political awakening that stems from the emergence of consciousness and conscientiousness regarding social and political injustice. Wokeness is the indelible inscription of the awareness of social injustice on the conscious mind, eliciting the sting of conscience, which compels the newly woke to change their be­liefs and behaviors.

    This is as close to a definition of wokeness as I can manage, gleaning it as I have from the assertions of those who embrace it. Of course, the etymology of the word “woke,” and how it became an adjective describing those who are thus awakened into consciousness of social and political injustice, is another matter. I discuss the etymology in Google Archipelago:

    “Woke” began in English as a past tense and past participle of “wake.” It suggested “having become awake.” But, by the 1960s, woke began to function as an adjective as well, gaining the figurative meaning in the African American community of “well-informed” or “up-to-date.” By 1972, the once modest verbal past tense began to describe an elevated political consciousness. In 2017, the Oxford English Dictionary (OED) recognized the social-conscious awareness of woke and added the definition: “alert to racial or social discrimination and injustice.”

    Yet there are as many definitions of wokeness as people who’ve heard of it, as is the case with most anything the least bit controversial. I’m sure that others can and will add to the definition or suggest that wokeness should be defined altogether differently. But the above definition and historical-semantical renderings are sufficient for our purposes. According to adherents, then, wokeness is enhanced awareness of social and political injustice and the determination to eradicate it.

    But what could wokeness have to do with the Great Reset? As a corrective, wokeness is not aimed at the sufferers whose complaints, or imagined complaints, it means to redress. Wokeness works on the majority, the supposed beneficiaries of injustice. It does so by making the majority understand that it has benefited from “privilege” and preference—based on skin color (whiteness), gender (patriarchy), sexual proclivity (heteronormativity), birthplace (colonialism, imperialism, and first worldism), gender identity (cis gender privilege), and the domination of nature (speciesism)—to name some of the major culprits. The list could go on and is emended, seemingly by the day. This majority must be rehabilitated, as it were. The masses must understand that they have gained whatever advantages they have hitherto enjoyed on the basis of the unfair treatment of others, either directly or indirectly, and this unfair treatment is predicated on the circumstances of birth. The “privilege” of the majority has come at the expense of those minorities designated as the beneficiaries of wokeness, and wokeness is the means for rectifying these many injustices.

    And what are the effects of being repeatedly reprimanded as such, of being told that one has been the beneficiary of unmerited “privilege,” that one’s relative wealth and well-being have come at the expense of oppressed, marginalized, and misused Others? Shame, guilt, remorse, unworthiness. And what are the expected attitudinal and behavioral adjustments to be taken by the majority? They are to expect less. Under woke ideology, one will be expected to forfeit one’s rights, because even these rights, nay, especially these rights, have come at the expense of others.

    Thus, wokeness works by habituating the majority to the reduced expectations that I introduced in my first installment on the Great Reset. It does this by instilling a belief in the unworthiness of the majority to thrive, prosper, and enjoy their lives. Wokeness indoctrinates the majority into the propertyless future (for them, at least) of the Great Reset, while gratifying the Left, its main ideological propagators, with a sense of moral superiority, even as they too are scheduled to become bereft of prospects.

    One question remains. Why is wokeness more suited to the objectives of the Great Reset than socialist-communist ideology? To answer this question, we must recall the selling points of socialism-communism. Despite the levelling down that I mentioned above, socialism-communism is promissory. It promises benefits, not deficits. It does not operate by promising the majority that they will lose upon its establishment. Quite to the contrary, socialism-communism promises vastly improved conditions—yes, fairness, equality, or equity but also prosperity for the mass of humanity, prosperity that has been denied it under capitalism. The workers of the world are called to unite, not under the prospect of reduced expectations, but on the basis of great expectations—not, according to Marx, to establish utopia, but at least to destroy and replace the current dystopia with a shared cornucopia. We know, of course, how this promise is kept. But it is nevertheless still proffered and believed by all too many in our midst.

    We have seen, on the other hand, the subtractive character of woke ideology. Wokeness demands the forfeiture of advantages on moral grounds. Unlike socialism-communism, it does not offer empowerment or advocate the takeover of the means of production and the state by political means. Wokeness is a form of recrimination that compels the abdication, not the acquisition, of goods.

    Woke ideology, I contend, has tilled the soil and planted the seeds for the harvest that the Great Reset represents to the ruling elite. Was wokeness intentionally crafted for this purpose? I don’t think so, but it nevertheless can and is being adopted for these ends, just as other ideological formations have been used for other ends. The ruling elite appropriates the available means at its disposal to effect its plans, including available ideologies. Woke ideology was available and ready for appropriation and application. Wokeness serves the Great Reset best, and thus we see the language of wokeness in the books and other literature devoted to its establishment: fairness, inclusion, etc.

    Naturally, wokeness will not work on everyone. But the demand has been made so universal that unapologetic, noncompliant dissenters are figured as regressive, reactionary, racist, white supremacist, and more, and are dismissed, if not punished, on those grounds. Wokeness has thus attained dominance. Countering it will be a major requirement for challenging the Great Reset.

    Tyler Durden
    Sun, 02/28/2021 – 23:25

  • Seattle Homeless Shelter Gives "Booty Injection" Kits To Addicts
    Seattle Homeless Shelter Gives “Booty Injection” Kits To Addicts

    America’s most liberal cities have transformed into ground-zero for what has become an all-out drug and homelessness crisis. Cities like Seattle, Washington, and others, are using taxpayer dollars to fund various types of programs such as needle exchanges and safe spaces to do drugs. 

    A Seattle-backed homeless shelter called the Downtown Emergency Service Center (DESC) uses taxpayer dollars to get addicts high. DESC employees hand out heroin and crack pipes, syringes, and even “booty bumping” kits. 

    Local AM radio station KTTH reports DESC plastered flyers at their Navigation Center location on 12th Avenue South, encouraging addicts to come to the non-profit facility to collect “new tools and methods to continue their destructive and deadly addictions.”

    For more on this, KTTH Radio Host Jason Rantz recently joined the Fox News Channel’s “Tucker Carlson Tonight” show to discuss how Democrats are destroying the city of Seattle. 

    Rantz tweeted a three-minute clip of him and Tucker talking about taxpayer funds used by DESC to purchase heroin pipes, syringes, and “booty bumping kits.” 

    https://platform.twitter.com/widgets.js

    “The city is now funding a homeless shelter that is passing out heroin pipes and distributing so-called ‘booty bumping kits’ so that junkies can inject drugs rectally,” Rantz told Tucker. 

    “Well, when you teach addicts, who are already the hardest to get off the street a more efficient way to get high in a way that lasts longer, when you’re doing it with the so-called ‘booty bumping kit,’ all you’re doing is making it that much easier for them to stay addicted,” he continued.

    In case you’re wondering, KTTH sheds more light on “booty bumping kits:”  

    This process has an addict inject drugs rectally, usually meth or cocaine mixed with water, through a needless syringe. A rectum is very efficient at absorption, so the high is described as more intense and longer-lasting. The flyer says this method to get high is a “good choice if your veins are hard to hit,” and that it “doesn’t leave tracks.” -KTTH explains 

    As ZH readers are undoubtedly aware, when liberal-run cities take part in funding these social experiments – many of them tend to fail. 

    For example, San Francisco’s needle exchange program resulted in hazardous waste increases across the city. More addicts got high and violent crime surged and drug-fueled vagrants terrorized people on the street. 

    … and it comes as no surprise that overdose deaths in the Democratic stronghold have killed almost four times more people than COVID-19 this year. These progressive ideas seem great on paper, but in actuality, they tend to disappoint. 

    If the goal is to help people with addiction – why are progressives aiding in programs that keep people perpetually addicted? 

    Why Seattle’s DESC believes they have the magic touch to solve an addiction crisis by employing similar failed programs seen in San Francisco is beyond us.

    Tyler Durden
    Sun, 02/28/2021 – 23:00

  • "Slippery Slope" – Vaccine Passports Are A Technical & Ethical Minefield
    “Slippery Slope” – Vaccine Passports Are A Technical & Ethical Minefield

    Authored by Melinda Mills, op-ed via The Financial Times,

    I remember the evening a co-worker arrived at our door waving a phone, beaming “I’ve got it!” His Android mobile was the only way to use the UK government app that let EU citizens apply for UK settled status after Brexit. After some unsettling jokes about uploading my private biometric data on his device, we completed the deed and he disappeared into the night. As governments around the world ponder digital vaccine passports, that evening remains in my mind.

    Vaccine passports are essentially certificates that link proof of vaccination to the identity of the holder, a potential silver bullet to return to our pre-Covid-19 lives. Before the pandemic, the EU was working on plans for cross-border electronic certificates to replace the paper booklets that many travellers carry. At this week’s EU summit some leaders pressed for further steps towards coronavirus passports.

    A recent Royal Society report that I led came up with 12 different criteria that would need to be satisfied to make such passports feasible. This is a complex ecosystem that requires an understanding of everything from immunity and infection to technology, ethics and behavioural factors. But the underlying question must be: what would a vaccine passport be used for?

    The head of Heathrow airport has called for digital health certificates to reboot international travel. Estonia and Iceland already link e-vaccination certificates to travel and exclusion from quarantine. Greece is pressing the EU to move quickly. There are precedents such as the airline industry group Iata’s travel pass initiative. But would these certificates only be required for international travel or could they be needed for getting a job, attending a football match, or buying some milk?

    Israel recently introduced a green pass heralded as “the first step back to an almost normal life”. It opens entry to gyms, cinemas, hotels and meets some our technical criteria such as verifiable credentials, portability, (attempts at) security for personal data and interoperability. It is valid for six months after a second dose and for “those who have recovered from coronavirus”.

    But this could be problematic. Current vaccines protect against severe disease, but we do not yet know whether they stop transmission, how quickly immunity wanes or if they are compromised by emerging variants. Whether someone who has “recovered” meets immunity criteria remains a question. In addition to an expiry date, we would need the ability to revoke a vaccine passport. Israel’s warning of severe punishment for forgery is another reminder of what could go wrong.

    There is also the question of mission creep. Recall the UK’s early digital contact tracing app, which raised concerns about privacy, government surveillance and private sector data sharing. Or consider the technical problems with the Tawakkalna app, introduced in Saudi Arabia, which is used for entry into many places but recently froze.

    All vaccine passports have the potential to block people from essential goods and services and exclude those who lack identification or do not own or cannot afford a smartphone.

    The RS criteria for a workable vaccine passport included equity, ethics and non-discrimination. That means we must ask who would we exclude? There is higher vaccine hesitancy among ethnic minorities and the jabs are being rolled out by age. Plus some people are excluded entirely: children, pregnant women and those with allergies.

    Others worry of a slippery slope towards digital health or ID cards. We are already partway there, as I discovered, with Apple’s link with healthcare institutions which allows me to download my immunisation and medical records on to my iPhone. This technology could mean greater efficiency in the health system and better outcomes. But there would be serious ethical concerns if a vaccine QR code that tracks movement is linked to other data — say housing and immigration status — without our knowledge, or if it increases surveillance of already disadvantaged groups.

    Credit cards and social media data hold a wealth of behavioural and location data, that companies regularly mine. With vaccine passports, it will come down to trust in government and that can only be won through transparency. There is a risk that the government expends time and money to create a passport system only to have the public recoil in horror.

    We also shouldn’t forget we are globally interconnected. When travel resumes, visitors and workers will cross borders and need global standards such the WHO’s Smart Vaccination Certificate. This could be a legal minefield of issues. Human rights and data protection need to be weighed against a duty of care and commercial freedom to act. Governments may make vaccine passports mandatory on economic grounds or to protect public health. Or they may decide to dodge that bullet, but allow businesses to require them instead.

    There is also the question of whether a domestic vaccine passport is worth the investment. That depends, of course, on vaccine rollout, virus mutation and other factors. To work, a substantial proportion of the population needs to be vaccinated with universal access, which in most countries is months away. In the meantime, let’s put the pieces of this puzzle together and carefully judge if we like the picture that emerges. 

    *  *  *

    The writer directs the Leverhulme Centre for Demographic Science at Nuffield College, Oxford university

    Tyler Durden
    Sun, 02/28/2021 – 22:35

  • Biden Admits He Won't Sanction MbS Simply Because Saudis Remain "Our Allies"
    Biden Admits He Won’t Sanction MbS Simply Because Saudis Remain “Our Allies”

    The White House has issued a belated response – or ultimately a weak attempt at damage control – amid growing bipartisan outrage that despite his prior “tough” talk on the campaign trail to “hold the Saudis to account”, crown prince Mohammed bin Salman is getting off scot-free.

    “The Biden administration defended its decision not to sanction Saudi Arabia’s Crown Prince Mohammed bin Salman personally for his role in the death of Washington Post columnist Jamal Khashoggi, as the White House confirmed no more actions against the kingdom are imminent,” Stars & Stripes reports Sunday. This means that not so much as suspension of weapons sales are on the table, apparently.

    This despite the newly declassified intelligence assessment identifying MbS as “approving” the operation to kill or capture the Washington Post journalist. 

    Biden’s answer as to why the US is stopping short at sanctioning dozens of lower-level Saudi officials (and not MbS) that the newly declassified intelligence assessment identified as orchestrating Jamal Khashoggi’s Oct.2018 murder appears to simply be that the Saudis are “our allies”:

    “The United States has not historically sanctioned the leaders of countries where we have diplomatic relations or even some where we don’t have diplomatic relations,” White House Press Secretary Jen Psaki said on “Fox News Sunday.” “Behind the scenes there are a range of diplomatic conversations.”

    A White House statement indicated that no further actions will be taken against Riyadh (other than slapping up to 76 officials with ‘travel restrictions’):

    “The recalibration of relations with Saudi Arabia began on January 20th and it’s ongoing,” the White House said in a statement. “The Administration took a wide range of new actions on Friday. The President is referring to the fact that on Monday, the State Department will provide more details and elaborate on those announcements, not new announcements.”

    https://platform.twitter.com/widgets.js

    Certainly the Saudis now have little to worry about given the White House is meekly talking “recalibration of relations” in the wake of US intelligence identifying MbS as having ordered the brutal killing and dismemberment. 

    So it took no time at all for things to return to “business of usual” in terms of Washington relations with the Saudi regime. The Saudi prince literally got away with murder… and now has a perpetual “get out of jail free card” simply because he’s a White House “ally”. Ultimately this of course comes as no surprise at all.

    Tyler Durden
    Sun, 02/28/2021 – 22:10

  • After Record January Surge, US Spending Plummets In February… And It's Not Just The Texas Freeze
    After Record January Surge, US Spending Plummets In February… And It’s Not Just The Texas Freeze

    Unlike the recent retail sales report which stunned sellside expectations with a 5-sigma blowout beat, Friday’s personal spending report came in generally as expected, even if it too came in scorching hot, with personal incomes soaring 10% M/M and a whopping 13% Y/Y thanks to the December $900BN stimulus hitting household checking accounts.

    But for all those planning on extrapolating this surge in spending into February and further into Q1, you may want to hold the champagne.

    According to the latest aggregated credit and debit card data from BofA, total card spending declined 2% yoy for the 7-days ending Feb 20th with Bank of America chief economist Michelle Meyer writing that “this weakening owes to the winter blizzard that created major disruptions to Texas and the surrounding region.” BofA remains optimistic, and believes this is a temporary setback and expect a recovery as is typical with natural disasters.

    Some more details on the big driver behind February’s spending plunge:

    The winter blizzard: The blizzard that rampaged the South and left millions without power created major disruptions to economic activity. We found particular weakness in card spending in TX, LA, OK, MS, AR and TN. Combined card spending in these six states ran at a -25% yoy pace for the 7-days ending Feb 20th. Subtracting these states from the total, card spending increased 1.3% yoy over the same period, which was likely still held down by poor weather conditions given the breadth of the blizzard.

    As Meyer further notes, no sector was immune to the blizzard related retrenchment in consumer spending.

    Predictably, restaurant spending plunged in the states where the blizzard hit, down 39% yoy, while the rest of the country actually saw an improvement in restaurant spending to -9.4% yoy, likely reflecting easing COVID-related restrictions with restaurant activity in California accelerating. Grocery store spending also declined in the affected states after increasing prior to the storm.

    Even retail spending online (card not present) weakened meaningfully in affected states, likely reflecting the loss of power in the region.

    Next, BofA takes a tangent In order to understand consumer spending patterns around natural disasters, we looked at the daily data around Hurricane Irma in 2017. Florida, the epicenter of the hurricane, saw a similar sized drop in spending of around -40% yoy when the hurricane hit. Spending then normalized around 10 days after the initial rainfall from Irma.

    If history is a guide, BofA concludes that we are likely to see spending in TX and surrounding states return back to trend in the next week or so. We could even see spending run above trend as households restock.

    That would be the optimistic view. The less optimistic view comes from similar card spending data, but this time from JPMorgan, which found a similar plunge in Texas spending but also an acute dropoff in total spending across the US, not all of which could be explained by the Texas freeze.

    In other words, after the record January spending boom sparked by the latest round of stimulus, it is quite possible the Americans retrenched again and whether it is due to the cold weather or concerns that quite some time may pass before the next government handout stimulus is sent out, we may well be in for a rough patch as US spending – which drives 70% of US GDP – hibernates at least until such time as the first (of many) Biden stimulus is passed and those $2,000 $1,400 stimmies are sent out. Which, incidentally, would be good news for a market suddenly terrified that the US economy is overheating and something must be done to halt the surge in output and/or spending…

    Tyler Durden
    Sun, 02/28/2021 – 21:49

  • AOC Blasts NYPD's New "Robo-Surveillance Ground Drones" For Poor Neighborhoods
    AOC Blasts NYPD’s New “Robo-Surveillance Ground Drones” For Poor Neighborhoods

    Democratic Socialist Alexandria Ocasio–Cortez from New York ripped NYPD’s Boston Dynamics robot dog for ground surveillance of low-income neighborhoods. 

    AOC quoted an NYPost article titled “Video shows NYPD’s new robotic dog in action in the Bronx,” where she was not fond of the “robotic surveillance ground drones that are being deployed for testing on low-income communities of color with under-resourced schools.” 

    https://platform.twitter.com/widgets.js

    AOC, a Bronx Democrat, later tweeted that the money used for the robot’s purchase could have been allocated “for education, healthcare, housing” purposes. 

    https://platform.twitter.com/widgets.js

    For a couple of decades, police forces across the country have been militarized. Stepping into a new decade, police forces, like NYPD, are seeking to deploy automation and artificial intelligence systems to combat crime. 

    NYPD first received the robot dog, called “Digidog,” a couple of months ago. At the time, NYPD Technical Assistance Response Unit Inspector (TARU) Frank Digiacomo told ABC7 that the four-legged robotic dog “will save lives, protect people, and protect officers and that’s our goal.” 

    Digidog is like any Boston Dynamics Spot robot – though this one is equipped with lights, two-way communication, and video cameras.

    The latest video shows the 70-pound robot being tested in the Bronx. The department also deployed the robotic dog back in October to a Brooklyn shooting. 

    Social media was not enthused with NYPD’s actions to purchase a Boston Dynamics Spot. 

    One person tweeted: “destroy it at all costs. destroy every boston dynamics robot you see in the wild.”

    Another said, “I’m sorry, but @BostonDynamics needs to ban these types of uses. Their tech should be used to enrich people’s lives and to help society, not oppress it. I absolutely love their work, but I will not shed a tear if every single one of these gets destroyed by citizens.” 

    We showed last week just how easy a weapon (though a paintball gun) could be mounted on one of these robots. 

    It’s only a matter of time before these robotic surveillance dogs are deployed to low-income neighborhoods across the US. 

    Tyler Durden
    Sun, 02/28/2021 – 21:20

  • China's Bond Market Emerges As Safe Haven In Global Rout
    China’s Bond Market Emerges As Safe Haven In Global Rout

    By Ye Xie, Bloomberg macro commentator and writer

    Three things we learned last week:

    1. China’s bond market proved to be a haven in the global rout.

    In the global fixed-income selloff last week, yields on China’s 10-year bonds rose just 1 bp to 3.28%, compared with the 15 bps jump in U.S. Treasuries.

    In part, that reflects China’s status as the leading indicator of the global economy as it was the first to emerge from the pandemic. Chinese bond yields started to climb in April and have been largely unchanged since November. In a sense, the global bond market is just experiencing what the Chinese market went through a few months ago.

    The fact that the two economies are in a slightly different phase suggests that adding unhedged Chinese bonds provides the benefit of diversification. Indeed, Chinese bonds and their global counterparts have exhibited low correlation over the past two years.

    2. Financial conditions haven’t tightened enough to alarm the Fed.

    Investors have pushed forward their rate expectations, causing the 5s30s part of the yield curve to flatten. The euro-dollar futures now price in the first rate hike as soon as December 2022. That seems to be aggressive, as the Fed’s dot plot looks for no rate hike through 2023.

    Yet, while the rising real yields wreaked havoc in some segments of the markets, financial conditions only tightened marginally. As St. Louis Fed President James Bullard put it bluntly, the 10-year yield has not returned to pre-pandemic levels.

    So the Fed will want to see how the bond moves play out before “changing its tune,” Fed watcher Tim Duy noted. In other words, fasten your seat belt.

    3. Biden isn’t in a rush to reset U.S.-China relations.

    Katherine Tai, Joe Biden’s pick for U.S. trade representative, told senators during her confirmation hearing that China “needs to deliver” on the promises it made in the phase-one agreement. It is the strongest signal yet that the new administration plans to build on the accord brokered by its predecessor rather than scrap it. William Burns, Joe Biden’s nominee to lead the CIA, called China’s “adversarial, predatory leadership” the biggest threat to the U.S.

    For its part, the official China Daily said in an editorial that Biden’s early policy toward Beijing “smacks of Trumpism,” and the approach so far “affords little optimism.” Meanwhile, the government said Friday that it will extend punitive tariff exemptions for 65 items imported from the U.S.

    It sounds like a stick and carrot , doesn’t it?

    Tyler Durden
    Sun, 02/28/2021 – 20:55

  • Cuomo Denies Touching, Forcibly Kissing Aide – Calls Inappropriate Sexual Questions 'Teasing'
    Cuomo Denies Touching, Forcibly Kissing Aide – Calls Inappropriate Sexual Questions ‘Teasing’

    Update (2037ET): New York Gov. Andrew Cuomo (D) issued a Sunday night statement explicitly denying claims that he touched and forcibly kissed a former aide, and suggested that inappropriate comments he made about another aide’s sex life were nothing more than ‘good-natured teasing.’

    “Questions have been raised about some of my past interactions with people in the office,” said Cuomo, adding “I never intended to offend anyone or cause any harm. I spend most of my life at work and colleagues are often also personal friends.”

    “At work sometimes I think I am being playful and make jokes that I think are funny. I do, on occasion, tease people in what I think is a good-natured way,” reads the press release. “I do it in public and in private. You have seen me do it at briefings hundreds of times. I have teased people about their personal lives, their relationships, about getting married or not getting married. I mean no offense and only attempt to add some levity and banter to what is a very serious business.“

    “I now understand that my interactions may have been insensitive or too personal and that some of my comments, given my position, made others feel in ways I never intended. I acknowledge some of the things I have said have been misinterpreted as an unwanted flirtation. To the extent anyone felt that way, I am truly sorry about that.”

    Former aide Lindsey Boylan wrote in a Medium post that she resigned as an aide to Cuomo after he forcibly kissed her during a meeting, and would frequently go out of his way to touch her “on my lower back, arms and legs.” 

    Responding to the accusation, Cuomo wrote on Sunday that he never “touched anybody” and never “propositioned anybody.”

    *  *  *

    New York Governor Andrew Cuomo has been accused of sexual harassment by a second former aide, according to the New York Times.

    Charlotte Bennett, a former executive assistant and health policy adviser to the Cuomo administration up until November of last year, told the Times that Cuomo had asked her sever questions about her sex life – including whether she ever had sex with older men, and whether she was monogamous in her relationships.

    NY Gov. Andrew Cuomo, Charlotte Bennett

    He also allegedly told her during a June, 2020 encounter that the 63-year-old governor complained about being ‘lonely during the pandemic,’ and that he “can’t even hug anyone.”

    Ms. Bennett, 25, said the most unsettling episode occurred on June 5, when she was alone with Mr. Cuomo in his State Capitol office. In a series of interviews this week, she said the governor had asked her numerous questions about her personal life, including whether she thought age made a difference in romantic relationships, and had said that he was open to relationships with women in their 20s — comments she interpreted as clear overtures to a sexual relationship. –New York Times

    Cuomo told The Times on Saturday that he thought he was acting as a mentor, and “never made advances toward Ms. Bennett, nor did I ever intend to act in any way that was inappropriate, before asking for an independent review of the matter – and imploring New Yorkers to await the results “before making any judgements.”

    Bennett related an exchange in which she felt Cuomo made clear he wanted to sleep with her.

    Ms. Bennett said that during the June encounter, the governor, 63, also complained to her about being lonely during the pandemic, mentioning that he “can’t even hug anyone,” before turning the focus to Ms. Bennett. She said that Mr. Cuomo asked her, “Who did I last hug?”

    Ms. Bennett said she had tried to dodge the question by responding that she missed hugging her parents. “And he was, like, ‘No, I mean like really hugged somebody?’” she said.

    Mr. Cuomo never tried to touch her, Ms. Bennett said, but the message of the entire episode was unmistakable to her. –New York Times

    “I understood that the governor wanted to sleep with me, and felt horribly uncomfortable and scared,” Bennett said. “And was wondering how I was going to get out of it and assumed it was the end of my job.”

    Bennett says she reported the interaction to Cuomo’s chief-of-staff, Jill DesRosiers, less than a week later – and was subsequently transferred to another job as a health policy adviser, where her office was located on the other side of the Capitol. Bennett also says she reported the incident to a special counsel to the governor, Judith Mogul, towards the end of last June – after which she chose not to insist on an investigation because she “wanted to move on” with her new job.

    Cuomo, in his statement, called Bennett a “hard-working and valued member” of his staff who had “every right to speak out,” revealing that she had opened up to him about being a survivor of sexual assault.

    “The last thing I would ever have wanted was to make her feel any of the things that are being reported,” said Cuomo, who did not deny asking Bennett personal questions.

    Bennett’s accusation comes less than a week after a woman accused Cuomo of sexually harassing her several times between 2016 and 2018, at one point allegedly giving her an unsolicited kiss on the lips at his Manhattan office.

    Lindsey Boylan has accused Mr. Cuomo of harassing her on several occasions while she was employed by the state government.Credit…Rob Latour/Shutterstock

    Cuomo says Boylan is lying. 

    In response to the allegations against Cuomo – and in light of recent revelations that he withheld nursing home death data in order to avoid prosecution by the Trump DOJ, a top New York state lawmaker, Tim Kennedy (D), said that there’s a ‘need to get more information,” adding “And I believe we’re going to be looking for that in the coming days.” 

    https://platform.twitter.com/widgets.js

    Tyler Durden
    Sun, 02/28/2021 – 20:37

  • Which Companies Are Most At Risk From Surging Yields: Goldman Answers
    Which Companies Are Most At Risk From Surging Yields: Goldman Answers

    For those living under a rock in 2021, the big story in the past month is that 10-year Treasury yield have climbed by 50 bps in a month to 1.5% (technically as high as 1.61% for a few brief seconds on Thursday after the catastrophic 7Y auction triggered stop loss selling) as real rates jumped following a steady increase in inflation expectations (breakevens), which however are largely set by 10Y TIPS whose price is determined largely by the Fed due to its massive ongoing monetization of TIPS (thus crushing any actual signaling power TIPS may have). Whatever the cause, while rising breakeven inflation has driven most of the rise in yields during the past six months, the last two weeks have been characterized by a 40 bp jump in real yields.

    It’s this sudden spike in real yields as opposed to breakevens, that has sparked much of the fear in markets in the past week, because as Goldman’s David Kostin explains in his Sunday Start note, “conceptually, and historically, equities digest rising inflation expectations more easily than rising real yields” and not just rising real yields, but a rapid spike the likes of which were last observed during the taper tantrum as we discussed two weeks ago in “Yields Soar, Sending 30Y Real Rates Positive Amid Overheating Panic: What Happens Next“). In any case, as a result of the violent moves in the rates complex, it is hardly a surprise that Kostin writes “the recent backup in rates has sparked a new wave of client concern.”

    Here are the three things Goldman clients are most concerned about, as well as Goldman’s answer:

    • First, investors ask whether the level of rates is becoming a threat to equity valuations.

    Predictably, Goldman’s answer is an emphatic “no” with Kostin claiming (with a straight face) that “although the S&P 500 forward P/E multiple of 22x currently ranks in the 99th historical percentile since 1976, ranking only behind the peak of the Tech Bubble in 2000, our dividend discount model (DDM) implies an equity risk premium (ERP) that ranks in the 28th percentile, 70 bp above the historical average.” In other words, massively, record stretched PE multiples won’t collapse if rates rise. Yeah, right. May want to Timestamp that David. We’ll check back in a few weeks. So what would cause a market crash according to Goldman’s head market cheerleader? Well, according to Kostin, “keeping the current P/E constant, the 10-year yield would have to reach 2.1% to bring the yield gap to the historical median of 250 bp. If instead the yield gap remains unchanged, and rates rise to 2.0%, then the P/E multiple would fall by 10% to 20x.” But don’t worry, Kostin adds, because “in today’s economic environment, our macro model suggests the ERP should be narrower than average.” Translation: yes, a 10% drop is coming but our models say it may not come, so just keep buying.

    • Second, Goldman’s bullish US equity view has already embedded expectations of rising interest rates.

    Addressing the second most regular pushback against its bizarre optimism, Goldman says that an environment of accelerating economic growth (and recall that recently Goldman found that the US Economy is Growing At the Fastest Pace On Record), and higher bond yields is consistent with the bank’s forecast that S&P 500 EPS in 2021 will grow by 27% and be 10% higher than pre-pandemic 2019, driving a 14% rise this year to our year-end price target of 4300 despite a flat P/E multiple. In other words, multiples may indeed contract but the rise in earnings – a result of economic growth – will offset much if not all of the move. Furthermore, the forward market implies that 10-year nominal yields will climb 25 bp further to 1.7% – below Goldman’s 2.1% redline – and real yields will climb by a similar amount to from -0.7% to -0.4% by year-end.

    • Third, even Kostin is forced to concede that the recent change in yields has reached a magnitude that is usually a headwind for stocks.

    As the Goldman strategist concedes, equities have generated an average return of nearly +1% per month, but the return has averaged -1% during months when nominal rates rose by more than two standard deviations and -5% when real yields rose by that amount. Today, a two standard deviation monthly rise in 10-year rates equates to 40 bp for nominal yields and 30 bp for real yields, both thresholds exceeded this week.

    Of course, it’s not just absolute levels across risk that are impacted by rates: Kostin also notes that “shifting interest rates have major implications for rotations within the equity market, a dynamic made clear in recent weeks.” In mid-2020, Kostin’s equity valuation model showed that equity duration –the expectations of earnings growth far in the future –had become a more important contributor to multiples than ever before. One key reason for the importance that investors ascribed to expected future growth was the extremely low level of interest rates. As rates have risen, the contribution of equity duration to stock valuations has declined while near-term growth profiles have become more important. Practically, this means that both the improving growth outlook and rising rates have supported the outperformance of cyclicals and value stocks relative to stocks with the highest long-term growth. Hardly surprising, in recent weeks Goldman’s S&P 500 Growth factor has declined by 9%, similar to the 12% decline around the announcement of Pfizer-BioNTech vaccine efficacy in November

    Which brings us to the one sector most at risk from the continued risk in yields.

    As Kostin writes, “this rotation has also weighed on one of the most spectacular outperformers of the last 12 months: Stocks with negative earnings but strong expected growth.” One of the most remarkable moves of the past year is that a basket of non-profitable tech stocks soared by 204% last year and 27% in the first six weeks of 2021… before falling by 15% in last two weeks. The decline of these high-growth firms has been particularly painful given the current record degree of leverage carried by hedge funds and the elevated activity of retail traders, both of whom have recently favored some of these long-duration stocks.

    To be sure, while earnings for S&P 500 firms declined by 13% in 2020, the fall in aggregate profits does not capture the wide dispersion in operating results that occurred inside the market. While 2020 EPS growth was negative for the overall index and the median stock, the actual level of profits was positive… But not for every company.  In fact, 1082 firms or 37% of the constituents in the Russell 3000 posted negative net income in 2020 (i.e., a loss or negative EPS), and 21% posted negative EBITDA.

    Getting even more granular (and apologizing to George Orwell), Kostin then notes that all companies with losses are equal, but some are more equal than others. Some firms reported negative earnings in 2020 because the pandemic and economic shutdown disrupted their business and crushed their revenues. But in other instances, the Goldman strategist points out that “companies grew sales so rapidly that top-line was the focus of investors and bottom-line losses were ignored.” Indeed, consider that across all non-Financial US stocks with at least $50 million in revenues, “those with negative earnings and declining revenues in 2020 returned a median of -18% last year. In contrast, stocks with negative earnings and growing revenues returned +51%.”

    Recently, however, improving economic growth prospects from vaccination rollout and pending fiscal stimulus coupled with rising rates have moved firms that struggled most in 2020 into pole position so far in 2021. The cyclical and virus-affected firms with negative earnings and falling sales in 2020 have generated a median YTD return of +22%, outperforming the +10% return of the median stock that posted a loss but grew sales last year. Unsurprisingly, these cyclical stocks have been positively correlated with both nominal and real interest rates. In contrast, the ultra long-duration stocks have been negatively correlated with interest rates given they generate no earnings today and their valuations depend entirely on future growth prospects. Cyclicals also carry far lower valuations, with a median EV/2022 sales ratio of 2x vs. 6x for the median negative earner with positive sales growth.

    Putting it all together, Kostin concludes that “looking forward, investors must balance the appeal of promising businesses with the risk that rates rise further and the recent rotation continues.” The list of non-profitable companies that makes up GOldman’s Non-Profitable Tech basket is shown below:

    And although secular growth stocks may remain the most appealing investments on a long-term horizon, Goldman believes that those stocks will underperform more cyclical firms in the short-term if economic acceleration and inflation continue to lift interest rates. 

    Which brings us to the other side of the table: the chart below shows the Russell 1000 firms from each sector with the shortest implied equity durations that have outperformed sector peers during the past two weeks as rates rose and are expected to grow revenues in 2021. The median stock trades at a P/E ratio of 19x and has returned 7% YTD compared with 22x and 2% for the Russell 1000 median.

    Tyler Durden
    Sun, 02/28/2021 – 20:30

  • Futures Soar, Yields Plunge After RBA Panics And Buys Double The Amount Of Bonds In Daily QE
    Futures Soar, Yields Plunge After RBA Panics And Buys Double The Amount Of Bonds In Daily QE

    On Thursday we reported that just three weeks after Australia’s central bank announced on Feb 1 an extension to its QE program by a further A$100 billion (when it also said it doesn’t expect to increase interest rates until 2024) in the pursuit of the central bank’s yield curve control (as a reminder Governor Philip Lowe had previously set the three-year yield target at 0.10%) that same day the RBA purchased a whopping (for Australia) A$3BN in three-year government bonds in the secondary market on Thursday – triple the amount it bought on Monday and the most since the bond market turbulence during the COVID-19 panic last March.

    Unfortunately, the RBA’s scramble to preserve both the Yield Curve Control target of 0.10% on the 3Y, and its credibility, fell short as “only” A$3BN proved insufficient and 3Y Australian bond rose to 0.13%, 3bps above the maximum YCC barrier (and the highest since December) which is why we said “Australia’s Yield Curve Control Is On The Verge Of Collapse.“

    So fast forward to Monday morning when after the latest round of fireworks, the Aussie 10Y had blown out to 1.92% and threatened to unravel the local bond market.That’s when the RBA officially panicked, and took emergency steps to show markets who’s boss, by announcing an even bigger increase in bond purchases, aimed at the longer-term debt and in hopes of keeping the YCC dream alive.

    Specifically, the RBA said it is buying A$4BN of longer-dated bonds, twice the usual amount. This was the first time since officials introduced the debt purchase program Nov. 3 that they bought more than the planned amount outlined by Governor Lowe, and follows the bank’s unscheduled A$3 billion bond purchase operation Friday to defend its three-year yield target, which however also failed to stabilize the rout.

    In kneejerk response, 10Y Aussie yields – which we already down for the day – tumbled much as 32bps.

    At the same time, amid expectations of even more coordinated central bank intervention, treasury futures were rising, with the 10Y yield down to 1.38% after hitting 1.61% on Thursday…

    … and the closely watched 5Y yield tumbling…

    … along with sliding yields in New Zealand and Japan. 

    And with the rout in bonds now seemingly under control, risk assets were heavily bid with Nasdaq futures up 1% in early trading…

    … and with stocks seemingly set for a sharp reversal to Friday’s rout and preparing to blast off in Monday’s session.

    Or, as BofA CIO Michael Hartnett is so fond of saying, “markets stop panicking when policy makers panic.”  As a reminder, Fed Chair Powell and several other U.S. central bankers are scheduled to speak this week, while the RBA has its monthly meeting tomorrow. And with BofA expecting the Fed to address markets “as soon as this week“, there is no telling how high stocks can soar in the coming days as central bank panic goes to 11…

    Tyler Durden
    Sun, 02/28/2021 – 19:55

  • Marcus Mauling: Head Of Goldman's Consumer Bank Leaving For Walmart
    Marcus Mauling: Head Of Goldman’s Consumer Bank Leaving For Walmart

    Back in 2015, when Goldman stunned Wall Street with the taxpayer-backed hedge fund’s decision to roll out a consumer-facing commercial bank – Marcus – which offered “high yield” deposit accounts (of 1.25%) and consumer loans, at least Goldman had rising rates to fall back on: after all that was a period when Janet Yellen had decided that it was time to shrink the Fed’s balance sheet and proceed with hiking rates, waking the infamous “ghost of 1937” (and culminating with the minicrash of 2018, and eventually the biggest liquidity injection of all time in March 2020).

    In any case, rising rates made it easier to sell a consumer-facing commercial bank to Goldman investors. Yes, the revenue stream would be limited (after all Goldman would have to steal market share from such established banks as JPM, BofA, Citi and Wells), but if rates rose enough the Net Interest Margin would provide for a generally risk-free source of income.

    All that ended last March when the Fed made it clear that ZIRP would be with us for years, and instead of an asset, any net interest margin exposure became a liability (especially when accounting for a potential surge in bad loans once the forebearance moratorium ends), and suddenly Goldman’s Marcus doesn’t look like such a hot idea.

    It also explains why Bloomberg reports this morning that Omer Ismail, the head of Goldman’s consumer bank, has made a “surprise exit” and is headed for WalMart as the retail giant muscles into the banking business.

    The world’s largest retailer made a splash last month after disclosing plans to offer financial services with an independent venture in a tie-up with investment firm Ribbit Capital without offering much detail. And now, it has sent shockwaves with the decision to poach Goldman’s top consumer bankers: in addition to Ismail, Bloomberg reports that Walmart is also hiring David Stark, one of his top lieutenants at Goldman, who will join him in the new venture.

    Walmart’s move, which deprives a top Wall Street firm of the talent atop its own foray into online banking, “underscores the seriousness of the retailer’s intent to intertwine itself in the financial lives of its customers.”

    The audacious poaching punctuates years of warnings by bank leaders that their industry faces tough new challengers, after regulators smoothed the way for corporate giants and Silicon Valley to expand into payments and other services

    Ismail is credited as one of the key architects behind Goldman’s push into Main Street, seeing through the growth of Marcus into a billion-dollar business in five years. But, as noted above, in a time of ZIRP (and perhaps NIRP), the allure of a fintech commercial bank rollout has faded.

    The departures are a setback for Goldman, which had just entrusted Ismail and Stark with bigger roles. Ismail formally assumed control of the consumer bank at the start of the year. But he’s been tied to it ever since Goldman’s merchant bank set up the side project several years ago.

    As part of Goldman’s attempt to expand beyond its traditional investment bank strengths, Ismail helped formulate the plan for Marcus – the biggest strategy refresh the firm has seen in three decades. The company ultimately resolved to make itself a serious force in digital banking.

    Meanwhile, stark played a key role in Goldman’s partnership with Apple on a credit card, for which the bank provides the financial backbone. Weeks ago, Goldman named Stark as the head of large partnerships, which was supposed to serve as a key peg for Marcus’s growth, which had recently struck deals with Amazon, JetBlue and – yes – even Walmart. However, Walmart appears to have decided to go it alone and rollout its own fintech division, offering customers low-cost products by avoiding physical branches, and instead using online portals or phones to provide loans, savings accounts or investment options.

    Walmart said in January it aims to combine its “retail knowledge and scale with Ribbit’s fintech expertise” to serve shoppers and associates. Walmart will own a majority of the new venture, but in Ribbit, it has a partner that’s made big bets in the fintech space including backing Robinhood, the scandalous brokerage which sells its retail orderflow to the likes of Citadel.

    As for Goldman, in a world where its “high-yield” savings account is now just a paltry 0.50%, the bank may find significant challenges as it hopes to poach clients away from existing commercial bank relationships.

    Making matters worse for Goldman, it is about to see even greater competition: in December, the FDIC approved a final rule governing so-called industrial loan companies that would make it easier for major businesses to seek banking charters while escaping capital and liquidity demands faced by dedicated financial firms. That’s a worrying prospect for banks facing the risk of going up against against corporate behemoths that could lean on their huge customer base to eat into the banking wallet.

    Ismail’s predecessor Harit Talwar is still a chairman at Marcus and will probably continue to play a key role with the division after Ismail’s exit. The unit also hired a former Stripe executive Swati Bhatia as the head of its direct-to-consumer business earlier this month. After the departure of Ismail and Stark, his tenure at Goldman may prove to be extremely short-lived.

    Tyler Durden
    Sun, 02/28/2021 – 19:40

  • Hedge Fund CIO: "The Fed Will Never Again Cause A Market Collapse: The Next Crash Catalyst Will Be Trivial, Stupid"
    Hedge Fund CIO: “The Fed Will Never Again Cause A Market Collapse: The Next Crash Catalyst Will Be Trivial, Stupid”

    By Eric Peters, CIO of One River Asset Management

    “My beloved dogs Koji and Gustav were taken in Hollywood two nights ago,” tweeted Lady Gaga, the nation reverting to normal, images of the capitol insurrection, the horned Shaman, receding into the depths of our collective humiliation.

    “I will pay $500,000 for their safe return,” offered Gaga, no questions asked, returning America to a more innocent time of price inflation and armed dog snatchings. Apparently, these things are on the rise after a year of lonely lockdowns.

    You see, handing out cash is rather easy, but you can’t print puppies. So their price quite naturally jumped. And for all the focus on the rising price of long-duration assets in a world of perpetually low interest rates, the market for adorably-ugly French bulldogs has been in a low growl. The imbalance rising, a Minsky moment approaching.

    So no sooner had Gaga’s heroic dogwalker taken a bullet to the chest in defense of her pugnacious short-duration assets, then US real rates began a dramatic rise. “The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” said Fed Chairman Powell in a policy panic. “There is a long way to go,” he added, attempting to calm fears that rates will rise even slightly.

    After all, risks to the economy of an abrupt rise in rates has never been higher with a government budget deficit of 15% for the 2nd year running, debt and leverage at historic highs, and global asset prices having largely adjusted to the lowest interest rates in human history.

    Back in 1994, Greenspan hiked rates without preparing the market. Bonds crashed.

    Then in 2013, Bernanke suggested he would taper QE purchases. Bonds had a tantrum.

    But after decades of monetary manipulations, it is no longer Fed chairmen who markets should fear – they will never again knowingly cause a collapse. The next great catalyst, when it comes, will be against the backdrop of an accommodative Fed. It’ll be seemingly trivial, stupid. Obscure. Franz Ferdinand. French bulldogs.

    Temples

    “Daily bond returns were 32% correlated with equities in Feb,” said Indiana, our industry’s leading archaeologist, explorer. “This is an asset class with a 2% aggregate return expectation,” he said. “Nobody is holding bonds hoping for something special. They want surety of capital with the aim of buying cheap stuff when asset prices decline,” he said. “That bond aggregate was down more than 2% at its worst point in the month. Bonds no longer work. Not the end of the world. But it illustrates the problem – portfolios are commonly geared.”
     
    “Credit performance is terrible,” continued Indiana. “LQD is down more than 4% YTD with spreads barely moving.” Credit is funded through capital markets, not banks. “The weakest LatAm links saw a surge in local rates. Brazilian markets imply rate hikes to 9% through the end of 2023, when the Fed is supposedly on hold. That’s a long way from the current 2% rate,” he said. “It is all one trade. Art. Watches. Antique cars. Houses. Bonds. Equities.” Valuations surged in everything. “An orderly unwind means policy must be prepared to let assets become cheap at some point. The rise in bond yields cannot happen in a vacuum.”
     
    “The Fed is being tested,” said Indiana. “Dec 2023 OIS futures now price almost two hikes versus zero for the Fed dots.” This happened with 5yr5yr inflation breakeven spreads down 15bps in Feb and 5yr5yr real yields surging 51bps. “Fed economic types will say the yield rise is good news, reflecting a stronger economy.” The new framework types (Brainard biggest champion) argue that hidden unemployment is rife. “14mm Americans are collecting Federal relief programs that didn’t exist pre-pandemic, a massive number.”
     
    “When terms like ‘full range of tools’ are used by the Fed in various settings, I pay attention,’ said Indiana. “Went back to Clarida Feb 2019. Brainard Feb 2020. There are three tools – forward guidance (exhausted), negative policy rates (unanimous distaste at FOMC), and yield curve control (studied for more than a year now).” So the ‘full range of tools’ is really just yield curve targeting now. “Foreign ownership of treasuries is the blind spot for YCC. Rough numbers – foreigners own $7trln (official institutions are $4trln), Fed owns $7trln (including agency mortgages). YCC can accelerate foreign rebalancing away from US treasuries, weakening the dollar, boosting real asset purchases, or both.”
     
    “Guess what didn’t move in Feb? China,” he emphasized. “China’s bond market was up a bit on the month and the exchange rate was down a bit,” he said, pausing for the obvious conclusion. “The world is hunting for a new safe-haven and the number-crunching is pointing them to Chinese bonds.” The exchange rate may not be the main act of this play. “China is relaxing outflows, moving up the value curve. Their buying of foreign companies paused in the pandemic, and it is heating up again. That’s the story.”

    Tyler Durden
    Sun, 02/28/2021 – 19:15

  • "Stick To What You're Good At" – Global Soccer Superstar Slams LeBron's Political Pandering
    “Stick To What You’re Good At” – Global Soccer Superstar Slams LeBron’s Political Pandering

    Clash of the egotistical titans…

    Global soccer star Zlatan Ibrahimovic has a great deal of respect for the basketball skills of LeBron James, but wishes the Los Angeles Lakers star would refrain from remarking on political concerns.

    The historically outspoken Ibrahimovic, who’s a striker at A.C. Milan, spoke to UEFA and Discovery+ Sweden to express his opinion that athletes in general should shy away from delving into issues involving politics and cited James as an example.

    “He’s phenomenal, but I don’t like when people with a ‘status’ speak about politics. Do what you’re good doing,” Ibrahimovic said.

    “I play football because I’m the best playing football, I’m no politician. If I’d been a politician, I would be doing politics. This is the first mistake famous people do when they become famous: for me it is better to avoid certain topics and do what you’re good doing, otherwise you risk doing something wrongly.”

    Following Zlatan’s comments, LeBron wasn’t too pleased that someone dared to call him out and fired back Friday night, according to ESPN:

    “I would never shut up about things that are wrong. I preach about my people, and I preach about equality.

    Social injustice. Racism. Systematic voter suppression. Things that go on in our community…

    So, there’s no way I would ever just stick to sports, because I understand how this platform and how powerful my voice is…

    I speak from a very educated mind, so I’m kind of the wrong guy to actually go at because I do my homework.”

    Watch LeBron’s response here…

    https://platform.twitter.com/widgets.js

    Daily Caller’s David Hookstead summed things up perfectly: “This is America. Everyone is entitled to their opinions, but being able to score 30 points in an NBA game doesn’t make you an authority on politics.”

    Tyler Durden
    Sun, 02/28/2021 – 18:50

  • Financial False Hope, Part 1: "I Know You're Lying…But, I Trust You With My Life!"
    Financial False Hope, Part 1: “I Know You’re Lying…But, I Trust You With My Life!”

    Authored by Steve Penfield,

    Investing trust in the wrong people and policies can be ruinous. How much dishonesty does it take before the public stops putting blind faith in debt dealers, corporate crooks and the servile politicians who do their bidding? The widespread acceptance of ‘healthy’ inflation, monopoly patent rights, the ‘retirement’ trap and enslaving corporate ‘benefits’ would suggest we enjoy the abuse.

    Throughout modern history, a perpetual quest among leisurely aristocrats, the entourage of corporate titans and their political suitors has been solving the mysteries of how to get paid for doing nothing and how to look good while doing it. The various means developed over the centuries by our mainstream banking industry—wearing a princely costume, shifting papers around a desk, funding corporate dominance along with ruinous wars and welfare programs, then lounging in the comfort of an expansive corner office—have neatly satisfied both elements of that royal endeavor. Enslaving the public to endless financial servitude just adds an unfortunate side-effect of the primary mission.

    In America, that economic bondage presently amounts to over $80 trillion in public and private debt that thousands of businesses and millions of citizens cannot possibly pay off. Political banking privileges have also created about 4,000% real inflation (using historical government accounting methods) since the U.S. fully abandoned the gold standard in 1971—turning $100 of savings into a paltry $2.50 of original value. (From the 1790s to 1933 in America, various gold standards—poisoned with fractional credit creation—failed to prevent about a dozen major banking collapses that many still mischaracterize as emotional “panics.” But those somewhat fixed standards did provide resistance to systemic monetary debasement.)

    It almost goes without saying that high-striving politicians will stretch the facts when it serves their purposes—especially on financial matters. But only within the last three or four generations has a broad segment of the U.S. population accepted this gross economic abuse—along with many related cultural distortions—as unquestionable necessities.

    By this late stage in Western society’s unraveling, the falsehoods protecting the chicanery are almost too many to fathom. So for this essay I will focus on the most prominent fictions of the financial world and some associated fables that bankers eagerly sponsor.

    This essay will consider the claims of “good” inflation, the natural market tendency of deflation and the reality of money multiplying that few insiders dare to admit. It will likewise expand on the issue of bank counterfeiting and introduce a suggestion for broadening that “stimulating” privilege to the rest of us. The false sense of security of trying to “regulate” corrupt banking activity will get some overdue attention. Along the way, I’ll briefly address some problems of monopoly patent “rights,” since easy bank money funds this corporate welfare racket that hurts actual innovators (noting once again, our mainstream media’s refusal to do their job on this important topic as well). Then I will venture into uncharted waters of critically reviewing the popular new traditions of relying on corporate “benefits” in lieu of intact families and financial interdependence, along with the practice of quitting your job and handing your life’s savings to empty bank vaults and Wall Street gamblers.

    A condensed table of contents for the section headings of this essay is provided below.

    Part 1

    • A Few Experts with Something Useful to Say

    • Money Multipliers and Empty Banks

    • A Minor Fib on the Fed’s Virtual ‘Printing Press’

    • Of Course, the Feds are Lying about Unemployment

    • Five Sections on Inflationary Myths

    • Sidebar on Monopoly Patents: More Corporate Welfare that Everyone Loves

    Part 2

    • False Sense of Security: Trying to ‘Regulate’ Corrupt Banking Activity

    • Four Sections on Retirement

    • Corporate ‘Benefits’

    • Monetary Monotheism

    • Conclusion and Post Script

    In researching and writing this three-part financial series, I frequently sat in amazement of the dismal state of economic understanding in America today. If our media did any honest reporting or our schools provided any challenging education, more people would already know just about everything to be discussed herein—as most of it is fairly easy to comprehend. But based upon our runaway debt, inflation and other catastrophic economic failures, that doesn’t seem to be the case. And it doesn’t appear to be an accident.

    Catering to the desires of our insular financial, corporate and political classes, a subsidized clique of mass media and institutional soothsayers would have us believe that the system is not rotten to the core. Their false narrative maintains that private bankers did not conjure any of the roughly $80 trillion in total outstanding U.S. credit from thin air—debt that keeps the elites on top and the vast majority trapped in stagnation. The manufactured inflation that turned “penny candy” of 1913 into similar treats costing well over a dollar today gets whitewashed as either a conspiracy theory of “gold bugs” or a productive policy we need to extend indefinitely (or somehow both). The “thought leaders” of society proceed to insist that the historically and mathematically demonstrated “credit cycle” is actually a natural “business cycle” of the reckless marketplace, and that fiat “legal tender” mandates divinely write themselves, thus can never be unwritten.

    On top of that, the skyrocketing cost of healthcare (a side-effect of easy money and World War II wage controls) associated with joining a corporate insurance pool is sold as “benefits”—always “your benefits”—to falsely impute personal ownership where none exists. Quitting your job, forever, and relying on altruistic Washington benefactors gets the double honorific—repeated ad nauseum—of being both “social” and enhancing “security.” Monopoly patent privileges and other barriers to market competition (medical licensing, legal guilds, teachers’ unions) must never be questioned, because they too are “beneficial” for society, we are frequently told.

    Yes, there is quite of bit of mind-numbing disinformation to sort through in our daily attempt to carry on. While the general public seems to have an increasing awareness—thanks to the liberating nature of the internet—that something doesn’t quite make sense, all cylinders are not yet firing in any movement for economic progress that I’m aware of.

    Part of the problem is the unnecessary distractions tossed out regularly by professional political experts—almost all of them lacking financial independence and thus prone to pandering to their base. Liberal/socialist pundits assure us that “unregulated” private-sector activity (although extinct since at least the 1970s) is to blame for every social ill; just a few thousand more rules and a few trillion more dollars for new centralized programs and we’ll be safe from those lingering free-market barbarians. Conservative/liberty types insist that the Federal Reserve is the root of all financial evil; never mind the numerous devastating banking collapses that occurred before the Fed was created (such as 1784, 1792, 1796, 1819, 1837, 1857, 1873, 1884, 1893, 1896, 1901 and 1907) and also ignore the inflationary debasement inherent to fiat banking.

    Thanks to the empty nature of both partisan messages—and the many important gaps conveniently left out—politicized banking elites and fascistic corporate cartels have been corroding the social fabric of the West for centuries, with virtually zero effective opposition.

    No matter how much we may claim to recognize the dishonest nature of our ruling authorities and their clandestine corporate masters, we just can’t seem to stop obeying all their foolish and harmful temptations. (Two such deceptive enticements will be explored at length in this essay, breaking tradition with conventional norms of tossing raw meat to the audience. Like most Americans, I thankfully have a full-time job outside of writing. So while I welcome any interesting feedback… I don’t need your financial support.)

    In accordance with the title of this piece, considerable attention will be given to the many enduring myths that keep our financial system in its perpetual state of dysfunction. To offset part of that inevitable negativity and economic gloom, a few sections of more sensible and/or positive material have been included towards the beginning to start on a brighter note. These should also help dispel some of the false narratives I’ll be addressing later.

    A Few Experts with Something Useful to Say

    For a good overview on the economics profession, I’ll refer to a comment by RoatanBill in a previous article (not one of mine) published in April on this website:

    It all starts with Economics. Economics is a fraudulent profession. Economics can’t prove anything, economists can’t predict anything without another economist saying the opposite and economists can’t even come up with why past events happened with a consensus OPINION.

    In short, Economics is just BS OPINION spread around by people with degrees that shouldn’t exist. If you can’t PROVE something, then that ‘profession’ shouldn’t be able to hand out PhD’s. Having a PhD in an opinion is worthless to society and does real harm.

    On a more upbeat note, I’ll add one of the best educational offerings I’ve found on the topic of economics. This starts with the important concept of a bank balance sheet. (Over the years, I must have read well over 100 economic essays by familiar names and from critical “outsiders” that manage to bypass this crucial topic.)

    The example balance sheet below comes from an article written by Alasdair Macleod, a former stockbroker and banker who is now a Senior Fellow at the GoldMoney Foundation. I did some formatting to change his two tables into a single chart and added footnotes at the end to help explain some banking terminology. Mr. Macleod’s tables illustrate how modern banking activity results in “lending money into existence” as he aptly puts it.

    Example Bank Balance Sheet

     

    M.U. = Monetary Units. Above data and labels are from Alasdair Macleod, except for the “equity ratio” which is discussed in his article but not shown directly in his tables.

     

    Additional notes by Steve Penfield:

    Due from Banks = deposits from “my” bank into other banks to expedite future transfers.

    Interbank Loans = short-term loans “my” bank receives from other banks for daily balancing.

    Debt bonds are issued by banks and sold to investors (pension funds, etc.).

    *Another way to view “shareholders’ equity” is to consider it the principal deposit.

    His chart shows a true Balance Sheet to Equity Ratio with a proper focus on the money multiplier effect. Conversely, the politicized “reserve ratio” at the end of expansion would be 30 (cash) / 250 total = 12%, which passes the Fed’s historical 10% minimum (dropped to zero on March 26, 2020) for state-chartered banks, with federally chartered banks always allowed to hold less reserves. So under the existing labyrinth of federal regulation, the 12.5 money multiplier is perfectly legal.

    Understanding a bank balance sheet also helps us recognize the common myth that only the government can create money out of thin air. Prior to the financial collapse of 2008, the only significant instances where fiat currency emanated directly from the U.S. federal government were the political rebels in 1775 who issued paper Continentals to fund their war against England and Lincoln’s Greenback stunt of the 1860s to wage battle on the South. Other than that, fiat credit creation—with its inevitable boom/bust cycles—throughout American history has been overwhelmingly accomplished by private bankers.

    This manufactured boom/bust dynamic helps explain why the top 0.1% of Americans now own more wealth than the bottom 80%—an achievement suited for a banana republic led by a military dictator.

    Blaming the current wealth gap on the Fed (or worse yet, “capitalism” itself) is just a cop out from people trying to attract attention to themselves or with some ideological axe to grind. Let’s recall that J.P. Morgan (1837–1913) at the end of his life had officers sitting on “the boards of directors of 112 corporations” and as of 1921 Andrew Mellon (1855-1937) served “on the board of more than 150 corporations,” as noted in my first essay of this series. Not bad for a couple of money manipulators with no useful job skills. (Fed-bashers take note: Morgan died before the Federal Reserve was created.)

    For a more recent look at the riches of high finance, the ten largest banks in the U.S. have accumulated nearly $10 trillion in assets (as of December 2019)—mostly by loaning and investing “money” they never owned in the first place. Mostly by exploiting political privileges that ordinary people cannot access. Mostly from the safety of air-conditioned offices like these ones.

    Of course, banks also provide the vital function of facilitating millions of transactions every day—with their check clearing, ATMs and credit card processing. Legitimate bankers can continue to play this important role in keeping consumer interactions secure and liquid without their fiat counterfeiting privileges. But why settle for an honest living when you can get rich on legalized alchemy?

    Money Multipliers and Empty Banks: The Best Kept Secrets in the Financial Industry

    While lingering just a bit longer on the positive side of the ledger, here’s a couple more sensible economic experts with important things to say about some rather villainous activity. These crucial topics tend to get obscured by so much heavy breathing over the Fed, the ogre of “globalism” or just vague denunciations of the “vampire squids” of finance.

    It turns out, the very concept of the “money multiplier” that bankers have been using for centuries is so embarrassing to the financial industry that many simply deny it. Wikipedia provides a decent entry on the Money Multiplier concept, reflecting some of the controversy with their statement:

    Although the money multiplier concept is a traditional portrayal of fractional reserve banking, it has been criticized as being misleading. The Bank of England, Deutsche Bundesbank, and the Standard & Poor’s rating agency have issued refutations of the concept together with factual descriptions of banking operations.

    Legacy media, banking executives and their support staff at the Federal Reserve would much rather talk about “consumer protections” and “deposit insurance” from the minimal reserves they hold—or just prattle on about “stimulus” and “quantitative easing” to put people at ease.

    Better yet, the major banks like to run advertisements in corporate media showing smiling parents walking into a sparkling new house (after signing a 30-year mortgage) or a college loan recipient clutching their precious diploma (not a care in the world over the debt they just incurred). The financial services industry spent nearly $16 billion in 2019 just on digital advertising to advance such blissful narratives. The overall theme of most financial promotions (that professional newsmen are glad to embellish) is that smothering debt equals pure joy.

    Images of paid actors pretending to be happy homeowners and ecstatic college students in flowing graduation robes help distract from the shocking fact that as of December 2019, the FDIC reports a $110 billion insurance fund balance to cover $7.8 trillion in insured deposits—a paltry 1.4% reserve ratio.

    For sake of completeness, their footnote #3 by the word “Fund” deals with accounting methods before 2006, thus is irrelevant for current data.

    To the glaring obscenity of the naked emperors in Wall Street and Washington D.C. (as well as London, Paris, Berlin and other financial centers): their banks are all nearly empty.

    As in the classic children’s story about a similarly exposed monarch, legacy media and leashed academics just tag along for the parade, pretending that the banking imperials are adorned in the finest of fashions.

    Cutting to the heart of fiat credit creation, U.K. economics professor Richard Werner authored an essay in the International Review of Financial Analysis in 2016 that summarized various viewpoints on the “money multiplier,” with over two dozen prominent economists cited in lengthy excerpts. As commenter RoatanBill asserted, the professor’s essay confirms there is nothing close to a consensus within the pseudo-science of economics.

    Werner’s essay investigates the three competing theories on the central question: “How do banks operate and where does the money supply come from?” In his words, with his groupings of economists into their respective categories shown in [brackets]:

    1. The currently prevalent financial intermediation theory of banking says that banks collect deposits and then lend these out, just like other non-bank financial intermediaries. [J.M. Keynes, Ludwig von Mises, Ben Bernanke and Paul Krugman support this theory]

    2. The older fractional reserve theory of banking says that each individual bank is a financial intermediary without the power to create money, but the banking system collectively is able to create money through the process of ‘multiple deposit expansion’ (the ‘money multiplier’). [Friedrich von Hayek, Joseph Stiglitz and Paul Samuelson support this theory]

    3. The credit creation theory of banking, predominant a century ago, does not consider banks as financial intermediaries that gather deposits to lend out, but instead argues that each individual bank creates credit and money newly when granting a bank loan.

    The latter theory prevailed until the mid-1930s when famed economist Irving Fisher offered mild approval to that concept—and the more flamboyant Keynes sneered contemptuously otherwise. More recently, Hans-Hermann Hoppe, Basil Moore and Richard Werner ignored the academic scoffing and support the credit creation theory of banking, to which I would agree.

    The fact that this core question is still viewed as controversial—and not remotely settled—just reinforces how far backwards the entire field of economics has regressed since the 1930s political takeover of the U.S. economy. Since that era, fiat credit creation became a moral imperative that dare never be publicly admitted by the vast majority of professional economists, politicians and media spokesmen. In Werner’s carefully measured words:

    the economics profession has singularly failed over most of the past century to make any progress in terms of knowledge of the monetary system, and instead moved ever further away from the truth as already recognised by the credit creation theory well over a century ago.

    Adding to the confusion, among the more vocal critics of the credit creation theory was MIT professor and author of the most popular economics textbook since World War II, Paul Samuelson (1915–2009). In the 1948 first edition of Samuelson’s famous economics textbook, he went to great length to insist it was “impossible” for a single bank to create money through the lending process. However, Samuelson conceded (for his example 20% reserve scenario) that:

    the whole banking system can do what no one bank can do by itself. Bank money has been created 5 for 1…”

    Rather than dwell on which of the three monetary theories is most accurate, I’ll just reiterate that the author of the leading college economics textbook of the 20th century (with over 4 million copies sold according to Wikipedia) admitted that the “banking system” creates money out of thin air. However, I will also note the acrobatics that Samuelson and others employ to fully absolve any individual banker of guilt.

    It may be a sign of progress that the home of the conservative Fed-bashers, ZeroHedge, allowed a brief moment of clarity to invade their otherwise puerile platform of pro-banking mythology. Financial pundit Travis Kimmel explained in an August posting on inflation picked up by ZeroHedge (since moved behind their paywall) that:

    A dollar is ‘born’ when a loan is made against collateral on a bank’s balance sheet. Banks can issue multiples of dollars for every dollar of collateral they have. … As banks lend more, more dollars are created and the money supply increases. This multiplicative lending is the chief driver of total dollars in the system.

    Simple wisdom you will never find from a federal broadcaster shilling for corporate advertising dollars. So far, this isolated exception has apparently not been repeated in any conservative or libertarian publication that I can find. (Most liberal publications are too busy raging against “capitalist greed” to offer anything sensible on financial education. But that’s to be expected.)

    With the internet lowering barriers to communication as not seen since the early 1920s advent of commercial radio (nationalized in 1927), useful information is now increasingly available to any person willing to look for it. But entrenched members of state media, corporate cartels and public schooling still hold a firm grip on institutional power. Those forces continue to wield enormous sway over who may speak on coveted broadcast airwaves, who receives a platform among censorious tech utilities and who gets pushed to the sidelines.

    This vast influence further dictates who receives praise as trustworthy “experts” and who gets mocked and ridiculed with pejorative slurs and epithets to invalidate their message. In virtually every case, the “winners” favor arbitrary centralized power, while the “losers” do not.

    A Minor Fib on the Fed’s Virtual ‘Printing Press’

    To begin addressing the central “lying” theme of this essay, I’ll ease into it with a popular distortion that maintains a nugget of truth. When it comes to pointless diversions, it’s hard to beat the incessant right-wing and libertarian denouncements of the Fed’s legendary “printing press.” Anti-government extremists need a villain with the word “federal” in its title. And conservative demagogues have milked this trope for decades to sell their books and newsletters and to fill seats at weekend seminars (while not helping the public one bit).

    The “printing press” meme grossly oversimplifies what the Federal Reserve does and distracts from the rampant counterfeiting of private fiat credit bankers whom the official Right cannot stand to criticize. As for the alleged Fed “printing,” banks conjure loans to the U.S. Treasury to buy government bonds (i.e., “financing the national debt”). When governments get desperate to spend new money they don’t have—and don’t have the integrity for transparent payment via unpopular tax increases—the Federal Reserve buys these bonds back from the banks, freeing up the banks’ balance sheets to create more loans (possibly) or buy more government and corporate bonds (more likely) or simply award lush C-suite bonuses (also likely). The latter option is exemplified in this 2009 clip from the New York Times (credit to Armstrong Economics):

    The Fed’s convoluted money processing machine—problematic as it is—only amounted to a relatively small $4.2 trillion balance sheet at the end of 2019. (All of that was owned by opportunistic banks and other institutional investors, by the way. The Fed can’t “print,” or more accurately buy back government bonds, without eager bankers willing to finance that shell game.) Much worse than that, as of the same time period the banking industry had created a total of $75.5 trillion in government, corporate and household credit (same as debt). Whining about the dastardly Fed running its non-existent “printing press” isn’t just misleading, it reflects willful ignorance or intentional deception among right-wing and libertarian ideologues who apparently want private bankers to be free to fleece the public without any accountability.

    Financial writer Travis Kimmel again gets it right, noting: “the Fed ‘printer’ … only increases the collateral banks have to lend against. It does not directly ‘birth’ dollars, only *potential* dollars.” But his sensible voice is presently drowned out by anti-Fed fanatics.

    Of Course, the Feds are Lying about Unemployment

    Warming up for more serious economic fabrications, we have the ongoing underreporting of unemployment. I’ll keep this section short since it’s pretty obvious that a country of over 330 million people, with less than 164 million civilian workers, cannot possibly have an unemployment rate of under 4% as reported for all of 2019. As is now common, some creative accounting helps make our staggering economy seem vibrant.

    Since 1994, the BLS has achieved their bogus unemployment figures by omitting “discouraged workers” who have given up looking for work for more than one year. This army of the downcast has grown, thanks in part to the natural comforts of not working, and also the smorgasbord of entitlement offerings Americans can now choose from (financed mostly by debt).

    For more realistic unemployment estimates that include these long-term “discouraged” Americans, ShadowStats data put the average unemployment rate for Jan 2010 through Dec 2019 at a whopping 22.4% compared to the official BLS reported rate of 6.2% for that period. That is, the entire decade of the 2010s experienced Depression-era unemployment numbers.

    Even the figures from ShadowStats are generous, since they omit tens of millions of seniors who follow the tradition of permanently quitting work since the New Deal convinced them to get out of the way. Millions of college-aged students—lured into classrooms to memorize dogma while they accumulate debt—are also overlooked by employment bean-counters. Both groups were overwhelmingly part of the workforce in the 1930s.

    Moving on to a much bigger pack of prevarications, we have the intentional debasement of our mandatory “legal tender” known quixotically as “inflation.” Owing to the enormity of this collection of falsehoods, I’ve broken this topic into five subsections.

    Many Big Lies on Inflation

    • The myth that passive inflation ‘just happens’

    • The natural state of beneficial deflation

    • Inflation is much worse than the Feds are admitting

    • America in the 19th century: progress with no net inflation (refuting left/right extremism)

    • Why not inflation and counterfeiting for the masses?

    The myth that passive inflation ‘just happens’

    Any discussion of “inflation” needs to begin with an understanding of what it is. Here again, we see the spectacular success of the financial community to convince the public that inflation means rising prices. Bankers, government officials and their institutional supporters now openly espouse this risible nonsense. And it just so happens that—“oopsie”—the false definition of passive inflation conveniently masks the problem of active fiat counterfeiting. (Hat tip again to Caitlin Johnstone as cited in Part 1: this too seems to be “manipulation… not incompetence.”)

    Actually, for centuries inflation was understood to mean the intentional act of pumping more government currency or bank notes into the money supply, which then caused prices to rise. As recently as 1919, the Federal Reserve was basically admitting as much:

    Inflation is the process of making addition to currencies not based on a commensurate increase in the production of goods. [as quoted in “On the Origin and Evolution of the Word Inflation,” Federal Reserve Bank of Cleveland, 1997]

    That same year just over a century ago, Cambridge economist J.M. Keynes was openly denouncing the “process of inflation [by which] governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” He added “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency”(longer quote available at Wikipedia). By 1936, Keynes’s influential book The General Theory of Employment, Interest and Money, as reviewed in my last essay, would contain no such criticism of this powerful tool.

    Within a few generations of that semi-lucid 1919 Fed statement and the young Keynesian critique, our educational and media gatekeepers had debauched the language to make “inflation” into a passive result of unruly “market forces” that need to be tamed by wise central policy makers. (For a third piece of supporting evidence, the 1913 Webster’s Dictionary definition of “inflation” also focused on expansion or increase of currency, with no mention of resulting prices, as Peter Schiff recently pointed out.)

    When government officials now boast of their “efforts to curb inflation,” they are deflecting attention away from their own misdeeds and the mischief of their financial overlords.

    Inflationary raids on public money are nothing new, of course. When Roman emperors became aware they could issue more currency by mixing in cheap copper or iron in their valuable gold or silver coins, this was an early form of monetary inflation that we now call debasement. Economist Martin Armstrong provides a useful chart of the Collapse of the Roman Silver Monetary System from 280 B.C. to 518 A.D. that depicts this process. His chart reflects the centuries of relative monetary stability until a “waterfall event” around 250 A.D., when silver content of coins was reduced about 90%. Silver content of the Roman denarius stabilized again (to some extent) for about two centuries at the new debased levels, then finally collapsed entirely in the early 500s A.D., ushering in five or six dreadful centuries of public squalor we know as the Dark Ages.

    Prior to the ultimate collapse of the Roman denarius, as more and more worthless coins flooded the markets (allowing emperors to pay for wars and “bread and circus” social programs) prices of common goods also increased. But this didn’t mean the food and clothing of the era was more valuable or that people were getting richer. It meant that people had an abundance of cheap money they were willing to part with in exchange for real stuff— as we see today with skyrocketing prices for college and medical care and major cost increases for land, housing, automobiles and other essential items. And none of this is accidental.

    The natural state of beneficial deflation

    Whereas inflation enriches those first in line for the debased currency (fiat bankers, corporations and bloated bureaucracies), deflating prices inherently benefit consumers or those who save and invest their own money. Nevertheless, for all the talk of “democracy” helping the little guy, you’d be hard pressed to find any public figure saying anything positive about deflation. The problem is that habitual debtors (farmers, corporations and our federal government) actually want—and beg for—constant inflation to make their debts less burdensome. Monetary or price deflation is economic poison to that unstable mindset.

    While few admit this, the Fed’s magical 2.0% inflation target has little to do with “taming market excesses” or “protecting consumers” and more to do with overcoming the natural pressures of deflation, all for the benefit of wealthy debtors. If economic progress means anything at all, decreasing consumer prices should almost always be the norm. That is, every year businesses find more efficient ways of providing their products or services. In an open and competitive marketplace with a stable currency, this leads to lower (not higher) prices.

    For instance, industrial efficiencies brought down the price of British steel from $80 a ton in 1873 to under $20 per ton in 1886, according to Henry Hazlitt in his book Economics in One Lesson. These innovations (particularly the Bessemer process) would be adopted by Andrew Carnegie to aid America’s booming economy at the time—causing a price drop in steel railroad rails from $100 per ton in 1873 to $50 two years later, then down to $18 per ton in the 1890s, according to the prior Wikipedia link.

    America’s automotive manufactures produced similar growth and consumer savings. Henry Ford’s Model T automobile “sold for $600 in 1912 but its price had fallen to $240 by the mid-1920s” as noted in Robert Murphy’s P.I. Guide, page 71. Over at General Motors, a “Chevrolet six-cylinder touring car cost $2,150 in 1912; an incomparably improved six-cylinder Chevrolet sedan cost $907 in 1942,” according to Hazlitt.

    Contrary to the notion that deflation will harm workers, Hazlitt points out that U.S. automotive employment increased from 140,000 in 1910 to 250,000 in 1920 and then 380,000 in 1930—all while car prices were declining.

    Market efficiencies have driven down costs of essential products from food and clothing to computers and long distance calls—once AT&T’s patent-fueled monopoly was finally broken up in the 1980s. Financial blogger Mike “Mish” Shedlock adds other logical defenses of deflation and the sensible observation that “The very essence of rising standard of living is more goods at lower prices thanks to innovation and rising productivity.” Yet in state media and subsidized education, the myth persists that rising prices are both natural and beneficial for the public.

    Inflation is much worse than the Feds are admitting

    As many economic observers in alternative media have asserted, official CPI data as tracked by the Bureau of Labor Statistics (BLS) have been manipulated for decades to under-report inflation. The Chapwood Index helps provide useful background on why the BLS altered its own Consumer Price Index calculations in the 1980s, including this excerpt:

    prior to 1980 [the CPI] was accepted universally as an accurate measure of how the cost of living increased. Fast forward to 1983-1984, when the government realized that the cost of living was growing more than 12% – 13% per year. It was determined that if the cost of living were lower the government would save money.

    It turns out that the CPI has been around since the 18th century and it worked well when it “was a measure describing a basket of goods that defined the same items of goods applying the same weight during the same time period,” as Ed Butowsky of the Chapwood Index puts it. We could also call this using honest “weights and measures” or maybe just “responsible government.” But that’s not what we have today.

    The longstanding CPI calculation went haywire soon after Nixon took the U.S. off the international gold standard in 1971, to help finance the Vietnam War and also pay for LBJ’s lingering “war on poverty” that most of Washington was terrified to scale back.

    Official Consumer Price Index figures over the last two decades show average annual inflation at about 2.2%. Historically consistent (1980-based) CPI measures tracked by ShadowStats put average inflation from 2000 to present at 9.4%. This is a huge difference and also a major injustice.

    For a $20 trillion economy, causing a mere 2% net inflation steals at least $400 billion from consumers and savers each year. (That ignores natural deflation, which makes the issue even worse.) At 9% real inflation, the annual theft is more like $1.8 trillion—mostly going to rich bankers and Wall Street executives, as the system was designed. It also allows deficit spending for military adventures and social programs without unpopular tax increases or Congressional accountability.

    To put it mildly, politicians, bureaucrats, bankers, colleges, farmers, financial planners and public corporations all really LOVE inflation. They all enjoy the free lunch at someone else’s expense—namely those that don’t have a front row seat to the banking industry’s liquidity hydrant.

    For a graphical view of recent U.S. inflation, economics writer Charles Hugh Smith provides the useful chart:

    One common thread on the worst of the skyrocketing prices (college and medicine) is that the delivery systems are all politicized, with massive federal interference and mandatory state licensing cartels that minimize competition, intensify vanity and maximize cost. Home building and automotive manufacturing are also highly restricted by government rules, limiting market efficiencies and artificially raising costs in both cases.

    American banking in the 19th century: progress with no net inflation (refuting left/right extremism)

    Here’s an area of monetary history where Fed-bashers and Fed supporters both trip over themselves in differing ways on their missions to spin false narratives on inflation, resulting in the extremist myopia of choosing No Government or Totalitarian Socialism, no other options.

    First, to solely blame the Federal Reserve for today’s persistent inflation—implicitly pushing for no banking oversight whatsoever—is both foolhardy and disingenuous for multiple reasons. Besides the inherent fraud of fiat banking itself, one powerful evidence of “End the Fed” absurdity is that U.S. inflationary booms and busts were also rampant in the 19th century during periods when there was no central bank.

    Wikipedia’s entry on the “History of central banking in the United States” provides the chart below along with a description of the “free banking” era of 1837–1862:

    In this period, only state-chartered banks existed. They could issue bank notes against specie (gold and silver coins) and the states heavily regulated their own reserve requirements, interest rates for loans and deposits, the necessary capital ratio etc. …During the free banking era, the banks were short-lived compared to today’s commercial banks, with an average lifespan of five years. About half of the banks failed, and about a third of which went out of business because they could not redeem their notes.

    Wikipedia fails to mention that banks were free to issue bank notes many times the amount of actual gold and silver holdings—i.e., the enduring practice of counterfeiting. This careless “printing” of notes and loans caused the instability, as it does today in a more gradual fashion.

    Monetary Chaos of the ‘Free Banking’ Era

    The “free banking” credit sprees caused the wild up/down changes in the money supply and price levels, hurting consumers and wrecking thousands of businesses. Mere numbers on a chart don’t capture the suffering inflicted by such reckless banking behavior.

    On the other hand… Fed supporters cling to the notion that their beloved central bank is actually helping to curb inflation. This too is false.

    Before 1914 when the Federal Reserve came into existence, painful boom/bust credit cycles eventually leveled off to a relatively stable position—until the next cycle soon started up again. Subsequent maneuvering by the Fed and the U.S. Treasury over the last century (artificially suppressing interest rates, selling then buying Treasury bonds to and from banks, using bond proceeds for illicit government spending, creating the false sense of security with sham regulations and deposit insurance, etc.) just postpones a full correction—which will be excruciating.

    Since the Fed and the Treasury Department have jointly worked to prevent a proper recovery, the cumulative inflation using original Bureau of Labor Statistics methods (as tracked by ShadowStats) for 1913 through 2019 is about 16,000%, as detailed in my last essay. This means that anyone who saved a dollar back in 1913, if they were still living today, would now have under 1 penny of equivalent purchasing power. That’s an over 99% loss of value and evidence of incompetence on the part of federal politicians as well as proof of malevolence among their financial masters.

    Prior to the Fed’s creation, matters were much different. The federal agency that officially tracks inflation, the U.S. Bureau of Labor Statistics, even admits to an absence of *net* inflation during the 1800s, if you can sort through thousands of words of bureaucratic fluff. The BLS states:

    The limited price data from the 19th century also show no pattern of consistent inflation; indeed, evidence suggests that there was net deflation over the course of that century, with prices lower at the end than the beginning.

    I’ll note again, the above quote is from the federal government. The very same federal government now insists that persistent inflation is both normal and healthy. That informative BLS website also provides useful charts (their data, my descriptions) of what:

    1. A rapid market correction during a depression looks like…

    1. What a prolonged, politically “stimulated” non-correction looks like…

    In figure 1, we see a sharp deflationary correction during the 1920-21 depression following World War I. For the next eight years, Americans experienced “roaring” prosperity across all income brackets.

    In figure 2, we see the effects of massive “stimulus” spending and other market interference—precisely to avoid a deflationary correction that politicians and corporations fear. The result was more than a decade of economic squalor, business closings and high unemployment.

    Why not inflation and counterfeiting for the masses?

    At some point (probably reached long ago) all the data and history and charts and graphs stop having an impact on the public psyche and just fade into background noise. When businesses and politicians have a vested interest in believing nonsense—that fiat credit and inflation are somehow good for society—and diligently promote such gibberish, it becomes more practical to simply call their bluff.

    If credit creation, money multiplying and price inflation are all beneficial… then why not extend those privileges to the general public? (In a “well-regulated” manner, of course.)

    For instance, instead of the universal basic income that many liberals now advocate, we could just allow people in selected income ranges to periodically withdraw ten $20 bills (a responsible 10% equity stake) and add an extra zero in the corners, transforming each one into a $200 bill—a net gain of $180 for each note. Assuming roughly 200 million poor or middle-class U.S. adults, changing a stack of ten $20 bills into $2,000 would create $360 billion in new “credit” for each iteration.

    This new money would then be pumped into the economy—in accordance with reasonable guidelines on proper spending (e.g., not cigarettes, junk food or alcohol, etc.)—to “stimulate” business growth and hiring, thus paying for itself according to prevailing monetary theory. We could hold such Universal Credit events a few times a year to give working families a much-deserved “hand up, not a handout” as social welfare activists often say.

    Let’s remember that George Floyd was arrested and killed in Minneapolis for alleged “credit creation” involving a couple fiat $20 bills found in his possession. To commemorate this unnecessary loss of life—and enhance monetary equity—I propose that Universal Credit be established on currency designed in Mr. Floyd’s honor (with added markings left to public discretion):

    Under such a program, store owners would naturally be compelled by Legal Tender statutes to accept such $200 bills at face value. To maintain order, participants would just stop by the nearest Social Security or Food Stamp office and have trained Monetary Agents scan and record the serial numbers on the altered bills to prevent too much “bad” inflation, which skilled federal workers would watch out for. Many social problems from food insecurity to lack of affordable housing to schools without band instruments could be quickly solved or greatly diminished with such an influx of liquidity.

    Except, no one would fall for such an obvious display of monetary manipulation. A crucial feature of inflationary debasement has always been to obscure the damage to the greatest extent possible, in order to extend the process. After all, the #1 goal of any con-artist is not getting caught. For the last two decades, this has meant rigging the stats to pretend that 8 to 10% annual inflation is only 2 or 3%. Since long before that, inflationary graft has relied on a stable of academic cranks and pro-government journalists who adamantly insist inflation is good.

    My proposed program of Universal Credit faces an even greater obstacle, in that ruling elites don’t like their special privileges being shared with the masses. So inflation and counterfeiting “rights” are fiercely guarded by the powerful banking cartels with help from their agents in mass media and politics.

    *  *  *

    SIDEBAR: Monopoly Patents: More Corporate Welfare that Everyone Loves

    While on the topic of corporate banking privileges, another major form of corporate welfare worth considering is what politicians call the “patent system.” With so much misguided angst circulating about “globalism” and private-sector “greed”—and with commercial media usually shilling for corporate favoritism—I think it’s overdue to figure out how those evil “oligarchs” actually empower themselves.

    In the U.S., politicized corporate boards (seldom a real “innovator” in sight) rely on monopoly patent “rights” to protect their fiefdoms from open competition. I have never heard any member of the Official Right or the Official Left even meekly question this legal monopoly scheme—arguably the second most significant example of corporate welfare after fiat banking, and a strategy that requires international policing to even pretend to function. (Hence, the fierce hatred of China, which bucks the global patent cabal and dares to compete with Western industry.)

    In keeping with the old British practice of granting Royal monopoly charters to preferred members of society, aristocratic heads of the Industrial Revolution (that began around 1760 in England) succeeded in extending Royal privileges to legally block competition to protect manufacturing concepts they officially “patented.” Wealthy American Founding Fathers continued this tradition when they imposed their new national contract on the public in 1787.

    In America, this particular gift from the Founders of owning an idea—somewhat like their other Constitutional handiwork of “owning other people”—allows companies to hire patent lawyers to dress up applications to convince other federal lawyers that some idea is such a novel, unique and beneficial “flash of genius” that it deserves legal protection in federal courts.

    The 12,600 attorneys and support staff at the U.S. Patent and Trademark Office (and the cottage industry of private lawyers to help inventors navigate the process) do nothing to foster the innate creative desire of humans or to protect the “small inventor” from corporate vultures. Instead, such federal maneuvering allows corporations to claim absolute and exclusive “ownership” to the original ideas of their employees or competitors, and prevent them from starting new businesses.

    The fact that every “new” innovation is built on thousands, if not millions, of prior innovations should cast doubt on this murky field of juris probity. But corporate supporters insist all human progress will come to a screeching halt if Big Business ever loses its lucrative patent protections. Anything else, they cry, is just not fair!

    How well has this worked? Just great for well-financed corporations. Not so well for actual inventors. For example, the federal patent and copyright system has allowed Microsoft to clone ideas from true software innovators (Windows from Xerox, QDOS operating system, Lotus spreadsheets, Netscape internet browser) then bundle them with other monopoly products, get juiced up with Wall Street capital, surround themselves with a phalanx of patent attorneys, then crush the competition.

    Similar situations of corporate abuse include the notorious “current war” where Thomas Edison and General Electric used patent litigation to harass and copy alternating-current electrical developments from Nikola Tesla and Westinghouse, after failing to implement Edison’s less efficient direct current. Marconi radio stole radio transmitting technology from Tesla (Marconi got caught, then still was awarded a patent). The Radio Corporation of America filed and appealed bogus lawsuits starting in 1932 against television inventor Philo T. Farnsworth, ultimately succeeding in delaying TV’s development for over 15 years.

    More recently, the world witnessed the boom in fiber optics, cellular service and other telecommunications only after the stifling AT&T monopoly was broken by Reagan in the early 1980s. For most of the prior four generations, Ma Bell and her legions of corporate R&D minions were too busy looking for small inventors to rout and guarding their own strong “patent portfolio”—with 12,500 active patents as of 2016—to think beyond their starched white lab coats.

    No doubt thousands, perhaps millions, of other small inventors with less financial resources have been caught up in the buzz saw of royal monopoly charters that weaponize industry to the advantage of large corporations. A more detailed exploration of that abusive system of arbitrary justice will be left for another day. For now, suffice to say that any policy supported unanimously by both major parties in Washington along with apparently all voices in Legacy media deserves far greater scrutiny.

    Tyler Durden
    Sun, 02/28/2021 – 18:25

  • CTAs Are Going "All-In" Oil
    CTAs Are Going “All-In” Oil

    Two weeks ago when the world was still transfixed by the rolling squeezes of the most shorted stocks triggered by the WallStreetBets subreddit, we reported that JPMorgan said to ignore the spectacle du jour in the illiquid, left-for-dead smallcaps, and instead focus on what was coming: a coming massive, marketwide squeeze as quant, momentum and other systematic investors soon start covering what is a historic short across the energy sector. Importantly, JPM also gave us the timing of said squeeze: early March.

    Fast forward to today when various funds have naturally frontrun what is expected to be a massive market move. Yes, the systematic short squeeze that JPM’s Kolanovic wrote about two weeks ago, has started and as Rabobank’s Ryan Fitzmaurice wrote, “the one-year rolling momentum signal for Brent flipped from bearish to bullish this week, effectively leaving systematic traders “all-in” with respect to their directional oil market bias.”

    For those unfamiliar with the energy squeeze thesis, first discussed two weeks ago, here are the key points made by Fitzmaurice, whose full note is excerpted below for those who are still unconvinced about the coming surge in commodities:

    • Investor dollars continued to pour into the popular broad-based commodity index ETFs this week with inflows of more than +450mm USD reported through Thursday

    • he closely followed IP week was held from Tuesday to Thursday and with that bullish oil sentiment increased markedly as tends to happen during these major industry events

    • Aggregate open interest is increasing in oil futures markets and the ICE Brent contract has even set a new record, further underpinning the oil rally

    Here is Fitzmaurice’s full Oil Market Outlook:

    CTAs going all-in: It was another impressive week in the oil patch with spot prices setting new multi-month highs, resulting in the one-year momentum signal for Brent turning positive for the first time in almost a year. This flip from bearish to bullish in the one-year momentum signal is quite important, to our minds, as it is a prominent trading signal used in the heavily momentum-driven CTA space.

    In fact, the flip in this important signal effectively leaves systematic traders directionally “all-in” as it relates to oil market exposure with all of the trend, momentum, and carry signals we track now firmly in the bullish camp. Of course, inflows into CTA funds or a drop in market volatility or even the US Dollar could lead to more oil buying from CTAs, but directionally speaking all major signals are now “long”, as we see it. On top of the CTA buying, passive flows into the broad-based commodity ETFs continued at a brisk pace this week, a dynamic we have been highlighting all year.

    In addition to this machine-driven trade, the strong oil price action has been helped along by a number of very bullish calls from  prominent investment banks and trading houses in recent days and weeks. Further to that end, the much followed IP week was held this past Tuesday to Thursday and with that the bullish oil sentiment increased markedly as tends to happen during these major industry events. These events can also provide a good backdrop for discretionary “longs” at trade houses and the like to lighten up positions and especially so this week given the strong momentum bid that was in the market. As such, it would not surprise if a change of ownership took place with discretionary “longs” taking profits while the machines buy, buy, buy.

    A surge in interest

    As we just highlighted, CTAs were likely big buyers of oil futures on the week thereby supporting the oil rally, but to our minds, they are effectively “all-in” now. Moving forward, perhaps the more important trend to watch is the substantial pick-up in money flows into broad-based commodity index products as that has the potential to attract “new” money into oil markets, a likely precursor to sustain the strong oil and commodity index rally. This is an area that has been dormant for a number of years due to poor performance of the alternative asset class and subsequent lack of interest from the investment community. In our view, this is all set to change in a big way as both retail and institutional investors turn to commodities for purposes of inflation hedges and hedges against a falling US dollar. In fact, we have already seen nearly 3 billion USD in year-to-date flows into the popular broad-based commodity index products and that is just in the ETF space.

    As we discussed in our last oil note, this is just a fraction of the true inflows as many institutional and high-net worth investors are also putting money to work in commodities but through more opaque means such as privately managed accounts. As we explained, the oil market has a substantial weighting in nearly all of the popular index products and, as such, is a big benefactor of these flows. This trend is also apparent in the aggregate futures open interest data for the benchmark crude oil contracts which is increasing back toward the 2018 high watermark.

    In fact, aggregate open interest has been steadily increasing in oil futures markets this year and the ICE Brent contract has even set a new record, further underpinning the oil rally. This surge in open interest is exactly what we witnessed during the last commodity super-cycle of the mid-2000s when commodity index investing was last popular. As such, a breakout in open interest figures will be a key factor in whether or not we are in the early stages of a new commodity super-cycle as some insist or simply just a short-term bull market. At the very least, increasing open interest is likely necessary for oil prices to maintain their recent upward momentum in the near-term, not to mention reach the high levels that some are calling for. The reason being is that there are not many speculative “shorts” left to cover, so further price appreciation will likely have to come from an increase in speculative “longs” bidding up oil prices, a scenario that could indeed unfold given the extremely loose monetary and fiscal conditions at play coupled with global stimulus checks.

    Looking Forward

    Looking forward, we remain of the view that oil prices are likely to dislocate from oil fundamentals this year should more “new” money continue to find its way into commodity markets. As such, we are closely monitoring trends in commodity index investing and aggregate open interest data in the oil futures market for signs of a breakout. On the flip side, oil fundamentals are still mixed, as we see it, and given the now consensus bullish oil view in the market coupled with short-term overbought signals, a modest near-term correction in prices would not surprise us in the least.

    Tyler Durden
    Sun, 02/28/2021 – 18:00

  • Von Greyerz: Sisyphean Printing Will Kill The Dollar & Bonds
    Von Greyerz: Sisyphean Printing Will Kill The Dollar & Bonds

    Authored by Egon von Greyerz via GoldSwitzerland.com,

    Understanding four critical but simple puzzle pieces is all investors will need to take the flood that leads to fortune.

    Why then will the majority of investors still take the wrong current and lose their ventures?

    Well because investors feel more comfortable staying with the trend than anticipating change.

    Understanding these four puzzle pieces will not just avoid total wealth destruction but also create an opportunity of a lifetime.

    The next 5-10 years will involve the biggest transfer of wealth in history. Since most investors will hang on to the bubble markets in stocks and bonds, their wealth will be decimated.

    As Brutus said in Julius Caesar by Shakespeare:

    “There is a tide in the affairs of men,

    Which taken at the flood leads on to fortune.

    Omitted, all the voyage of their life

    Is bound in shallows and in miseries.

    On such a full sea we are now afloat.

    And we must take the current when it serves.

    Or lose our ventures.”

    FOUR PUZZLE PIECES TO CLARITY

    So what are the four puzzle pieces that will lead to either fortune or misery.

    They are:

    1. Stocks

    2. Currencies

    3. Interest rates

    4. Commodities

    Just put these 4 pieces together and the conundrum of the direction of markets and the future of the world economy will be very clear.

    But sadly most investors will find it difficult to join up the 4 pieces.

    ETERNAL PRINTING

    Have governments and central banks conditioned investors to eternal happiness by their profligate policies?

    Yes, they most probably have. But happiness in this case is ephemeral and will end in “miseries”.

    Central banks are now caught in Sisyphean task of printing money to eternity.

    The more they print, the more they need to print. When Sisyphus came to Hades, his punishment was to roll a big rock up a hill. Once he got to the top, it rolled down and he had to roll it up again and again and again.

    And this is also the punishment that the Fed has received. As I pointed out in my article about the Swiss 16th century doctor Paracelsus, everything is poison, it is only a question of the dose. The US has for decades received a toxic overdose of “free” money and once hooked the only remedy is to continue to inject the poisoned patient (the US economy) with more of the same.

    On the one hand, the Fed can never voluntarily stop the printing as this would lead to instant collapse of stock markets, bond markets and the financial system.

    But on the other hand, the incessant printing also has consequences.

    It will destroy the dollar and it will destroy the treasury market and eventually lead to inflation and hyperinflation.

    Destroying the bond market means substantially higher interest rates which is something that neither the US nor the world can afford with $280 trillion of debt and rising fast.

    So there we have it. The US and the world have both their hands tied and whatever they do will have dire consequences for the world.

    So let’s come back to the 4 puzzle pieces which investors should have imprinted in their brain.

    PUZZLE PIECE 1: COMMODITIES

    Since Nixon closed the gold window 50 years ago, the world has experienced unprecedented credit growth and money printing.

    Gold backing of the currencies kept the central banks on a short leash, but since 1971 there has been a free for all monetary bonanza in the US and most of the world.

    Since 2006 the money creation has gone exponential.

    The pure definition of inflation is growth in money supply. But until recently, only asset classes such as stocks, bonds and property have seen major inflation. Normal consumer prices have officially only increased by marginal percentages even though most of us are experiencing much higher inflation than the official figures.

    But now commodity prices are warning us that inflation is here with a vengeance.

    For example, agricultural product inflation is up 50% since last May. This hasn’t yet reached consumer prices in a major way but it soon will.

    If we look at commodity prices in general, they are up 100% since the April 2020 bottom.

    And looking at commodity prices to stocks, we can see in the chart below that commodities are at a 50 year low with a massive upward potential which is an advance warning of a major inflationary period lurking.

    Most commodities will go up dramatically in price, including food and energy.

    GOLD – THE KING OF METALS

    Investors who have been reading my articles will know that the best investment for benefiting from inflation and simultaneously preserving wealth are precious metals stocks as well as physical gold, silver and platinum.

    Gold is the king of the precious metals and since it broke the Maginot Line at $1,350, it is now on its way to levels few can imagine. Any correction, like the current one should be taken as an opportunity to add more gold.

    Gold is today at historical lows in relation to money supply and at the same level as in 1970 when gold was $35 and in 2000 when gold was $290. See graph below.

    This means that the price of gold has far from reflected the massive creation of money in the last few decades. So that is still to come.

    PUZZLE PIECE 2: DOLLAR – CURRENCIES

    The accelerating deficits and debts in the US will continue to put downward pressure on the dollar.

    When I started my working life in Switzerland in 1969, $1 bought 4.30 Swiss francs. Today you get only 0.89 Swiss franc for $1. That is an 80% fall of the dollar against the Swiss. The next significant target is 0.5 Swiss franc for $1. That would be another 44% fall from here.

    Admittedly, the Swiss franc has been the strongest currency for over 50 years. But even if we look at the troubled EU, it has recently broken out against the dollar and looks very bullish.

    But we must remember that all the currencies are in a race to the bottom and there is no prize for being first.

    Just look at the gold against the dollar which has lost 85% since 2000.

    As I have pointed out many times, all currencies have lost 97-99% in real terms, against gold, and in the next few years, they will lose the remaining 1-3%.

    We need to understand that those final few percent fall means a 100% fall from today. And the demise of the current currency system as von Mises predicted.

    CURRENCIES DEMISE ARE DETERMINED THE DAY THEY ARE BORN

    The very nature of fiat currencies means that their demise is determined the day they are born. Since governments throughout history have destroyed every single currency, it is ludicrous to measure your wealth in a unit that is destined to become worthless.

    Remember that gold is the only money which has survived for 5,000 years.

    PUZZLE PIECE 3: INTEREST RATES

    Interest rates worldwide are at historical lows. In Switzerland for example, you can get a 15 year mortgage at 1.1%.

    It clearly sounds like the bargain of a lifetime. You can buy a house for 1 million Swiss franc and just pay 11,000 francs in interest. If you rented the same house, the annual rent would be 3x the interest. So there is a clear disconnect which is not sustainable.

    The emerging inflation will push interest rates up and we have already seen the 10 year US treasury rise from 0.39% in March 2020 to 1.34% today. Technical and cycle indicators confirm that the monthly closing bottom in July 2020 could have been the secular bottom.

    If that is correct, we have seen the end of the bear market in rates and bull market in treasuries since the Volker high at 16% in September 1981.

    There is nothing natural in this 40 year suppression of interest rates.

    When Volker became Chairman of the Fed in August 1979 the 10-year Treasury was 9% and he quickly hiked it to 16% in 1981. When Volker left in August 1987 the 10 year was back at 9%, the same level as when he took over 8 years earlier.

    GREENSPAN – GREENSPEAK & LOW RATES

    Then Greenspan entered the scene with a Fedspeak that nobody understood but both politicians and Wall Street actors loved his actions that spoke much clearer than his words. During his 13 year tenure, the 10 year halved from 9% to 4.5% in 2006.

    Every subsequent Chair after Greenspan only had one policy, accommodate more by endless printing and lower interest rates.

    And that is the 40 year saga of US 10 year treasury rates – from 16% in 1981 to 0.4% in 2020.

    PRINT UNTIL YOU ARE SKINT

    Clearly, the management of US rates seems more like desperation than policy.

    In a free and unmanipulated credit market, supply and demand would determine the cost of borrowing. As demand for money goes up, so will the cost of borrowing, thus reducing demand. And when there is little demand the cost goes down which stimulates borrowing.

    This would be the beauty of a free and unregulated credit market. Supply and demand for credit affects the cost of money and acts as a built in regulator.

    But Keynesian policies and MMT (Modern Monetary Theory) have done away with sound money.

    UMT (Unsound Monetary Theory) would be a more appropriate name for the current policies.

    Another suitable name would be Print Until You Are Skint!

    The current policy of low rates has two purposes.

    The first is to keep stock rising. Because high stocks gives the illusion of a strong economy and strong leadership. Thus it is the perfect tool to buy votes.

    Secondly, with a US debt of $28 trillion, free money is a matter of survival for the US. Imagine if rates were determined by supply and demand.

    Every president in this century setting a new record. Bush almost doubled US debt from $5.7 trillion to $10t over 8 years. Obama doubled it again from $10 to $ 20t and Trump set a new 4 year record with a $8 trillion increase.

    With debt going up exponentially, an appropriate market interest rate would be nearer 10% than the current short term rate of 0%.

    A 10% cost of the US debt of $28t would mean $2.8t which would virtually double the already disastrous US budget deficit.

    And if we take total US debt of $80 trillion, a 10% interest rate would cost the US $8t or 40% of GDP.

    So a colossal task here for the Fed to suppress rates against the natural market forces.
    In my view they will fail in the end – with dire consequences.

    It looks like Powell is going to be the first Chair of the Fed since Volker who will actually preside over rising rates although he will fight against it.

    The interest rate cycle has most probably bottomed. This will be a major shock to the market which forecasts low rates for years. Initially inflation will drive rates up. Thereafter a falling dollar will lead to yet higher rates. The panic phase will come as the dollar collapses, and debt markets default. That will lead to hyperinflation.

    PUZZLE PIECE 4: STOCKS

    Warren Buffett started in the investment business in 1956. The Dow was then 500 and has since gone up 63X. Since he started, Buffett has achieved an average annual return of 29.5% year on year.

    Clearly a remarkable record achieved over a 75 year period. It is very likely that Buffett and all stock market investors will see stocks not just fall but crash.

    BUFFETT INDICATOR – MASSIVE OVERVALUATION OF STOCKS

    Buffett’s own indicator of stock market value to GDP is now giving investors a very strong warning signal.

    The US market is now 228% to GDP. That is 88% above the long term trend line and substantially above the 1999-2000 valuation when the Nasdaq crashed by 80%.

    STOCKS TO ENTER AN AIR POCKET

    With an 88% overvaluation the Dow can enter a very big air pocket at any time.

    The Dow/Gold ratio is a very important measure of relative value between real money and stocks. This ratio peaked in 1999 and fell 89% to 2011. Since then we have seen a correction which finished in 2018. The next move in the ratio will reach 1 to 1 as in 1980 when the Dow was 850 and gold $850. Lower levels are likely thereafter.

    A 1 to 1 ratio in the Dow/Gold ratio would mean that the Dow will lose 94% from today against gold. That is a very realistic target. Remember that the Dow fell 90% on its own in 1929-32 and that it took 25 years to recover to the 1929 level. And on all accounts, the situation today is much more severe than in 1929.

    The secular bull market in stocks is very likely to finish in 2021. This turn could be at any time. Just like in 2000, it will all happen very quickly and this time it will be the start of a very long and vicious secular bear market.

    Real assets like gold, silver and platinum will be investors’ life insurance.

    To hang on to stocks and bonds will totally destroy your wealth and your health.

    Tyler Durden
    Sun, 02/28/2021 – 17:35

  • 'Bad Optics': Pelosi's Office Reportedly Opposed National Guard On Capitol Grounds Leading Up To Riot
    ‘Bad Optics’: Pelosi’s Office Reportedly Opposed National Guard On Capitol Grounds Leading Up To Riot

    In the months leading up to the Capitol riot, House Speaker Nancy Pelosi and her office opposed having National Guard on Capitol Grounds due to “optics,” according to Tuesday comments reportedly made to House Admin by former Sergeant at Arms, Paul Irving, while making what he described as a “blender of decision making” before the inauguration.

    House Sergeant at Arms Paul D. Irving, right, and Chief Administrative Officer of the House Phil Kiko, testify during the House Appropriations Legislative Branch Subcommittee hearing titled “House Officers FY2021 Budget, in the Capitol on Tuesday, March 3, 2020. (Photo By Tom Williams/CQ-Roll Call, Inc via Getty Images)

    Three sources ‘with direct knowledge of Irving’s talk’ told the Daily Caller that the discussions came at a time when Democrats were against the deployment of federal resources to quell civil unrest.

    The discussion, if accurate, raises questions as to what role Pelosi’s office had in the security failures that resulted in the resignations of both Irving and former Chief of Capitol Police Steven Sund. Pelosi’s Deputy Chief of Staff Drew Hammill did not deny the allegations in a statement to the Daily Caller. –Daily Caller

    “The Speaker’s Office has made it clear publicly and repeatedly that our office was not consulted or contacted concerning any request for the National Guard ahead of January 6th. That has been confirmed by former Sergeant at Arms Irving in sworn testimony before Senate committees. The Speaker expects security professionals to make security decisions and to briefed about those decisions,” said Hammill, adding “It is our understanding that Committee on House Administration Ranking Republican Member Davis was briefed in advance of January 6th about security preparedness, but took no action to address any security concerns that he might have had.”

    The Seargent at Arms is one of three officials with the power to vote on the Capitol Police Board, and is both chosen by, and takes direction from, the Speaker of the House.

    Irving testified that he first received a formal request from Sund to activate the National Guard after 2 pm on Jan. 6th. Additionally, when Missouri Republican Sen. Josh Hawley asked if he had to run the request “up the chain of command,” Irving replied “no,” in testimony before a joint Senate Homeland Security and Rules Committee. 

    The New York Times previously reported that the Speaker’s office confirmed that the National Guard was approved around 1:43 pm. Sund said he sent a request for help from the National Guard to Irving around 1:09 p.m, according to CNN. Irving said he was contacted about the matter after 2:00 pm, Axios reported. Sources questioned how Irving got the request after 2 pm but Pelosi approved the request at 1:43 pm. –Daily Caller

    “If you believe Irving’s timeline that he testified under oath to, how could he ask for permission from the Speaker 20 minutes before he got the request?” said one Caller source. “Also if you believe his sworn testimony that he never had to run the request up the chain, why did the Speaker’s office confirm he did just that?”

    According to the Caller‘s third source, “Irving is covering for Pelosi. There’s no doubt.“

    Tyler Durden
    Sun, 02/28/2021 – 17:10

  • A PM Recalls How Steve Cohen Traded The Bursting Of The Tech Bubble
    A PM Recalls How Steve Cohen Traded The Bursting Of The Tech Bubble

    Submitted by DataTrek Research founder Nicholas Colas, former PM at SAC Capital

    Today we have a mashup of behavioral finance and anecdotes about trading stocks at SAC during the dot com bubble implosion. While there are many similarities between frothy tech stock markets now and back then, let’s remember that the 2000 – 2002 bear market was just as much about 9-11 and the run up to the Iraq War than the end of a speculative bubble. The common lesson then to now: manage risk like we are in the early stages of a Tech stock selloff. Until proven otherwise, we are.

    Our usual Story Time format typically centers on behavioral finance or market history but today we’ll combine the two and wrap them into some thoughts about current market psychology.

    Let’s start with the behavioral side and discuss “Attribution Substitution”. That happens when we are faced with a complex question and, rather than do the heavy analytical work to solve it, use simple shortcuts (heuristics) based on attributes of seemingly similar situations. Behavioral psychologists like Daniel Kahneman have been looking at this topic since the 1970s, and it is a bedrock idea in the field of behavioral finance.

    An example: in the last week I’ve seen two Tesla Model 3 NYC yellow cabs and one Uber on 57th Street in Manhattan. My immediate thought was “Tesla is a raging short” because whenever a car company goes into fleet sales you know organic demand is waning. That’s my heuristic from 30 years of experience covering the autos. I am substituting the “fleet sales are bad” attribution to the Tesla investment case in place of real analysis like asking taxi medallion owners if the company is offering them discounts or going to the company for an explanation.

    Shifting gears to markets, a really sharp DataTrek client recently emailed in an observation that dovetails with our theme today. Paraphrasing his thought: “why do we think of the Pandemic Recession as the start of a ‘new’ cycle rather than a glitch in an ongoing upcycle driven by ever-lower rates?”

    One answer – maybe THE answer – is that investors simply use heuristics like GDP growth/NBER dates, the dollar, and monetary/fiscal policy intervention as the markers for recession. A growth shock plus Fed and Federal stimulus means you reset the economic clock to midnight and begin counting out a new period of expansion. A few nights ago we mentioned the old portfolio manager sine wave model of cyclical investing where you buy Financials at the start of a cycle and Tech/Industrials at the end. That’s the melding of economic cycle “theory” and investing “practice”, but it is still based on substituting easy to find attributes for deeper analysis.

    An alternative narrative, and one very much in sync with recent market action, is that the “cycle” began not on March 23rd, 2020 with the market’s lows but in October 2020 when 10-year yields finally began to rise. That makes February 2021 distinctly “early cycle” because markets have to consider what happens as rates rise. How far will they go? How much inflation are fiscal and monetary policy going to create? Will, as we’ve been highlighting repeatedly, the Fed have to increase policy rates this year? Or will they need to “do a 1994” and take rates up by 50 basis points a meeting in 2022? Unless you were (like I, Nick) in the business in the 1990s you’ve never seen a 50 bp meeting. Trust me… They are not fun.

    Right or wrong, at least this narrative respects the idea that we can’t just count months and years from a market low or Fed policy shift as representative of a “cycle”.

    * * *

    Moving on to the sort of anecdote we often use, let’s talk about 2000 – 2002 because the bursting of the dot com bubble is another one of those heuristics people grab on to when facing complex investment decisions.

    I was at SAC Capital at the time working directly for Steve so my recollections of that highly stressful period in market history are as fresh as if they happened last year.

    A few thoughts from that experience that I think are especially relevant today:

    #1. Unwinding the Internet 1.0 bubble took a long, long time. It did not “burst”. It leaked air, month after month after month, for years. There were actually many days in 2000 when it looked like everything would be OK. But in your heart, you knew something had broken. The old saying that “you don’t need analysts because in a bull market they’re unnecessary and in a bear market they’ll kill you” was a common refrain in the room. Wall Street endlessly reiterated their Buy recommendations on speculative tech names, to no avail.

    Takeaway: remember that the S&P was only down 9 percent in 2000, and while the NASDAQ was off by 39 percent you were still up 15 percent from the start of 1999. There were plenty of opportunities to lighten up on tech names in 2000, and this was when I first heard the phrases “sell when you can, not when you have to” and “in a bear market the best sale is the first one”.

    #2: It wasn’t just a loss of investor confidence in tech valuations that made 2000 – 2002 the worst bear market since 1973 – 1974. The September 11th, 2001 terror attacks hit US consumer confidence, as did higher oil prices in the run-up to the 2003 invasion of Iraq. Those dampened interest in funding cash-burning tech companies more than the first leg of the NASDAQ downdraft.

    Takeaway: take away the other negative market catalysts in 2001 – 2002 and the Internet 1.0 bubble might not have burst so spectacularly. We’re thinking a lot about that just now. While speculative tech names are clearly in for some pain, they may not vaporize the way the prior generation did in the early 2000s.

    #3: There’s plenty of money to be made in volatile bear markets, but you need to manage risk very aggressively. I sat next to an awesome trader in 2001 and every day was a master class in risk management. Anything that wasn’t working came off the pad quickly. Anything that was working got more capital. He wouldn’t add long exposure without an equally compelling short. When he scaled in and out of positions, he would keep his net exposure long or short exactly the same literally hour-by-hour. The stress was intense. I would often hear him muttering his mantra “I live the life I choose” repeatedly into the close. It wasn’t pretty, but it worked.

    Takeaway: there are enough imbalances in US equity markets which need sorting out that 2000 – 2002 is still a good heuristic for risk management even if we don’t get a really bad bear market. As we’ve been saying, a 10 percent correction is a reasonable base case right now given the 2010 Playbook. But our heuristic toolbox includes 1994’s rate cycle, and even if it’s just a shortcut to answer a complex problem the analogy is sound enough to bring it to your attention.

    Summing up with a final thought: while behavioral finance may portray heuristics like Attribution Substitution in a negative light, a big part of investing is understanding where capital will flow as a result of these very human mental shortcuts. All the chatter about bubbles (take our survey if you haven’t) and now suddenly higher long-term rates are pushing capital to the “old school company/cyclical recovery” heuristic. The first bit of that comes from what happened in 2000 – 2002. Non-tech companies outperformed. The second part is just the classic recovery heuristic.

    As Steve was fond of telling us in 2000 – 2002, “don’t make things harder than they have to be.”

    Tyler Durden
    Sun, 02/28/2021 – 16:45

  • Israel Strikes Syria "In Response To Iranian Attack" On Israeli Commercial Ship
    Israel Strikes Syria “In Response To Iranian Attack” On Israeli Commercial Ship

    Syrian state television is reporting new Israeli airstrikes against the capital of Damascus on Sunday. 

    SANA state news said that Syrian air defenses were active in response to an “Israeli aggression in the vicinity of Damascus” after explosions were heard above the capital, according to Reuters. The strike was reportedly near the international airport.

    While the Israeli military has yet to confirm or deny the airstrikes, which is typical of such attacks which have occurred almost on a weekly basis for much of the past year, Israeli public broadcasting is now saying it’s in “response” to the “Iranian attack on an Israeli ship near the Gulf of Oman this weekend.”

    https://platform.twitter.com/widgets.js

    It appears Israel is seeking to punish both Iran and Syria for Thursday’s incident in the Gulf of Oman.

    As we reported this weekend, Israel is blaming Iran for the Thursday blast in the Gulf of Oman wherein a cargo vessel owned by an Israeli businessman was hit by a ‘mystery’ explosion, forcing it to divert to the nearest port after sustaining severe damage.

    https://platform.twitter.com/widgets.js

    Defense Minister Benny Gantz had announced Saturday as part of an “initial assessment” that Tel Aviv believes Iran was behind a bomb attack on the car-carrier vessel, identified as the Helios Ray.

    Suspicion of Iran’s involvement has been rampant in Israeli media since the blast.

    Damage to the Israeli-owned cargo vessel Helios Ray…

    However, there’s yet to be definitive proof or evidence that either a state actor or terrorist elements were involved, much less any specific details released to the public. Regardless, Israel has acted apparently against ‘Iranian positions’ near Damascus. 

    https://platform.twitter.com/widgets.js

    “Iran is looking to hit Israeli infrastructure and Israeli citizens,” Defense Minister Benny Gantz had said in prior remarks, according to Reuters. “The location of the ship in relative close proximity to Iran raises the notion, the assessment, that it is the Iranians,” he said.

    Crucially this newest Israeli attack on Damascus comes just days after for the first time Biden ordered US airstrikes on supposed ‘Iranian positions’ in Syria’s east.

    Tyler Durden
    Sun, 02/28/2021 – 16:20

Digest powered by RSS Digest