- America's Technology & Sanctions War Will Bifurcate The Global Economy
Authored by Alastair Crooke via The Strategic Culture Foundation,
“The true reason behind the US-China ‘trade’ war has little to do with actual trade … What is really at the basis of the ongoing civilizational conflict between the US and China … are China’s ambitions to be a leader in next-generation technology, such as artificial intelligence (AI), which rest on whether or not it can design and manufacture cutting-edge chips, and is why Xi has pledged at least $150 billion to build up the sector”, Zerohedge writes.
Nothing new here: yet behind that ambition, lies another, further ambition and a little mentioned ‘elephant in the room’: that the ‘trade war’ is also the first stage to a new arms race between the US & China – albeit of a different genre of arms race.
This ‘new generation’ arms-race is all about reaching national superiority in technology over the longer-term, via Quantum Computing, Big Data, Artificial Intelligence (AI), Hypersonic Warplanes, Electronic Vehicles, Robotics, and Cyber-Security.
The blueprint for it, in China, is in the public domain. It is ‘Made in China 2025’ (now downplayed, but far from forgotten). And the Chinese expenditure commitment ($ 150 billion) to take the tech lead – will be met ‘head on’ (as Zerohedge puts it), “by a [counterpart] ‘America First’ strategy: Hence the ‘arms race’ in tech spending … is intimately linked with defence spending. Note: military spending by the US and China is forecast by the IMF to rise substantially in coming decades, but the stunner is: that by 2050, China is set to overtake the US, spending $4tn on its military, while the US is $1 trillion less, or $3tn … This means that sometime around 2038, roughly two decades from now, China will surpass the US in military spending.”
This close intimacy between tech and defence in US future defence thinking is plain: It is all about data, big data and AI: A Defense One article makes this very clear,
“The battle domains of space and cyber are divorced, largely, from the raw physical reality of war. To Hyten [Gen. John E. Hyten, who leads US Air Force Space Command], these two uninhabited spaces mirror one another in another way: They are fields of data and information and that’s what modern war runs on. “What are the missions we do in space today? Provide information; provide pathways for information; in conflict, we deny adversaries access to that information,” he told an audience on Wednesday at the Air Force Association’s annual conference outside Washington, D.C.. The same is true of cyber.
The US wages war with tools that require a lot of information… Inevitably, more adversaries will eventually employ data-connected drones and gunships of their own. The heavy information component of modern-day weapons, particularly that those wielded by air forces, also creates vulnerabilities. Air Force leaders this week discussed how they are looking to reduce the vulnerability for the United States while increasing it for adversaries”.
So, the ‘front line’ to this trade/tech/defence war, effectively pivots about who can design – and manufacture – cutting-edge, semi-conductors (since China already has the lead in Big Data, Quantum computing, and AI). And, in this context, General Hyten’s comment about reducing US vulnerability, whilst increasing it for adversaries takes on major significance: For Washington, the plan is to ramp up export controls (i.e. ban the export) of so-called ‘foundational technologies’ — those that can enable development in a broad range of sectors.
And the equipment for manufacturing chips, or semi-conductors – not surprisingly – is one of the key ‘target areas’ under discussion.
Export controls though, are just one part of this ‘war’ strategy of ‘data denial’ to adversaries. But semi-conductors is one field in which China is indeed vulnerable: since the global semiconductor industry rests on the shoulders of just six equipment companies, of which three are based in the US. Together, these six companies make nearly all of the crucial hardware and software tools needed to manufacture chips. This implies that an American export ban would choke off China’s access to the basic tools needed to manufacture their latest chip designs (though China can retaliate by choking-off the supply of Raw Earth, upon which sophisticated tech, is reliant).
“You cannot build a semiconductor facility without using the big major equipment companies, none of which are Chinese,” said Brett Simpson, the founder of Arete Research, an equity research group. And, as the FT, notes, the real difficulty is not [so much] designing the chips, but in the making of very cutting-edge chips.”
So here is the point: the US is attempting to clasp to itself both the ‘pure’ technology-knowledge, plus additionally, the practical tech supply-chain experience and knowhow, in order to repulse China out from the western tech sphere.
At the same time, another strand to the US strategy – as we have witnessed with Huawei, a global leader in 5G infrastructure technology (in which the US is falling behind) – is to scare everyone off incorporating Chinese 5G in to their national infrastructures – through such devices as the arrest of Meng Wanzhou (for breach of US sanctions).
Even before her ‘arrest’, America has been systematically cutting Huawei out of the global 5G rollout, by quoting the magical words: ‘security concerns’ (Just as it is attempting to cut Russia out of weapons sales in the Middle East, on similar, tech-protective, grounds: i.e. that states should not buy Russian air defence, since this would give Russia a ‘window’ into NATO tech capabilities).
And, as General Hyten made clear, this not just about increasing tech and area denial, and promoting vulnerability for adversaries in terms of chips – but the US also plans to extend tech and area info-denial to space, cyber, avionics and military equipment.
It’s another Cold War – but this time it is about technology and ‘data denial’.
Well, China, with its centralized economy, will throw money and brainpower, into creating its own, ‘non-dollar sphere’, supply lines: for semi-conductors; for components – both for civil and military use. It will take time, but the solution will come.
Clearly, one consequence of this new arms race between the US – and China and Russia – is that specialized, and thinly-populated supply lines will have to be disentangled, and made anew, each in its own separate sphere: that is, on one hand, within the NATO-dollar sphere, and on the other, in the non-dollar sphere, led by China and Russia.
And not only will there be this physical supply-line disentanglement and separation, but should the US persist with its Huawei leverage tactic of ‘War on Terror’-style ‘rendition’ of foreign businessmen, or business women, alleged to have breached any US broad spectrum tech sanctions, there will have to be a disentangling of mixed boardrooms to avoid exposing company officials to individual arrest and prosecution. Limitations on company officers’ travel, where their business spans spheres, is already happening (as a result of the attempted rendition of Meng Wahzhou – and in order to avoid being caught up in tit-for-tat, retribution).
The bifurcation of the global economy was already in process. This stemmed firstly from America’s geo-political financial sanctions regime (i.e. Treasury Wars) – and the consequent attempts by targeted states to de-couple from the dollar sphere. The ‘war hawks’ surrounding the President are now inventing a whole new swathe of ‘tech crimes’ for sanctioning – ostensibly to give Trump oven more of his much-desired negotiating ‘leverage’. Clearly the hawks are using the ‘leverage’ pretext, to up-the-ante against China, Russia and its allies – for far wider ambitions than just giving the President more ‘cards in his hand’: Perhaps rather, to re-set the entire power-balance between America versus China and Russia.
The obvious and inevitable consequence has been an accelerating financial separation from the dollar sphere; and the development of a non-dollar architecture. De-dollarisation in a word.
Effectively, the US seems prepared to burn-down its reserve-currency status, to ‘save’ itself – to ‘Make America Rich Again’ (MARA), and to hobble China’s rise. And while burning down dollar-hegemony, the Administration is burning its own ‘global order’ too: attenuating it from the ‘global’ – down to a reduced sphere of US tech and security allies, facing China and the non-West. The domestic consequences for America will be felt in the new (for Americans) frustration of finding it harder to finance itself, in the manner in which it has grown accustomed, over the last 70 years, or so.
Peter Schiff, CEO and Chief Global Strategist of Euro Pacific Capital, says that:
“The dollar – [the US] having the reserve currency, [is placing that] status … in jeopardy. And I don’t think the world likes giving America this kind of power that we can impose our own rules and demand that the entire world live by it. So, I think this has a much bigger and broader ramifications other than what’s going on in the stock market today. I think long-term, this is going to undermine the dollar, and its role as a reserve currency. And when that goes, so does the American standard of living: because it’s going to collapse.”
“People think we have the upper hand because we have this huge trade deficit with China. But I think it’s the other way. I think the fact that they supply us with all this merchandise that our economy needs, and the fact that they hold a lot of our bonds [debt], and continue to lend us a lot of money so we can live beyond our means – they’re the ones, I think, that call the tunes, and we have to dance to it.”
This tech and data new Cold War will polarise the global economy into spheres, and already it is polarising it politically, into a new ‘with us, or against us’ American paradigm. Politico notes:
“The Trump administration’s global campaign against telecom giant Huawei is pitting Europe against itself – over China. In the midst of a ballooning US-China trade conflict, Washington has spent the past few months pressing its EU allies via its ambassadors to take a stronger stance against Chinese telecom vendors such as Huawei and ZTE.
The American push…is exposing fault-lines between US allies in Europe as well as [between] the so-called “Five Eyes” intelligence community — which have largely followed the US lead — and others that resist the American pressure, by stopping short of calling out Chinese tech.
On the other side there is Germany, which wants proof from the United States that Huawei poses a security risk, as well as France, Portugal and a slew of central and eastern EU nations.
The increasingly divergent attitudes show how Donald Trump is forcing allies to take sides in a global dispute and measure their economic interests — often deeply embedded with the Chinese vendors — against the value of a security alliance with Washington.”
The potential for accelerated de-dollarisation is one aspect, but there is another potential flaw inherent to the wholesale repatriation of supply-lines. US corporate earnings have ballooned over the last two decades. Part of this earnings hike stemmed from ‘easy’ liquidity, and ‘easy’ credit; but a major element owed to cost-cutting – that is to say, off-shoring elements of higher-cost US production (because of wage levels, regulatory costs and employee entitlements) to lower wage, less regulated states. The coming bifurcation of the global economy has therefore, as its inevitable consequence, the repatriation of lower-cost production (in China and elsewhere) to a now higher-cost, and more highly regulated, US and European environment.
Perhaps this is a good thing – but for sure it means costs and prices will rise in the US and America, and it means that corporate business models will be impaired as they de- off-shore. Americans’ standards of living will decline further (as Peter Schiff foretells).
The alienation and disgruntlement of America’s ‘deplorables’ and Europe’s ‘Yellow Vests’ is evidently a profound problem – and one that will not be solved by a new Cold War. The roots to our present discontents lie precisely with the ‘easy’ liquidity, and the ‘easy’ credit paradigm, which centrifuged-out societies into the asset owning 10% and into the non-asset holding 90% of society, and which degraded so the sense of societal well-being and security.
Of course this discontent can really only be resolved by addressing the question of our hyper-financialised economic paradigm – which is not something the élites will, or want, to ‘touch’.
- Sierra Nevada Snowpack On Track To Collapse 79%, New Study Warns
A new report by the Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) examined the headwater regions of California’s ten major reservoirs, representing half of the state’s surface storage, discovered each could experience a 79% decline in peak snowpack water volume by 2100.
Berkeley Lab used supercomputers to investigate current warming trends and carbon emissions.
Scientists analyzed how a future warmer world would affect “snowpack upstream of 10 major reservoirs — three in Northern California, three in Central California, and four in Southern California. The reservoirs are Shasta, Oroville, Folsom, New Melones, Don Pedro, Exchequer, Pine Flat, Terminus, Success, and Isabella,” said The Mercury News.
By 2039 to 2059, the snowpack runoff could drop by 54%, the study determined, and then 79% from 2079 to 2099. The study noted that three northernmost reservoirs, Shasta, Oroville and Folsom, could see an 83% reduction, by 2100.
Alan Rhoades, a postdoctoral fellow at Berkeley Lab and lead author of the study, said his team of researchers found that peak runoff could come four weeks earlier by 2100, at the beginning of March rather than April 01.
Mountain snowpack is a significant source of water for California: “Our precipitation is really intermittent and extremes-driven,” Rhoades said. “We get 50% of our annual precipitation in five to 15 days, or one to two weeks. Our water demand is highest during the summer months when we don’t get a lot of precipitation, so we really rely on mountain snowpack as a stopgap for our water supply.”
“So as the world continues to warm, these storms will get even warmer and won’t readily get to freezing, whereby you could have snowfall or snow accumulation and the persistence of snow on the surface,” he said.
As a result of warmer weather, the amount of snow is projected to decrease while rain could increase. The study noted that it did not look at rainfall, only mountain snowpack.
The study also found that snowmelt rates will decrease. The snow season which includes both the accumulation and melt portion of the season will fall by 20 days by 2050 and 39 days by 2100. This is primarily due to future weather systems will produce less snow but also because with the peak timing shifting to earlier in the year, the days are shorter and less energy from the sun is available to melt the snow.
Ellen Hanak, director of the Water Policy Center at the Public Policy Institute of California, has already begun to address the future water crisis in the state.
“Voters passed Proposition 1 in 2014, a water bond with $2.7 billion for new storage projects. This summer, state officials earmarked that money for eight projects, including raising the dam at Los Vaqueros Reservoir in Contra Costa County, building a new reservoir at Pacheco Pass in Southern Santa Clara County, building the massive Sites Reservoir in Colusa County, and several large groundwater storage projects in Southern California,” said The Mercury News.
Gov. Jerry Brown also signed a groundwater law that requires farmers and municipalities to better track groundwater usage.
Hanak said, “more projects are needed, such as efforts to pay farmers to flood their fields and orchards in wet years, recharging groundwater tables, along with far more recycled water projects, conservation efforts and other initiatives.”
“We have surface reservoirs, groundwater basins, and we have rivers and canals and aqueducts to connect them,” she said. “We’re going to have to manage them together more consistently.”
…And now it makes perfect sense: WSJ recently exposed Harvard University’s endowment (valued at $39 billion as of 2018), the largest academic endowment in the world, for quietly snapping up farmland and related water rights to properties located in the California region.
It seems like Harvard is establishing itself in the water brokering business, as the endowment’s money managers know they will make a killing when California runs out of the water.
- Is The US Preparing For A War Between LatAm States?
Authored by Thierry Meyssan via The Voltaire Network,
Little by little, the partisans of the Cebrowski doctrine are advancing their pawns. If they must cease creating wars in the Greater Middle East, they’ll just turn around and inflame the Caribbean Basin. Above all, the Pentagon is planning to assassinate an elected head of state, ruin his country, and undermine the unity of Latin-America.
John Bolton, the new US National Security Advisor, has relaunched the Pentagon’s project for the destruction of the State structures in the Caribbean Basin.
We remember that in the aftermath of the 9/11 attacks, the Secretary for Defense at that time, Donald Rumsfeld, created the Office of Force Transformation and nominated Admiral Arthur Cebrowski as its Director. Its mission was to train the US army for its new role in the era of financial globalisation. It was designed to change military culture in order to destroy the State structures of the regions which were not connected to the global economy. The first chapter of this plan consisted of dislocating the « Greater Middle East ». The second stage was intended to perform the same task in the « Caribbean Basin ». The plan was designed to destroy some twenty coastal and insular States, with the exception of Colombia, Mexico and as far as possible, territories belonging to the United Kingdom, the United States, France and Holland.
When he arrived at the White House, President Donald Trump opposed the Cebrowski plan. However, two years later, he has so far only been able to prevent the Pentagon and NATO from handing over States to the terrorist groups they employ (the « Caliphate »), but not to stop manipulating terrorism. Concerning the Greater Middle East, he has managed to diminish the tension, but the wars still continue there at lower intensity. Concerning the Caribbean Basin, he restrained the Pentagon, forbidding them to launch direct military operations.
Last May, Stella Calloni revealed a note from Admiral Kurt Tidd, Commander in Chief of SouthCom, exposing the operations aimed at Venezuela. A second penetration was simultaneously implemented in Nicaragua, and a third, running for the last half century, against Cuba.
Working from several previous analyses, we concluded that the destabilisation of Venezuela – beginning with the guarimbas movement, continued by the attempted coup d’etat of February 2015 (Operation Jericho), then by attacks on the national currency and the organisation of emigration – would end with military operations led from Brazil, Colombia and Guyana. Multinational manoeuvres of troop transport were organised by the United States and their allies in August 2017. This was made possible by the election of pro-Israëli President Jair Bolsonaro, who will come to power in Brasilia on 1 January 2019.
Brazilian Vice-President Hamilton Mourão with President Jair Bolsonaro.
The next Vice-President of Brazil will be General Hamilton Mourão, whose father played an important role in the pro-US military coup d’etat of 1964. He has made himself famous by his declarations against Presidents Lula and Rousseff. In 2017, he declared – on behalf of the Grand Orient of Brazil – that the time for a new military coup d’etat had arrived. Finally, he was re-elected with President Bolsonaro. In an interview with the magazine Piaui, he announced an impending overthrow of the Venezuelan President, Nicolás Maduro, and the deployment of a Brazilian « peace » force (sic). Faced with the gravity of these statements, which constitute a violation of the United Nations Charter, elected President Bolsonaro declared that no-one had any intention of going to war with anyone, and that his Vice-President talked too much.
In any case, during a Press conference on 12 December 2018, President Maduro revealed that US National Security Advisor John Bolton was handling the coordination between the teams of Colombian President Iván Duque and those of the Brazilian Vice-President. A group of 734 mercenaries is currently being trained in Tona (Colombia) in order to perpetrate a false flag attack, allegedly by Venezuela, against Colombia – thereby justifying a Colombian war against Venezuela. The war would be under the command of Colonel Oswaldo Valentín García Palomo, who is today in hiding after the attempted assassination by drone of President Maduro during the anniversary of the National Guard on 4 August 2018. These mercenaries are supported by Special Forces stationed on US military bases in Tolemaida (Colombia) and Eglin (Florida). The US plan is to take over, from the beginning of the conflict, the three Venezuelan Libertador military bases of Palo Negro, Puerto Cabello and Barcelona.
Wanted notice for Colonel Oswaldo Valentín García Palomo of the Venezuelan National Guard, after he had commanded an attempted assassination of the President of the Bolivarian Republic.
The US National Security Council is attempting to convince various states not to recognise Nicolás Maduro’s second mandate (he was re-elected last May, but will assume power with the New Year). This is why the states of the Lima Group contested the Presidential ballot even before it took place, and illegally forbade Venezuelan consulates from organising it. Furthermore, the migration crisis turns out to be just one more manipulation – many of the Venezuelans who fled the monetary crisis believing that they would easily find work in another Latin-American country are today trying to return home. But the Lima Group prevents them from doing so, forbidding Venezuelan planes who are attempting to repatriate them to use their air space, as well as interdicting the buses which have come to help them cross the borders.
Everything is therefore happening as if we were watching a remake of the events which bloodied the Greater Middle East after the attacks of 11 September 2001. The main point is not the military actions, but the appearance of disorder that the events present. First of all, it’s intended to confuse people into making a silk purse out of a sow’s ear. In the space of five years, Venezuela and Nicaragua, which used to enjoy a positive image abroad, are now being wrongly described as « failed states ». While the history of the Sandinistas and their struggle against the Somoza dictatorship has not yet been re-written, it is taken for granted that Hugo Chávez Frías was a « Communist dictator » (sic), despite the fact that his country experienced a massive economical and political leap forward during his Presidency. It will soon become possible to destroy these states without anyone complaining.
Time is passing more and more rapidly. When, in 1823, US President James Monroe decided to close the Americas to European colonisation, he could not have imagined that 50 years later his decision would morph into an affirmation of US imperialism. Just as today, when President Donald Trump declared, on the day of his investiture, that the time for régime change was over, he did not imagine that he would be betrayed by his own people. Nonetheless, on 1 November 2018, his Security Advisor John Bolton declared in Miami that Cuba, Nicaragua and Venezuela formed a « troïka of tyranny ». Then his Secretary of Defense, General James Mattis, affirmed on 1 December, before the Reagan National Defense Forum, that elected President Maduro is an « irresponsible despot » who « has to go »
- "The Worst Possible Situation" – This Surprise Tax Liability Will Blindside Hedge Fund LPs
Investors who have their money with hedge funds like Point72 could be blindsided by a surprise tax liability, according to a new report from Bloomberg. LPs across the hedge fund universe could be affected by deductions that most businesses used to be able to take for the interest they pay on loans.
When the IRS released hundreds of pages of proposed regulation last month, it became clear that these deductions would be limited to hedge funds who were performing well – and that since most hedge funds have had a poor year, their tax bills might increase as a result. Those are costs that are likely to be passed on to each fund’s limited partners.
David Miller, a tax lawyer at Proskauer Rose LLP stated:
“The rules create the worst possible situation”.
This impact is just one of the many unexpected changes that both corporate and private taxpayers are learning about as the IRS issues “thousands of pages” of new regulations to implement new tax law.
However, the private equity industry was able to hang onto tax breaks for carried interest. The new law extended the period required for managers to qualify for a lower rate on their investment profits, instead of simply killing the break.
Hedge fund investors will likely be surprised when they get their tax forms early next year. There will be new lines for calculating interest expense that weren’t previously there. Funds that rely on borrowing money to make their bets will see the biggest impact. Funds now can only deduct these costs if they have had strong performance and have generated enough income against which to take the deductions.
And the timing for these changes is awful. Hedge funds have been widely underperforming, overall down 3.62% this year through November. Because they won’t meet the income and performance thresholds necessary, the underperformance will result in a “double whammy” where performance lags at the same time that expenses rise. Hedge funds more focused on buy and hold strategies are not affected by the deduction cap. Also exempt from the deduction cap are businesses with gross receipts of less than $25 million.
For certain, those who invest in Point72 are potentially at risk. It had $13 billion in client assets and $71 billion in regulatory assets under management as of last month. The fund was down about 5% last month, which offset its 2018 gains.
Trader funds that use leverage could balance interest income and expenses so that their investors won’t see too much of an effect, but because many hedge fund managers have lost money this year, the shockwaves could still be profound. The $3.2 trillion hedge fund industry has seen investors pull out $68.8 billion since the beginning of 2016. We recently noted that these outflows were accelerating over the last few months.
And the continued effect of these new tax laws could get worse moving forward. For now, companies can deduct interest cost up to 30% of EBITDA until 2022. After that, it changes to 30% of EBIT, excluding depreciation and amortization.
Like many things involving the IRS, there wasn’t a lot of clarity on the law until it was actually released.
Simcha David, a tax partner at accounting and advisory firm EisnerAmper stated:
“It’s really the limited partners that seem to get screwed here. I was completely shocked.”
- "Panic In The Air" – Stunned Traders Speechless At The Carnage
CNN’s Fear & Greed Index just hit 5… an all-time record low (most extreme fear)…
And the following provides a simple analogy for what happens when one market snaps…
Tough week in China…
European stocks had an ugly week…
And, if this holds up next week, will be the worst year for EU stocks since 2008…
But since the trade war truce, US equities have dramatically underperformed…
It was a total shitshow in US equities – Dow, S&P, Trannies down around 6% on the week, and Nasdaq and Small Caps down a shocking 8% or so…
Not decoupled from the rest of the world after all…
Worst week for Dow, Nasdaq since Oct 2008 (5th week lower in last 6)
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Worst week for S&P since Aug 2011 (5th week lower in last 6)
Just 300 more points lower in the S&P to catch down to financial conditions fair value…
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Worst week for Russell 2000 since Sept 2011 (5th week lower in last 6)
From the 52-week highs:
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Dow -16%
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S&P -17%
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Nasdaq 100 -21% – BEAR
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Nasdaq Composite -22% – BEAR
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Trannies -23.6% – BEAR
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Small Caps -26% – BEAR
First it was the Russell 2000. Then the Nasdaq Composite. Today it’s the Nasdaq-100 that crossed a bear-market threshold by retreating 20% from a peak. The index’s record was set Aug. 29, the same day as the broader Nasdaq index.
Why today? Blame the FAANG stocks. Facebook, Amazon.com, Apple, Netflix and Google/Alphabet together account for more than two-thirds of the Nasdaq-100’s loss.
Since The Fed, Gold, the dollar, and the long-bond are all up around 0.5%, while stocks collapsed around 6%…
Year-to-Date it’s carnage with Trannies and Small Caps down 16%, Dow and S&P down 10%, and Nasdaq Composite down 8%!!
On the day, we can see where Fed’s Williams tried desperately to jawbone markets higher – but ended up admitting that the balance sheet runoff is on auto-pilot…
and then Navarro comments into the bell did not help…
Bank stocks were a bloodbath – with Regionals have dumped the entire Trump Bump…
Goldman Sachs was a disaster – down over 5% today alone (down 42% from highs)…
VIX term structure remains inverted and spot VIX topped 31 for the first time since Feb today…
Under the covers, there are some extremes:
Put/Call (Open Interest) has collapsed…
Nasdaq/NYSE New Lows is soaring…
Which, as Bloomberg reports, is ominous at best. Since 1984, there were only eight days when a bigger proportion of shares did so, according to Sundial Capital Research. Two of them were in 1987 — during the famous Black Monday crash, when the Dow Jones Industrial Average lost 23 percent in one day, and then again during the following session. The rest were in the aftermath of the collapse of Lehman Brothers in October and November 2008.
“There are more than hints of panic in the air,” Jason Goepfert, president of Sundial Capital Research, wrote in a note Thursday.
“There is clear evidence of wholesale selling on a level we rarely see.”
And finally, the regime has changed dramatically with a mass exodus of smart money flows…
None of this was helped the largest market cap company in the world suffering a death cross…
Credit markets were a bloodbath this week with loans collapsing bidless…
And HY spreads exploding…
Bonds & Stocks were dumped the last two days…
Treasury yields ended the week notably lower (though not as much as one would expect given the carnage in stocks, since we suspect some forced selling by Risk-Parity funds took some of the buying away)…
10Y Yields closed below the key 2.80% level…
And if cyclical stocks (relative to defensives) are right, Treasury yields have a long way to fall…
The Dollar Index slipped on the week, but the last three days (post Powell) have been chaotic…
Cryptos drifted lower today but had a huge week…Bitcoin’s best week since Feb
Gold and Silver managed gains on the week but copper and even more so crude were clubbed like baby seals…
Gold pushed up to its 200DMA…
Silver underperformed gold…
WTI Crude tumbled to a $45 handle today…
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Finally, we note the surge in USA Sovereign credit risk as the government heads for shutdown (and debt ceiling debacles)…
On the macro side, things are not awesome…
But it’s not just the sovereign that is in trouble…
The profits recession’s already here. The GDP data showed that National Accounts earnings after-tax and w/ IVA & CCA are up 19.6% YoY as of Q3. Strip out these goodies and pre-tax profits are -0.3%. My advice is to fade the cheerleaders that populate the segments on bubblevision.
— David Rosenberg (@EconguyRosie) December 21, 2018
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Still… the worst December since The Great Depression – probably nothing, right?
Actually, there are over $17 trillion reasons to worry!!
Who could have seen that coming?
We give the final word to none other than Dennis Gartman who said this morning – “Stock prices continue to plunge and there is nothing else that one can say other than that… the internals remain manifestly, harshly, overwhelmingly, one sidedly, shockingly, dismayingly, margin call-creatingly bearish”
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- The Great Saudi Muddle
Authored by Daniel Lazare via ConsortiumNews.com,
Does the Senate want Crown Prince Muhammad bin Salman to own up to the murder of dissident journalist Jamal Khashoggi? Is it really seeking an end to Saudi Arabia’s war of aggression against Yemen? The answer to both questions is: kind of, sort of, not really.
That’s the takeaway from a couple of resolutions the chamber approved amid great fanfare last week.
The first, sponsored by Senator Bernie Sanders, calls on Trump “to remove United States Armed Forces from hostilities in or affecting the Republic of Yemen” by, among other things, putting an end to in-flight refueling of Saudi and the United Arab Emirate war planes. The resolution, which passed 56 to 41, was a small step toward ending a war of aggression that has claimed as many as 80,000 lives – although it would have been stronger and less self-serving if it had also called for cutting off arms sales that have allowed US weapons manufacturers to reap vast profits off human misery.
But the second resolution, which passed on a unanimous voice vote, was a muddle that shows just how self-defeating US policy has become. Sponsored by Republican Senator Bob Corker, it began by holding the crown prince responsible for Khashoggi’s murder in an Istanbul consulate on Oct. 2, an act, it said, that has “undermined trust and confidence in the longstanding friendship between the United States and the Kingdom of Saudi Arabia.”
MbS: Are his days numbered?
This generated excited headlines to the effect that the U.S. might at last be breaking with MbS, as Crown Prince Muhammad bin Salman is universally known. But news outlets failed to mention what the resolution said next. It declared, for instance, that the U.S.-Saudi relationship is “an essential element of regional security.” While saying nothing about arms shipments to Saudi allies, it condemned Iran for supplying rebel forces with “advanced lethal weapons.” It blamed the Houthis “for egregious human rights abuses, including torture, use of human shields, and interference with, and diversion of, humanitarian aid shipments” – this while remaining silent about Saudi-UAE atrocities, which reportedly include a string of torture chambers in which political opponents are roasted over open fires, among other horrors.
Most bizarrely of all, the resolution warned the Saudis that “increasing purchases of military equipment from, and cooperation with, the Russian Federation and the People’s Republic of China challenges the strength and integrity of the long-standing military-to-military relationship” between Washington and Riyadh. The Senate is thus angry with MBS not only because he sent a seventeen-member hit squad to knock off a US resident in the middle of a European capital, but because he’s consorting with America’s business rivals. The resolution further warns that such purchases “may introduce significant national security and economic risks to both parties,” language that is every bit as threatening as it sounds.
The result is a ball of confusion, one that tries to distance the US from a murderous Saudi prince while at the same time demanding closer relations with the government he heads. It calls on the Saudis to behave more nicely to their neighbors, wind down the war in Yemen, and cease murdering people in broad daylight so that the clock can be turned back a few years and the process starts all over again. To quote Giuseppe de Lampedusa’s famous line in his novel, The Leopard, it wants everything to change so that everything can remain the same.
Incoherence
This is as incoherent as anything Trump has come up with, including his notorious Nov. 20 statement with regard to MbS’s guilt or innocence that “maybe he did and maybe he didn’t.” Trump can’t let go of his Saudi ties. But, then, the Senate can’t let go and not let go at the same time.
No one knows what to do, which is why the resolution tried to play both sides of the net. In describing MbS as “a wrecking ball,” one whom it is “very difficult to be able to do business” with, Republican Senator Lindsey Graham was essentially calling on the crown prince to step down.
He could be replaced, under U.S. pressure, perhaps with the former crown prince he replaced, Muhammad bin Nayef, said to be favored by the CIA, which publicly blamed MbS for Khashoggi’s murder.
But it could also mean a destabilizing factional feud within the ruling clan leading to a messy regime change, which, as Washington foreign-policy experts have learned all too painfully since the Arab Spring, could well lead to chaos.
To be sure, there is always the hope that a senior member of the Al-Saud will step in once MbS is removed and re-establish order. Indeed, Saudi experts already have a candidate for the job in mind: King Salman’s younger brother Ahmed bin Abdulaziz, who, while living in self-imposed exile in London, startled Saudi watchers by telling a small group of hecklers not to blame the Al-Saud for the Yemen war, only the king and crown prince. “They are responsible for crimes in Yemen,” he said. “Tell Mohammed bin Salman to stop the war.”
Since public criticism of this sort is unprecedented, it was assumed that when Prince Ahmed flew back to Riyadh a few weeks after the Khashoggi murder under a US-UK promise of protection, it was with the goal of putting the Al-Saud on a new footing.
But no one knows what might bubble up if he were to try. Things might return to normal after a royal shake-up – assuming one is in the works – or they may not. After all, it was assumed that Libya would return to normal once a former prime minister named Ali Zeidan took over from deposed strongman Muammar Gaddafi. When that didn’t work out, it was hoped that an ex-academic named Omar al-Hassi would have better luck. But when he fell too, it was clear that only anarchy would reign.
Hence the fear in Saudi Arabia is that something similar might occur post-MbS – that, as a source told The New Yorker’s Robin Wright, “[s]omeone from outside the system could make it collapse,” whereupon the kingdom would succumb to “instability like elsewhere in the region.”
Homemade in Washington
FDR: Making deal with Saudis that still governs the nations’ relations.
If so, it’s a problem entirely of Washington’s own making. Democratic and Republican administrations alike have continued to build up Saudi Arabia despite repeated warnings that it was creating a monster.
In 1945, FDR granted Saudi King Ibn Saud a blanket security guarantee in return for unrestricted oil access. A few years later, Truman used the newly-established Marshall Fund to finance massive Saudi oil shipments to war-torn western Europe, thereby establishing the kingdom as the world’s leading exporter. Following the epic price increases and Oil Embargo of the 1973, Washington hit upon yet another deal, this time to recycle excess petrodollars by exchanging Saudi oil profits for U.S. weaponry. A regional military colossus was thus born, one that felt free to attack whomever it pleased thanks to colossal oil wealth, vast quantities of high-tech arms, and an unlimited U.S. security guarantee and political cover.
Aggression and repression were the inevitable result. Unwilling to upset a vital strategic partner, the Obama administration said nothing when Riyadh sent troops into neighboring Bahrain to bloodily suppress democratic protests; when it flooded Syria with bloodthirsty Sunni jihadis, and when, in March 2015, it declared war on Yemen, its neighbor to the south. Indeed, the administration felt it had no choice but to help out.
Thus, a top general signaled his assent even while admitting that he had only been given a few hours’ notice while a State Department spokesman added forlornly: “We don’t want this to be an open-ended military campaign.” Nearly four years later, with as many as 13 million people teetering on the brink of starvation, that’s exactly what it’s turned out to be.
Joined at the hip with the Saudis, the U.S. appears to have no idea how to go about severing an increasingly toxic relationship, as last week’s incoherent Senate resolutions make clear.
The U.S. was happy to build Saudi Arabia up, but it’s clueless now that Saudi Arabia is dragging it down.
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- Follow The Money: Americans Earning Over $200k Are Moving Here
Americans earning over $200,000 are flocking to Cook County, Illinois; Baltimore–Washington metropolitan area; Jacksonville suburbs; Houston, Texas; and dozens of other exclusive communities around the country. Some of these communities have been gentrified, thus have a fine divide between rich and poor. With wealth inequality at record levels, the country is splintering into two Americas (the haves and the have-nots).
Bloomberg is fascinated with prosperous America. They measured the economic fortunes of households earning $200,000 or more by using the Census Bureau’s American Community Survey to gain color on these ultra-wealthy neighborhoods. Here is a map of the share of households earning $200,000 or more:
About 7% of American families bring in $200,000 per year, according to the consulting firm Webster Pacific. This population of wealthy people has never been higher since the Dot Com bubble. The firm used government data published on Dec. 06 and adjusted for inflation. (The ranking excludes recently created tracts, those defined as tracts of significant change and any tracts with fewer than 100 households in either 2000 or 2017, said Bloomberg.)
Cook County, a county in Illinois and the second-most populous county in the US after Los Angeles County, California, is home to No. 1 and No. 7 fastest-growing concentrations of $200,000-plus households.
Bloomberg said, No. 1, ironically, used to be one of the worst housing projects in the state. The complex was notorious for violent crime, poverty and de facto racial segregation until its demolition in the early 1990s. In the mid-90s, authorities fretted with the idea that gentrification of the area would displace low-income families. Two decades later, they were correct, the area’s concentration of $200,000-plus households has skyrocketed from zero to 39%.
Cook County has another top ten neighborhood about 20 miles north: the Glen. The community was constructed on Naval Air Station Glenview, “the community has hundreds of families living in condos, townhouses and single-family homes that go for as much as $2.5 million each,” according to realtor Margaret Ludemann.
Baltimore–Washington metropolitan area, has four of the top 10 (Nos. 2, 3, 5 and 6) fastest-growing regions of high earners. The region already had a significant concentration of wealth dating back to the Dot Com bubble. But since then, people have gotten so wealthy that more than half of the households earn $200,000 or more. (The New York metropolitan area captured Nos. 9 and 10.)
“Lobbyists, defense contractors, law firms and technology companies all played a role in the Washington area’s ascent. So, too, has the high ratio of multi-earner households,” according to Jeannette Chapman, deputy director at the Stephen S. Fuller Institute at George Mason University.
Chapman said with all that wealth concentrated in the Baltimore–Washington metropolitan area; many residents do not feel wealthy, even though they are high-earners.
“A household earning $200,000 here still might be struggling in a way that’s just unfathomable in other parts of the country because the costs are so much higher,” she said.
No. 4 area is in Florida, surrounding Marsh Landing, a gated community in Ponte Vedra Beach, said Bloomberg. Its residents have made a lot of money since the Dot Com bubble. In 2000, the area had a 20% concentration of the wealthiest Americans. Now some 56% of households there make $200,000 or more.
The neighborhood is down the street from Jacksonville, a city that has added more than 23,000 financial-services jobs since 2000, according to the JAXUSA Partnership, a division of the local chamber of commerce.
“Since the financial crisis, Wall Street companies have sought to reduce wage expenditures by putting employees in cities with a lower cost of living. As a result, Bank of America Corp., Deutsche Bank AG, and Citigroup Inc. now employ thousands of workers each in northern Florida,” said Bloomberg.
Houston, Texas, enjoyed the benefits of a massive fracking bubble. In the city’s metro areas, new development is attracting an enormous inflow of households that have deep pockets.
In neighborhoods such as Oak Forest, families making more than $200,000, are rushing to renovate 70-year-old bungalows, the region has made it to No. 10 in the top 100 fastest-concentrating pockets of $200,000 households.
- Amazon's Creepy Facial Recognition Doorbell Will Surveil Entire Neighborhood From People's Front Doors
Authored by Meadow Clark via Daisy Luther’s Organic Prepper blog,
At first glance of Amazon’s new patent application, one would be tempted to think it no more than a built-in “smart” security system.
But no, this facial recognition surveillance doorbell does a lot more than record would-be thieves.
Ding! Dong! Prepare to be downright disturbed.
According to a new report, the patent application, made available in late November, would pair facial surveillance such as Rekognition, the product that Amazon is aggressively marketing to law enforcement, with Ring – a doorbell camera company that Amazon acquired in 2018.
CNN writes, “Amazon’s application says the process leads to safer, more connected neighborhoods, as well as better informed homeowners and law enforcement.”
Yeah, that’s one way of putting it. Here’s another:
Amazon is dreaming of a dangerous future, with its technology at the center of a massive decentralized surveillance network, running real-time facial recognition on members of the public using cameras installed in people’s doorbells. –Jacob Snow, ACLU
Wow. Do you feel safer yet?
This tech isn’t really there to protect your house or neighborhood.
It’s going to record all who walk by and gather composite images and recordings that can be stored in a cloud and accessed by law enforcement to help surveil and catch suspects.
One of the main problems – besides the obvious privacy violations and smashing the 4th amendment to smithereens – is that facial recognition has been abysmal so far. That means if a database determines you are a suspect because you bear a striking resemblance, then the police could show up and detain you before you even drop off the potato salad to your next potluck.
Snow writes:
While the details are sketchy, the application describes a system that the police can use to match the faces of people walking by a doorbell camera with a photo database of persons they deem “suspicious.” Likewise, homeowners can also add photos of “suspicious” people into the system and then the doorbell’s facial recognition program will scan anyone passing their home. In either case, if a match occurs, the person’s face can be automatically sent to law enforcement, and the police could arrive in minutes.
It would be far to easy to get yourself on a “list” with this technology
The application describes creating a database of suspicious persons. Unwanted visitors would be added to the list when a homeowner tags them as not authorized. Other people could be added to the database because they are a convicted felon or registered sex offender, according to the application. Residents may also alert neighbors of a suspicious person’s presence.
But some people, such as a mail courier, could be placed on an authorized persons list. Postal service logos could be used to help identify them.
Putting people on a naughty list? Wait, doesn’t that all sound eerily similar to the social credit systemrolled out in China?
“The patent describes the neighborhood surveillance system as an opt-in service,” CNN adds.
But really, it is not possible to opt out of broad brushstroke surveillance. How can I opt out of my neighbor (and Amazon, and the government) storing everything about me in the Cloud? What if my neighbor hates that my tree branch hangs over their fence? Will I go on their suspicious persons list?
Remember when Amazon just sold books?
“As a former patent litigator, I’ve spent a lot of time reading patents. It’s rare for patent applications to lay out, in such nightmarish detail, the world a company wants to bring about,” writes Jacob Snow in a recent ACLU report on the newest invasive technology by the company that only 10 years ago just sold…books.
Photo: Amazon
Is Justice blind or prejudiced?
“These systems threaten to further entangle people with law enforcement, ripping families apart and increasing the likelihood of racially biased police violence,” Snow claims.
He adds, “this technology puts activists and protesters in danger when exercising their First Amendment rights.”
Tests from the ACLU showed that facial recognition doesn’t correctly identify people and this leaves the door wide open to let A.I. do the justice. That means innocent people could be filling up the privatized prison system.
The ACLU tested the software, and…
The ACLU tested the Rekognition software and proved that it incorrectly identified members of Congressas common criminals. Yes, the irony would be giggle-inducing in a John Oliver segment, but not so much for the innocent person serving life in prison.
This glaring inaccuracy prompted Amazon shareholders to urge the company to stop selling this tech to law enforcement. The recent patent application serves as a flippant disregard for that plea.
“The application also undercuts Amazon’s own purported defense of its face surveillance product. The company has told the public that biometrics should only be used by law enforcement as an aid, not a replacement, to human judgment. But Amazon’s patent application is pushing the technology toward automation, removing human judgment from the identification process, and instead potentially relying on data, like arrest photos, that itself is a record of racially discriminatory policing,” says Snow.
The ACLU notes that facial recognition is even less accurate for darker skinned people and that this technology paves the way for harassment and wrongful action against the formerly incarcerated. But for activists, too.
Here is a figure of the doorbell and the surveillance scope. Check out the rest of the patent application HERE:
Diagram from Amazon’s patent application
That’s Not All, Folks!
Snow warns that the patent makes it painfully clear that this surveillance tech will not be limited to doorbells or homes.
Any complementary audio or visual device – Cough! Echo! Cough! – can be set up for biometric scanning.
Amazon is expecting to target a bevy of other biometrics such as:
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fingerprints
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skin-texture analysis
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DNA, palm-vein analysis
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hand geometry
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iris recognition
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odor/scent recognition
In addition, the surveillance tech could even include recognition based on behavioral characteristics, like:
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typing rhythm
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gait
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voice recognition
Imagine a doorbell – or in-home device – that can do all that.
Do we even know each other as well as Amazon will know us?
For Snow…“It confirms that Amazon wants to enable the tracking of everyone, everywhere, all the time. And it’s apparently happy to deliver that data to the government.”
We always knew the government had boundary issues but this is just TMI – too much intimacy.
A lot of people are comfy and cozy with the idea that they are being watched all the time, like the people lining up to be scanned at the airport to save two seconds of their time.
For me, being watched under a microscope by my government makes every nerve of my being burn with the fire of a thousand hells with the added dread that there is not one minute of reprieve, nor any identity of my own except to be an eyeballed object of the all mighty, omnipresent State.
But, hey, that’s just me…
You can’t escape this recognition tech.
If you go to someone’s house, you’ll be on the digital record.
Imagine if a neighborhood was set up with these doorbell cameras. Simply walking up to a friend’s house could result in your face, your fingerprint, or your voice being flagged as “suspicious” and delivered to a government database without your knowledge or consent. With Amazon selling the devices, operating the servers, and pushing the technology on law enforcement, the company is building all the pieces of a surveillance network, reaching from the government all the way to our front doors.
Like I said before when I wrote about biometrics at the Atlanta International airport: it’s nearly impossible to avoid facial recognition technology today.
Yet, we do still have control over how we spend our money, our voice, and with whom we spend our time. It’s not much control in the grand scheme of things but if we rise up and fight this, our great grandchildren will honor us.
That is, if they will even understand the concept of privacy by the time they get here…
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- 'Greatest Economy Ever' – Boston's Homeless Population Soared 14% Over The Year
Rising homelessness: The reality of life for America’s poor in the “greatest economy ever”
On any given night across the US, more than 500,000 Americans are homeless, according to the 2018 Annual Homeless Assessment Report (AHAR) published by the Department of Housing and Urban Development (HUD) and distributed to Congress on Monday.
The report is a sobering view that the economy is far from great, but is actually completing a turning point as the next economic downturn is in sight.
Homeless trends across the country are accelerating for the second year in a row.
In Massachusetts, HUD data shows homelessness jumped 14.2% from 2017 to 2018, an increase of more than 2,500 people, the most significant jump in the nation.
The latest figures show an estimated 20,000 people are homeless in the state. That population has fluctuated in the last several years, — it was higher, for instance, in 2014 and 2015, said WBUR Boston.
Since the 2008 stock market crash, homelessness in Massachusetts has soared by nearly 5,000 people, or 33%.
The vast majority of people currently homeless are sheltered, according to HUD.
Charlie Baker, Governor of Massachusetts, has made it a top priority to move homeless people from motels, tent cities, and temporary shelters to more stable housing options.
Besides the real economy that is on life support, the Federal Reserve artificially juiced the real estate market by holding the federal funds rate at the zero lower bound for many years. In return, housing prices soared as wages did not keep pace. Many people were priced out of homes and could barely afford rent.
The housing affordability crisis has been a significant driver of homelessness for the Greater Boston region and many parts of the state.
“Our state and local partners are increasingly focused on finding lasting solutions to homelessness even as they struggle against the headwinds of rising rents,” HUD Secretary Ben Carson, said in a statement.
Nationwide, a 2% rise in the unsheltered homeless population has been seen this year – those are people living in vehicles, tents, and or on the city streets.
However, the report does show a glimmer of hope for the homeless crisis on the West Coast.
The total number of people living on the streets in Los Angeles and San Diego, two epicenters of the homelessness crisis, slightly declined in 2018, suggesting officials in those cities are actively combatting the problem.
In the eyes of the Trump administration, mega-corporations, and Wall Street, it is the “greatest economy ever,” but under the hood, the real economy is faltering, millions are broke, without jobs, living on the streets, and or addicted to opioids. America is imploding from within – the next recession will undoubtedly expand the homelessness crisis.
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